How to Sign Up to Take Credit Cards Without Being Taken

Many businesses are paying more than they should because they simply don’t shop for the best rates or are afraid of the unknowns of changing their Merchant account supplier.

This article will help you understand what influences the rate and fees you pay, issues around changing suppliers plus give you some suggestions for finding the best rate from a reputable credit card processor.

We’ve tried to keep the jargon down and the level of education up.

Interchange Rate

This is the rate you pay based on your industry and how you authorize the transaction. There are well over 400 different MasterCard and Visa Interchange Rates. The Interchange Rate passes to the card Issuer from the Acquirer/ISO/Merchant. The Interchange Rate becomes a major part of a Merchant’s final discount rate.

Interchange Rates are defined for a specific industry and method of authorization. Be sure that, when you sign up to accept credit cards, you get the correct rate for your industry. Also, be certain the rate reflects the method of authorization (online, terminal, etc.) you will be using. An incorrect industry or authorization classification will cost you money.

Terminal Used

Fraud was one of the original things that led to authorizations. Master Charge, now MasterCard, and Bank Americard, now Visa, felt that if high value transactions were first passed by a database of known “bad” cards, many financial losses would be reduced. This process evolved into a situation where every card was authorized, thus creating “zero-floor” authorizations.

There are three major types of “zero-floor” authorization. The methods are based on the terminal used. There is a single terminal that runs at a point-of-sale; there is a terminal device that uses a personal computer; and there is an ECR (Electronic Cash Register) terminal. Naturally, all combinations have become mixed, but the Merchant, (that is, the card taker), should be certain their Interchange Rate reflects their terminal and its abilities.

ISOs: The People You Use to Process Your Transactions

Most Acquirers/Independent Sales Organizations (ISOs) have studied their business for years and want to be certain their Merchant meets a certain level of business, either in the size or number of transactions. This is usually done be having a monthly minimum activity level of say, $5,000. If the Merchant is small, the minimum fee will assure the Acquirer/ISO they will always be profitable.

Fees - The “Gotchas”

There are other things to look for, many are discretionary and sometimes designed more to enrich the ISO than benefit you: Early termination fees, like those that can be charged if you move or change your Acquirer/ISO; monthly statement fees; applications fees; and support fees to cover supplies or assistance with any problem that may occur – these fees can vary widely among ISOs. Look for an ISO who does not “pile on” needless fees or termination charges. You could realize big savings every month or if you terminate your account.

Size Matters

Perhaps the most important factor in determining your discount rate is the size of your average transaction. The larger the average transaction, the more money an Acquirer/ISO stands to make or has to negotiate with a Merchant. Consider the differences among a $7.00, $70.00, and $700.00 transaction.

If your discount rate is, say, 3%, $7.00 yields 21 cents; $70.00 yields $2.10; and $700.00 yields $21.00. When there is a larger bit of money involved, consider how much easier it may be to negotiate a few cents off per item. Even a few cents per item can add up to substantial dollars when there are several transactions involved.

Types of Cards Taken

You may choose to accept several types of credit cards (MasterCard, VISA, American Express, Discover or several types of debit cards). Each card comes with different rates so what you take can make a big difference in what you pay. Many Merchants feel American Express is very expensive. However, before you decide not to take a card, weight the value of making additional sales against a few dollars in fees.

Make sure your contract clearly spells out your Discount Rate for each type of card accepted. If you get a blended rate (one rate for all cards), understand how the blending is done, and be able to adjust if the blended rate does not correspond to the card distribution that actually appears in your transactions.

Liability Issues

When negotiating a contract to accept credit cards, consider getting a statement from your Acquirer/ISO that clears you of liability, or, at least, spells out clearly your liability, for having or holding customer data. The PCI (Payment Card Industry Data Security Standard) or recent cases of stolen card numbers and PINS (Personal Identification Numbers), should not be allowed to affect you if you are not directly responsible.

Don’t Be Afraid of Changing

Many Merchants spend tens even hundreds of dollars more a month than they need to because they fail to shop around and are fearful of changing their ISO. Today, even with the termination fees noted, changing ISOs is simple, straightforward and easy. The good ISOs will take your existing statements and give you a head to head comparison of costs between what you have and their alternative. If you own your own terminal or software, your new ISO can usually reprogram your terminal in minutes and have you up and running. Most modern software works with most ISO’s. Just be sure to check on any incompatibilities as you shop around. And do shop around – there is no down side.

Get Started and Compare

It’s just smart business to compare and change if you can save money. Perhaps the easiest way to get started and learn if you are getting a reasonable rate on your credit and debit card transactions is to visit CPA Merchant Services. Start there, it’s informative and offers proven, low cost solutions.

By Paul F. P. Coenen, Electronic Strategy Associates, Inc.

Mr. Coenen is a respected thinker and frequent speaker on EFT and EFT-related developments, ESA President, Paul Coenen, has also been cited in such publications as The Wall Street Journal, The American Banker, Computers in Banking, USA Today, Newsweek, The Nilson Report, POS News, Credit Card Management, Financial Services ONLINE, Bank Network News, Funds Transfer Report and Bank Systems & Technology.