JULY/AUGUST 2011 Article

Why It's Time to Take a Second Look at Your Credit Card Processing Solution

During the past few years, your customers' buying habits have definitely changed. Price conscious shoppers are doing their homework, looking for coupons and free shipping codes. Your suppliers aren't leaving money on the table either; they're increasing prices to cover the rising cost of materials and transportation. Retailers are feeling the pinch of the new economy. A big cost for retailers comes after the sale, in the form of the fees paid to accept customers' credit cards. While these fees typically range between one and three percent of every retail sale, some retailers pay more than five percent. Could you be paying too much?

There's no question that credit card processing fees are inevitable, but it is still possible to mitigate this expense by shopping around for a better credit card processing solution. A Forbes magazine article estimates that a 120 seat restaurant, with $2 million a year in sales and 80% of sales processed on credit cards, could save $24,000 a year if its processing fees were reduced by 1.5%. The truth is that rates and services vary considerably among providers, and it's in the vendors' collective best interest to keep retailers in the dark.

Why is there so little transparency? For starters, there are over 2000 credit card processing companies in the U.S., with a reported combined annual revenue of over $40 billion. Dig a little and you'll learn that 85% of that revenue is actually controlled by only 50 companies, with traditional banks having the lion's share of that business. Dig even deeper and you'll find that most banks are actually white labeling a product provided by just one of four main processing corporations, First Data, Bank of America, Chase Merchant Services, and Global Payments. Some resellers charge rates based on the value of services they provide, but others just charge the biggest mark-up that they think the market will bear.

As a retailer, how can you put yourself in control of this piece of your business? For starters, any retailer who processes a significant portion of sales via credit cards should evaluate their current provider and try to get some quotes from new vendors. Many retailers mistakenly believe that their credit card processing must be tied to or affiliated with their bank and that the best rates can be obtained through this banking relationship. Banks take advantage of this perception and are actually among the most expensive providers of the service.

There are many processing services available to retailers that are offered independent of bank services. These solutions, including one offered by Sage Exchange, have competitive rates and include time-saving features that your bank probably can't provide, including integration with your core Enterprise Resource Planning (ERP) or accounting software.

Here are a few simple tips to consider when evaluating credit card processing services:

• Fees vary between service providers. The lowest flat rate is not necessarily the best deal. Read the contract carefully and look for transactions that are classified as "non-qualifying" in the agreement. If your business has a large volume of phone orders that you enter manually, for example, you may pay a higher rate for these transactions.
• Equipment is not necessarily included with the service. If you don't already have processing equipment as part of your point of sale hardware, you may need to purchase or lease it from your vendor.
• Float is the time the processing company may hold onto your money before it makes its way to your bank account. A certain amount of lag time is necessary for fraud protection, but the rest of the time, your money may be sitting earning interest for your vendor. You should not have to pay a higher rate for a quicker turnaround.
• Security also varies among solutions. Look for a system that is certified to be compliant with Payment Card Industry (PCI) standards. Retailers that rely upon their banks for compliance are exposing themselves to potential liability because credit card data may only be protected once it leaves the retailer's systems. Sage exchange customers can leverage integrated tools that protect credit card data through every step of the transaction on the retail side.

Sage Exchange has access to the same wholesale pricing as your bank or processing vendor and can work with you to evaluate your current program's acceptance patterns. Often, making simple changes to payment acceptance programs can yield better processing rates. Don't just accept credit processing fees as the cost of doing business. Follow your customers' example of smart shopping–it pays to do your homework!

 

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