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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/
The US Small Business Administration (SBA) recently launched a channel on YouTube in order to “reach a larger audience through the popular site.” Content will include informational videos about the SBA, how small businesses can benefit from Recovery Act loan programs, government contracting opportunities, strategies to gain larger market shares, etc.
Thus far, the channel boasts 141 subscribers and 18 informational videos. The SBA plans to keeps audiences engaged with updated content, however the channel is still “a work in progress.”
This is one of many “post round-ups” that will start to show up on Financially Speaking. These post round-ups will allow us to quickly and easily share articles we find relevant to business owners. In this edition we highlight a post on the Consumer Reports website that highlights the hassles consumers face when using checks. We also highlight a post on American Express’ OPEN Forum that puts forward 20 time and money saving tips for business owners.
The Hassles of Using a Check: ConsumerReports.org
With many consumer turning back to checks in order to curb their credit and debit card spending, the issues of paying with checks have begun to emerge once again. This article from Consumer Reports highlights some of those issues. One of the main issues that is highlighted in the article is the use of TeleCheck. TeleCheck essentially runs credit checks on customers and can deny customers who actually have sufficient funds in their accounts. This is a huge hassle for both consumers and business owners.
20 Tips to Save Time and Money in Your Small Business and at Home: AMEX OPEN Forum
While the post doesn’t include using the TransFS credit card processing comparison engine to quickly and easily save money on credit card processing we still think it contains some great time and money saving ideas for business owners. One of the ideas that is close to our hearts is to shop around around for the best banking deals to make sure you are paying the least amount of fees and earning the most interest. You would be surpised how much different accounts vary in terms of both fees and interest payments.
Stop Bothering ME!
Josh picked up this tweet from @stillbjorn on twitter: “I am very happy with my credit card processing company. Stop bothering me, stupid salesmen.“
Traditionally small business financial services have been pushed to business owners by well-compensated and persistent salespeople. It’s not a very efficient situation because the salesperson typically does not know in advance which potential customers actually need a new credit card processor. So he ends up making lots of phone calls Boiler Room style before finding one customer who actually wants to talk to them. Those phone calls can be pretty annoying.
We believe that the world is switching to more of a pull mentality. When the small business owner wants a new financial services provider he/she will find one on the internet using search engines, review sites and comparison shopping sites like TransFS. They will become increasingly irritated with push methods.
How TransFS Adds Value
Every business needs to justify its existence by consistently providing value to its customers. At TransFS our business is connecting business owners looking for financial services with financial services companies that meet their needs.
We talk a lot on this blog about how we create value for business owners:
- apples to apples comparison of pricing
- participating financial services providers must follow a set of merchant-friendly rules (no cancel fee, only interchange-plus pricing, etc)
- streamlined collection of documents for underwriting
- no unsolicited calls from salespeople
- pricing set in a competitive auction which usually results in a much lower rate with less shopping time
But we don’t talk too much about how we create value for the financial services companies, so for a moment now I will: we dramatically lower their sales costs.
For example, in credit card processing, the First Annapolis Group, a consulting firm focused on the payments industry, estimates that for a credit card processing company to acquire a new customer it costs them about $1000 on average. Their estimate includes all direct sales costs, such as the commissions and salaries paid to salespeople. For more detail on the research, see First Annapolis Group Navigator January 2009.
At TransFS we charge less, more like $300 per customer, and we only get paid when we actually deliver a customer, so unlike hiring a new salesperson or doing advertising, there is no risk. Delivering such a great value to the financial services company also helps our small business customers, because a big part of that cost savings is passed along to them.
For several months our free auction software has been helping business owners get a better deal on their credit card processing. Today we launched a new version that is significantly improved. The improvements are mainly in the user interface, reducing the number of steps from 7 to 3 and providing better responsiveness and error feedback. If you own a small business and would like a better deal on your credit card processing, give it a shot.
Here is a link to the press release.
Below is a Youtube screencast – the quality isn’t that good, but a higher quality version is available here.
There are lots of lead-generation sites on the internet, such as Buyerzone. A business using the site fills out a very short form about their needs and their information is subsequently sold to five or more interested service providers who then call and email the business to convince them they are the best option.
The problem with lead-generation sites from a user perspective is that they still subject the user to high-pressure and conflict-of-interest-ridden sales efforts.
TransFS is a very different experience – the user fills out slightly more information about their needs, *no* identifying information is provided to the service providers, the service providers make a binding bid for the business, and then user can browse the service providers and choose one at their convenience. Our software smooths the way by allowing apples to apples comparisons of financial agreements that are not otherwise easy to compare. The user’s information is only passed along to one service provider – that which the user selects as the winner of the auction.
For lead generation companies the customer is the service provider / bank / broker. For TransFS the customer is the business owner shopping for better service.
One value proposition that we probably don’t advertise as much as we should is that using TransFS dramatically limits the amount of personal and financial information that you need to disclose when shopping for financial services for your business.
For many financial products you must disclose information such as your revenue, address, EIN, social security numbers, credit references, etc. in order to get a price quote. This is exactly the information that an identity thief would need to impersonate you. If you are a diligent shopper, you may look for 5 quotes, which means this critical information is in the hands of at least 5 people.
Normally people are trustworthy, particularly those involved in financial industries. However, particularly in the case of industries that have lots of small, independent, agents or salespeople, such as insurance and credit card processing, you have no idea what sort of information security procedures the agents utilize. For example – after you select 1 service provider from the 5 that you approached for quotes, are you sure that the other 4 service providers properly shredded and disposed of your financial information, or is there a chance that somebody is digging through their trash and finding your vital information.
TransFS allows you to get quotes from many reputable financial service providers. We keep all your confidential information on our secure servers and only parcel out small amounts of the data (and never any names, EINs or social security numbers) to the bidding service providers. Full information is only provided to the winning bidder and all confidential information is disposed of properly after the auction is complete.
While eventually TransFS will allow small businesses to shop for many kinds of financial services, we are starting during our beta period with credit card processing. One reason is that transaction processing is often the financial service with which small businesses are least satisfied. There are some very dirty practices in that industry and we at TransFS are making it our mission to create technology that enables small businesses to get a fair shake by creating reverse auctions where financial services providers bid for your business.
A recent article entitled Run From Mean Streets to Clean Streets in The Green Sheet, the trade magazine for salespeople of transaction processing services, highlights some of these dirty practices. Here are some excerpts:
“Some companies in our industry mislead merchants’ business and line the pockets of the processors…There are MLSs (salespeople) who do not disclose the fact that the company they represent charges cancellation fees…falsifying contracts. Never, ever fill in the blank spaces of a contract to your advantage after a customer has signed it.”
It is shocking that such practices, while not ubiquitous, are widespread in the credit card processing industry. TransFS does not allow participating service providers to charge cancellation fees, we also have designed our auctions with rules for keeping service providers honest, which seem to be working so far.
Entrepreneurs have a lot of things: guts, knowledge, resourcefulness, but one thing that they don’t have is time. I have spoken with many entrepreneurs about how they purchase financial services and have found that the complexity of the products forces most entrepreneurs into the following categories of behavior:
1. They either sign up with the first provider that comes along
2. or they spend the many hours they need to truly understand it, sacrificing attention that is sorely needed on other parts of their business
We at TransFS aim to break that compromise and enable small business owners and entrepreneurs to make good purchasing decisions without sacrificing the time they need to grow their business.
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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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