Is it possible ‘Low credit card rate’?

We have to beware of gimmicks that annoy vendors and consumers with nonsensical advertisements such as 'Free credit card rate, 0% card rate'.

Credit Card Processing? Merchant Service?

Since last year, I have been in charge of a new project. This time, not only the competency of IT experts but also initial planning is required. But this time, I learned something new.

Living in the US, I've seen a lot of commercials saying "merchant services" and "credit card processing", but I've never wondered what it is, but I've been studying properly this time for my project.

It's very interesting, but when I found out that there were a lot of deceptive advertisements that were not fraudulent, I had to explain it to my friend's brother who is preparing a restaurant. I didn't explain what I had to say by e-mail, so I decide to write it down here.

In the United States, many small business owners have to process payments with credit or debit cards to generate sales. Moreover, in the post-corona world, contactless order & service has become more important, so it is unthinkable to do business without supporting card payments.

However, when you run a store/restaurant and receive a credit card merchant account statement, it is difficult to understand what it means. So, if you have a close acquaintance who runs credit card merchant services, you need to trust them. Also, if you look at local newspapers or local business listings, you can easily find companies that offer Credit-card Merchant Services. Everyone advertises that they will make it cheaper, and they advertise that they will give it the same or lower rate than the current rate like ‘Low credit rate!’ even ‘zero commission’, ‘zero rates’. When I searched, I found articles that said that it would be free from 2019. Is this really possible? The answer is 'absolutely not'.

To be honest, the cost of doing business with anyone doesn't really make much of a difference. So, rather than cost, it is better to do business with an agent who understands my business well and helps, and can help when there is a problem with the card payment machine or chargeback or a lot of unexpected issues.

So let's take a quick look at why there isn't a huge difference in cost.

Credit card fees can be broadly divided into two categories.

First, Interchange is a fee received from card associations such as Visa/Master/Discover/AMEX or independent card companies. This is a fixed cost that no one can adjust. It is roughly between 1.5%-5.0%, depending on the type of card. 

Second, there is a credit card processor fee. This is a fee paid by companies that broker credit card payments, such as FirstData, Total Merchant Service, and Chase Paymentech. Each agent is either an employee of these processors or operates as an independent contractor. Therefore, the processor's fee includes the agent's fee. It's usually like this. 0.X% of transaction amount + $0.XX per transaction + $0.6X per batch (close of the day) + statement fee + management fee + .... Since it is less than half, the discount range that the agent can give is very small if the fixed cost is subtracted. Let's take a more example. Let's say you offer a fee of 0.3% + $0.10 to a company that is paying a fee of 0.5% + $0.20. If this company makes about 1000 transactions per month and the credit card transaction amount is about $30,000, the fee savings will be about $70. However, since some agents give credit card paper for free, and some provide other additional services (POS problem solving, business consulting, etc.), the absolute comparison is difficult. In addition, there are many more variables, such as exempting the monthly statement fee, sometimes not receiving the management fee, and dividing the PCI compliance fee that must be paid once a year by month, so a one-to-one comparison is absolutely impossible.

 

 Recently, a brother of my friend told me that the credit card fee is too high and that an employee of another merchant service company offers it cheaper, so he is thinking to change merchant services provider. So I asked him to send me a 3 month worth of statements to me by e-mail. I can analyze it roughly now too, but to be sure, I analyzed it with an expert with a good reputation and good reputation in this industry (who is advising on what I need for platform development). However, as another salesperson said, there seemed to be no way to save several tens of dollars. Of course, you can lower your fees by sacrificing your own margin. However, if this happens, his income is too low for the work he is responsible for, and in the end, there is no way he can manage it properly. If you have about $20 a month left over, wouldn't it be at a level that would never be able to do management if you consider the time and oil price? To be honest, even a phone call won't be easy.

In the United States, credit card-related numbers are hidden here and there and their meanings are vague, so even if you briefly explain them, the other person cannot understand them. However, it is a necessary service for business. So, like an insurance solicitor, it is easy to jump into the merchant services business here. For any product/service, level and cost are inversely proportional. Despite the fact that there are many salespeople who are good talkers and have good sales performance, it is said that it is becoming increasingly difficult for companies that receive enough to maintain the company like a consultant who is helping me and provides proper service like their own stores.

Although this structure in the US itself is interesting, we have to beware of gimmicks that annoy vendors and consumers with nonsensical advertisements such as 'Free credit card rate, 0% card rate'.