Learn all about merchant processing and the fees your business pays.
Merchant providers offer their merchant services usually at a fixed percentage of the merchant’s total sales. There are different pricing structures I will be addressing soon in other articles, but this one will address “Bill Back pricing structure.” Bill Back pricing is the most popular and the most profitable for merchant providers, some providers may call it “ERR”, but the names are interchangeable.
Your merchant fees are always charged a month in arrears to add even more confusion. If you take a look at look at your merchant processing statement last couple of pages and you see a Financial Advice area stating “Fees Incurred, but not Charged.” Those are the fees incurred for the current month and will be deducted the following month from your account. The fees on the front page do not necessarily reflect the actual fees you paid that month. Another item to look for on your statement is “BB” listed anywhere on your statement as it stands for Bill back.
However, no matter what the interchange fees charged by Visa and MasterCard and they are published on their web sites are fees that the merchant provider must pay to Visa and MasterCard along with a per transaction fee. There are several different fees based upon the type of credit card, the manner in witch it was taken (swiped or manually entered), was it batched out within Visa and MasterCard’s time frames? All of the criteria are posted on Visa and MasterCard’s web sites. I will be addressing how Interchange works soon as well.
This is where your business sense and logic should come into play. If a customer purchases an item or service from your business with their Visa corporate Credit Card, Visa is going to charge your merchant service provider their published interchange rate of 2.20% and $.10 per transaction. Now here is the big question. Does your merchant service provider think you are so special that they gave your business such a “special low rate of 1.59%” and will pay the disparity of .61%?
I am sorry to have to break the news, but in order to keep this rated “G” my response is a flat out NO! I am sorry and I know how it feels when coming to terms with the fact that you are not special and the World does not revolve around you, it can’t because it revolves around me. Did I mention our support group meets on the second Tuesday of every week for those of us in need of a safe and supportive environment to get you through this difficult time period in your life? Remember, the second Tuesday of every week. Mark it on your calendars.
With that being said that low, low rate of 1.59% is not really that low because if you grab your contract, it will show somewhere on there a “Downgrade Surcharge Fee.” So not only will YOU (this is the part when it is all about you and nobody else and you will not longer need services of the support group) pay the difference of $.61%, but you will also pay a downgrade surcharge designated on your contract. Remember when YOU agreed to the contract and that portion was swiftly passed in order to get to the signature page for YOU to sign.
This “Discount Surcharge Fee” can range from .25% to 1.39%, but I will use $.86% as an average for my calculations as it seems to be the norm. That low rate of 1.59% just turned into your business paying 2.96% for that credit card transaction. My calculations included the difference in the amount your merchant provider charged you and Visa charged them which is $.61% and the downgrade surcharge of $.86, plus let’s not forget your low, low rate of 1.59% totaling 2.96%.
It is important to understand the pricing structure of your merchant account. Interchange pass through pricing is the most cost effective because it takes exactly what Visa and MasterCard charge and pass it straight through to the customer. The merchant service provider then adds a pre negotiated “Discount Fee” to your credit card transactions and that can range anywhere from .10% to 1.00% along with a per transactions fee, monthly statement fee, and batch fees. The industry is trending towards a flat rate where businesses pay interchange pass through because there is no getting around those fees and one flat rate that includes all fees and a per transaction fee. If your volume increases your fees do not, but it is only logical that if you have more transactions you will pay more in transaction fees. However, it is the most transparent and accountable pricing structure to enter the merchant services industry.