Understanding Credit Card Processing

Merchant service providers act as middlemen for your business and bank to help process and manage bankcard payments. Regardless of how small your business is, you need to offer card payment services to make it in today’s times. Card payments have become the most common method and so it is essential for restaurant owner’s to make sure they offer convenience to their customers to reap bigger profits.But it is not as simple as that. Credit card processing requires planning, research and complete understanding to make sure you aren't paying higher discount rates than you have to. Following is an explanation of exactly how much you are charged for various transactions:

Interchange

Discount rates are broken down into numerous categories known as interchange. Interchange can include more than 100 different rates that change every year, however, in most cases Independent Sales Organizations (ISO) charge bucket rates to merchants. Bucket rates are an easier way to categorize the dozens of different rate categories into groups to form a simple rate structure comprising of similar interchange levels. Bucket rates include Non-Qualified, Mid-Qualified and Qualified rates.

Qualified Rates

Qualified rates are bankcards that are used on premises. For businesses like restaurants that usually run on a brick and mortar structure, most transactions are done on the premises, via card swipes. These transactions don’t include any reward credit cards like Bonus cash, Flyer miles or other incentives for the customer. Merchants are charged the lowest discount rate in this category which ranges from 1.65% to 1.95%. Qualified rates are usually low because the chances of a merchant getting a chargeback are the lowest and due to the lesser risk for the card and the merchant to absorb the cost of accepting fraudulent bankcards.

Mid-Qualified Rates

Mid-Qualified rates are charged for bankcards where the transactions are made via telephone/email etc. where the cards aren’t swiped. Although for restaurants offering cash on delivery, mid-qualified rates hardly apply. However, in cases where restaurants may accept payments on phone, or via online forms or websites, or are offering reward cards, then mid-qualified rates apply. The risks of fraudulence increase if a bankcard is not present, thus the discount rates are higher and range from 0.85% to 1.29% plus the qualified rate.Reward cards are also charged the same because eventually it is the merchant that absorbs the cost of MasterCard/Visa’s ability to offer reward card incentives.

Non-Qualified Rates

Non-qualified rates include International, Corporate and Business bankcards. These have the highest discount rates among the three and can range from 1.12% to 1.63% in addition to the qualified rate. Multiple factors are responsible for the high discount rates including the following:

• These bankcards of the highest risks comparatively.
• Business and corporate cards have highest limits.
• The processing company deposits the funds into the merchants account upon approval and receives the funds afterwards.
• International cards require thorough verification due to the high risks.
• With international cards, more often than not, the processing company has to calculate the rate of exchange of the currency to the US dollar before withdrawal.
• The non-qualified rates remain the same regardless of whether the card is swiped or not.

Item Fees

Apart from the discount rate, an item fee is also charged on bankcard transactions. This fee is reflected when a merchant receives a bankcard where the merchant has to settle all transactions for the day or needs to obtain approval. The terminal has to dial out to obtain an approval or batch out for the day. For each transaction where a merchant has to batch out or obtain an approval, the merchant is charged a cent. Depending on the type of business, a merchant is charged from 18 to 20 cents per dial out.

Monthly Statement Fees

Merchants are charged for the monthly report of discount fees and transactions that they receive. This statement is provided at the end of each month in order to help the merchant tally their revenue and accounting from bankcard transactions. Depending on the type of business, merchants are charged somewhere between $7.50 and $10 per month for the monthly statement. This monthly statement is also analyzed and reviewed by Independent Sales Agents when consulting with a merchant about converting current ISO.

How to Find the Right Processor

It can be very difficult for restaurant owners to find the right processor for bankcard transactions. There are numerous things that you need to keep in mind to make sure you are not paying higher rates and fees than you have to. Following are a few things to keep in mind when looking for Credit Card Processors:

• Be on the lookout for processors who claim they can ‘save you money’ without having any knowledge of your business and card processing needs.
• Steer clear of agents wanting to check your statements right away. Yes, it is important to check the statement before they can plan your discount rates, but both of you need to get a better understanding of what is needed and what is on offer before jumping to confidential financial reports.
• There is no such thing as ‘whole sale pricing’ as far as MasterCard and Visa are concerned, so if that’s what the sales agent is offering, then there isn’t much validity to their claims.
• If the representative starts offering you rates without understanding the nature and structure of your business, then that’s a red flag waving right at you. There is a huge difference between the rates on a statement and the total cost incurred. In the end, it is the total money you are charged that matters, not the numbers on your statement, regardless of how tempting and pretty they look.
• Service is just as important as the offer at hand. So steer clear of representatives who choose the trickiest of times to ring your bells. A reliable agent will help you find the best deal at the right time and most importantly at your convenience.
• You have questions about matters you don’t understand? Good for you. Don’t let complex, default answer fool you. If you don’t understand what your representative is trying to tell you, then the chances are neither does he/her. And it’s time for both of you to move one and for you to find someone who knows what they are offering and knows how to tell (sell) it too.
• A good processor will stay updated on cost fluctuations or reduction in cost from MasterCard/Visa and will inform you about the changes too. So you need to know that they know what needs are.

The more you know the easier and more convenient it will be for you to find the right processor. It can be both frustrating and costly to let your processor tell you stories that although take you to fantasy land on paper, end up costing you real time money. Your business is all about you, your costs, your profits and your transactions. So by knowing how credit card processing works and how you are charged for it will help you make a more profound decision. Because in the end, it is very easy to identify processors who work for your best interest, and they are usually the ones that companies have stuck to for longer period of times. So do a little research to find out who the other merchants, especially in the restaurant business, are entrusting their credit card processing with.