Shanu Singh Guliani

Merchant Credit Card Accounts Dissected
April 26, 2007

These days most people don’t even carry a dollar in their wallet. Why would they when there are debit cards that now carry Visa and Master Card logos; thereby being accepted by any merchant who has an existing terminal that accepts Visa or MC.

But did you know that when you, the merchant, runs a debit card through the machine without requiring the customer to type in their pin (because the card has a Visa or MC logo) you’ve just paid a higher transaction fee to the credit card company? This is called “signature debit.” A debit card that has a MC or Visa logo and you have the customer still type in their pin is called “pin-based debit.”

I’m sure you know that you, the merchant, pays a higher percentage (transaction fee) to specific credit card companies. For example, if a customer uses an American Express card you might pay a 3% transaction fee versus 1.69% plus .15cents transaction fee for MC or Visa. Unfortunately, for the merchant to say, “Do you have another card, because we do not accept American Express,” can sometimes be the difference between making and losing a sale.

Credit card services are competitive, so shop around for the best deal. Your search should turn up banks as well as independent sales organizations that provide merchant services for credit cards. Once you narrow your search to a few providers, get copies of their merchant contracts. Look the contracts over carefully with a critical eye toward answering these questions:

1. How quickly will your bank account be credited?
2. Are there any monthly fees?
3. What equipment is required and what are the costs?
4. Can equipment be purchased and/or leased? What are the cost differences?
5. How much are the transaction fees?
6. Ask specific questions in relation to transaction fees:
• What is the transaction fee for pin-based debit versus signature debit?
• What is the transaction fee when the card is present versus a key-in sale over the phone? (Card present also called mid-qualify)
• What is the transaction fee for non-qualify? (Non-qualify is defined as business cards and rewards card…yes you, the merchant, is paying for that person who uses his Amex to get miles…not the airline company. You actually pay a higher transaction fee for cards that offer rewards to the customer and business cards)

Avoid contracts with high monthly rates, low rates coupled with high up-front fees, or costly equipment leases. In addition, as always, don't sign any agreement until you understand every detail.

Posted by Shanu Singh Guliani on April 26, 2007 | Comments (0)