INDUSTRY BASICS

For informational purposes only

1. Electronic Funds Transfer

Anytime that money is moved electronically, via credit card, debit card, electronic check conversion, ATM card, etc. there are fees associated with that transaction!

In circumstances in which payment is being made via credit card, a merchant processor will be involved.

2. Fees

The “merchant” (business owner) incurs these fees.

Five most common forms or fees:

1. A percentage charged to volume  (i.e. 2% of $100.00 would be $2.00)
2. Cents Per Transaction (i.e. a business that runs 10 transactions at @ $.20 would pay $2.00 in transaction fees)
3. Down Grades and Assessments (additional fees applied to transactions that involve a higher degree of risk or cost to the processor)
4. Statement and/or Monthly Service Charges
5. Additional Charges For example; merchant clubs, equipment rental, or annual fees

Merchants receive a STATEMENT each month from their processing entity.  This statement defines the types of transactions ran as well as their settlement volume and

fees that they were charged for such transactions.

There is generally NO CONFIDENTIAL INFORMATION on these statements.

On EACH and EVERY statement, one must look closely to determine if and where the business owner is being charged TWO or MORE of the above charges.  Many processors are quite good at hiding their fees, so you must look closely and use deductive reasoning to establish the businesses TRUE COST of processing.

A PERCENTAGE OF VOLUME

Section one

For informational purposes only

The percentage that a business is charged on his/her volume of business is referred to as their INTERCHANGE RATE, or often times, simply their RATE.

Most processors will break transactions into one of the following 6 classifications.

1. Qualified Transactions:  These are transactions in which the credit card is present and is actually “swiped” for approval.
2. Signature Check Card:  This is the same as above only instead of a credit card, the customer is using a “debit card” with a visa, mc, or discover endorsement.  In this case, the monies being utilized on that card are generally being drawn from the customer’s checking account as oppose to a credit line.
3. Mid Qualified: These are transactions in which the “card is not present”.  Or in which the card is present, but for whatever reason is manually entered as oppose to being swiped. (i.e. The customer pays for something via telephone using his/her credit card). Also, other card types may downgrade to mid-qualified depending on how your processor is classifying them.
4. Rewards Cards:  These are cards that offer cash back or other incentives to the card users.
5. Non Qualified: These are typically cards that are issued to employees “corporate cards”, are issued by the government “purchasing cards”, or were issued in a foreign country.  Mid-qualified card types that are keyed as oppose to swiped will often fall into this category.
6. PIN BASED Debit:  These are cards that are actually ran independent from the “credit card” networks by entering a four digit code into the terminals pin pad.

It is important to note, that within the industry, there are SEVERAL levels of charges applied to various types of transactions.  Only by reviewing a merchant statement, can one be certain that the volume the client does is being placed in the appropriate rate category.

TRANSACTION FEES

For informational purposes only

For EVERY transaction ran on the credit card network, all processors incur fees.  A percentage of those fees go to the networks themselves, and some are used to cover communication and data transfer costs.

Some processors will elect to “bundle” the transaction fee.  What this means, is that they have charged the client a higher percentage rate on their volume in order to make up for the transaction fee as oppose to separating the two.  Generally speaking, such activity results in a higher cost of business to the merchant.

DOWN GRADES AND ASSESSMENTS

For training purposes only

Some card types cost more than others to process.  As a result, processors must charge their clients differently on the more expensive transactions.

This is handled in one of two ways:

1. The processor BREAKS OUT the volume from the merchants gross volume and charges it a separate higher percentage.  (i.e. The merchant processes 10,000 dollars, of which 2,000 is key entered as oppose to swiped.)  In a break-out format, you would see that 8,000 was charged at one rate and 2,000 was charged at a separate rate!
2. The processor ASSESSES the higher charge to a portion of the merchant’s volume. (i.e. The merchant processes 10,000 dollars.  All 10,000 dollars is charged at the normal “swiped” rate.  Then, the 2,000 dollars in keyed volume is charged an “additional” percentage).

This is likely the most confusing aspect of the industry.  It is very important that prior to discussing rates with a client, a statement be provided in order to define how the client is being charged for downgrades and or assessments. If the client has not processed previously, you will have the opportunity to explain the process for these charges as you walk thru the merchant agreement with them.

For more information, and to begin accepting credit cards at your business, visit takecardsnow.biz