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This was pretty exciting, Truecostofcredit.com, our free tool that helps consumers and business owners understand the cost of accepting credit cards, was posted on the Freakonomics Blog at nytimes.com.
Steve Levitt, one of the most interesting people I know and a former professor of mine (and co-author of the best-selling economics book Freakonomics), called it “nifty”! If you are an economics geek like me, this is pretty much the most exciting thing that can happen.
The article can be found here The True Cost of Credit.
I wrote about this before, but it got buried in that much longer post with a boring title (very worthwhile read if your business accept credit cards). If you read this blog regularly you know that there are two parts of the credit card processing fees paid by businesses: interchange (goes to the card issuers) and the processor markup (goes to the processor).
Big and small businesses pay roughly the same interchange rates. However, according to the Philadelphia Federal Reserve, big businesses (red areas in the chart) pay a very small processor markup (0.04%) while small businesses (blue and yellow areas in the chart) pay a very large processor markup (1.29%).
If you are a business owner who is worried you are not getting a good deal TransFS can help you in two ways. First, you can try our credit card processing calculator, which is free and takes 2 minutes to see if you are getting a good deal. Second, shop for a new credit card processor using TransFS (takes 15-20 minutes), which is also free and carries no obligation to switch.
Rewards Cards Market Share
I began doing some research to figure out what share of credit cards are rewards cards. I found a few data sources:
- 40-45% of all credit cards are rewards cards, says an article at yahoo, quoting Jonathan Silver, chief executive of Affinity Solutions Inc., a New York company that develops and manages rewards programs
- Rewards cards will account for 93% of all credit cards within a few years – according to this research report from PackagedFacts.com
- First Annapolis, a consultancy focused on the credit card industry, reported in January 2007 that 70% of new cards are rewards, while 50% of total cards are rewards
Rewards Cards Market Share Increasing (source: First Annapolis Consulting)
The increasing popularity of rewards cards are an issue for businesses that accept credit cards because the cost of the rewards is passed on to the business in the form of higher interchange fees. The interchange rate for rewards cards is usually about 0.15% to 0.30% higher than for a comparable non-rewards credit card.
For many businesses, especially small ones, that do not have interchange plus pricing, however, the cost of rewards can be much larger. It is common in the credit card processing world for the processor to make a much higher profit on rewards cards and business cards by classifying them as “mid qualified” or “non qualified” transactions. Typically, a small business will face an additional 0.25% to 1.00% fee on top of the 0.15% to 0.30% higher interchange rate. The best way to avoid this additional markup is to have your credit card processing priced on an intechange-plus basis.
Tim O’Reilly, founder and CEO of O’Reilly media, the computer book publisher, and probably one of the most influential people on the internet, recently wrote a blog post entitled Work on Stuff that Matters. If you are an entrepreneur or care about entrepreneurship it is well worth reading but the summary is that the keys to success in a new venture are:
- Work on something that matters to you more than money.
- Create more value than you capture.
- Take the long view.
I think its worthwhile to reflect upon those on this blog so that people know how we think about this business.
Work on something that matters to you more than money: Before TransFS I started another business (TSS-Radio) and over the first few years, when we were getting started, we got ripped off several times by unscrupulous credit card processors, even though I spent lots of my (very scarce) time trying to shop intelligently and understand how to negotiate such a deal. Starting a business is hard, but we rely on such ventures to improve the economy by providing employment and innovation. Our goal at TransFS is to make life easier for small business owners and, in our small way, help spur the pace of innovation.
Create more value than you capture: We serve two types of customers at TransFS – small business owners shopping for financial services and financial services providers looking for new small business customers. Small business owners get value from us because we save them time (it can take weeks to research, find and negotiate a credit card processing deal) and money (the prices found on TransFS are much lower than the list prices for credit card processing). For financial services providers the value comes in that we are the lowest cost and easiest way for them to find new customers. In return, we take a small commission, smaller than what they are used to paying to brokers or salespeople to generate new business. They pass along some of the difference in cost to our customers and keep some to further invest in their own business.
Take the long view: consumer financial services have slowly been moving toward a mostly-online experience – witness LendingTree, Zillow mortgage marketplace, bankrate.com, etc. as have many other consumer services such as travel, tickets and events and entertainment. The small business market lags behind for now but eventually it will catch up. As it does, TransFS will be there.
Our free tool True Cost of Credit which helps consumers understand the rates that stores pay to accept credit and debit cards, was recently featured on the popular consumer activist blog consumerist.com – here’s the article.
It was pretty exciting and resulted in around 7,000 visitors over a period of about a 36 hours, well more than that site usually gets given that it was only launched a week ago.
We got some great comments from people who found it useful, which was very gratifying.
While it’s not really related to our main business, which is helping small business owners more easily shop for financial services, we recently released a little web application focused toward consumers.
The application is available at http://truecostofcredit.com – the user enters the first 6 digits of a credit card number (called the Bank Identification (BIN) Number). From that data we can tell what kind of credit card it is and use the interchange rates, published by Visa and Mastercard, to run some scenarios.
Playing with the application is a lot more fun than reading an explanation – go check it out and let us know what you think.
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About TransFS
TransFS is a comparison shopping website for credit card processing.
Our unique auction process and comparison shopping engine leads to an average savings 40% on credit card processing.
Click here to learn how TransFS works or try TransFS now to quickly add cash to your bottom line. Search
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