Understanding Your Card Processing Statements
By Bob Carr Chairman & CEO, Heartland Payment Systems | October 28, 2008
When hoteliers like you are asked what their primary concerns are in successfully running their businesses and increasing their profit margins, some of the answers are expected: keeping guests happy, matching the competition's prices, acquiring more market share. What is unexpected is the number who cite unfair and confusing card processing fees as something they are forced to contend with as they look to grow and maintain a successful business.
Consider how much of your total revenue comes from payments made on your guests' credit and debit cards. It is very possible you could increase your profit margin on every transaction by taking a closer look at the costs incurred with processing those payments.
Indeed, the cost of processing credit and debit card transactions can range from 2 percent to 5 percent of the total sale when everything is considered. But where do these costs go? Most hoteliers haven't a clue because most merchant acquirers - the companies they contract to handle card processing - don't fully disclose rate increases, fees or the reasoning behind them.
That's why The Merchant Bill of Rights was established in 2006. Supported by industry leaders and trade associations, three of its 10 planks call for card processing pricing transparency so hoteliers and all business executives know what they're paying for and why. The goal is to empower businesspeople to reconcile their fees and manage the costs associated with card processing.
Pricing transparency begins by understanding Visa and MasterCard's interchange rate structure. Interchange is the fee these card associations charge for each transaction. Typically, Visa and MasterCard adjust rates in April and October, and merchant acquirers adjust their base processing rates in tandem. However, many card processors raise their rates significantly and then blame the card associations for the increase.
For example, say Visa and MasterCard charge an interchange rate of 1.75 percent. A merchant acquirer may mark that up and charge the merchant 2.6 percent. When Visa and MasterCard then increase rates to 1.76 percent, the acquirer may further increase its rate to 2.65 percent. That's why most acquirers don't reveal the exact percentages to merchants. Instead they simply disclose that Visa and MasterCard raised their rates. Under this system, acquirers are able to raise their profit margins - while pointing to Visa and MasterCard's increases as the reason.