DID YOU KNOW THAT THERE ARE 16,000 COMPANIES THAT OFFER MERCHANT SERVICES AND THAT 99.8% OF THEM ARE RESELLERS?
That’s right; there are approximately 16,000 companies that offer MC/Visa Processing in the US. However, less than 20 of them actually do the processing themselves. So when I say 99.8% are resellers that is, unbelievably a conservative number. (The actual figure is 99.875%). It doesn’t take much to figure out that (follow me here) many of these resellers are reselling for a company that is already reselling. In fact, there may be as many as five companies between you and the actual processing company.
The biggest misconception in the marketplace is the idea that your local bank processes credit card transactions. With the extremely rare exception they do not. To simplify things, your Bank is in the business of opening accounts and lending money. Just about everything else they offer; Merchant Services, Payroll Services, Identity Theft Protection, Credit Report Monitoring, etc. is all farmed out to the actual providers of those services. This allows the bank to generate income from multiple sources and develop stronger relationships within their community. It makes sense, doesn’t it? After all, hopefully you are banking with an organization you know, like and trust.
For some, the convenience and piece of mind are worth the extra costs associated with finding a provider yourself. The problem is those added fees continue to accrue for years. Over time, you may end up paying thousands of dollars to avoid what might only turn out to be a couple of hours of simple industry research.
However, the Merchant Services Industry is so incredibly over wrought with resellers that finding quality information is near impossible. What makes matters worse is the underlying negative affect this distribution model has on the actual merchants accepting credit cards for payment of goods and services.
Think about it…
A processor that engages an Independent Sales Organization (ISO) to sell their services for them has a vested interest in the success of that ISO. In other words the ISO becomes the customer. The ISO is exponentially more important to the Processor than the small business owner accepting Master Card and Visa transactions. In fact, for all intents and purposes, that Merchant will never matter.
This is the basis for all of the problems in the industry. Unfortunately for small business owners, the “horse is out of the barn.” There is no shutting this puppy down.
For the last few decades everything in this industry has been set up to help the ISO at the business owner’s expense. Here are a few examples:
1. Equipment Leasing: Many of the ISOs thrive on equipment leases. The worst example I have ever heard of was a small business owner, right here in New England that leased a $400 (wholesale cost) terminal for $99.00 per month for 16 years, (or $19,008.00). Today, the wholesale cost on most analog terminals is around $250.
a. Note: If you are considering an equipment change I recommend a dual/com terminal to take advantage of the internet for faster transactions. They cost a bit more (about $400) but often allow you to eliminate a costly business phone line.
2. Three Tier Pricing: Most small business owners are set up on a plan that bundles all transaction types in to three categories: Qualified; Mid-Qualified and Non-Qualified. However, there are no strict guidelines for classification. In other words what is a Non-Qualified transaction for you might be a Mid-Qualified transaction for someone else. Some ISO’s are actually adding a fourth tier.
3. One Standard Rate: I am sure you are bombarded by sales professionals offering you some new great rate for your Visa and MasterCard transactions. Did you know that Visa is actually less expensive to process than MasterCard? Did you also know that on average, a small business owner will accept Visa 60% of the time and MasterCard only 40%? If you are paying the same for MasterCard and Visa then you are giving money away every single month.
Unfortunately, this is just the tip of the iceberg. In subsequent articles I will share with you more information to help you better understand an industry that is vital to your success. Accepting MasterCard and Visa is no longer an option, or a luxury. I assure you there are things you can do to get the absolute most out of your Merchant Services for less than you are paying now. Simply learning how the industry works and the steps you can take to control your costs will help you better understand your options going forward.