The Real Cost of Processing Credit and Debit Card Payments

In the 2016 US Consumer Payment Study, TSYS found that more than 75% of people surveyed preferred either credit cards or debit cards as a means of paying for purchases. This number was exceeded by Canadian respondents who preferred using credit/debit cards for more than 80% of purchases.

Accepting credit and debit cards as a primary form of payment is a necessary requirement in today’s retail world. But what are the real costs to you, the merchant, for processing payment cards? For years we have been told that the cost of processing cards is based on the “Discount Rate”. And we have been conditioned to think that we need to sign a multi-year agreement to get those rates. But that’s not necessarily the case anymore. First of all, Discount Rates only apply to credit cards; so if you’re focusing on Discount Rate as an indicator of cost, you’re ignoring the cost of processing debit cards, which represents more than 35% of all payment transactions and can fluctuate significantly. In addition, there are a number of other monthly fees that your Merchant Services Provider is charging you.

According to Ryan O’Leary, President of SonaPay, a leading merchant services agent for First Data Canada, the monthly cost of accepting card payments is based on four main fee categories: processing fees (the discount rate for credit cards and transaction fees for debit cards), the Interchange Rate (the fee the credit card companies charge your acquiring bank), your monthly account fees and equipment rental fees for devices like PIN pads, signature capture tablets, etc. So if a Merchant Services Provider claims they can give you the lowest discount rates in the industry, they’re only telling you a part of the story.

I frequently speak with customers who tell me that they are getting the lowest card transaction processing fees. I hear comments like “my provider gives me the lowest fees in the industry” or “I’m only paying a discount rate of 1.58%.” But when they conduct an analysis of the true monthly cost of accepting card payments, they often discover that their costs are much higher than they expected. Not only that, but many of them learn that their monthly costs have increased steadily year over year. In fact, many of my clients who have done a thorough analysis have found that the actual rate they are paying to process card transactions is closer to 3% or 4%!

And don’t be fooled by the slick salesperson who says they value your loyalty so much that they are willing to buy your business, just to beat out their competition. Some Merchant Services Providers might be willing to take a profit hit for a while, if they think that they’ll be able to sign you to a multi-year contract. However, eventually they will need to see a profit; so it’s just a matter of time before other fees begin to creep onto your monthly statement or your processing fees slowly rise – or both.

So how do you know if you can expect to see your rates increase when you are negotiating a contract with a merchant services provider? According to O’Leary, it starts with the initial contact with their sales rep. They will likely offer to perform a cost comparison, based on your current monthly statements. “Always compare the resulting comparison document that the sales person provides with the sales contract they want you to sign. If you see fees like ‘PCI Compliance’, ‘Annual Fees’ or other fees that were not on the initial comparison, this should provide a good indicator of whether this company can be trusted. Always remember, most merchant services companies are banking on not working with an ‘educated’ customer” says O’Leary.

“It goes without saying that you should seek a merchant services provider that offers competitive rates,” says Josh Lieberman, Senior Sales Executive for Cardknox/Fidelity Payments, a leading US-based Merchant Services Provider. “That’s why it’s important to look for a Merchant Services Provider that is transparent about rates and fees, so you don’t encounter any surprises along the way.”

Poor customer service can also impact your costs for processing card payments. If you call your merchant services provider for technical assistance and they immediately send you to your POS solution vendor without doing any diagnostics on their hardware device, you could end up with a bill for technical support to fix something that should have been handled by the Merchant Services Provider’s Help Desk. Lieberman agrees: “it’s important to find a merchant services provider that can provide outstanding customer service and tech support. Whether you’re experiencing a technical issue, or are looking for ways to maximize your existing setup, your merchant services provider should be on-hand 24/7 to answer your questions quickly and easily.”

So how can you tell if a Merchant Services Provider can give you the level of service you need so that you can minimize ongoing support costs? Try reading online review sites like Google reviews and the Better Business Bureau. Get personal references from existing customers and ask them what kind of service they experience when they have a problem. Most importantly, talk to your POS solution vendor; they will know which Merchant Services Providers have well-trained Help Desk personnel – and which Providers continually deflect support calls, even when the problem is on their end.

The next time you are thinking about switching Merchant Services Providers, contact us before you make any changes. We can recommend the best providers for your specific business and for the POS solution you are using. We can’t negotiate processing fees for you but we can certainly give you a sense of how reliable their card reading devices are and how responsive the service is from their Help Desk.