Consolidation in the credit card processing industry means higher fees for merchants

Why you are being charged too much for credit card processing

Imagine that you walk into your favorite car dealership to purchase a new car. The salesperson informs you that you can no longer purchase a car outright but in fact you have to lease the car. You do not have a choice. If that is not bad enough, they then inform you that any service to the car HAS to take place at the dealership. Tires, oil & air filters, body work, everything can no longer be performed at the place of your choosing but rather everything is handled at the dealership thereby creating a monopoly.  Do you think this new business model will cost you more or less money?

The credit card processing industry has been moving in the same direction and has sped up rapidly in the last year. Fewer and fewer hardware manufacturers are permitting merchants to negotiate their processing fees, instead they want to capture the hardware and software profits as well as the fees associated with processing the transactions. What this means for merchants can be broken down into the Good, the Bad and the Ugly.

The Good

Everyone is busy these days and the hassle of negotiating new equipment pricing, software monthly fees and processing contracts seems monumental. Wouldn’t it be nice to have a “one stop shop” where everything comes out of a box and is plug and play? Of course. Time is money and the less time spent on a point-of-sale vendor is greatly appreciated.

The Bad

Sticker shock. The first full month of processing passes, and the effective rate is much more that you expected. Because you did not have the opportunity to not only negotiate rates but HOW you will process, the full brunt of the fees is alarming. Many of the companies that are imposing leasing of equipment and non-negotiation of software fees and rates are utilizing tiered pricing which is the most onerous of all pricing platforms.

The Ugly

Leasing equipment is by far the most expensive manner of obtaining any point-of-sale system—period. Many times, a bank or processor will offer below market value rates because they know the profit in leasing. We have seen $325 terminals leased at $90/month for four years. That’s a profit of almost $4,000!  Additionally, the 3-year processing contract is typically sold with a 4-year equipment leasing contract. This is particularly costly as the two separate contracts do not expire at the same time and a merchant is forced into the contracts renewing on an ongoing basis. This is called “evergreening.”  As the processing contracts continue to renew, rates increase. In order to get out of the contracts there are typically large fees required to end them.

The most important thing to remember when shopping for any hardware/software and processing services for your organization is the power to negotiate any and all upfront and ongoing costs as well as understand the fees associated with processing. A merchant should NEVER be held hostage to any one vendor.

Although the current trend is consolidation of products and services, there are still great vendors in the marketplace that will not pressure merchants into a “one stop shop” contract. Find these vendors and ask other merchants about their experience with vendors they know and trust. Finally, with enough push-back from merchants the current trend in consolidation will lessen and merchants will once again have a voice in their business decisions!

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