By sean

I recently stumbled upon a really great article in Digital Transactions magazine from June 2008 by Marc Abbey, a managing director at First Annapolis Consulting and an expert on credit card processing, entitled The Threat to Price Stability in the Small Merchant Market.

If your business depends on credit card payments you should read that article, but here are the highlights:

• Competition for new customers is increasing ( **great** news if you accept credit cards)
• Pricing for large customers has decreased by 8%-10% per year for the last 10 years
• Prices for smaller customers have not decreased because, while the list prices has decreased, extra fees have increased
• Merchant acquiring (credit card processing) is a business with large scale economies and low variable costs – in other words, the profit margin from adding a new customer is very high, which means that they have a strong incentive to add new customers
• Owners of small businesses do not pay much attention to their credit card processing fees, which leads to an inefficient market – in other words some businesses get better deals than other businesses, depending on how good they are at shopping.
• Business owners don’t pay enough attention to extra fees, which allows the processors to grab extra profits by sneaking in extra fees the business owners don’t notice (for example 37% of processors charge a more than 1% downgrade markup)
• Processors have grown rich charging extra fees, but that is about to change as the environment gets even more competitive and business owners learn how to see through pricing tricks
• More and more processors (around 30%) are using interchange plus pricing, which is more transparent and offers less opportunity for hidden fees (previous article Why You Want Interchange Plus Pricing) and those processors are gaining market share rapidly

Photo from Boxchain - http://www.flickr.com/photos/boxchain/

If you are a business owner that accepts credit cards, it pays to shop carefully (previous article Strategies for Cutting Processing Costs).  If you want help shopping, we can help, the TransFS Marketplace has a dozen of the best credit card processors bidding for your business, every customer who uses the marketplace gets a great deal without wasting a lot of time shopping.

Extra fees like those described above are illegal on the TransFS Marketplace.

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.