Merchant accounts: One question to lower rates and fees

If you've ever asked a merchant account salesperson what their rate is, you asked exactly what they wanted to hear, and you're probably overpaying for credit card processing services just like the majority of businesses. "What's your rate?" is the most often asked question by merchants when they're looking for the best merchant account - but it's the wrong question to ask.

There are countless ways that a merchant service provider can extract profit from a merchant account. The easiest and most profitable way is by surcharging the majority of their clients' transactions. When you ask a merchant service provider what their rate is, you're referring to the qualified rate - or the lowest rate on a tiered merchant account pricing model.

As business people, we've been trained over the years to fixate on getting the lowest qualified rate on a merchant accounts. After all, we'll save the most on processing if we have the lowest rate - right? Well, not exactly.

The qualified rate typically accounts for less than 25% of total monthly processing charges. The majority of processing fees are made up of mid and non-qualified surcharges, monthly fees, per transaction fees and other additional charges.

When you ask a salesperson what their rate is, you're essentially confessing your ignorance when it comes to credit card processing. They know right then that they can get your business by quoting a nice low qualified rate, and then they can make a nice profit by raising the remaining rates and fees.

Even on the more transparent interchange plus pricing model, "what's your rate?" is still the wrong question to ask. Salespeople can quote a low interchange markup rate just as easily as they can a low qualified rate. Once you're fixated on the interchange markup, they'll make their profit from the other rates and fees on the account.

The hype surrounding interchange plus pricing has created a false sense of security for the merchants that are using it to process credit cards. Interchange plus pricing guarantees a standard markup over Visa, MasterCard's and Discover's rates - it doesn't guarantee a low cost merchant account. "What's your rate?" is the wrong question to ask.

Instead of asking a merchant service provider what their rate is, ask them how much their merchant account solution will cost. The cost of their solution is ultimately what you're interested in. Don't settle for a guess, either. Give the salesperson a copy of your recent processing statement and ask that they do a side-by-side comparison of what you're currently paying versus what they're offering.

The next time a merchant account salesperson approaches you promising the lowest rate, tell them that you're not interested in a low rate - you're interested in the lowest cost processing solution for your needs.