Desiring to have all of their accounts at one location, some business owners like the convenience of going down to their local bank where they already have their business checking account, to sign up for a merchant services account. This requires leaving the place of business and walking into the bank to speak with a representative.
Although this appears to be a good decision because of the convenience, it may not be the best decision. The local bank does not specialize in credit card processing; it only specializes in savings and loans. Therefore, the bank representatives may not be very well versed in the details of processing credit cards and the equipment necessary to accept credit cards.
In most cases, the bank representative will not visit the business owner at his storefront. If the business owner has questions, he must call or visit the bank to receive answers. The business owner must take time out of his day to meet with the bank representative. If the business owner schedules the time for a day when he has to do his normal banking, he may not consider this an inconvenience.
Banks charge additional fees for handling credit card processing. There is an association fee of $150.00 per year on the average that bank customers will have to pay in order to acquire a merchant account from the bank. Some banks have their own merchant accounts while others have to farm the account out to another bank. This could be an inconvenience to the retailer, as there may be delays in getting answers to questions.
The credit card processing companies train their staff in merchant services and can travel to the retailer in order to answer questions. They may also make themselves available through their cell phones. Since this often is their only job and they are not employed by the bank, they can specialize in merchant services and are more knowledgeable about the services.
Therefore, if you are planning on acquiring a merchant service account, and want more customized service, the credit card processing company would be a wise choice.
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Credit Card Processing Fees
When deciding on a merchant services provider, merchants often choose one based on who offers the lowest fees. In order to make the best decision about the fees, owners must know how the fees are assessed.
There are five types of credit card fees. The debit card rate is the lowest rate. This rate is the rate assessed on debit cards. Another name for the debit card is the ATM card. This is the card which is issued by the bank with a checking account and can be used at the ATM machine to deposit or withdraw funds from the checking account by using a PIN number. In order for the customer to use the card, he must use a four digit number assigned to him. The card has a VISA or Master Card logo and can be used as a credit card. When customer uses the debit card with a PIN number when making purchases, the charges are credited as debit card charges and the owner incurs a debit card fee.
If the customer uses the debit card without entering the PIN number into the credit card machine, then the merchant incurs a check card rate for processing the debit card. This rate is almost 60% higher. To avoid this charge, the merchant must purchase a PIN pad for processing debit cards. When the customer enters the PIN number, the card is charged as a debit card. PIN numbers are only used with debit cards.
The qualified rate is charged to an ordinary VISA or Master Card when the customer makes purchases. When the customer uses a VISA or MasterCard with rewards or frequent flyer miles, the merchant incurs a mid-qualified rate. This charge is higher than the qualified rate because the merchant must pay for the frequent flyer miles and rewards for the customer.
The highest rate which the credit card company charges is the non-qualified rate. When the merchant receives a credit card issued to a company or the military, the non-qualified rate applies. It is also assessed on a credit card charge which is taken over the telephone or through a mail order. During theses transactions, the merchant takes the credit card over the telephone or from a purchase order. The credit card is not present at the time of the transaction. The non-qualified rate is the highest rate because it is the most risky. There is a possibility that the company which owns the card may go out of business or the person handling the credit card for the merchant could steal the credit card number. Asheesh Advani states”if your business has a slow sales quarter and you fall behind on your credit card payments, your personal credit rating and your personal ability to borrow are at risk” (Advani, 2005).
In conclusion, there are five different rates charged to the merchant for processing credit card fees. Although the merchants desire the lowest possible fees, this alone should not be criteria for choosing a merchant provider. This will be covered in a future discussion. If you like what you have read here today, I invite you to subscribe to the blog through the RSS feed on this page. This way, you will receive the up-dates as they are published.
Gail Cavanaugh’s Business Solutions
A Happy Ending
Recently had an experience with one of my clients that I would like to share with you. Because of the uniqueness of the products, I had approached a new gift shop in my town, which was specializing in primitive art. I recommended the Trinity program to replace the program which she was using for on-line acceptance of credit cards. The owner and I immediately connected because of our mutual love for the arts.
