Through our experience working closely local business owners in Orlando Florida, we have identified and gathered the common mistakes sold to merchants when setting up or switching their merchant service providers, in hope you will be better equipped to make an informed decision.
Leasing, renting, or buying credit card terminals in order to get access to the best industry pricing and rates. This is a myth, don’t buy into it.
Signing a Longer Term Contract in Order to Lock in the Best Rates
Again, this is simply a sales tactic. There is no connection between a contract and rates. It’s a ploy to mentally trap you for 3-4 years and prevent you from getting something better when it comes along. The rip off is not so much with the contract itself but the belief system it instills in merchants, discouraging them from monitoring their rate and basically settling for what they have until the contract expires. Their pricing and rates will slowly creep higher and higher each month and this mindset ends up costing them thousands of dollars.
If you are already in a contract, don’t worry. The solution here is actually simple. Find a company or individual that is willing to pay your way out of the contract. If they are in this industry for the right reasons, they will have no problem investing in your business to kick start the long term relationship.
Tiered Pricing, Qualified Rates, Discount Rates, and Most Flat Rates
These rates do not represent what you will actually pay in fees. Here is what typically happens. A merchant is is sold a qualified or discount rate of 1.5% from 1-800 cheap credit card processing. They get another quote from an honest representative explaining the effective rate will be 2.1%. Naturally, the business owner goes with the lower offered rate. After their first month of processing where they did $30,000, they are charged $900 in fees.
Yes, they paid 1.5% on every transaction but they also paid for surcharges and interchange fees. Their actual rate: 900/30,000 equals 3%! If they chose the honest company, they would have paid 2.1% or $630 which would have saved them $270 for just that 1 month! The moral of the story is the lowest qualified rate doesn’t mean the lowest cost to your business.
Not Having a Consistent Point of Contact Designated to Your Merchant Services Account
You want to make sure the majority of profit above interchange goes to an independent contractor representative and not a big corporation, bank, or service provider. This is how you get the best rates, solutions, and service. Here’s why:
Service providers and independent reps enter into non-exclusive contracts with each other. The Representatives are responsible for all business costs including marketing, equipment, and lead generation. This eliminates the Service Provider’s employee salaries and payroll costs, marketing dollars, and the time and effort it takes to create a new client relationship.
As a result, they concede up to 95% of the profit to the independent Representative. These reps can price a merchant as close to interchange as they want, whereas a bank employee or sales employee does not have this flexibility. The closer a merchant is priced to interchange, the more they will save and the less the Representative and Service Provider will profit each month.
Even though Service Providers make less profit from each merchant acquired from independent reps; it’s actually their highest ROI because of the consistent growth and lack of merchant attrition. The great pricing and personal service leads to long term relationships which equals long term profits; not quick capital gains associated with other models service providers use. It’s the mentality and truth that 10% of a watermelon is more than 100% of a grape.
That’s why choosing your bank whose primary focus is not credit card processing or 1800 cheap merchant services is a classic way to get ripped off in United States.