The Effective Rate – Business Tip Series: 3 Secrets on Saving on Credit Card Fees (Part 3)
Introduction: At L4SB, we’re blessed to have many great clients in many industries. Some of our clients serve the business-to-business market, just as L4SB does. When appropriate, we may permit a client to publish a blog article, if we feel the information is relevant and helpful to our website audience and clients. The following article was produced by Electronic Money Company, a L4SB client. L4SB asked Electronic Money Company to produce a blog article that we could publish, to help our respective business clients better understand credit card processing and perhaps how to save money. L4SB has no relationship to Electronic Money Company, other than providing legal services. L4SB makes no recommendations or opinions as to the information contained herein. We have split this article into three parts. This is the final — part three —
and part two is available here.
Secret #3 – The Myth about the Effective Rate
The effective rate is the total monthly cost of credit card processing divided by the volume of processing. The effective rate usually varies from 1.5% to 4%+ depending on the merchant’s industry and type of transactions. If a merchant receives mostly debit cards which have a low risk and low interchange rate, the effective rate will be a lot lower than a merchant taking transactions over the internet, which has a higher risk and higher interchange rate.
True Story – The Bob from Brand X Restaurant Scam!
One of our large volume, fine dining restaurant clients was approached by Bob from Brand X who said he would save them over $300/month on their fees! Our client asked us to evaluate. We said we needed to see the rates Bob was presenting, not just a number of $300 with nothing to back it up. It took the client 10 days to get a copy of the rate presentation. Bob doesn’t like to leave the facts behind on a piece of paper. That way he can’t get found out. He just blab’s “Savings of $300” over and over again and hopes the prospect bites.
Well, we looked at Bob’s handiwork and the new proposed rates were 50% higher than the rates our client was currently paying! The savings of $300 was a scam! The small print in Bob’s presentation exposed this scam. He was taking an average effective interchange rate for all restaurants in the United States, (ignoring the actual effective rate of this particular restaurant), and adding his markup, which came up to less than what the client was paying currently. This fine dining restaurant takes lots of rewards cards and corporate cards which have a higher interchange rate than low interchange debit cards used primarily at a fast food establishment. So the effective rate for a fine dining establishment will always be higher than the effective rate at a $10 burger place and will also always be higher than the average interchange rate for all restaurants lumped together. Too bad you have to lie to get business, Bob.
Bonus Secret! – Inquire About the “Services” in Merchant Services
Ask questions about the servicing of your account. Ask for the 24/7/365 help desk number. Dial it and see how long it takes someone to answer. If a time comes that your terminal is down and people are standing in line to pay you, the last thing you need is to be on hold for 30 minutes before your technical support answers their call.
Ask for your salesperson’s number and dial it and see how long it takes that person to respond, if at all. Many salespeople never talk to their clients again after the initial application.
These things are important when you get in a pickle. Perhaps the terminal is not responding or the monthly statement reconciliation does not match up or perhaps a customer thinks they have been double charged. Will your new terminal arrive in a box with a good luck sticker on it, or will the salesperson install it personally or over the phone with you? Ask to see testimonials or get a referral so you can verify the support you expect from your merchant services provider. You might want to consider paying a little more to get additional personalized service. If you negotiate a cheap rate, beware that the processor may not be able to afford personalized service or may not be able to afford a big enough technical support staff to answer the phones without a wait time. The choice is yours.
If you have more questions or you want us to give you a simple breakdown of your merchant statement to show you how much surcharge you are paying your processor, email us at [email protected] or feel free to call us at 866-898-7618.
This article was produced by Electronic Money Company, a L4SB client. They are a merchant account processor based in Albuquerque, NM, and work to provide not just competitive credit card processing rates, but to provide a personal, honest consultative experience for their clients and customers.