The Credit Card Processing Game (and Why Big Ticket Companies Don"t Need to Play It Anymore!)
Another scam brought to light.
As you already know, physical money rarely changes hands anymore.
Almost 80% of all monetary transactions are done electronically.
You also know that, for your business, when a credit card transaction is made, a certain percentage is deducted from the amount of the transaction and paid to your merchant payment company.
What you may not know is that Visa, Mastercard, and the other networks charge a certain wholesale rate to anyone accessing their network.
These rates are broken up into many categories and come out on average to about 1.
59%.
Visa, MC and the others will not deal with you or your customers directly.
They rely on the companies in the middle to work as the conduit between the people and the network.
These processing companies have been charging 10% to 20% above the average wholesale rate for many years.
This means that the processing companies have been 'earning' much more on transactions with large ticket sales items, like auto repairs and carpentry services, than on transactions with smaller average tickets.
The injustice of this concept is the fact that, because the transaction is purely electronic and there is virtually no people involved with it, the cost of processing a $10 transaction vs.
a $10,000 transaction is no different above and beyond paying the wholesale rate.
For example, a 1.
8% rate on a $10 transaction is going to deduct $0.
18 from the total.
About $0.
16 of that is going to Visa/MC.
The other 2 cents is going to the processor.
For a $1,000 transaction, $18 would be deducted, with $15.
90 going to Visa/MC and the remaining $2.
10 going to the processor.
One transaction has you paying $.
16 over wholesale while the other has you paying a full $2.
10 over wholesale.
Again, the 'cost' of the transaction above the rate that must be paid to Visa/MC is not different for these two transactions.
Do you now see the scam? Just because you have a business that has high-priced products and services, you are paying more than what is fair on a cost-adjusted basis.
I believe an answer to this dilemma has been addressed by the company I am associated with.
What they have done is allowed its representatives to offer rates just 5 basis points (that's 5/100 of a percent) above the average wholesale rate and charge a flat amount per transaction, which is $0.
13.
So, if your transaction is $10, the rate is $0.
13.
If it is $10,000, the flat rate is $0.
13.
The cost of the transaction either way is the same for my company, above and beyond paying the wholesale rates.
Consider, when you get time, that no one processor is right for every business.
As you already know, physical money rarely changes hands anymore.
Almost 80% of all monetary transactions are done electronically.
You also know that, for your business, when a credit card transaction is made, a certain percentage is deducted from the amount of the transaction and paid to your merchant payment company.
What you may not know is that Visa, Mastercard, and the other networks charge a certain wholesale rate to anyone accessing their network.
These rates are broken up into many categories and come out on average to about 1.
59%.
Visa, MC and the others will not deal with you or your customers directly.
They rely on the companies in the middle to work as the conduit between the people and the network.
These processing companies have been charging 10% to 20% above the average wholesale rate for many years.
This means that the processing companies have been 'earning' much more on transactions with large ticket sales items, like auto repairs and carpentry services, than on transactions with smaller average tickets.
The injustice of this concept is the fact that, because the transaction is purely electronic and there is virtually no people involved with it, the cost of processing a $10 transaction vs.
a $10,000 transaction is no different above and beyond paying the wholesale rate.
For example, a 1.
8% rate on a $10 transaction is going to deduct $0.
18 from the total.
About $0.
16 of that is going to Visa/MC.
The other 2 cents is going to the processor.
For a $1,000 transaction, $18 would be deducted, with $15.
90 going to Visa/MC and the remaining $2.
10 going to the processor.
One transaction has you paying $.
16 over wholesale while the other has you paying a full $2.
10 over wholesale.
Again, the 'cost' of the transaction above the rate that must be paid to Visa/MC is not different for these two transactions.
Do you now see the scam? Just because you have a business that has high-priced products and services, you are paying more than what is fair on a cost-adjusted basis.
I believe an answer to this dilemma has been addressed by the company I am associated with.
What they have done is allowed its representatives to offer rates just 5 basis points (that's 5/100 of a percent) above the average wholesale rate and charge a flat amount per transaction, which is $0.
13.
So, if your transaction is $10, the rate is $0.
13.
If it is $10,000, the flat rate is $0.
13.
The cost of the transaction either way is the same for my company, above and beyond paying the wholesale rates.
Consider, when you get time, that no one processor is right for every business.