What to know when choosing your processor

Author: Joseph Anderson, Head of Sales

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A industry full of deception

The industry is very unique in that it has very few regulations. This lack of oversight makes the Industry ripe with deceptive schemes. The rules that govern payment processing differ greatly from the financial industries. We go as far as to say the lack of rules is what makes the payment processing industry so different rather than the content of the playbook. But how does this concern you, the merchant, in all of this. Well unfortunately the merchant tends to be the most affected. So while there is not much you can do to change the overall structure of the game, there are some things you can do to better protect yourself. The industry has a lot of tricks at play with the wordage they use. Understanding the terminology that is used and what said terms mean will better aid you in making the right choice.

Below are a list of terms that are commonly used. The objective is to dive into what they mean and how they are used.

Interchange Plus

Interchange Plus is the most widely used term in the industry. It's basically the wholesale fee plus percentage. Whether or not the company decides on a percentage is up to them. Their responsibility for covering costs and profits is a strategic one, and every company does it slightly differently. On top of this, you'll probably get fees such as monthly charges, licenses, set ups, and applications. Depending on who you are working with, these extra charges may range from high to low. While these charges are necessary in some instances, most overcharge.

Interchange Rate

The Interchange rate, is simply the amount charged by a credit card issuing business to operate. For each card, it runs a little different. If you tried to find out the interchange rates for credit cards, you'd probably find dozens of varying rates all over the place.

According to the national bank survey the industry's average is 1.89 percent. However, it depends on the cards included in the average and how they are calculated. For example, the average could be high as 3.05 percent.

Flat Rate

It's not a flat rate, probably something you don't realize until it hits you first hand. Let’s assume you've got a flat fee of 2.65 percent, in addition to the regular fees. They then explain that there are charges for the monthly service charge, the security charge, software charge, network charge and batch charge. Next, they will tell you (most don't mention it at all) that the wholesale cost is 3 percent and then change the subject. What this actually means is that the 3 percent is their margin of profit, meaning they have to hit that to make a profit. So what they do is offer a rate they can't physically offer then charge you the difference at the end of your billing period. Leaving you with a hefty bill. We know, not very fun.

Tiers or "Tiered Pricing"

Lets say you have a rate of 3.2 percent. So theoretically your rate is 3.2%, but if wholesale prices increase it will result in a charge to the next highest tier level which might be significantly higher. This is something a lot of companies don't like to talk about. Or they purposely ignore the fact. So a processor might truly give you the rate they quoted you, but as you grow the rate grows too. This is detrimental to businesses just starting out who want to grow their company organically. Nothing hurts growth strategy more than increased costs.

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Navigating the Jungle

How do I navigate the seemingly wild jungle that is payment processing, you ask. The simple answer is to read everything. The contract, the fees, the prices, everything. Ask questions and make sure it is explained to you in a way that makes sense for your company. Every processor can say "we offer this and that," but come next month did you actually save any money?

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