In our previous segments, we discussed the payment processing business as a whole, as well as some of the details of how a retailer is able to accept various card types for payment. This included — using their retail management software — how they get paid for the transactions, and then how the customer is ultimately billed on their monthly statement and the card issuer gets their payment. We also discussed the fact that while it’s reasonable for all the players in this industry to be paid for their investments and for the risks they take, it’s smart for the retail merchant to make sure they’re getting a fair deal and that they’re not paying too much for these services.

Just like the consumer needs to be concerned about any annual fees and interest they pay for their cards, the retailer needs to be concerned about the fees they’re charged for the payment processing process.

In this segment, we’ll discuss practical strategies for you to accomplish three key objectives:

1. How you can know how much your payment processing is really going to cost you.
2. What you can do to control your payment processing costs.
3. What else you need to be aware of beyond the “raw costs” (i.e., the fees assessed against your transactions, when will you get paid, etc.)

What is your payment processing really going to cost you?

There are two obvious ways to approach answering this question:

1. Try to figure out the fine print. You can attempt to “model” or predict what your costs would be based upon an analysis of your transactions and how you think they would be classified. This is a very challenging approach and fraught with peril as you may not be able to properly interpret the complex payment processing rules. While we recommend that you carefully read all of the information provided by the payment processor, and do your best to understand what their rules are, we suspect that you won’t be satisfied with the results of your “modeling exercise”.
2. Look at the bottom-line. Request that the payment processor provide you with some statements for several other merchants that are similar to you. They may balk at this due to privacy concerns, but they can easily redact the confidential information so the identity of the other merchants is removed. In the worst case, they should be able to provide you with aggregate information (i.e., total number of transactions, total value of the transactions, and the total fees paid). From this information you can get a good feel for how much the effective fees will be. When you request this information, you may get the argument that the fees vary widely from merchant to merchant, but if you do, then ask for even more examples so you can get a feel for the range of costs. If in fact the fees vary wildly, then you can safely draw the conclusion that you could possibly see fees on the high end of the spectrum! We also recommend that you ask for several references that you can check. Most of your fellow merchants will be more than happy to share how their costs add up for their payment processing fees, and what their experiences have been while working with the payment processor.

When evaluating proposals from the payment processors, at the simplest level, you will likely see the fees quoted as some combination of:

1. Discount rate. This will be a number like 1.4% (for pure, in person, retail sales), up to 2.3% (for Internet or “card not present” sales). This fee is just like what it seems, in that if you make a sale for $100.00 with a 2% discount rate, you will have to pay $2.00 to the processor. Please note that these are minimum rates, and certain circumstances can cause your transactions to be charged at a higher rate. We’ll discuss this further below.
2. Transaction fee. This will be a number in the range of $0.20 – $0.30 per transaction, again with the rate being lower for pure, in person, retail sales and higher for Internet or “card not present” sales.
3. Other fees. Application processing, address verification, gateway, statement, and monthly minimums – for example.

Note that these fees can vary between card types: credit, debit, PIN debit, gift, EBT, procurement, etc., and also between card brands: Visa, Mastercard, JCB, Discover, American Express, Diners Club, etc.

What can you do to control and minimize your payment processing costs?

While you certainly want to get the best deal you can on the directly comparable fees noted above, in addition you need to be very careful about doing anything that “downgrades” a transaction (i.e., causing the transaction to be charged at a higher rate than the lowest rate – as quoted above).  For example, not submitting consistent or complete transaction information to the processor; having incorrect address information, expiration date, or an Issuer Identification Number (IIN) or Bank Identification Number (BIN) that is mismatched with the customer’s billing address. You can also have a transaction downgraded if you have to type in the card number instead of transmitting the full card swipe information through your retail management software (or, POS). There are many other ways downgrades can occur, and the ways vary by processor. Interpreting these rules can be very complicated, and disputing the fees can wind up being a fool’s errand – in that you’ll spend more time arguing with the payment processor than the cost of the individual fee is worth.

Another way your effective rates can increase is due to “chargebacks”. Chargebacks occur when your customer disputes a charge that they made at your store, and the card issuer has to refund the money to your customer. When this occurs, you will pay a penalty and may be subject to having your overall merchant account downgraded (i.e., higher overall fees for your transactions) or even having your merchant account closed. The way to avoid chargebacks is to ensure that you have an ironclad relationship with your customer and that they completely understand and agree with what they’re buying. Further, make sure the invoice/receipt very clearly indicates the product or service they purchased, so the consumer isn’t confused when they see their statement. This is an area where tight integration with your retail management software can ensure that you have the right information printed on your receipts and submitted to the payment processor.

