California Dental Association 1201 K Street, Sacramento, CA 95814 ® 800.232.7645 | cda.org Evaluating a Merchant Credit Card Processor — Checklist Comparing processors to their competitors can be a daunting task. There is no easy way to do an apples-to-apples comparison, but we will provide you with some of the secrets of the trade, including the types of fee and pricing schedules in the marketplace and what to watch out for in your merchant agreement. If you are considering this daunting task, you have either been approached by another processor claiming they can save you money or you have examined your latest merchant statement and realized your fees have skyrocketed since you enrolled many years ago. The first thing you will want to do before starting your due diligence, if you have a current processor, is determine your true “effective rate.” You can determine your current rate with a simple analysis of your processing statement. Take the total amount of fees being paid and divide that by the total dollar volume of the transactions processed. The resulting number is called the effective rate – the average rate paid per transaction. We see effective rates between 2.5 percent and 4.5 percent for dental practices, depending on the type of processor utilized, how long they have been with their existing processor and how the transactions are settled. This checklist will provide an overview of the industry and tips for savings on your processing charges. Industry Overview/Explanation of Terminology • Processors. Not all processors are created equal. Merchant accounts are marketed by two basic methods: the processors who have a direct link to Visa/Mastercard Interchange or an authorized agent for the bank that is directly registered with both Visa and MasterCard as an ISO/MSP (independent sales organization/member service provider). If you are working with an ISO, know that there is an additional layer of cost. Don’t misinterpret this as bad, many ISOs are very competitive (due to low overhead) and their service levels are usually better than what you can expect from one of the larger processors. • Interchange. A significant amount of the fees that are charged for processing consists of charges that have to be paid to the issuing banks. These charges are referred to as “Interchange.” Interchange fees are set by the banks and the amount depends on a number of factors established by the bank. They regularly add new Interchange levels and change the rates and qualification criteria and levels. With more than 500 Interchange rates, it is impossible when you accept a debit or credit card for payment to know what the actual Interchange cost will be for the card. There is no way around paying, at minimum, the Interchange rate plus a fee to the processor for completing the transaction. • Pricing models. Most processors use four common pricing models: ── Interchange plus pricing. Visa/MC and Discover assess an Interchange rate, Interchange fee and assessment fee for each card transaction type. These rates and fees are “passed through” to the merchant directly and the processor then adds a flat discount rate and authorization fee on top of the true cost of Interchange. This type of pricing model is typically the most advantageous for the merchant in that they are only being charged actual cost, plus an added amount to process the transaction. Discount rates can range between 0.06 percent and 0.50 percent. Authorization fees range from 10 cents to 50 cents per transaction. ── Three-tier pricing. The three-tier pricing is the most popular pricing method and the simplest system for most merchants to understand. In this model, the processor groups the transactions into three groups (tiers) and assigns a rate to each tier based on a criterion established for each tier. All of your transactions will fall into one of these three buckets, with the exception of debit and American Express, which should and will likely have separate pricing. Copyright © 2019 California Dental Association. PPMD011-0319 Evaluating a Merchant Credit Card Processor | 2 of 6 cda.org OO Qualified. The card is swiped through a terminal and the merchant batches the transactions within 24 hours. Most swiped credit cards without any associated rewards will fall into this category. It is typically the lowest rate. OO Mid-qual. This rate applies to rewards cards and key-entered transactions. It also applies to charges batched in 24-48 hours, which would have been categorized as “qualified” had they been batched sooner. OO Nonqualified. All corporate and government cards are charged this rate regardless of batch processing time. Other transactions batched after 48 hours are also charged this rate. This is typically the highest rate charged. OO Debit. Debit cards with PIN pad entry have a much lower Interchange then regular credit cards, due to the Dodd-Frank regulations that were passed in late 2011. Enabling your patients to enter their PINs when paying with debit cards will reduce