Are You Being Tricked or Treated by Your Payments Processor?
A Practical Guide to Managing Card Processing “Cost Creep”
By David Hogan Executive Director of Major Accounts, Heartland Payment Systems | October 13, 2013
This time of year, we are used to creepy, scary things - but your card processing costs shouldn't be one of them. However, card brand interchange fee increases in October are used by many processors to hide other charges that needlessly inflate costs and contribute to "cost creep" - the gradual, dangerous rise of expenses that can quickly cut into your profits. If not monitored and managed properly, cost creep will cost you dearly. It is imperative that you understand what you are paying for so you can effectively manage these expenses. The guide below offers practical tips on how you can manage various factors -interchange, including Durbin Amendment fee reductions, junk fees and processing statements - that exacerbate cost creep, and can help you determine if you are being tricked or treated (well) by your payments processor.
Understand Interchange & Processing Fees
Card processing typically ranks among one of the highest business expenses for hoteliers, and also one of the hardest to manage, especially considering processing statements can be complex and difficult to decipher by even the most seasoned operators and financial professionals. If you are not careful, these fees can slowly but surely increase - for all the wrong reasons.
One of the most confusing aspects related to the cost of processing credit and debit card transactions is the difference between interchange fees and the total processing costs charged to the operator. While interchange "swipe fees" have recently received significant media and industry attention in relation to the Durbin Amendment, they are just one of the three components of processing fees that every card-accepting merchant must pay every month. They include:
- Interchange - Interchange fees are the costs charged to payments processors by the card brands (Visa®, MasterCard®, Discover® Network and American Express®) for passing financial transactional information back and forth between the business, the processor, the card brands and the banks that issue credit and debit cards. This fee is imposed by the card brands, not the card processors, so issuing banks can recoup the costs of card issuance.
- Dues and Assessments - Also called acquirer brand volume fees (ABVFs), dues and assessment fees are imposed by the card brands to cover their operating costs and are determined by the purchase price of a product or service. Currently, Visa's assessment fee is .11 percent, MasterCard's is .11 and Discover Network's is .105 percent.
- Processing Fees - These fees are charged by card processors for authorizing and/or settling credit or debit card transactions and routing money and data to complete transactions. Charges vary between processors and depend on individual merchant agreements.
Monitor Seasonal Rate Increases
The card brands make adjustments to interchange rates every April and October in conjunction with enhancements to card product offerings, changes in industry rules and regulations, and other considerations. These adjustments can either be fee increases or fee decreases depending on the update. Since card brands charge interchange to payments processors, who then charge merchants, the interchange fees you pay are ultimately determined by your processor.
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