Hidden Merchant Account Costs Can Be Avoided Through Proper Pricing

Some merchant account pricing structures are much more cost-effective than others, but some of the cost-saving aspects of the best merchant account price models aren't readily apparent. Knowing which price models are best, and how to utilize them to keep costs low can help you save hundreds of dollars a month in credit card processing fees.

Merchant discount rates are based on interchange fees, and interchange costs account for the majority of the expense to processing credit cards. Getting the lowest markup over interchange when selecting a merchant service provider is important, but keeping interchange costs as low as possible will save you more over the life of you merchant account.

If your business accepts credit cards, it's very important for you to have a solid understanding of interchange and how costs can vary substantially depending on which category transactions qualify. Teaching yourself and your staff to adopt processing methods and habits that ensure transactions qualify to interchange categories with the lowest rates and fees will save your business substantial costs.

The ability to formulate methodologies that ensure your transactions qualify to a lower interchange category hinges on your ability to see and study actual interchange data on your merchant account statements. Some merchant account pricing structures make interchange data know, while other conceal it under generalized rate categories.

Interchange plus pricing, which is also referred to as pass-through, is a price model where interchange categories are itemized on the monthly merchant account statement. Enhanced recover reduced (ERR) and tiered price models are less clear, and interchange categories aren't itemized on the monthly statement for these types of pricing.

Aside from the fact that tiered and ERR pricing is often more expensive than interchange plus, sometimes by a margin of 30% or more, these price models carry hidden costs because they hide interchange categories from the merchants that are using them.

For example, a business that sells products online may have an employee that's unaware of the importance of using address verification when processing transaction. Card not present transactions that are processed with AVS information can downgrade to the most expensive EIRF interchange category. If left unchecked for a prolonged period of time, this will prove to be a very costly oversight.

In a case like this, a pricing model that doesn't show interchange will make it tough if not impossible to diagnose the source of the problem without making a call to your merchant service provider. Monthly statements will simply show an excessive amount of non-qualified discount rate charges without citing the interchange category to which each transaction qualified. On the other hand, interchange plus statements itemize each category and clearly show how many transactions qualified to each.

If you're unable to view itemized interchange categories on your monthly merchant account statement, your account most likely utilizes a tiered or ERR pricing model. Aside from being generally more expensive than interchange-based pricing, these models also hinder your ability to spot costly mistakes that you or your staff are making when processing transactions. If this is the case, consider using a service like CardFellow to get quotes and switch your account to an interchange plus or other price structure that uses interchange pass-through.