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Repurposing Cash Flow: How Rethinking Your Current Credit Card Processing Could Pay for Your Next Vacation

Maui VacationAs a business owner, you work long, hard hours and look forward to the day when you can take time off to recoup. When you dream about vacationing, the first thing you might wonder is “How can I afford a getaway?”

Instead of working more hours, cutting budgets or having a huge garage sale to make your dream of vacationing a reality, consider repurposing your cash flow. By rethinking your current credit card processing, days filled with meandering white sand beaches, exploring museums or living it up in a place like Vegas could be just around the corner.

So how do you rethink and repurpose your current merchant services arrangement? First understand that there are multiple pricing models for credit card processing and that one is more advantageous than others. Second, restructure your merchant services arrangement to take advantage of the more merchant-friendly pricing model, Interchange Plus.

Interchange Plus Pricing vs. Tiered Pricing

What is Interchange?

Interchange fees are the revenue that issuing banks earn on each credit card transaction made by customers that have been issued credit cards by that bank. Interchange fees vary based on:

  1. The type of card (debit card, credit card, rewards card, business card, etc.)
  2. The type of merchant (retail, grocery store, gas station, e Commerce, etc.)
  3. The type of transaction (Was the card present? Was the card not present? etc.)

Interchange rates are non-negotiable and apply to all merchants. They also comprise (generally) the largest portion of credit card processing fees. For reference, here are the rates and rules for how and when each Interchange rate applies:

  • Visa Interchange Rates
  • MasterCard Interchange Rates

    • What is Interchange Plus Pricing?

      Interchange Plus is a pricing model where the credit card processor passes through the interchange rates and adds a set amount of revenue in addition to interchange.

      When talking with a representative, it will sound something like this: “Interchange, dues, fees and assessments plus fifteen basis points (0.15%) and ten cents ($0.10) per transaction.”

      What is Tiered Pricing?

      Tiered pricing is a model where the merchant services provider groups various interchange rates into buckets or tiers. The most common tiered pricing model is called 3-Tier pricing. However, when pushed hard enough, some payment processors will present other multi-tiered pricing structures (6-Tier, 9-Tier or even 12-Tier).

      You will know whether you are on 3-Tier pricing (or some other multi-tiered pricing model) when talking with a merchant services provider if you hear something like this: “The Qualified rate is only 1.59% and twenty cents ($0.20) per transaction.” In a 3-Tiered pricing model, there is a Qualified Tier, a Mid-Qualified Tier, and a Non-Qualified Tier. The Qualified Tier offers the least expensive rate (the one you see advertised in large print). The Mid-Qualified Tier is more expensive, while the Non-Qualified Tier is often astronomical (and buried in the fine print or a footnote).

      The stated intent of 3-Tier pricing is to make it easy for merchants to understand the rates they will pay for credit card processing, but in reality…

      The Large Print Giveth, and the Small Print Taketh Away

      Look closely at this screenshot from Intuit’s website taken on 2/4/12, and you’ll see what I mean. Notice the following:

      Intuit Screenshot Example
      1. In the ‘Pricing’ table, only the Qualified Rate Tier and Key Entered (or Mid-Qualified) Rate Tier are shown.
      2. See the tiny little ‘Important Disclosures’ link at the bottom left corner of the table? It took awhile to find it then I had to click it before the disclosures were finally revealed.

      3. Let’s pause for a moment. Ask yourself: If the disclosures are truly important, why aren’t they prominently featured in the colorful table or somewhere else on the page? Why aren’t they highlighted in a way that draws attention so they are sure to be read in detail?

        Answer: Because that’s the only place where the whopping 3.91% Non-Qualified Rate Tier is published.

      Who in their right mind would give up nearly 4% of their revenue!

      Only the unwitting small business owner who doesn’t see or doesn’t click on the tiny ‘Important Disclosures’ link (or who hasn’t read this post!) before signing up.

      So which is Better? Interchange Plus or 3-Tier Pricing?

      To answer this question, I completed a comparative analysis using a real merchant services statement from a real retail merchant who is set up with Interchange Plus pricing. Because the statement shows each interchange rate that was charged to the merchant’s account, I was able to estimate the dollar volume that would be processed at each tier in Intuit’s 3-Tier pricing advertised on the Internet. Here are the pertinent details of the analysis:

      • 237 transactions and $46,197.34 processed on Visa, MasterCard and Discover cards
      • 58% fell into Intuit’s Qualified Rate Tier @ 1.64% + $0.27
      • 27% fell into Intuit’s Key Entered (Mid-Qualified) Rate Tier @ 2.47% + $0.27
      • 15% fell into Intuit’s Non-Qualified Rate Tier @ 3.91% + $0.27
      • The merchant’s current pricing is Interchange plus 0.15% + $0.10
      Here are the results:
      Pricing Model Est. Monthly Est. Annual
      Cost using Intuit’s 3-Tier Pricing $1,155.71 $13,868.52
      Cost using Interchange Plus $726.63 $8,719.56
      Total Savings $429.08 $5,148.96

      What Would You Do With an Extra $5,000 per Year?

      For fun and some more meaningful perspective, let’s look at what rethinking your current credit card processing means to you:

      • It means you can make a dent in personal and or business debt, which helps you increase your cash flow.
      • It means you can start investing (or deepen your investment) in profit generators for your business.
      • It means you can finally take that vacation.
      Viva Las Vegas!
      Las Vegas Penthouse
      • Roundtrip airfare for two from Sacramento to Las Vegas
      • 5 nights in a 1,536 sq ft penthouse suite at the Bellagio
      • 2 tickets to a top Vegas Show like Cirque de Soleil, Terry Fator, Criss Angel
      • Total Cost: $2,970.22 -- Hey cool! You still have some “walkin’ around” money!

      Not into Vegas? Perhaps a relaxing vacation destination filled with warm beaches, sunshiny days and starlit nights is more your style.

      How about Hawaii?
      Hawaii Vacation
      • Roundtrip airfare for two from Sacramento to Maui
      • Full size car
      • 5 nights in a partial ocean-view room at the Hyatt Regency Maui Resort and Spa
      • Daily buffet breakfast for two
      • Daily access for two to the Spa Moana
      • Total cost: $3,195.84

      Are You Ready to Think Simple?

      Simple has generated thousands of dollars in annual cost savings for businesses. Our comprehensive cost reduction analysis is performed on contingency, which means Simple is compensated only if savings are identified for your business. Imagine what you could do with all that money added to your bottom line…

      Contact Simple Business Solutions:
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