There are six types or ways of pricing for merchants.
- Two-Tiered: For mail-order/telephone-order (MOTO) businesses or for
merchants that will not be able to swipe the card through the terminal at least 50 percent of the time. For example, for the first tier the merchant could receive a rate of 2.29 percent for qualified cards, which means almost any debit card, swiped or not; consumer
credit cards that are swiped; rewards cards, swiped or not; and any card that is not swiped or is keyed in, except for a corporate or world card. The second tier could be a rate of 2.29% + 1.29% = 3.58% for any card that is not swiped or keyed in and for which the address verification system (AVS) does not match, and any corporate or world card swiped or keyed. Are you getting all of this? Pretty crazy, huh? But wait, there’s more!
- Three-Tiered: For retail businesses that swipe the card a majority of the time, and sometimes MOTO businesses. For example, for the first tier with the new lower debit rates, the merchant could receive a rate of 1.19 percent for qualified cards, which means almost any debit card, swiped or not, and consumer credit cards that are swiped. This
could be a loss leader of sorts, as your qualified credit card cost could be higher, but the lower debit cost should be able to make up for it. For the second tier the merchant could receive a rate of 1.19% + 0.89% = 1.98% for mid-qualified transactions, which means any rewards card, any credit card that is keyed or not swiped, and just a few debit cards that are keyed and not swiped. For the third tier the merchant could receive a rate of 1.19% + 1.29% = 2.48% for nonqualified transactions, meaning any card that is not swiped or keyed and for which the AVS does not match, and any corporate or world card
swiped or keyed. Four-Tiered: For retail businesses that swipe the card a majority of the time. For the first tier a merchant could receive a rate of 0.75 percent, which would cover most debit cards swiped or keyed. This isn’t a loss leader, but there could be some debit cards
that cost more. For the second tier the merchant could receive a rate of 1.59 percent for consumer credit cards that are swiped, and for the third tier a rate of 1.59% + .89% = 2.48%, which covers almost any debit card not swiped and not covered by the first debit rate, any consumer credit cards that are not swiped, rewards cards swiped or not, and any card that is not swiped or is keyed in, except for corporate or world cards. The fourth tier could be a rate of 1.59% + 1.29% = 2.88% for non-qualified transactions, any card that is not swiped or keyed and for which the AVS does not match, and any corporate or world card swiped or keyed.
- Transaction Fee: This is a fee charged to cover the transaction. It can be only the cost, or a combination of the cost of interchange and/or the markup for credit or signature debit cards. Transaction fees are in addition to the percentage and also can be added to any non-qualified rate. We will help you price the transaction fees for maximum
effectiveness complete our contact page to find out more!
- Cost+: Plain and simple, you just add a number of basis points (BP) and a number of cents over cost. Cost can be searched under the word “Interchange” at the card brands’ websites. One basis point equals .0001 or $10,000 x 1BP = $1.00
- Bundled Rate: Take the qualified rate in a three- or four-tier structure and combine the rate and the transaction fee into a percentage. To do this properly you need to ascertain the average ticket and multiply it by the normal percentage rate and get a number. Then you add the transaction fee to it and divide it by the average ticket to get the bundled rate. A bundled rate is only for the qualified transactions, and, when needed, the mid- and non-qualified rates would be added.
For an average ticket of $15, multiply by the rate—say, 0.169—to get $0.2535. Add to that the normal transaction fee, $0.16, for a total of $0.4135. Divide $0.4135 by $15 and you have $0.027566, or a 2.76 percent bundled rate.
ADD TABLES HERE
I know this is a lot to take in, but once you get a hang of it you will be fine. When I talk to people I’m usually talking four-tiered for retail and I just say that rate one is for debit cards, rate two is for consumer cards, rate three is for rewards cards, and rate four is for corporate cards. There are other types of cards that may qualify for the mid-qualified or non-qualified rates, but this is the easiest way to explain it so people can understand it.
Some people will offer a MOTO merchant three-tiered pricing, but the merchant will end up paying more for the keyed transaction and less for corporate or world cards.
Regardless of what your rates are, you can never trick your clients into paying more than they think they are. While there are a few crooks in this business or any other, you will never succeed by conning or tricking merchants into signing something they later wish they hadn’t. Honesty and integrity is the only way to operate this business. I have lost many a deal because of questions I answered truthfully, but I have kept way more
great accounts by not selling my clients short. This also helps me sleep at night, and I’m trying to make it into heaven!
Also, don’t be afraid to lower your prices to get a deal. Early in my career, after I had made my presentation, the guy beat me up on price, but after I dropped the rate for processing and lowered the price for some equipment, he told me I was too easy! I laughed because what he didn’t know was that while I had cost myself $100 profit on the equipment, I had really only cost myself about five dollars a month in residuals in what ended up being a twenty-five-dollar-a-month account. Oh yeah, and I still made roughly
$300 on the equipment for a deal that paid me roughly $600 in the first year.
