Merchant Services Provider – are you leaking money due to high fees?

A recent review of our company monthly expenses, one of the items jumped out at me is the credit card/debit card processing fees. You might say the merchant services provider charges those fees, what can you do? And those statements are mind numbing with tiers of different charges and fees, who have the time to understand them all when you have a business to run. Well, if I tell you that is one of the potential expenses you can slash thousands of dollars each year, would you be interested?

Merchant services providers (MSP) or often referred as POS system provider (Piece of S***, just kidding, Point of Sale) is the processor for debit card and credit card payment for goods and services. Your business might have little to all payments by cards and you might already be paying thousands of dollars in fees every month. Increasing number of companies are offering credit card as a method of payments. It works out fairly well for both parties. Vendor can get paid faster and depending on how the account setup (online payment for example), it can synchronize with the accounting system, potentially save time and resources for accounts reconciliation. Payer (business/individual) can take advantage of the flexibility and points earned from payment.

One of the issues that creates barrier to switching to different providers is how complicated the statements are and to make the matter worse, there are different terminologies that companies use so it is very difficult to determine whether you are saving money going with an alternative. There are 2 mains rates that you need to understand: Interchange rate and Discount rate.

  • Interchange rate: is the rate set by Visa and Mastercard. It is the fee paid to the card issuer bank. If you go to merchant services provider website, you can find different rates charged for different cards. In short, a manually keyed-in will have a higher fee than a swiped card, a corporate, or premium “perks” program cards (travel, points etc) will be more expensive than a basic consumer card.
  • Discount rate: fee merchant pays to the processor (Global payments, Chase, Moneris etc). Different industries will experience different rates such as travel agency will have higher rate than grocery store. Total monthly sales volume will also affect this rate, the higher the volume, the lower rate you will get.

Noted that there are two discount rates: the one mentioned above and an effective discount rate which takes into accounts all the fees you paid over the total sales volume. This is the true cost that you need to compare.

Once you have a better understanding of the statement, the next step is to determine if you have the best deal that you can get. Shop around by calling different reputable MSPs such as Global Payment, Chase, Moneris, TD merchant services, Elavon etc. and ask them to give you a quote. They will ask for a copy of your most recent statement and come back with their best price. The quote will entail the breakdown of fees and the potential saving per annualized sales. If you are a member of Canadian Federation of Independent Business, you also have access to use Chase with a very competitive rate. Even if you are not a member, it is beneficial to ask CFIB representative for the annual fee quote and depending on the sales volume and the potential savings from Chase alone, whether or not it is worthwhile for your business.

Besides the cost saving aspect, there are other benefits that you might find by switching such as online statements feature, phone and tablet options, recurring payment options or online payments for e-commerce. By spending couple of hours of work, you could be looking at thousands of dollars in saving each year and even more as your sales grow.

Canadian Federation of Independent Business: https://www.cfib-fcei.ca/en/member-savings-benefits/chase

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