When learning to sell Merchant Accounts it is a good idea to have an understanding of the rates, fees, and various pricing models you will see in the market. Becoming proficient at understanding the intricacies of credit card processing sales will give the tools to go in and make more sales. A lot of your competition is not taking the time too study or understanding these fees. Why not? I’m not exactly sure. It could be because learning it takes time. It is not something most people can pick up in a day.
 The information also is not readily available; you have to search it out. With that being said, the information is out there. I’ve found that a lot of the learning takes place by getting out and jumping into the fray and then doing research. A lot of People do not have the patience to take time to learn their craft. They want to go out and make money. I can understand that, it is just difficult to make sales if you do not know how to answer basic questions from your client.  I think that as a professional understanding what you’re selling is a key piece.
 Having a knowledge base will give the advantage in a tough negotiation. This is important if you are in a situation where the customer is shopping several processors. You will understand what you are up against and more importantly how to explain it to your customer. This will help you build trust and rapport with the customer Knowledge is power. Here is a primer on rates, fees and pricing models:
Rates and Fees
 A Merchant Account has a variety of fees, some periodic, others charged on a per-item or percentage basis. Some fees are set by the merchant account provider, but the majority of the per-item and percentage fees are passed through the merchant account provider to the credit card issuing bank according to a schedule of rates called interchange fees, which are set by Visa, Discover, and Mastercard. Interchange fees vary depending on card type and the circumstances of the transaction. For example, if a transaction is made by swiping a card through a credit card terminal it will be in a different category than if it were keyed in manually.
Discount Rates
The discount rate comprises a number of dues, fees, assessments, network charges and mark-ups merchants are required to pay for accepting credit and debit cards, the largest of which by far is the Interchange fee. Each bank or ISO/MSP has real costs in addition to the wholesale interchange fees, and creates profit by adding a mark-up to all the fees mentioned above. There are a number of price models banks and ISOs/MSPs used to bill merchants for the services rendered. Here are the more popular price models:
3-Tier Pricing
The 3-Tier Pricing is the most popular pricing method and the simplest system for most merchants to understand, if not the most transparent. The newer 6-Tier Pricing, including additional tiers covering debit, business, or international cards is gaining in popularity. In 3-Tier Pricing, the merchant account provider groups the transactions into 3 groups (tiers) and assigns a rate to each tier based on a criterion established for each tier. A possible drawback from the merchant’s perspective, is that these “tiers” or “buckets” are variable from one processor to the next prohibiting any direct comparison from a Tier 1 provided by one provider to a Tier 1 provided by another provider.

First Tier – Qualified Rate
A qualified rate is the percentage rate a merchant will be charged whenever they accept a regular consumer credit card and process it in a manner defined as “standard” by their merchant account provider using an approved credit card processing solution. This is usually the lowest rate a merchant will incur when accepting a credit card. The qualified rate is also the rate commonly quoted to a merchant when they inquire about pricing. The qualified rate is created based on the way a merchant will be accepting a majority of their credit cards. For example, for an internet merchant, the internet interchange categories will be defined as Qualified, while for a physical retailer only transactions swiped through or read by their terminal in an ordinary manner will be defined as Qualified.

Second Tier – Mid-qualified Rate
Also known as a partially qualified rate, the mid-qualified rate is the percentage rate a merchant will be charged whenever they accept a credit card that does not qualify for the lowest rate (the qualified rate). This may happen for several reasons such as:
A consumer credit card is keyed into a credit card terminal instead of being swiped
A special kind of credit card is used like a rewards card or business card
A mid-qualified rate is higher than a qualified rate. Some of the transactions that are usually grouped into the Mid-Qualified Tier can cost the provider more in interchange costs, so the merchant account providers do make a markup on these rates.
The use of “rewards cards” can be as high as 40% of transactions. So it is important that the financial impact of this fee be understood.

Third Tier – Non-qualified Rate
The non-qualified rate is usually the highest percentage rate a merchant will be charged whenever they accept a credit card. In most cases all transactions that are not qualified or mid-qualified will fall to this rate. This may happen for several reasons such as:
A consumer credit card is keyed into a credit card terminal instead of being swiped and address verification is not performed
A special kind of credit card is used like a business card and all required fields are not entered
A merchant does not settle their daily batch within the allotted time frame, usually past 48 hours from time of authorization.
A non-qualified rate can be significantly higher than a qualified rate and can cost the provider much more in interchange costs, so the merchant account providers do make a markup on these rates.

6-Tier Pricing
As a result of the Wal-Mart Settlement and to compete against PIN-based debit cards (which are processed outside of the Visa and Mastercard networks), Visa and Mastercard lowered the interchange rates for debit cards well below those for credit cards. Some providers can pass on the lower cost of these cards directly to merchants. Consequently, the 3 tiers programs have added 2 classifications for debit cards that are processed without a PIN or with a PIN for a total of 6 rate classifications.

Interchange Plus Pricing
Some providers offer merchant account services priced on an “interchange plus” basis. These accounts are based on the “interchange” tables published by both Visa Visa Interchange and MasterCard MasterCard Interchange. This type of pricing creates a discount rate by adding interchange rates plus a percentage and authorization fees. This is a common pricing model for very low and very high average tickets.

