No one likes credit card fees and no one likes dealing with credit card processors. However, in today’s world, accepting credit cards is simply a must (see articles, “Show me the Money,” and “Why you should love paying credit card fees”). Since it is a necessary evil, it is extremely important that you understand the basics of credit card fees, contracts and red flags. This article will focus on what you look out for when setting up an account with a new processor and best practices to follow to keep your current processor honest.
What to Expect:
Account Types, Discount Rates and Transaction Fees….
When looking for a new processor you need to know what fees to expect. In this article I am going to assume that you are processing through your home inspection software (i.e. ISN, HIP, Horizon, Home Gauge, etc…) and that the transactions will be non-swiped (see article, “To Square or Not to Square” for information on swiped accounts). There are two different types of accounts out there and neither one is inherently better than the other, the first is a tiered account and the second is an interchange plus account. On a tired account there will be three rate tiers, Qualified, Mid-Qualified and Non-Qualified. All transactions will fall into one of those tiers. Qualified transactions are normal Visa, MasterCard or Discover transactions. Mid-Qualified are rewards cards. Non-Qualified are corporate cards, international cards and transactions where the zip code and security code don’t match. Interchange plus accounts simply charge you a certain percentage (generally a set number of basis points) above cost, or interchange. With both of these types of accounts you will also pay a per transaction fee. The percentage that is charged with these types of accounts is referred to as a “discount rate.”
Monthly and Gateway Fees
On top of the discount rate and the per transaction fee, you will also generally have a monthly fee (again, refer to my article, “To Square or Not to Square” on accounts with no monthly fees). This fee will usually be between $5.00 and $10.00 per month. If you are processing through your home inspection software program, you will also have a gateway fee. Depending on which payment gateway your software developer recommends, you will pay between $5.00 and $20.00 per month for the gateway. The payment gateway is required for any and all online processing. It is the security feature the card companies require to keep your customers information secure when processing online (or through a software program).
A fun new fee was introduced by Visa in 2012 called the FANF fee. This is a fee that will be on every single merchant account and is based on processing volume. For the average home inspector it will be between $2 and $15.00 (which means you are processing between $0.00 and $39,000.00). This fee comes directly from Visa and the individual processors have no say in the matter.
PCI Compliance Fee
PCI compliance is also a relatively new fee that is now on every merchant account. Some charge it monthly, most charge it annually. It can range from $60.00 to $150.00 per year. Also, most processors will charge you more if you don’t do the required Visa/MC PCI compliance questionnaire every year. The card companies require that each year you state that you are still compliant. Each processor has different procedures for how you remain compliant and the each has different penalties if you don’t keep up with your compliance. Make sure you find out what the compliance fee is, what the penalty for non-compliance is and what the procedure is for remaining compliant.
What to Look Out For:
Cancellation Fees and Contract Terms
The most important thing to watch out for when setting up a new merchant account is the cancellation fee. Never sign an agreement with a processor that locks you into a term contract and charges a cancellation fee if you terminate early (many will lock you into a 3 year agreement). If you are locked into a contract, they can then increase the rates to whatever they want knowing that if you cancel they get a lump sum cancellation agreement and if you stay, they make a killing on your processing fees. So, again, do not ever sign a term agreement with any processor.
Junk Fees and Clubs
Also look out for junk fees. Many processors will try to get you to sign up for equipment maintenance programs or club programs that add additional monthly fees. Make sure you look at all the fine print to see if there are any additional hidden monthly fees.
Never, ever, ever, never, EVER sign a lease for equipment. Please just trust me on this. It is never, ever, ever, never, EVER worth it.
Start Up or Application Fees
You should never have to pay start up fees or application fees. Just say no.
Smart Card Readers
Smart cards are a hot button topic right now. You will receive phone calls from companies that will try to scare you into thinking you need new equipment that is smart card ready for when the government requires all merchants to use smart cards. Simply put, it is not true. You don’t need to update your equipment yet, the time may come someday, but we are not there yet. Especially if you are processing through your home inspection software, this is something that simply does not apply to you so don’t get sucked in.
Keeping your current processor honest:
Assuming you are already processing, one of the easiest things you can do to make sure you don’t get taken advantage of, is to calculate your effective rate every month. To do this, you simply take the total amount you processed and divide it by the total amount in fees you paid. If you do this every month, you will be able to see if there are any significant changes. Now, because rates are determined by the card type your customer hands you, the effective rate is going to change a little bit every month, what you are looking for are changes that are larger than .25%. I understand that most home inspectors hate dealing with this part of their business, but remember; your credit card processor sees your money before you do, so please, if you do nothing else, take 2 minutes each month and find out your effective rate. If you do nothing else, this one small thing could save you hundreds of dollars per year.