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+++ S P E C I A L R E P O R T +++
"The Hidden Costs of Credit Card Processing"
Josh Dill
Senior Account Executive
Charge Card Systems, Inc.
22 November 2005

"What is your rate?" This is the most common question that a retailer will ask when approached by a credit card processor. In fact, there are so many other issues that must be considered when choosing a source for your credit card solutions. Retailers are often times are so busy in their day-to-day pressures that they don't have the time to study their credit card costs.

The credit card business, which in 2003 processed sales of $1.4 trillion (with only MasterCard/Visa) performs a vital function of maintaining the financial health of your organization ­ just like we need have our books and records audited by our CPA firm, retailers must exercise their financial acumen when analyzing whether they have the best “credit card program” for their particular organization.

Yes, the word “program” is critical ­ there are different programs and solutions that can be obtained depending on the needs of your organization. In addition and very importantly, credit card processors have numerous “hidden costs” which can and will inflate your credit card costs and in the majority of cases, you will never know it even happened.

Did you know that there are different rate structures for how you set-up your organization? Similar to starting a business, why did you choose to become a Subchapter S, vs. a C, vs. a LLC vs. non-profit vs. becoming a partnership? Working with your accountant, there were important criteria you analyzed to make this decision, which would ultimately affect your tax consequences.

The same holds true in the credit card business ­ there are “retail” rates, “swiped” rates, “MOTO ­ Mail Order, Telephone Order” rates, mid-qualified, non-qualified, key-entered, international rates, batch fees, debit fees, early cancellation fees, voice verification fees, address confirmation fees ­ I think you can understand the point. Besides rates, there are “transaction fees” and when analyzing your fees, it is critical to make a fair comparison of the “bundled” rate of both your discount rate AND your transaction fee (fee charged by the processor for each transaction).

Many credit card salespeople will offer a low introductory rate, which to a layperson within the company will seem unbelievable. What will be unbelievable are the “downgrades” or penalties that the business will be paying, without even realizing it because there are so many additional issues that have to be addressed.

We have analyzed thousands of merchant statements and have confirmed in our study that all organizations, whether for-profit, non-for-profit, retail, restaurants, or any retailer, are all being taken advantage of; -- why? Because merchants are not “credit- card sophisticated” and thus cannot carefully dispute their “Effective Credit Card Charges” which is the ultimate amount of money they pay. In order to run your company in a financially astute manner, you must know your “effective rate” (takes into consideration all the charges) vs. your “base rate” which is the initial rate charged by your processor.

Fact: Most CFO’s, bookkeepers or presidents of organizations do not carefully analyze their credit card statements on average for 10 years?

Solution: We suggest that all organizations perform a “Rate Analysis.” At Charge Card Systems, we evaluate our prospective clients at no charge to quantify their rate structure. In addition, CFO’s and managers need to become better educated on the financial solutions available in today’s marketplace.

For example, “Recurring Billing” is one topic, which many organizations are not employing properly. Recurring Billing allows your company, through specific software to bill its customers with the press of a keystroke vs. re-entering in every name, address, $$ amount into their credit card terminal (which is very time-consuming) on a monthly basis. For example, a consumer may buy goods on a lay-a-way plan, and you need to bill the same amount automatically every month, until the item is paid in full.

If you are a not-for-profit organization, you should consider using software programs like IC Verify or PC Charge (each program is less than $400), which should help your organization become much more efficient in its billing and collections process.

Another issue which rarely is raised -- how long until your money is deposited into your bank account? Most processors are 48-72 hours vs. 24 hours (banks capitalize on the cash float). When is your discount fee taken? Daily or monthly; Think about the savings on interest, the float of your money plus increased cash flow if your fees were removed at the end of the month? It certainly adds up and these issues will help greatly with your cash management.

Finally, it is important to note that switching processors is not a difficult task; in most cases, there is no fee to switch and typically involves filling out a 2-page application. Why not start saving money today and put the money in your pocket, or contribute to a worthy cause? It is a much better investment to spend your money on improving your organization vs. wasting money on the high and hidden costs of your credit card processing fees.


About the author.  Josh Dill is a Senior Account Executive of Charge Card Systems Inc. - CCS is a national credit card processor powered by First Data Merchant Services; he can be reached at (201) 568-6813 or  contact him at jdill@chargecardsystems.com; website address: www.chargecardsystems.com


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