By sean

Photo by Jared Zimmerman (via Flickr)

Dentists accept an increasing number of credit and debit card payments for two reasons. First, the usage of checks is declining across the US in every industry. Second, as big companies cut benefits, dental insurance is often among the first perks cut.

If you are a dentist or other medical professional, this article will show you how to reduce your credit card processing fees by about 1/3 and save your practice $1,000’s each year.

Dentists are busy folks and often much more interested in the science and medicine of their profession than the nuts and bolts of running their practice. That, combined with the fact that, unlike retail stores, dentists are relatively new to accepting cards, result in many dental practices getting bad deals on credit card processing.

Dental practices should get a great deal, relative to other industries: they are low risk, transactions are usually conducted when the customer is present, and the average transaction size is pretty big. All those are factors that result in lower credit card processing costs.

Our data shows that a reasonable overall rate for a dentist is between 1.90% and 2.10%. Keep in mind that the overall rate is typically quite different than your quoted rate, because of all the extra fees, downgrade, etc. that are typically added to your bill. To calculate your overall rate, add up all the fees on your processing statement and divide them into your total volume.

Here is an example of a dental practice that used the TransFS Marketplace to reduce its overall rate from 2.95% to 2.05%.

Below is the practice’s original statement. Their credit card processor had told them that their rate was 1.51% plus $0.17 per transaction. However, about 60% of the transactions were being downgraded and marked up an ADDITIONAL 2.02%. Overall, they were paying $384.79 in fees on $13,041.44 in monthly volume. This abusive practice is called Marking Up The Downgrades and is an example or Enhanced Recover Reduced pricing. 

They used TransFS to find a new credit card processor, one with a good reputation, fair pricing and clear Interchange Plus billing. It took the practice manager a couple hours to decide which processor to choose, much less than he would have spent without our help.

Below the original statement is their new statement, for a different month. With the new processor they paid $199.41 in total fees on $9,713.93 in volume, for an overall rate of 2.05%.

This practice does around $150,000 in credit card receipts each year, so they saved about $1350 by making the switch. They also get a higher level of service, have no cancelation fee (so they can switch with a minimum of hassle next time they need to) and better understand what they are paying, since they bills are more clear.

Dentist Original Credit Card Statement

Dentist Credit Card Processing Statement New and Improved

By sean

Lots of business owners ask us “how much does it actually cost to process a transaction?”. Sometimes they are just curious, and sometimes they want to know for purposes of evaluating what is a good deal. While none of the big credit card processing companies will ever come out and tell the world their cost structure (since that’s a competitive secret), we have a few bits of data that we can piece together for an answer.

First, on the TransFS marketplace, the processors markup, over the wholesale cost that they must pass on to Visa and Mastercard, called Interchange, is usually between 0.10% and 0.30% of the volume of the transaction plus between 0.05 and 0.20 per transaction. So, on a $50 average purchase, these processors are offering a cost of about 0.10 and 0.35 per transaction. We know they are NOT making those bids at a price that loses them money.

Second, First Annapolis Consulting, a firm that specializes in studying credit card processing, crawled through the publicly available financial statements of a few processors and came up with a different answer in their September 2007 issue (free account required to read). .

They found that it costs between $0.07 and $0.61 per transaction. However, that analysis INCLUDES sales costs, including the profit that their reseller partners make. So it’s not really the cost of just sending the transaction over the wire and then billing you for it, but it does put us in the ballpark. Ignoring iPayment, which is kind of an anomaly, we can conclude that processing a payment costs no more than $0.07 to $0.30 each.

Why is Chase Paymentech so much cheaper than their competitors? First, it’s bigger, and we know that processing transactions is more cost effective at higher volumes. Second, it has more large customers, and for large customers sales costs are lower on a per-transaction basis.