What You Need To Know About Credit Card Processing

Do You Need A Pinpad To Process Debit?

No, any debit card that has the Mastercard or Visa logo on it can be
processed as a debit card through your credit card machine, point of sale
device, etc.
Also, a regulated debit card which has a substantially lower cost can also
be processed at the lower cost without a pinpad.
Pin-based debit which is processing a debit via a pinpad, can have lower
costs associated with processing that debit card. So there will be some
instances where having a pinpad is to your advantage.
Every business model is unique so we would look at your scope of customers
and clients and determine if using a pinpad is advantageous for you or if
you do not need one.

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What is daily discounting?

This is when the processing companies take out a portion of the fees
everyday. Meaning:  Your credit card sales were $500.00 but you only
received $482.11. The difference of $17.89 goes into the pocket of the
processing company.  You are not required to have your fees assessed every
day. It is your money, you keep it until the fees are assessed at the end
of the month. Use it for your cash flow. Do not let the processing
companies use it for their cash flow.
Also, when you receive your statement at the end of the month, the daily
discounting fee is not clearly stated on the statement so it appears that
your fees are much lower than what they actually are.

Reconciliation of fees is easier when your fees are clearly listed on your
processing statement and are not deducted daily. A single line item is
deducted from your checking account.

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Why is your statement difficult to understand?

So you can not understand what they are charging you for! The statement is
designed to be confusing and the processing companies have succeeded in
making the statement very difficult to understand. The processing
companies know that the less you understand their terminology the more
they can assess hidden fees that you will never know about.

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How can your rate increase but your total costs decrease?

Processing companies quote a very low fee, say 1.49%. What the processing
companies do not tell you is how much you will be charged for the cards
that do not qualify for this low fee. There will be many cards that do
not qualify for this low fee. The cards that do not qualify for this low
fee will have a surcharge added to the low fee. The surcharge can be 2%
or more on top of the low fee. So now you are paying 3.49%.
The low fee is mostly for debit cards only.
B2B merchants will process less debit cards than a merchant who is selling
to consumers. A B2B fee of 2% and a surcharge of .5% equals a total cost
of 2.5%. This 2.5% total fee is less than 1.39% and a surcharge fee of 2%
which equals 3.39%.
Your “fee” is higher but your total overall cost is lower.

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Is debit always lower than credit?

The fee for debit is lower than the fee for credit. However, some
transaction costs on debit will be higher than credit. There will be some
instances where the credit transaction has a total lower cost than a debit
transaction. But debit is usually the way to go for lower costs.

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Is the lowest rate always less expensive?

No.
The reason is that each type of card has its own fee. The low fee only
applies to a certain type of card. Most processing companies sell “low
fee” programs. These low fee programs are deceptive in that there are
additional fees that the merchant has to pay for rewards, business and
corporate cards. These additional fees are never explained to the
merchant.
Example. Your low fee is 1.39%. If you process $10,000.00 in sales and
your low fee applied to everything than your total fee cost would be
$139.00 which is $10,000 x 1.39%.
At the end of the month your fees were $441.12 which comes out to 4.41%.

What happened to the low fee of 1.39%. These low fee programs are “loss
leaders”. The processing companies will lead with this low fee. It is
attractive and sold as the lowest fee possible. These low fee programs
have surcharges for cards that do not qualify for this “low fee”. The
surcharges can be 2% or more on top the low fee you were quoted. Now you
are at much higher cost and are paying much more than you should.

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What is meant by “no transaction costs”?

This is another gimmick by the processing companies. Every card has an
assessed transaction cost. It does not matter what type of card it is and
that includes debit.
There are many different terms of “transaction costs”. Such as,
authorizations, p.o.s. costs, item costs, item charges, settlement costs,
etc.
When a processing company says they do not charge “transaction costs” and
on your statement there is a line item fee labelled item charges,
authorizations, item costs, etc. It is the same thing as a transaction
cost.

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Is “free” equipment ever really “free”?

When a processing company says that they will give you the machine
for free, do not accept it.
The processing company did not receive the machine for free. They
bought it from the manufacturer. The “free” machine means that there will
be some other hidden cost that usually comes out to $25.00 per month that
will be attached to your processing fees.
So, let us “do the math”.
The processing company bought the machine, usually $300.00. They give it
to you for free. You have signed a contract that is 3 years in length or
36 months. The hidden cost of $25.00 or the additional processing fee of
$25.00 x 36 months = $900.00. That is how much the “free machine costs”
Would you take $300.00 from someone knowing that you had to pay them
$25.00 every month for 36 months?.
Purchase the machine, stay away from contracts and free machines.

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What does “rate” really mean?

NOTHING! I associate rate to the sticker price of an automobile. It is
just a number and does not have any value. Your rate is the number that
you and the processing company agreed to so you would sign their contract.
To prove this, perform this exercise.
Total up your Mastercard, Visa and Discover sales and multiply this total
by your rate.  Example: $10,000.00 x 1.49% = $149.00.
Your processing company deducted $548.50. This comes out to 5.48%.
WHY THE DIFFERENCE?
Because your rate does not mean anything!

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