Processing and Predatory Pricing Schemes

November 28, 2012

Some Facts and Tips that can help you avoid being ripped off.

1. All Processors pay the same costs to Master Card, Visa, Discover and Amex to process their transactions on behalf of their customers. NO one gets any discounts, breaks or other cost advantages. This rate system is called INTERCHANGE.

2. The major card companies have set up rules for processing transactions. Follow their rules and you get their best rate for that transaction. The rules are all related to their view of risk not yours.

Breaking the rules costs you anywhere from 10 basis points to 95 basis points more to process that transaction.

3. Therefore the best pricing plan you can be on is one that’s based on the wholesale interchange rate plus processor cost.

4. Basis points have more impact on your costs, plus or minus, than cents per transaction costs. 1 basis point equals 1/100th of 1% so this means that 1% is equal to 100 basis points.

5. Always go with a processor that is doing at least Level 2 processing. Level 2 processing helps you avoid those breaking the rule costs because it “pushes” more data to the major card companies as long as your personnel input the data.

6. The experience of your processor agent can have an impact on your costs. For instance if your business does primarily B2B transactions that’s the way you should be set up so that your terminal prompts you for the data you need to avoid those breaking the rules costs.

7. Look for processors that can provide you with the funds from your transactions within 24-48 hours or even next day funding. This allows you to put your money to use in your business quicker which means that you have an opportunity to avoid borrowing costs or earn more interest.

8. Always take into consideration all your costs of doing business with that processor. Many fees such as batch header fees are just fluff and can be negotiated.

9. Make sure any analysis of your current processor by the prospective processor is done side by side and is an apple to apples comparison. If they can’t explain it, it’s probably just a sales gimmick.

10. And finally, look at all the factors: Is this processor associated with any groups I belong to or referred to me by someone I respect? What is my gut telling me? Are there any costs to me for getting out of my present contract or the prospective contract and if so how much? And if it’s too good to be true, it probably is.

Have a prosperous day!

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