Credit Card and Bank Merchant Fees

Software and billing companies, like club operators, get approached all the time by banks and merchant service companies trying to grab a piece of the credit card processing pie. It’s a very competitive business. Various payment engines and networks are utilized to bring it all together, to see that members get charged and that the captured funds are deposited into the business bank account.

Chances are, if you’ve looked at a merchant statement, you’ll find lines that are confusing and seem to speak another language. Qualified, non-qualified, tiered, hand-keyed, etc. — way too many to define. It may also have surcharges and other added fees if these have not been previously negotiated. If you’re working with a reputable software and billing provider, these should be clearly understood and vary little except where volume changes.

Most merchants don’t realize how slim most processor profits are in the current market. The majority of fees go to MasterCard and Visa. Everyone pays the same fees whether they are the smallest ISO or the biggest bank. These base costs are called Interchange Fees.

A key area to understand is the different fees for the recurring billing portion of credit card processing (also called MOTO or card-not-present) typically for Membership Dues versus the over-the-counter (Card Present or Retail) done at Point of Sale. Card-not-present transactions are generally a half percentage point higher than card present since they are considered higher risk. Also realize, there is a variance if it’s a Debit card; at least a quarter-point lower.

When fielding inquiries from a potential retail merchant provider, look for these things:
• Whether the rates quoted are set rates, not introductory or teaser rates to get you started, and they are broken out by card type. (Debit cards 1.3-1.6%, Regular MC/Visa 1.6-1.9%)
• See a line-by-line comparison, if they’re claiming a large savings.
• No long-term agreement; month-to-month is best. The rates will not be fixed, MC/Visa reviews Interchange rates every six months.
• No “buyout” fee or charges for termination.
• No automatic renewals.
• Settlement and deposit within 24-48 hours of the transaction.
• No application fees.
• The bank or company is listed as PCI-DSS compliant (Payment Card Industry, Data Security Standard) on the VISA.com website.

Separately, a large component of any MOTO (recurring billing) merchant relationship is the back-end programming. Integration includes the ability to process all types of cards (debit, regular, business, corporate, rewards cards); handling returns and service fees that download directly into the club software — disclosing complete return reasons — having in-house tech support is helpful and outstanding customer service (many are not equipped to support individual clients).

Key things to ask when choosing a recurring billing provider are:
• Rates per card type (i.e. Debit card), not an overall percentage. On average, debit cards fees should be 1.6-1.9%. Regular MC/Visa should be 2.1-2.3%.
• No fees (Zero) for Declines, only transaction fees (.05 to .20 is appropriate). Some charge $2-5 per decline or a percent. And, on a side note, some charge upwards of $10 per ACH return when it should be $2-4.
• Verify on Visa.com PCI-DSS compliance.
• Deposits happen within 24-48 hours of the member being billed; no lag time.

For either method, if the card used is a Business, Corporate, Rewards card or has to be hand-keyed because the magnetic stripe is unreadable, those are all assessed a higher fee — be aware of such costs.

In addition, it is now required that all businesses that process credit cards are assessed a fee to verify they have implemented PCI Validation standards. All non-compliant merchants are automatically charged a monthly fee of $20-50.

It’s important information to know and dealing with a company that specializes in creating the correct technology often results in cost savings through efficiency. Make sure that the software is kept up to date. A good company will provide much more than just low cost merchant processing, such as secure storage of tokenized cards for recurring and card on file applications.

Carole Oat is a national sales manager at Twin Oaks Software and a former club owner and operator for 15 years. She can be reached at coat@tosd.com or 860.829.6000 x 281.