Finally, since the fees vary between card types and issuers, you need to be cognizant of these differences. An example is that debit cards are usually less costly to process than credit cards, and if a PIN number is entered by the consumer the fee may even be lower.

What else should you be aware of when choosing a payment processing provider?

Given all of this complexity and how much room there is for interpretation and potential dispute, it’s very important that you choose a payment processor that’s reasonable and convenient to work with. Further, you need to thoroughly understand the way your processor does business – what their customer service policies and escalation paths are. Ask them tough questions about how they deal (specifically) with the following:

1. Explanation of the merchant statement — does your sales person really understand their own statements? Have they provided you with examples and can they explain them to you? If not, who does understand the statements?
2. Disputes about the fees – who do you go to make a dispute? How are they (specifically) handled? Who makes decisions on waiving or refunding the fees?
3. Chargebacks – what are the rules and who can you ask if you have questions about their interpretation?
4. Bank Deposits – are there any circumstances where the processor will withhold or delay your payment? What is the typical time for a deposit to be made after your batch is settled?
5. Contact information – your sales contact and their supervisor. Also, the contact(s) for batch processing and settlement issues, and who has the authority to block or delay deposits to your account. Finally, who can make a decision to release the funds to your account if they’re blocked or delayed?

Finally, make sure you thoroughly understand the conditions and terms surrounding terminating your agreement. What is the agreement term/length? Is there an early termination fee? Can you buy your way out of the agreement early?

Summary

Card processing fees are complex and difficult to understand, and if you object to the fees, they can be difficult to dispute. The “base rates” quoted by the payment processors are often not what you will really be charged and in fact your effective rates can be quite a bit higher. As a result, your best chance to understand what you will really pay and how you can control your costs lies in carefully examining examples from companies similar to yours, and by contacting references and finding out what their experiences have been.

For more information, please see: http://www.retailpro.com/RequestMoreInformation.php

The days of our customers carrying cash around to purchase goods is quickly going the way of the dinosaurs. Today a patron takes for granted his ability to use any of the many forms of electronic funds transfer (EFT) payment methods. The last thing we want to do is turn a customer away by muttering the words, “I am sorry we don’t accept credit cards.” For this reason alone it is important as a retailer to understand, even at a high level, what it means to accept electronic payments within your stores and what options are available to you.

In general, it is human nature to search out the options which will cause the least amount of headache, and more importantly have the minimal impact on our pocketbooks and bank accounts. The decision on what EFT system to pair with your retail point of sale software should be held to this same scrutiny. Whether integrated to your retail management system or connected as a stand-alone EFT system, the impact on your store operations should be kept to minimum. It should just work.

In our previous two postings, “Payment Processing – Getting Your Money’s Worth (Part 1)” and “Payment Processing – Getting Your Money’s Worth (Part 2)”, we set out to provide some insight into the challenging world of payment processing  and how the many pieces allow you to accept the common forms of electronic payment. Choosing a payment processing provider blindly could leave you feeling the pain every time you complete an EFT transaction. An educated and well-informed selection ensures the choice you do make is one that will support your business now and well into the future.

Retail Pro International embodies this philosophy in its choices for EFT providers. The providers we select provide meaningful features and services to our customers at a reasonable price, while providing the highest level of PCI compliant security for your sensitive data.

Our latest integration, the Retail Pro EFT Link, continues this methodology, providing retailers an EFT integration with a selection of industry leading processors and the features they need for fast, secure payment processing with the lowest transaction costs. Adding this integration to Retail Pro International’s robust payment processing choices provides Retail Pro users the best of breed solutions, and more importantly options to suit their selection process.

Retail Pro’s EFT Link and our supported payment processing providers are not just partners for Retail Pro International, they are your partners that will be around to support you with your payment processing needs.

To find out more information about Retail Pro and the options available for your payment processing needs, please see: http://www.retailpro.com/RequestMoreInformation.php

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The payment processing industry is incredibly simple on the surface, yet when you dig deeper it quickly becomes pretty complex. In this segment we’ll try to summarize the key elements that you’ll need to know so you can make sure you’re getting a fair deal with your payment processing program. If you’d like to become an expert on this topic, however, we recommend that you consider one of the more academic resources available on the Web – mostly written by payment industry insiders and/or the processors themselves.

Basically, the payment processing system consists of:

1. The consumers who make purchases
2. The cards* they use to make the purchases
3. The retailer (you)
4. The banks that loan the consumers the money and pay you when the sale is processed
5. The owners of the brand names and organizations for the cards (i.e., Visa, Mastercard, American Express, JCB, Discover, etc., these are known as the “card associations”)

(* Please note that there are differences between how each card specifically works and we’re generalizing the process for this article.)

