Monday, September 17, 2012

Don't Get Burned by High Credit Card Processing Fees

If your business accepts credit cards, have you ever thought about how much you pay to process the payment? These days the answer to that question is usually "yes" because Canadian merchants pay among the highest fees in the world to process credit cards. Processing fees can be as high as five per cent of the value of a transaction in discount fees, plus flat transaction fees, monthly minimum fees, and chargeback fees, in addition to expensive monthly payments on leased equipment.
In today's market, businesses no longer simply deal with their banks to process credit cards, rather credit processing services are sold by third party processors and a number of subcontractors known as Independent Sales Organizations (ISOs). ISOs sell multiple products including point of sale terminals, software and services to clients. They then route transactions to processors such as Moneris, Chase Paymentech, Global Payments, First Data Merchant Processing and Elavon. There are many reputable companies in the field, however, earlier this year CBC news reported that a number of small businesses expressed concern about hidden charges and misleading sales practices in their dealings with some ISOs.
According to Peter Smith, an expert in the credit card industry with the OTUS Group, there is a great deal of complexity in the credit card industry and several parties make money on each transaction that you process. "Small and midsized merchants are usually presented with a single rate called the discount rate. That rate includes the processor's fee plus a fee the credit card companies charge for each transaction, called the interchange fee. The interchange fee includes a percentage of the transaction which is set by the credit card associations. There are over 125 interchange fee categories depending on how the card is processed, what kind of card is being used, the nature of the merchant's business, and other factors. Many merchant service providers condense these 125-plus categories into three tiers called Qualified, Mid-Qualified and Non-qualified. They average out the many interchange rates in each tier, and then add a margin which can result in an elevated charge to the merchant. You have to dig into the summarized fees to know what you are really paying for."
The good news is that there is potential to save on the fees you pay to accept credit cards. Jim Gorman, controller at Laurysen Kitchens was very happy when OTUS Group identified savings of approximately $27,000 per year in his credit card merchant fees earlier this year.
Every business owner should be reviewing their costs on a regular basis. However, Peter Smith notes that the potential to save on merchant processing fees is often overlooked. "Business owners are pressed for time, and the complexity with processing fees makes it very challenging to determine whether or not you are not paying more than you should to process credit card transactions."
The reality is that consumers like to pay with plastic, and processing fees often can't be avoided. The complexity of fee structures and contract terms means that most organizations are at a disadvantage when it comes to negotiating with merchant providers. For example, the Canadian Public Health Association (CPHA) found that their merchant fees increased substantially as much of their sales business shifted to online transactions paid by credit cards. According to Debra Lynkowski, CEO of CPHA, a key to successfully containing such costs is to get a trusted independent advisor in your corner who has payment-card industry knowledge and expertise to cut through the complexity and identify savings.
If you would like to verify that you are not paying more than you should to accept payments via credit card, contact us at
OTUS Group is a firm of business advisors who get things done and make your business stronger with expertise in governance and planning; financial, information technology and human resource management and business growth.

1 comment:

  1. Great article ...Thanks for your great information, the contents are quiet interesting. I will be waiting for your next post.
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