I called upon her three or four times before I got the sale, because of the busy season. She was using the QuickBooks accounting program and liked the idea that our Trinity program integrated with her QuickBooks program, as she disliked having to manually enter all of her transactions into QuickBooks. Her application was accepted by the company and I eagerly returned to her shop to activate her account, when we discovered that she was going to have to enter her one thousand products manually into the new virtual program, the Trinity program, before activation could take place. We tried to determine from her web developer where her product file was being stored and if there was a way for her to merely transfer her file electronically to ours. There was no way for her to do this as her file was not compatible with our system.
Disappointed, she decided not to do anything with the program, even though I explained to her that in the long run, she would save time by being able to integrate with the Trinity. I went back to my company and explained the situation. They decided they would assist this business owner by manually entering all of her products for her, as she was in the middle of a very busy season, to which she declined. I did not hear anything from her for about two months and then, finally, she called wanting to know how she could activate her program! Apparently, she had gone out and hired someone to manually enter all of the products. We now have her account and she is up and running. She saw the value in being able to integrate her QuickBooks program with our Trinity program.
I invite your comments on this.
To Accept or Not to Accept Credit Cards
If you are still undecided as to whether to accept credit cards in your business, you’re missing the point. People spend an average of 12-18% more when they pay with credit cards. This means that if you normally have a profit of $500, 000 in cash and people start using their credit cards instead of paying cash, you end up with 12% more (to be conservative) or an extra $60,000 per year. That’s $560,000 as opposed to $500,000.
Out of that $60,000, you would pay your fees for accepting credit cards. $500,000 x 1.49% (rate for credit card fee) = $7450. You would still have a $52,550 profit after the fees are paid.
Believe it or not, customers like to have a choice in payment methods. Credit cards are convenient for some people. When people have choices, they become regular customers and end up spending more money. They will also bring you more customers.
Maybe your sales volume is $100,000 a year instead of $500,000, and of that $100,000 only $30,000 is credit cards, you would pay $447.00 in fees. However, if the people who normally spend $30,000 with you decide to use credit cards, they would spend an extra $3600.00 (12%) because they can use credit cards. Out of that $3600 would come your fees on $33,600, which would be $500.64. The added expense is a business deduction on your income taxes.
By accepting credit cards, you earn an additional $3099.00 which you normally would not have. This is something to consider. Whether or not your people are paying you promptly is not an issue. “Cash can be lost or stolen and checks could bounce” (Stephenson, 2008). You will lose out on sales because you do not accept credit cards. People take their services elsewhere if they really want to pay in credit cards. You may have to wait for someone who has a credit card to come up with the cash because you don’t accept credit cards. People will take your more seriously when you start accepting credit cards.
Stephenson, 2008, Entrepreneur.com, The basics of money management, accepting cash, checks, and debit cards, Retrieved from http://www.entrepreneur.com/money/moneymanagement/article78994-2.html
February 25, 2008
Failed Banks in 2009
As of March 31, 2009, twenty-one banks have failed due to unsafe and unsound businesses practices. They are as follows.
Omni National Bank, Atlanta Georgia
Colorado National Bank, Colorado Springs, Colorado
Team Bank, N.A., Paola, Kentucky
First City Bank, Stockbridge, Georgia
Freedom Bank of Georgia, Commerce, Georgia
Heritage Community Bank, Glenwood, Illinois
Security Savings Bank, Henderson, Nevada
Silver Falls Bank, Silverton, Oregon
Pinnacle Bank, Beaverton, Oregon
Corn Belt Bank, & Trust, Pittsfield, Illinois
Riverside Bank of the Gulf Coast, Cape Coral, FL February 13, 2009 April 2, 2009
Sherman County Bank, Loup City, NE February 13, 2009 April 2, 2009
County Bank, Merced, CA February 6, 2009 April 2, 2009
Alliance Bank, Culver City, CA February 6, 2009 April 2, 2009
FirstBank Financial Services, McDonough, GA February 6, 2009 April 2, 2009
Ocala National Bank, Ocala, FL January 30, 2009 April 2, 2009
Suburban Federal Savings Bank, Crofton, MD January 30, 2009 April 2, 2009
MagnetBank, Salt Lake City, UT January 30, 2009 April 2, 2009
1st Centennial Bank, Redlands, CA January 23, 2009 April 2, 2009
Bank of Clark County, Vancouver, WA January 16, 2009 April 2, 2009
National Bank of Commerce, Berkeley, IL January 16, 2009 April 2, 2009
You can obtain further information about these banks from the FDIC.