Almost every small business owner that I have met, has complained that they have had a bad experience with a credit card processing company. Examples of grievances range from, I was promised a certain rate which I did not receive, or my bill is not the same as it was last month even though i did the same volume, or that my processor is charging me junk fees and so on.
Let us be clear on one thing. More that 90% of your fees are taken by Visa/MC/Discover and Amex, the banks and the actual processors such as First Data, Elavon, etc. However, 90% of the blame and anger is placed on the company that makes 10% of the money. (a lot of it is deserved)
Let us start by tackling a subject called interchange.
Interchange is a rate set by the Visa/MC/Discover on any card that they offer. These rates vary from card to card. For instance, interchange on a debit card can be 0.95% whereas a visa rewards card can be 2.65%. (The exact interchange rates can be found on Visa/MC websites. Be warned there are hundreds of different types of cards). Processing companies pass though these costs to the merchants. Now the processing company that helped you set up your account will make money when it charges anything over the passthrough charges. These interchange charges make up the bulk of you processing bill every month.
Time to answer one major question. Why does my bill differ month to month. Take for example New York City. I have a merchant whose bill rises exponentially during the summer. Why? Since NYC has a large number of tourist who visit from overseas, they use international credit cards. Interchange on international cards are the highest (why interchange differs from card to card is an article for another day). When 70% of your business is on international cards, the cost is bound to be higher. If 70% of your business was in debit cards, it is guaranteed your processing cost would be lower, but a merchant is in the business to make money and he has to accept whatever card is presented to him. (it annoys me when I offer my Amex card to pay, and the store guy says, “we do not accept Amex”)
In the next article, I ll go more indepth of how credit card processors price merchants.