Just be sure you know what your minimums are if you’re offering free equipment or you’re trying to get a production or conversion bonus, and try to get a commitment before lowering the price. That’s right, use the old car-sales routine. If the customer asks for a lower rate or price on equipment, ask them, “If I can do that for you, are you ready to move forward with the paperwork?” Whatever you do, never, ever say “contract”! My father owns a boxing school in Falls Church, Virginia, and he refers to his contract as an
enrollment agreement, which is what it is, but it sounds a while lot nicer than the word “contract.” On the other hand, whatever your pricing is, have confidence in it. I met a paint store operator at a chamber meeting. His company’s bank didn’t offer credit card processing.
(Their bank didn’t offer it? See Chapter 21: Referrals and Partners.) Suddenly their doors were open but they couldn’t accept credit cards. So I made my presentation, and the owner agreed to the terms, but he wanted my assurance that what I was giving him was indeed a good deal. First of all it was an incredible deal because a retail business could not survive without accepting credit and debit cards. Second, regardless of what your
pricing is, as long as you and your processing partner provide the service clients are requesting, including timely customer support and technical support after the sale, any deal they agree to is a good deal. So I stood up, looked him in the eye, and told him it was a fair arrangement. A handshake and a few signatures later, the deal was sealed! Whether you start high and lower your rates, or go in with one rate and stand firm, you need a plan
so you don’t have to wing it!
So far we have only talked about rates, but there are fees, too. Most people say they don’t like being nickeled and dimed to death, but the truth is, this is a penny, nickel, and dime business. This is a list of generally accepted fees.
Touch-Tone Transaction ($0.50 to $1.00): This is for use of a phone to act as the terminal to transmit the credit card numbers entered manually into the phone. This allows you to authorize and capture the transaction, which will send the money to the bank, and it can be used in a mobile situation.
Voice Authorization ($0.75 to $1.50): This is for authorizations only when you simply need to find out if the card is good or not. You will still need to capture the funds, either with a physical terminal or a virtual terminal. This can be used in a mobile situation, but it is most often used when a retail business might lose power and needs to find out if the card is good or not.
T & E or Travel & Entertainment Cards ($0.10 to $0.25): In the past this was the transaction fee for American Express and Discover, but now it is mostly for American Express.
Address Verification ($0.05 to $0.15): Address verification or AVS is the primary method of fraud prevention for e-commerce or mail-order/telephone-order transactions. When a transaction is run, the system, if set up properly, will ask for an address number and a ZIP code. When approved, the system will produce a code of YY for yes or NN for
no, or a combination of both. Most payment gateways can be set to decline a transaction in which one or both are N.
Batch Header ($0.05 to $0.25): The batch header is the charge to send the money to the bank, and it is only charged on days the customer does transactions.
Credit and Debit Card Transaction Fee: We will assist you in picking the proper transaction fee for each and every situation you may find yourself in.
Call James Darle Jones with your questions @ 301 829 3331 for more info.
Wireless Activation Fee ($25 to $35): There is a one-time fee to activate each wireless device.
Wireless Network Access ($20 to $30): This is a monthly fee like a cell phone fee for wireless processing.
Wireless Transaction Fee ($0.05 to $0.15): There is an additional transaction fee for each wireless transaction.
Debit Gateway Fee ($5 to $15): This is a monthly PIN debit access fee.
EBT Trans Fee ($0.12 to $0.25): This is a transaction fee for EBT cards.
Internet Gateway Fee: ($5 to $25): This is a monthly fee for an online payment gateway for retail, MOTO, or e-commerce transactions.
Internet Gateway Transaction Fee ($0.05 to $0.15): There is an additional transaction fee for using the gateway.
Monthly Minimum ($25): The monthly minimum is designed to assure a minimum amount of revenue per account and is calculated by volume. So if the monthly minimum is $25 and the merchant does at least $1,479 in processing at 1.69 percent, then there would be no minimum due; but if the merchant does only $750 in processing, then the minimum of $12.50 would be charged to the merchant.
Monthly Basic Service Fee ($6 to $12): This is a monthly fee to produce a monthly statement to be mailed to the merchant for a monthly accounting of their processing. There also can be a separate fee for an online statement.
Retrieval Fee ($15): This is an investigation fee to “retrieve proof” of the transaction after a charge-back. It is charged regardless of whether the transaction is confirmed or not.
Charge-back ($25): This is a fee to be charged if a disputed charge is held up.
All of these fees are designed to be shared over the cost or buy rate per your ISO agreement. If you’re worried that this seems excessive, trust me, everyone charges these fees, but not all of these fees apply to every situation.
Over the past few years there has been a push to keep sales reps from
“commoditizing” rates, but the truth is that with the new lower debit rates, you can now offer lower rates than ever and still have good margins. My motto most of the time is to do what it takes to get the deal, but I rarely offer rates that deny me a fair gain. It’s up to you, but if your goal is to make forty dollars per month per account, then it’s easy to see where you need to be, and you shouldn’t deviate far from that goal. At www.CornucopiaOfCash.com, we can help you with pricing and motivate you with money to price for success!
Lets get started!
Call James Darle Jones with your questions @ 301 829 3331