The Secrets of Getting Good Credit Card Acceptance Rates

Get a Credit Card Merchant Account

Grab your share of credit card sales in retail locations or online.

We may be able to save you hundreds, even thousands of dollars a year. That said, the most important factor isn’t price, it’s the understanding service provided by your processor.

If you already accept credit cards, we can help you find a better price. If you’re new to credit card acceptance, we can help you with that, too.

We spent a number of years marketing merchant credit card services.

Secret #1: Bucket Pricing – The ‘Dirty Little Secret’ of Credit Card Rates

Most merchant services companies will quote you a low rate for swiped transactions, or a slightly higher rate for online, mail order and telephone transactions. But there’s a “dirty little secret.” And like you would expect, it’s hidden in the fine print; it reads something like this:

Certain card transactions are considered mid-qualified or non-qualified and will result in a higher fee. This includes rewards cards and cards issued by foreign banks.

That simple phrase causes a big problem when it comes to credit card rates. The merchant services companies make it sound simple, with two or three rates (buckets) and the inference that most cards will process at the lowest rate.

Since the big card brands (Visa, Mastercard, Discover) have many different classifications (nearly a hundred) and it’s impossible to know (as a merchant) which cards will fall into which classifications, simplifying the rates to two or three bucket rates seems like a good idea. But it’s not, and here’s why:

The merchant services company decides which of the many, many classifications falls into which of the two or three buckets. And you really don’t know what the result will be. So it’s impossible to compare bucket rates between companies, and its impossible to know what you’ll really end up paying.

In addition, some companies make those “higher” rates a lot higher, and they may even add an additional per transaction fee. This becomes a big profit center for merchant services companies, and a cost flag for merchants.

Our Advice: Don’t buy merchant services with bucket pricing. Insist on “interchange-plus” pricing, which is like cost-plus; the processor charges the merchant actual costs of interchange and card brand assessments plus a fee for processing, which will include their profit. All processors have the same interchange and assessments costs, so it’s easier to compare quotes. Also, when card brands adjust their interchange and assessment rates, the cost to the merchant goes up (or down) with the actual changes, rather than a simple percentage increase attributed to “higher interchange rates.”

Secret #2: Hidden Fees

When you’re comparing fees, it’s easy to overlook additional fees tacked on by merchant services companies. It’s much like the additional fees added by cell phone companies (another of our pet peeves, but I won’t go there).

The Annual Fee. The most obvious is an annual fee. This is pure profit for a merchant services firm (unless they’re giving you so-called “free” equipment), and may be justified though many firms don’t charge them. It’s usually included when fees are discussed, but since its annual, and less that a hundred bucks, most merchants figure it’s okay.

Cancellation Fee. This is a charge for cancelling before your contract ends, usually three years. Some companies renew an agreement after the initial three years and think you should have to cancel on the actual renewal end date. That’s ridiculous. If their price and service are good, they shouldn’t have to worry about cancellation.

The Monthly Statement Fee. This is a charge for maintaining the account, preparing the monthly statement, and sending it out. Typically $5-$12 a month.

The Gateway Fee. This is a charge for a “gateway” service, the interface between the card processor and your internet shopping cart that handles live approvals and transactions. I like to think of it as the internet version of the card “swipe” terminal.

I had one client who agreed to a gateway fee $10 a month plus 5 cents a transaction, a reasonable price. Suddenly they were getting charged over $300 in a month with around 40 transactions when the gateway fee should have been around $12. On complaint the answer was that they were using a different gateway (nothing the merchant was aware of). This fee may be quoted from $7 to $50 a month, plus a nickel or so per transaction. The merchant services company can probably resell a major gateway service to you cheaper that you could buy it direct. But pay attention to the price, and watch the billing to see that it is correct. A few years ago they would charge you $200 or more to set it up. Today setup is usually free, but may be worth a small amount ($25 or so) if other factors are favorable.

It’s also handy to know that some gateway companies may try to upsell you for a fraud prevention package, particularly if you’re doing business online. The price should start at five or six dollars, which is reasonable. We use it on our merchant account, but it may not be necessary unless you’ve had issues.

Funny Fees and Assessments. The card brands add fees for a variety of reasons, and the processors like to pass them along even if you’re on bucket pricing (which you should not be). These are small amounts, typically, with names like Visa Network Acquiring Fee, MC AVS, MC NABU, Mastercard Cross Border, International Acquirer Fee, Visa International Service Assessment, Visa Base II Transaction Fee, etc. Watch these carefully. Sometimes processors add the fees twice, or name their own fees to sound like these card brand fees.

The next few fees have been added to lots of merchant accounts, and in most cases were not part of the original contract.

The PCI Fee. This is supposed to offset new costs the processors incurred when the card brands imposed higher security standards on processors and merchants. It’s seldom listed when you’re comparing rates, and is either hidden in contract fine print or imposed by a “notice” on a statement. Sometimes called a Security Compliance Fee or some other official sounding name, it may be charged annually, quarterly, or monthly, or some combination. Often $50 – $250 a year. Many firms do not charge this.

The IRS 1099 Fee. Congress passed a law requiring that merchant services companies issue a special 1099 form each year to merchants with the amount paid to the merchant through credit card charges. Most companies have to issue 1099s to people and firms they pay money to, but many merchant services firms saw this as an opportunity to charge their customers an extra fee on an ongoing basis. This may be called a Government Compliance Fee, Processing Validation Charge, or some other official sounding fee designed to hide its real purpose. Often around $100 a year. Many firms do not charge this.

Secret #3: Terminals, POS Systems, and “Free Terminals”

For years card services salespeople made a fortune selling card services, but it wasn’t the fees that made the money. It was selling terminals!

Those little boxes that merchants use to swipe the cards and get approvals would get sold… er, leased for various amounts, often returning several thousand dollars net to the seller. You can probably buy those terminals outright as low as $700, maybe considerably less. So don’t lease something that will cost you thousands too much.

Then someone had a bright idea: instead of selling terminals, we’ll give them away free! We all know there’s nothing free, but if we’ve been paying a fifty or a hundred bucks a month per terminal, free sounds real good. The merchant services company made it back by adding annual fees, monthly service fees, and minimum term contracts.

And the latest version of this is the POS system, the fancy order taking cash register that has the card terminal built in. That’s cool, and it might be something you want, but some card services companies are providing these to merchants (sometimes free, sometimes not) as a way to lock them into their processing at a higher rate. (Yes, with monthly and annual service charges, too.) This may look like a good deal, but you want to know all your numbers before you make a decision.

Most of the equipment you need can be purchased outright for a reasonable business investment.

The Answer to These Problems: ‘Apply Here’

“Apply Here” sounds self-serving (and is to a very small small degree), but we no longer sell merchant services. Instead, we’ve located a service that will gather quotes from a handful of qualified merchant services providers. The list includes some of the largest firms, medium sized firms, and smaller firms. All have agreed to Interchange-Plus pricing, no cancellation fee, and no minimum term.

We can’t tell you what they will charge because they don’t know until they get some basic information about your firm. But there’s an easy way to find out with our simple pre-application quotation form. Apply Here!