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Archive for March, 2010
Yesterday, VentureBeat reported on a cool new company called WePay that offers group payment solutions for managing a single account. For example, student groups in schools or charities fundraising can take advantage of the tool to manage financial accounts smoothly with multiple points of contact. Some functionalities include creating accounts, managing transactions, collecting money, producing invoices, and monitoring payments.
The founders of WePay have noticed that many PayPal users have switched to WePay in order to manage accounts seamlessly. For example, PayPal only allows one personal account. For business accounts, PayPal requires a tax ID number after a certain value is reached. With WePay, a local charity, a fraternity, a sports team, etc. can use a single login with different levels of access assigned to certain individuals.
WePay looks to be a great tool for community settings and has different functionalities than PayPal. Watching their progress and marketing efforts should prove to be interesting.
Image thanks to http://www.flickr.com/photos/35266332@N07/3755511399/
Users often ask me how to tell an interchange plus quote from a tiered pricing quote. First, some background:
- Interchange is the wholesale rate your processor pays Visa and Mastercard (and is not negotiable)
- Interchange plus pricing is the best way to ensure you are not getting ripped off because it is completely clear how much of a markup the processor is making on your business
- Tiered pricing is prone to abuse because the “downgrade” rates (which are much higher than the quoted rate) are not always disclosed and the precise rules of what triggers a downgrade are never disclosed (processors freely admit that they make more money this way by confusing customers)
Interchange plus:
An interchange plus quote will sound like “interchange PLUS 0.20% PLUS $0.20″ – that’s why its called interchange plus. The PLUS part is the markup that the processor is making on top of interchange. It will always be less than 0.50% of your volume and $0.30 per transaction, anything more than that is way too high. What they are quoting you is the markup. On average interchange rates are about 1.77%, but it does vary depending on what kind of cards your customers use, your average ticket size and the type of business you are (for example, the average rate for ecommerce interchange rate is higher at around 2.06%).
Tiered:
With Tiered pricing usually just one price is quoted (called a qualified rate). It will always be more than 1%. For example they will quote 1.6% or 2.3%. What they do not tell you is that ALWAYS, there is something called a downgrade, where a large portion of your transactions will be classified as a Midqualified or Nonqualified rate. Often, the salesperson will not tell you about those rate unless specifically asked – they count on making most of their money by marking up those rates really high and you not paying attention.
It is very hard to compare one tiered pricing plan to another, because even if the qualified rate, nonqualified rate and the midqualified rate are the same, the rules about which transactions fall into each category can be different.
Everyone should avoid Tiered pricing (and its more evil cousin ERR pricing — http://transfs.com/blog/2009/10/09/enhanced-recover-reduced/).
But, if for some reason you do not, here are some questions to ask to make sure you are getting the full story on the quote. Let’s say that they quoted you a 1.6% rate. Ask them:
- 1.6%, does that apply to every single transaction?
- What about a rewards card? How much is that?
- How about a business card? How much is that?
- What happens if the customer calls in the order and doesnt sign the receipt? How much does that cost?
- What about debit cards, I know that debit cards have a lower interchange rate (even when the customer doesn’t type in the PIN), so shouldn’t I be getting a lower rate for debit cards?
Asking those questions will help you get a more fair deal, but the only way to be entirely sure you are getting the best deal is to get interchange plus pricing from a reputable processor that is TransFS certified.
In the flurry of new legislation lately, one big driver for small business may have gotten overlooked: the HIRE Act. The Act was signed into law last week, and includes $17.5 billion in tax cuts for small businesses. Some other points include:
1) A $1,000 tax incentive if new employees continue working for at least a year and offers an exemption of the 6.2% Social Security Tax until December 2010 if a business hires workers who have not been working for 60 or more days
2) The Act permits small businesses to write off investments in equipment this year
3) Municipal bonds will be reformed to expand investment in schools and clean energy
4) Roadway infrastructure investment will continue well into the spring and summer when (hopefully) construction jobs pick up
Here are some great resources to learn more:
Small Biz Hopeful Now That HIRE Act Signed
Jobs Bill Signed Into Law by Obama
BuyerZone Sucks! (Video)
Earlier, I blogged about my “experience” trying out BuyerZone to get quotes for a merchant account. The process was so…insightful that I decided to make it visual. Here is the result, and please forward on to friends, business owners, etc. so they don’t make the mistake of wasting their time using BuyerZone.
More generally this is a good example of how “lead generation” websites that promise comparison shopping but actually just collect your information and sell it, are not very useful. At TransFS, in contrast, we do useful tasks for you, like negotiate competitive bids, do complicated analytical comparisons of pricing structures and gather ratings and reviews, all for free. And we will NEVER sell your information.
POS Entry Modes
What information goes across the network to a processor when a credit card transaction goes through? One of these pieces of information is the POS Entry Mode–data which relays to the processor exactly how the transaction went through. Here’s a short list of the different possible codes:
POS Entry Mode
- 01 – Manually keyed (this will pertain to Visa internet transactions as well)
- 02 – Magnetic stripe read (general or track 2)
- 05 and 95 – Contactless chip card
- 06 – Magnetic stripe read (Track 1)
- 07 – Contactless chip card using Visa Smart Debit / Credit chip data rules
- 81 – Manually keyed e-commerce (Mastercard only)
- 90 – Entire magnetic stripe read and transmitted
- 91 – Contactless chip transaction originated using magnetic stripe data rules (visa only)
For more information on Track 1 and Track 2 credit card swipes, check out Wikipedia: credit card magnetic stripes.
Note: The lack of expletives in this post is due to an attempt to retain professionalism. 
