Common Mistakes When Negotiating Credit Card Processing Rates and Fees – Part 2

This is the second article in a series on common mistakes I see merchants make when negotiating rates and fees or analyzing the offers from different credit-card-processing providers. You can read the first part here.

4. The merchant assumes that he understands the offer

The credit card processing industry is a convoluted business with dozens of interchange rates and a litany of pass-through fees.   Because of the convoluted nature of this business it is very easy for a less than reputable salesperson or provider to convince a merchant that he is receiving something better than he really is receiving.  Even better salespeople and providers have been known to forget or not fully explain key rates and fees that are important for the merchant to understand when comparing offers.  Here are a couple examples of where merchants incorrectly assumed they understood the offer:

Interchange Plus Pricing Example

You are currently on an Interchange Plus pricing program at 0.25% + $0.10 over published interchange rates and actual pass-through fees plus some monthly fees.  A competitor states they will offer you Interchange Plus pricing at + 0.15% + $0.10 over interchange pass-through and assessments with the same monthly fees.  Is this a good deal?

The merchant who sent me this proposal thought it was a good deal.  What he didn’t realize is that over 90% of his sales would have been charged an additional 0.50% to 1.0% over the 0.15% + $0.10 mark-up.  He wrongly assumed he understood the offer.  He didn’t realize that this provider surcharges the interchange rates.  Perhaps the provider’s definition of “assessments” means “their assessments” which includes surcharging.  Perhaps somewhere deep in the providers T&C’s is states that they surcharge interchange rates.  Bottom line is the merchant made an assumption that he understood the offer without asking some very important questions.

Tiered Pricing Example

This merchant was on a tiered pricing plan with a Qualified Rate of 1.99%.  She called her provider and asked for a rate review.  She was told that because she was a loyal merchant the provider would lowered the Qualified Rate to 1.79%.  Is this a good deal?

The merchant assumed she understood the offer and thought it was a great deal.  However, she didn’t understand two important points.  First, the Qualified Rate only applied to swiped basic (not reward cards, business cards, etc.) debit and credit card transactions which was only about 20% of her sales.  Second, the initial rate of 1.99% included the card company assessment fees which range from 0.11% to 0.13%.  However, the 1.79% offer charged the assessments separately.  Therefore, the offer would have saved this merchant 0.20% on about 20% of her sales and charged her an additional 0.11% to 0.13% on 100% of her sales.  So much for being a loyal merchant.

Never assume you understand the offer – Instead require the facts be written out in simple and easy to understand terms

Note – I used the tiered pricing examples for educational purposes only.  If you have read my articles you know that I dislike tiered pricing plans for many reasons.

5. The merchant  gives his processing statement to a competing  salesperson/provider

The average business owner has credit card salespeople calling on them every week and they all want to see the merchant’s statement to conduct a “savings analysis”.  Of course, what they are really after is your current processor, your current  pricing program (tiered pricing, Interchange Plus pricing, flat rate pricing, etc.), and most importantly your current rates and fees.   The more knowledgeable salespeople will actually want to dig deeper and understand how your final cost is derived because they understand that there could be surcharges and inflated fees impacting the final cost.

Unfortunately, some of the less reputable salespeople use this information to mislead the merchant.  However, generally this information is used by the salesperson to determine the MINIMUM amount of savings he believes he needs to offer to in order to win over your business.  In addition, he will use the statement information to determine the best sales approach.  For example, if you are currently on tiered pricing, does he offer tiered pricing at lower tiered rates or does he try sell you on an Interchange Plus pricing program.  There is nothing wrong with this sales approach and it’s a pretty common approach in any industry.   However, merchants should want to maximize their savings in negotiations. Therefore, a merchant should never give a salesperson their statement initially.  It’s none of the salesperson’s business to know your processor, your current pricing plan, or even what their rates, fees, and cost are.

The salesperson should first provide an earnest, transparent, and competitive offer.   In order to do that the salesperson will need to know your processing volume, average ticket, and risk factors, including the length of time in business, industry type, chargebacks amount each month, if you have future deliverables, your clientele, your maximum individual sale, and perhaps some other information not found on your current processing statement.

Once the salesperson has provided the formal offer, disclosing all rates and fees, then you can give the salesperson your statement and ask him to conduct a savings analysis.

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