
It's tough times and everyone is looking to cut costs any way that they can. For many service based businesses with a recurring expense this can be a fantastic time to increase your customer base and create a loyal fan club. A business who really wants to serve the community can offer a savings and good service to gain clients who wouldn't have considered switching even 8 months ago.
This opportunity has also created a fantastic market for fast-talking swindlers who share half-truths to earn your business. One of the least understood expenses that a small business incurs is Visa and Mastercard processing fees. It is difficult to understand because the industry has been shrouded in secrecy and dishonesty for so long. Did you know:
- There have been multiple class action lawsuits against Independent Sales Offices in the US in the last 10 years for dishonest sales practices and price gouging?
- That the Visa / Mastercard interchange charts (a detail of costs from the card associations) were not a matter of public record until just a few years ago? As a result, you as a small business could never know if you were getting a good deal or not!
- Leasing a credit card terminal will cost you 3 to 4 TIMES what you would pay for it in cash
- That MOST sales contractors for Independent Visa / Mastercard sales offices only quote there BEST rate-- and when you sign on the dotted line you will be taken to the cleaners on your first bill!
All of the above are true but what Thrive Business Solutions is focusing on in this article is the 4th issue mentioned.
I had a several existing customers call me in the last several weeks and say something like this: "I got a call from a merchant services company the other day and they said my rate was going to be 1.39%!"
Now, you may have heard something like this and may have even recently switched companies on this bait. I am sorry but a quote like that simply is not honest. Without confusing the reader let me succinctly break down the scenario I just gave you.
- Every Independent Sales Office for Visa / Mastercard has access to the same pricing structure as their cost.
- As a result of this from the largest bank offering merchant services to the smallest one operator shop we all have the same starting place in terms of cost from Visa / Mastercard.
- Every transaction that your run from your terminal, virtual terminal, Point of sale terminal, etc., falls into a predefined category managed by the card associations and determined on risk for fraud or chargeback
- There are over 100 distinct risk categories and a rate assigned to each and only 10 or so have a COST less than 1.39%
- This is the most important-- No one sells below their cost.
Think about it for a moment. If less than 10% of the total transaction categories have a cost of less than or equal to 1.39% and the company quoting the rate still has to add their margin to the deal to be profitable, how in the world will they give you a rate of 1.39% on all of your transactions? To do so would be financial suicide for the company. In fact I know from the countless calls from merchants over the last 6 years begging for rescue from the hostage situation that they have signed off on that that in reality the rate that they are getting is much higher than what they switched away from in the first place.
The latest scam is actually more heinous than the first. Instead of not being honest about what the merchant is actually being charged the sales rep is in fact being honest but all they are quoting is the margin on the deal. So in fact, what the rep is saying is that you will have whatever Visa and Mastercards cost is, plus 1.39%. I have seen several merchants in this plight in just the last couple of weeks. That kind of a scam could cost your company thousands of dollars per year in extra merchant services fees.
The moral of the story is: If the deal seems too good to be true it probably is. What can you do to protect yourself? Research. Make sure that the company you select is reputable. Ask for references and most importantly go with an expert. If they don't seem like they understand the business don't take, "Trust me!" as a satisfying answer!