In reality, there are two kinds of banks involved:  the “issuing bank” (they issue the cards and interact with the consumer), and your bank (known as the “merchant bank” or the “acquiring bank”).

Further, the merchant bank almost always has some “middle men” to help them with managing the merchants and with the process of selling the merchant on their value proposition. These agents are variously known as:

1. Independent Sales Organization (ISOs)
2. Merchant Serves Organizations (MSOs)
3. Merchant Services Providers (MSPs)
4. Member Service Providers (MSPs)

However, to you they are probably just known as the sales people who “signed you up”. They provided you with your payment terminal and the other things you needed to take credit cards, and they service your account (answer questions, resolve disputes, etc.)

Finally, if you have an integrated payment solution (in other words, your POS terminals and software “automatically” accept credit cards and handle all of the processing), then you will most likely have a component in the process called a “payment gateway”. The payment gateway allows your POS system (like Retail Pro®) to communicate seamlessly with the merchant bank (or to their processing agent, the “processor”).

The reason it’s important to be aware of all of these links in the payment processing chain is that each link has some work to do, some risk to absorb, and some costs for the services it provides. And, as we discussed last time, it’s reasonable for you to pay for the value each of these links provide. However, we also believe that you should be paying a fair amount that is consistent with the value you’re being provided.

In the simplest terms, the sources for your costs for payment processing can be categorized into:

1. Interchange. This represents what the issuing banks charge (as determined by the card associations) for all that they provide (i.e., dealing with the consumer:  taking on the credit risk, managing their payments, providing customer service, etc.; dealing with the merchant banks; dealing with the regulatory organizations; marketing/branding; and any other services they provide). Clearly, this is the lion’s share of the process and ought to represent the bulk of the cost.
2. Communication and processing. This is the cost associated with maintaining the networks and processing infrastructure necessary to ensure that all the transactions are reliable, timely and accurate.
3. Merchant management. This is the cost of maintaining a relationship with you, the retailer, and servicing your account as well as taking on the risk of you staying in business and meeting your obligations.

In the next segment, we’ll discuss in more practical terms exactly what you get charged for on your monthly statement and why.

For more information, please see: http://www.retailpro.com/RequestMoreInformation.php

Next to the joy that comes from seeing your customers enriching their lives using the products you’ve sold them, seeing their cash in your bank account comes in a close second place! Everybody loves cold hard cash, but clearly other forms of payment have become increasingly popular for your customers. In fact, for many retailers physical currency is becoming an artifact.

Being able to accept non-cash payments seems great, until you see how much the credit card companies are taking from you before they actually make the deposit in your bank account.  And, while they get to keep your money, they don’t seem to do a thing to earn the customer’s business. You do all the hard work and they sit back and rake in the bucks – what a deal for them! In this series, we’ll delve into the reasons why the credit card processors charge what they charge, and how you can make sure you’re paying a fair amount for the services they provide you.

At first glance, it appears that taking cash really doesn’t cost you anything – right? Your customer hands you the cash and you put it in the bank, without anybody else getting their stingy mitts on it. In reality, it does cost you to take cash. You have to maintain your tills, keep your change stocked, and travel to the bank (or hire an armored transport service) to make deposits and withdrawals to manage all of that cash. Further, you take on a number of risks when dealing with cash: robbery, employee theft, mistakes making change, and counterfeits to name a few. Finally, if you were to insist upon only taking cash in your business you would actually make your customers wait longer in check-out lines and subject them to the risks mentioned above – because then they’d  have to deal with all of that cash themselves!

When you work with a payment processor to handle your non-cash payments (including credit and debit cards, gift cards, checks, EBT, and others), they provide a service that saves you money, reduces your risk, and increases customer demand and sales. Another service they provide that might not be obvious at first glance is that they are taking on the risk of establishing and maintaining a credit relationship with the customer (kind of like you granting “store credit” to your customers to help stimulate sales, but you don’t have to determine the customer’s credit worthiness, keep track of charges and payments, and decide how much credit to grant them – or decide when to cut them off!) We all agree that they deserve to be paid something for those things.  The key, however, is making sure that you don’t pay them too much for their contribution to your business and that you keep as much of your cash as possible.

In the next segment, we’ll discuss the components of the payment processing system and how each of those translates into the charges you see on your monthly statement.

For more information, please see: http://www.retailpro.com/RequestMoreInformation.php