your processing costs. ── American Express. American Express operates a closed loop network whereby it issues credit cards directly to cardholders and merchant accounts directly to businesses. Therefore, it also governs its own discount rates. The rate that a business pays to accept American Express will remain the same regardless of the processor it uses to process Visa/MasterCard and Discover. American Express sets its own discount rates, which are exactly the same for all processors. The rate ranges between 2.5 percent and 3.5 percent plus a transaction fee. ── Flat rate. Several mobile processing companies have entered the marketplace over the recent years. Their product allows virtually anyone to accept credit card payments using their personal mobile device and they charge a flat rate for swiped (approximately 2.75 percent) and hand-keyed (approximately 3.5 percent plus 15 cents) transactions. Generally no other charges period. • Fees. When you start accepting credit cards in your office, you will pay fees for everything from setup and application to processing and customer service. But no two processors charge the same. One vendor may advertise a low qualified rate but charge more for service items. Another may charge for setup and administration but waive its fees on other services. Processors are notorious for charging a number of fees, in addition to the “discount fee,” for processing, and their merchant account provider’s “terms and conditions” allow them to change existing fees or impose new ones. Below outlines some of the common fees and a description. ── Administrative/service fee – a fee charged for ongoing services to the merchant account. ── Application fee – a fee charged for accepting your application. Typically associated with running your credit report. ── Annual fee – a fee charged one time each year to cover certain operational expenses incurred during the prior year. ── Authorization fee – a fee that is charged each time authorization is obtained on a bank card. ── AVS fee – a fee assessed each time the address verification service is utilized. ── Chargeback fee – a flat, per-occurrence fee that is charged to cover processing charges incurred because a transaction has been disputed by the cardholder. ── Discount rate/fee – a percentage that is paid to the processor on each transaction. This typically comprises the largest portion of your costs. This is what most processors market and use to lure new customers. It varies depending on the type of card and the type of transaction. It also includes Interchange, which are fees set by the issuing banks. A competitive discount rate ranges from 1.80 percent to 2.4 percent for qualified Visa/MasterCard and Discover. Do not confuse low debit card rates, for Visa/MasterCard and Discover. Debit cards will process at significantly lower discount rates, ranging from .50 percent to 1 percent, plus a nominal transaction fee. Evaluating a Merchant Credit Card Processor | 3 of 6 cda.org ── Equipment fee – a fee charged for POS devices, terminals, printers, imprinters and any other equipment used by a merchant. ── IRS report fee – a recent fee imposed by processors who now have to report your processing information to the U.S. government. ── Maintenance fee – a fee charged for changes to the merchant account after the initial setup. ── Minimum discount fee – the minimum amount billed either daily or monthly for discount fees. If the actual discount due is not equal to or greater than the minimum, the merchant will be charged the minimum discount fee. ── Network access fee – a fee charged for providing POS device access to the electronic network, including authorizations and declines. ── PCI compliance fee – this is a fee that many processors are now charging to help facilitate the annual compliance testing. Watch for this fee either quarterly or annually, which can range $99-$200 annually. Most processors use a third-party company, such as Trustwave, to facilitate the testing and share this fee with it. ── PCI noncompliance fee – a fee charged to merchants who do not return a PCI Compliance Validation Certificate, which can be obtained by completing and passing on an annual basis a Self-Assessment Questionnaire and/or Quarterly Network Scan (for merchants who electronically store cardholder information or whose application systems are connected to the Internet) according to the applicable business level as defined by PCI Security Standards Council. We have seen this fee range from $20 to $40 per month, for every month the merchant is not compliant. ── Reprogramming fee – this fee for reprogramming your existing equipment or software. ── Supply fee – a fee charged for merchant supplies, such as printer paper, cartridges, etc. ── Termination fee – a fee charged for canceling or terminating a merchant agreement. There is, however, usually room for negotiation with this fee, especially in the event that you have unresolved problems or issues that the provider cannot resolve.