ETD: 934 SPECIAL REPORT - The “Hidden Costs” of Credit Card Processing
E-Tailer's Digest
etd_post at gapent.com
Tue Nov 22 11:34:30 GMT 2005
E-Tailer's Digest --- Everything for the Retailer
Issue #0934 November 22, 2005
George Matyjewicz, Moderator mailto:georgem at gapent.com
Published by: GAP Enterprises, Ltd. http://www.etailersdigest.com
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CONTENTS
[1] Greetings
[2] SPECIAL REPORT - The Hidden Costs of Credit Card Processing
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[1] Greetings.
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Hi All:
Today we have a special report entitled "The
Hidden Costs of Credit Card
Processing." Retailers/etailers all need credit
cards to survive. Most of us just figure that it
is a cost of doing business, and there is nothing
we can do about the fees we pay. Just pass them
on to the consumer, or eat them in the bottom line.
Well, that's not true. I met Josh Dill this year,
and we got to talking about business. I learned
a lot about credit card processing - like cash in
24 hours; type business determines rates; not all
providers are created equal and not all rates or
services are the same. And, just like you get an
audit of your financials or an operations audit,
so too should you get a Credit Card Rate Analysis.
I was so impressed with his knowledge, that I
asked Josh to write us a special report on "The
Hidden Costs of Credit Card Processing."
What do you think? Does this fit in with what you are doing?
Thursday is a holiday here in the U.S.
(Thanksgiving), so we will not publish. Have a
wonderful holiday, and may Friday be black for you.
Now, let's get to everything for the retailer.
Sincerely
George Matyjewicz, PhD
Chief Global Strategist, GAP Enterprises, Ltd.
mailto:georgem at gapent.com
http://www.etailersdigest.com
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[2] The “Hidden Costs” of Credit Card Processing
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+ + + + + S P E C I A L R E P O R T + + + + +
"The Hidden Costs of Credit Card Processing"
by Josh Dill
Senior Account. Executive
Charge Card Systems Inc.
"What is your rate?" This is the most common
question that a retailer will ask when approached
by a credit card processor. In fact, there are
so many other issues that must be considered when
choosing a source for your credit card solutions.
Retailers are often times are so busy in their
day-to-day pressures that they don't have the
time to study their credit card costs.
The credit card business, which in 2003 processed
sales of $1.4 trillion (with only
MasterCard/Visa) performs a vital function of
maintaining the financial health of your
organization just like we need have our books
and records audited by our CPA firm, retailers
must exercise their financial acumen when
analyzing whether they have the best “credit card
program” for their particular organization.
Yes, the word “program” is critical there are
different programs and solutions that can be
obtained depending on the needs of your
organization. In addition and very importantly,
credit card processors have numerous “hidden
costs” which can and will inflate your credit
card costs and in the majority of cases, you will
never know it even happened.
Did you know that there are different rate
structures for how you set-up your organization?
Similar to starting a business, why did you
choose to become a Subchapter S, vs. a C, vs. a
LLC vs. non-profit vs. becoming a
partnership? Working with your accountant, there
were important criteria you analyzed to make this
decision, which would ultimately affect your tax consequences.
The same holds true in the credit card business
there are “retail” rates, “swiped” rates, “MOTO
Mail Order, Telephone Order” rates,
mid-qualified, non-qualified, key-entered,
international rates, batch fees, debit fees,
early cancellation fees, voice verification fees,
address confirmation fees I think you can
understand the point. Besides rates, there are
“transaction fees” and when analyzing your fees,
it is critical to make a fair comparison of the
“bundled” rate of both your discount rate AND
your transaction fee (fee charged by the processor for each transaction).
Many credit card salespeople will offer a low
introductory rate, which to a layperson within
the company will seem unbelievable. What will be
unbelievable are the “downgrades” or penalties
that the business will be paying, without even
realizing it because there are so many additional
issues that have to be addressed.
We have analyzed thousands of merchant statements
and have confirmed in our study that all
organizations, whether for-profit,
non-for-profit, retail, restaurants, or any
retailer, are all being taken advantage of;
-- why? Because merchants are not “credit- card
sophisticated” and thus cannot carefully dispute
their “Effective Credit Card Charges” which is
the ultimate amount of money they pay. In order
to run your company in a financially astute
manner, you must know your “effective rate”
(takes into consideration all the charges) vs.
your “base rate” which is the initial rate charged by your processor.
Fact: Most CFO’s, bookkeepers or presidents of
organizations do not carefully analyze their
credit card statements on average for 10 years?
Solution: We suggest that all organizations
perform a “Rate Analysis.” At Charge Card
Systems, we evaluate our prospective clients at
no charge to quantify their rate structure. In
addition, CFO’s and managers need to become
better educated on the financial solutions available in today’s marketplace.
For example, “Recurring Billing” is one topic,
which many organizations are not employing
properly. Recurring Billing allows your company,
through specific software to bill its customers
with the press of a keystroke vs. re-entering in
every name, address, $$ amount into their credit
card terminal (which is very time-consuming) on a
monthly basis. For example, a consumer may buy
goods on a lay-a-way plan, and you need to bill
the same amount automatically every month, until the item is paid in full.
If you are a not-for-profit organization, you
should consider using software programs like IC
Verify or PC Charge (each program is less than
$400), which should help your organization become
much more efficient in its billing and collections process.
Another issue which rarely is raised -- how long
until your money is deposited into your bank
account? Most processors are 48-72 hours vs. 24
hours (banks capitalize on the cash float). When
is your discount fee taken? Daily or monthly;
Think about the savings on interest, the float of
your money plus increased cash flow if your fees
were removed at the end of the month? It
certainly adds up and these issues will help greatly with your cash management.
Finally, it is important to note that switching
processors is not a difficult task; in most
cases, there is no fee to switch and typically
involves filling out a 2-page application. Why
not start saving money today and put the money in
your pocket, or contribute to a worthy cause? It
is a much better investment to spend your money
on improving your organization vs. wasting money
on the high and hidden costs of your credit card processing fees.
###
About the author. Josh Dill is a Senior Account
Executive of Charge Card Systems Inc. CCS is a
national credit card processor powered by First
Data Merchant Services; he can be reached at
(201) 568-6813 or contact him at
jdill at chargecardsystems.com; website address: www.chargecardsystems.com
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