Rates: The Cost of Risky Business
Salesman:”Hello, Smith’s Car Dealer, how can I help you?”
Caller: “Good morning, I am interested in buying a car; how much for a car?”
Salesman: “Well sir, what kind of car are you looking for; SUV, sedan, a sports car? Leather seats? Safety features?
Caller: “Um, a car. I just need a price.”
Scratching your head? Does this sound like a reasonable conversation? You might or might not be surprised if I told you we have conversations just like these every single day.
The product (payment processing), drastically different- the concept is exactly the same. Business owners shopping for merchant services love to call and ask, “What are your rates?”
As much as we would love to give a quick answer, unfortunately, just like buying a car, a jacket or even a steak for that matter; there is not just one price or one answer.
Similar to buying insurance; the payment processing industry and its rates depend largely on risk. When you are buying car insurance how often you drive your car, how many accidents you have been in, what kind of car you drive, what city you live in and a million other things decide how much you are going to dish out every year.
So what determines your payment processing rate? Well, I could go into a long winded explanation of tiered pricing and interchange fees but perhaps it would be better to offer a glance at the big picture.
I would have to say the main factor in pricing is how your business is accepting payments. Are you accepting payments online? Over the phone? In person? Each transaction you process, depending on whether or not the card and the cardholder are present is going to affect the amount you are paying for that sale. If you swipe a card, with the cardholder present, there is less risk, ultimately giving you a lower rate.
Your rate on each transaction will also be affected by the type of card the customer is using. For example, someone using a foreign credit card creates a higher risk, resulting in a higher rate. Debit cards are your friends; they are connected to banks (which are secure), they have PIN numbers (which are an added element of security) and they are linked directly to cash money (not revolving credit), this means you pay much less to process a debit card.
In a broader sense; things like your type of industry, volume of business and type/features of payment processing equipment are all going to affect your rates and fees.
There are easy answers, provided we have the right information. The best advice I can give is to create the most secure environment for accepting payments, THE LESS RISK THE BETTER.
Have questions about rates? Comment! We would be happy to give you answers….