Mike Sumsion, vice president of the Farmington-based iTransact, says there are several ways that companies can reduce their credit and debit card processing fees.
What's the first step in reducing fees?
Make sure your processor has set you up with the correct business classification and with the correct Standard Industry Classification (SIC) code. Some businesses such as nonprofits, educational programs and emerging-market firms qualify for lower rates. If your business qualifies, find out whether your processor is keeping the savings or passing them along to you.
What about debit cards
PIN-based debit card transactions usually offer a lower discount rate (percentage fee) but include a higher per-transaction flat fee. Thus, if you usually run small-ticket transactions -- under $25-$30 at a time -- you're better off running Visa and MasterCard debit cards like regular credit cards rather than using a PIN-based debit card setup.
What is the disadvantage in downgrading services?
There are a number of merchant mistakes that result in credit card transactions being downgraded, resulting in higher fees. Common with both Internet and manual-keyed transactions is failing to pass along such information as cardholder addresses and ZIP codes. Another mistake is failing on a daily basis to batch out transactions (which are sent to the account processor for settlement and funding). To avoid this, set up your merchant account to auto-batch or remember to manually batch every day. Bear in mind the cutoff time is typically 3-4 p.m. Eastern. If you batch out before the cutoff time, you can receive your funds earlier.
What are the drawbacks of freebies?
Every processor has to pay interchange fees to Visa and MasterCard for every card they process, so they are all faced with similar cost structures. Thus, if a processor offers you a "free" terminal or flights to Hawaii, you can be sure that they're making up the costs elsewhere, including higher fees per transaction, per month or some other creative way. Speaking of terminals, before you sign a lease, check what it would cost to buy. With some leases, you may end up paying for the terminal several times over.
What's your advice in choosing a processor?
Your processor should be happy to help you with the items discussed above, and should be willing to help you decide if you would be better off with an interchange pass-through (cost-plus) or a standard per-transaction pricing model. When Visa and MasterCard increase their interchange rates to processors, which can occur in April and/or October, processors may use this opportunity to increase their margins. Therefore, if you haven't had a rate checkup in a while, ask your processor for a review -- or find a processor who is more responsive.
Dawn House