No doubt the highlight of SXSW was seeing Gary Vaynerchuk speak today. If you ever have the opportunity to see him speak, please do so! He is energetic, honest, and brilliant….but make sure you’re ok with a lot of (ahem) frank language. Gary spent the majority of his time speaking to customer service, and how it should be the focal point for any organization. Building up content can only go so far before one must build community around it. He went so far as to blatantly announce that any large corporation using an agency to Tweet or answer customer emails was disingenuous. Obviously, this must have really shocked the many agency people sitting in the audience! No matter the size of an organization, talking to customers directly is key to success.
This statement rang true to me since part of TransFS’ core values is speaking directly to our users and making sure they have a great experience. My favorite part of the day is when I reach out and call TransFS users to see how their experience has been, and if they have questions. Everyone at TransFS consciously treats our users exactly how we would expect to be treated, so hearing a successful media mogul (yes he is that) preach the same values was very fulfilling.
Today was my second whirlwind SXSW Interactive day, and I have much knowledge to report. Since I don’t want to reinforce my sense of TMI, here is a brief overview of the most salient points from the panels I attended today:
1) Blogging vs. Twitter
Who: A bunch of veteran bloggers.
What they talked about: Blog authentically and regarding things you have a passion for. Blogging is certainly not dead and those who think Twitter replaces blogging have no idea what good writing is. Don’t feel blogger guilt for not writing every day…write good content instead of quantity.
2) How to Make Viral Videos
Who: An executive from YouTube, Damien Kulash from OKGO, and director of film at TED.
What: Think about why your video should go viral. People usually spread videos which are funny and positive, think about how to grasp human emotion in your videos. Take a cue from videos that have gone viral and see similarities. It’s hard to sell anything in a viral video, the sales message has to be extraordinarily subtle.
3) Unsexy and Profitable Businesses
Who: A few entrepreneurs who run “unsexy” businesses such as college textbook distribution and transportation.
What: Who cares if a company is sexy as long as it is profitable? This should be the number one goal for entrepreneurs setting out to create a business plan. Although PR can be challenging for “unsexy” businesses (meaning not Twitter or music) build the business and news will come. In fact, outsourcing PR to an agency may be a bad idea because they may lose your business’s message in the process. At the end of the day, as long as the business is there and something innovative is being achieved, who really cares about how flashy the company is.
SXSW: Social Media Analytics
My first panel here at SXSW was about analytics…social media analytics. From a business perspective, it is absolutely imperative to measure the outcomes of your social media efforts because otherwise, it’s a pointless pursuit. I got to hear two experts talk about the basics of what is necessary to measure, and industry standards. I felt the presentation was more consumer focused, so I asked the presenters how the information would change for B2B…they responded that social media is even more important for B2B since there are less communication platforms for B2B than B2C. Here are some basic ideas:
What are the basic metrics used to measure social media efficacy?
Number of mentions by type, source, or channel- this means how many times your company/brand is mentioned on forums, blogs, twitter, etc. This may be relative to industry. For example, cars are more often discussed in forums whereas restaurants are more on Twitter.
Key themes emerging from conversations- Here, you can easily spot trends among what is being discussed about your brand. An example the experts used was Jamba Juice. As they were monitoring conversations about their brand online, they noticed the word “milk” kept coming up. They found out that a rumor had spread that Jamba Juice used dairy products in one of their recipes, which is contrary to their claim of being completely non-dairy. Jamba was able to quell concerns early by acting on those concerns before things became too widespread.
Most viral content- As measured by retweets, traffic, views, etc. This will help guide future social media campaigns. If one topic in a blog garnered more retweets or one blog article drives more traffic, cover it more.
This weekend, along with hundreds of other self proclaimed tech geeks, I will be attending SXSW Interactive in Austin, Texas.
This is a weekend of firsts for me: first time at SXSW…first time in Texas.
I will be blogging from Austin about all of the cool stuff I’ll be learning so even if you can’t make it…you can read all about it hereon Financially Speaking.
Of course, I’ll be specifically interested in how technology will affect the payments world, social media outreach to small business, and cool new stuff in general. If you have any questions or just want to see what’s up, follow me @TransFS or shoot me an email at stella@transfs.com
Have you ever wondered how much a fast food shop pays in credit card processing fees? I have, since transaction size tends to be small (one component in the calculation of fees is transaction size). Since healthy sandwich shops seem to be the craze, let’s examine a sandwich shop.
So for an example, let’s look at Jimmy John’s, which has about $850,000 in revenue per store. About a quarter of that is collected in credit card and debit card sales according to the 2008 Hitachi Consulting Study of Consumer Payment Preferences (for fast food restaurants).
The average interchange rate that TransFS expects such a restaurant to have is in the neighborhood of $0.1255 + 1.56% for transactions greater than $15 and about $0.04 + 1.60% on transactions less than $15.
If we assume that 50% transactions are < $15 that the average size for such a small transaction is $7.50 while the average size of a transaction > $15 is $20 (which means that this restaurants overall ticket size is about $14) then the average interchange rate for this restaurant is about 2.16%.
TransFS’ proprietary software has read thousands of customer bills, only to find that the average restaurant pays around 0.75%+$.20 markup above interchange, meaning this is about 2.2% for a sale of $14.
If we apply the overall rate of 4.36% (2.16% + 2.2%) to the 27% of this restaurant’s $850,000 in sales we can calculate that this restaurant will pay $10,006 per year in credit card processing fees.
Yikes!
Restaurant owners can get the best deal on credit card processing by comparison shopping for a processor using TransFS. Start an auction now to keep more of your hard earned money!
Image thanks to http://www.flickr.com/photos/28233229@N00/1407449118/
