Credit Card Processing Fees: Don’t Overlook This Cost: It Could Cost You Thousands

In the domaining world we get caught up in the strength of the domain, the look and feel of the website, and the number of visitors.  In the business world we are concerned with only two things, revenue and costs.

If you keep it simple there are only two things to worry about in your business.  How much money you spend and how much you bring in.  It sound simplistic but I’m always surprised how far off on atangent people can get.  My father is the ultimate in keeping costs down in a business and I seem to have the knack to bring in revenue.  Any time we have a new idea we ask the simple questions.  Will it cut our cost?  or Will it help drive revenue?   In a search to cut costs we decided to look for a cheaper credit card processor.

In 1988 we signed up with a credit card processor that has done an excellent job.  At that point in time we did $120,000 in credit card processing per year.  This year we’ll do easily over a million.  We were approached by a new vendor that noticed our processing increase (don’t know how she got the data or if she was lying).  She said she could get our rate down under 2% (our present rate) to approximately 1.8%.  If you do the math it would be a tremendous savings and we bit.  The key to the whole deal is in order to save big money we would have to try and get all debit card users to use the pin pad.  Why?  There are different rates for each and every single type of credit card.  Debits pay a certain rate, airline miles cards have a different one as well.  The more rewards they have the more it costs the merchant.  Most users have no idea their “points” come right out of merchant’s pockets.  My job was to get them to use debit because I save a 1/2% on every transaction.  This is huge.  So we sign up and get pretty excited thinking I’m about to save 26 cents on every transaction (average) but their was a problem.

Most people don’t like to use debit in a store.  It’s much easier to use credit.  The bank often give them points if they use credit because they get paid more from me and give some of it back.  Punching in the numbers also takes effort and time, two things people value. We even had our counter people explain how they were helping our business by using debit. This helped out tremendously but I didn’t want to push it too far.  The result, I actually ended up paying more.  Thousands more.  Why?

Our old clearing house was set up before the fancy rewards cards.  Our rate was a flat 2% and once the new rates were established the old company had just assumed we would have enough debit transactions to offset the higher rewards costs. They were such a big company they never did audit our account and realize they were losing money. Super bright me did some poor assumption and way overestimated the use of debit cards.  In May when I did $500K in transactions, my average cost came to $2.26 %.  I lost a good chunk of change.  Of course I called and blasted the lady that set me up and she was frightened. She had guaranteed a lot of things she realized she couldn’t deliver.  She had given me a verbal rate, not written down because it’s impossible to know what the real rate will be unless they charge you a flat rate.  I know that I had some responsibility but I do know from this point on I need to get the rate “range” in writing so that if that the overall rate doesn’t materialize, I can get out of my contract.

So how does this translate to your website? Contrary to the way domainers seem to approach website development.  Your site is a business.  Your site is just the portal.  It’s merely a part of the business.  The marketing and product delivery portion.  There has to be a business behind the site and there are costs. Credit card fees are MUCH more online than they are for a brick and mortar business. The reasons are the much larger percentage of returns, chargebacks, and fraud.  The cards and banks have to do a lot more policing of their online processing.  In short, it costs them more and they charge you more accordingly.

So although your online business may be small, make sure to do your due diligence on your credit card processor.  See what the overall costs are and what you get in return.  It is going to costs you a percentage of every dollar you make online so you might as well try and get it as low as you can.  Just make sure you know every single charge.  I found out the hard way.  Fortunately I learned before I hit 10 million.