Bill Back/ERR (Enhanced Recover Reduced)
A bill back/ERR is a variation on interchange plus pricing. It has some variations but the basic concept is that the merchant pays one set rate for qualified cards then is billed back for mid or non qualified cards. Merchants will be charged the qualified rate for all of their transactions. Then, for the transactions that are mid or non qualified, merchants will be charged again for the difference of the qualified rate (the rate they already paid) and the interchange rate (cost) plus a surcharge. There are two reasons this is called bill back. You are billed one rate and then billed back another. Also because you will typically see the surcharges on the next month’s statement. It requires a great deal of time to research the actual cost per transaction with the bill back system.
Example of BILLBACK/ERR: Bill Back pricing: 1.75% + 0.50% surcharge
If you ran $1000 and you keyed in a regular credit card, that charge is now considered mid qualified because you did not swipe it. Interchange for a keyed credit card is 1.8%. The difference of the interchange plus the surcharge is 0.55%. Below is how it would look on your bill.
$1000 X 1.75%= $17.50
$1000 X 0.55%= $5.50
TOTAL= $23.00

Authorization fee
The Authorization fee (actually an authorization request fee) is charged each time a transaction is sent to the card-issuing bank to be authorized. The fee applies whether or not the request is approved. Note this is not the same as Transaction fee.

Transaction fee
The Transaction fee is charged when you accept your authorization. This fee only applies to an authorization that is accepted without error.

Statement fee
The statement fee is a monthly fee associated with the monthly statement that is sent to the merchant at the end of each monthly processing cycle. This statement shows how much processing was done by the merchant during the month and what fees were incurred as a result.
Many times, the statement fee is not directly linked to “paper” statements but rather general overhead. This means that a provider would not waive this fee if a merchant chose to have a “paperless” statement.

Monthly minimum fee
The monthly minimum fee is a way to ensure that merchants pay a minimum amount in fees each month to cover costs from the provider to maintain the account. If a merchant’s fees do not equal or exceed the monthly minimum they will be charged the difference up to the monthly minimum.
Example: A merchant has signed a contract with a $25.00 monthly minimum fee. If all the fees for the most recent month of processing total (CLARITY: this is only for processing costs, so it does not include monthly fees, chargeback fees, etc.) only $15.00, this merchant will be charged an additional $10.00 to meet their monthly minimum requirements. Sometimes there are fees that are charged that are not a part of the monthly minimum, such as statement fees. It is industry standard to charge a monthly minimum, though not all acquirers charge this, nor do all that do charge it for every agreement.

Batch fee
A batch fee (also known as a batch header fee) can be charged to a merchant whenever the merchant “settles” their terminal. Settling a terminal, also known as “batching”, is when a merchant sends their completed transactions for the day to their acquiring bank for payment. Some providers perform this automatically. It is important to close a batch every 24 hours or a higher rate will be assessed by Visa, Discover or Mastercard. The term “batch header” originally came from processing pre-electronic terminal era, when each batch of credit card receipts was turned into the merchant’s local bank for deposit. The batch header was a mini report summarizing those receipts bundled within.

Customer Service fee
The customer service fee (also known as a maintenance fee) can be charged by some providers to pay for the cost of customer service. Also referred to as a “merchant support fee”, “customer support fee”, or simply, “service fee” by some merchant providers.

Annual fee
The Annual fee can be charged by some providers to pay for costs of maintaining the merchant’s account. Sometimes these fees can be quarterly. The fee can be from $49–$399.

Early Termination fee
The early termination fee can be charged by some providers if the merchant ends the contract before the end of the contract term. While contract terms of 1–3 years are typical, some providers have terms of up to 5 years with a one year prior notice to cancel or the fee will be assessed. Some providers also assess all statement fees and monthly minimums remaining when the contract is terminated. Some providers may also assess a “lost profit” fee based on an assumption of profits they concluded they would have earned during the full term of the contract.

Chargeback fee
The chargeback is the largest risk that is presented to banks and providers. This is not to be confused with a refund, which is simply a merchant refunding a transaction. In the Visa, Discover, and Mastercard rules, the merchant’s processing bank is 100% responsible for all the transactions that the merchant performs. This can leave the provider open to millions of dollars of potential losses if the merchant operates in an illegal or risky manner and generates many chargebacks. The providers pass this cost on to the merchant, but if the merchant is fraudulent or simply does not have the money, the provider must pay all the costs to make the card holder whole. The chargeback risk is the largest part taken into consideration during the contract application and underwriting process. Some banks are much more stringent than others when assessing a merchant’s chargeback risk.
If a merchant encounters a chargeback they may be assessed a fee by their acquiring bank. A potential chargeback is presented on behalf of the card holder’s bank to the merchant’s credit card processing bank. A reason code is established by the card issuer to properly identify the type of potential chargeback based on the card holder’s complaint. The most common complaint is that the card holder can not remember the transaction. Usually, these potential chargebacks are corrected when the merchant’s processing bank sends over more details about the transaction. Some providers charge a fee for this service, known as a “Retrieval Request”. A chargeback can also be related to a fraud or similar dispute that the card holder is claiming to the merchant. This fee can be charged by some providers whether the chargeback is successful or not and is not dependent on the amount of the chargeback.
Currently both Visa and Mastercard require all merchants to maintain no more than 1% of dollar volume processed to be chargebacks. If the percentage goes above, there are fines starting at $5000 – $25,000 to the merchant’s processing bank and ultimately passed on to the merchant.
In all cases, a chargeback will cost the merchant the chargeback fee, typically $15–$30, plus the cost of the transaction and the amount processed.
“Merchant account.” Wikipedia. Wikimedia Foundation, 7 May 2014. Web. 5 July 2014. http://en.wikipedia.org/wiki/Merchant_account.
Call or email me today to become an agent! 248 245 0649 or mgallagher@transfirst.com
Mike

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