It is probably not surprising to anyone when I say that, in my opinion and experience, the credit card processing industry has very little integrity. Need proof? Just look over your statement and try to understand exactly what you’re being charged and why. Details are deliberately vague.
While there’s a lot we could address in this article, for the sake of brevity, I’ll just highlight some of the main things you should watch for when it comes to credit card processing.
Credit card fees are made up of three main charges:
The Issuing Bank Fee
This is a fixed fee from the bank supplying the card – for example, Capital One, Wells Fargo, a local credit union, etc. The fee you’re charged also is affected by the type of card that your customer is using to make the payment (business card, personal card, travel points, cashback, etc.). So, the issuing bank fee is dependent upon the bank and the card used.
Visa/Master Card Charge
This is also a fixed fee that you have no control over. It is a fee that is charged on every transaction by Visa/MasterCard.
The Processing Fee
This is controlled by the processing company. This is your “rate,” which is variable and dependent on the processor. These rates often can be confusing, so I will give you a basic overview in layman’s terms.
Flat Rate – This is where you’re assessed a flat rate, regardless of the type of card you take. Generally speaking, selecting a flat rate will be more expensive for most dealers. Flat rate processing means you’re being charged enough to cover the processing fees for the most expensive cards, even when your customer may have used the least expensive card. Flat rate cards might be good for dealers who consistently are going to be charged a higher rate – for example, if you’re a really small company or if you’re based in an affluent area such as Manhattan. But for the majority of dealers, flat rate is not the best option.
Cost Plus – With Cost Plus pricing, you pay the cost of the transaction, plus a set add-on rate (referred to as basis points). Basis points rates are negotiated when you contract with a processor, and usually are based upon your annual processing dollars. Cost plus is usually a good option, unless you want to go the surcharging route.
Something that is important to remember with Cost Plus/Basis Points is that if your customer happens to give an incorrect zip code, you automatically are charged a dramatically higher rate. You are not notified when this occurs (unless you specify with your processor that you want to be flagged beforehand); they just charge you. Keep an eye out for that, because the costs can be pretty high.
Surcharging – With a Surcharging option, the business passes the credit card processing fee on to the customer. This covers a LARGE portion of your processing fees.
It’s important to note that surcharging is regulated by Visa/Mastercard. You cannot charge more than 3 percent, and you must meet certain requirements. You cannot make money on a surcharge. You must remit everything you collect, similar to sales tax. You must use a processor that supports surcharging – this isn’t something you can just decide to do on your own. For example, you shouldn’t add an extra line to the sales agreement that says
“Surcharging.” Nine times out of 10, going this route is out of compliance and could flirt with losing processing privileges. Another regulation is that you prominently must display a sign in your store indicating that you surcharge. Another tip is that it’s best if you use software that supports surcharging.
This will help immensely with accuracy and the time involved in collecting and remitting.
Surcharging requires foresight, planning, and compliance, but it also can save a ton of money. You can count on reducing credit card fees by around 75 percent. That is pretty significant. One dealer I know paid $156,000 in credit card fees in 2021. After switching to surcharging, their bill was reduced to $36,000 in 2022. That’s a savings of $120,000 in one year!
Many credit card companies make their statements as obscure as possible to hide non-necessary “junk fees” and to make it difficult to determine (and thus compare) exact rates. For example, if you ever see “PCI Certification Fee” on your statement, that’s an example of a junk fee. Valid fees would include terms like “monthly connection” or “monthly gateway” fees, which are typically around $40 to $50. Another valid fee would be the per transaction fee (generally $0.10 to $0.20).
Finally, keep in mind that if you, as a business owner, take a stolen credit card, you are on the line for it, even if nothing was flagged on it initially in your system. Be cautious.
Chad Ogden is the founder and president of QFloors software, located in South Jordan, Utah. While he is a “tech guy,” Ogden says he got into the weeds of credit card processing to provide something better for customers. His company provides credit card processing, both for QFloors/QPro customers (QPay), and for others in the flooring industry (Mountaintop Payments). If you have additional questions, feel free to reach out to the team at sales@qprosoftware.com or info@mountaintoppayments.com.
