Credit Card Processing: The Ugly Truth... Explained

published at: August 26th, 2022

Credit Card Processing: The Ugly Truth... Explained:

Credit Card Processing: The Ugly Truth... Explained

As a business owner, you know that in order to stay in business for a long period of time you have to constantly find ways to lower your costs. But perhaps, you don’t know what expenses or even where to look to cut costs, or maybe you don’t have the time to look because you’re too busy running the business? If so, this article is for you.

The most common product or service that most business owners overspend on is their credit & debit card processing! Credit & debit card processing is the most misunderstood product a business owner needs to operate by far. Many business owners open up their card processing statements at the end of the month and have no idea what they're looking at... and you could argue that it's meant to be that way.

Most business owners tend to gravitate to what they know and understand. This is why for years companies like Square and others have gotten away with such absurd pricing to accept cards. They promise a flat rate of 2.75% plus $.10/transaction. Nothing more but also nothing less. What most business owners who love flat rates don't know is that that flat rate is costing them THOUSANDS more per year to accept cards! But hey… who doesn’t like to know EXACTLY what they are paying? 

The TRUTH about the industry is this and how it works is that visa and master card set pricing every year on every single card that exists. It's called “interchange.” Interchange is just a fancy word for “cost to accept the card.” From your plain vanilla convenience store purchased prepaid card all the way to the Amex Blacks of the world. Every card has an "interchange" cost to accept that card. The fewer reward points/offers that that card offers its owner the less it costs to accept that card. On the other hand, the more reward points/offers that the card offers its owner the more expensive it is to accept that card. This is why you find some businesses "don't accept American Express."

The best pricing structure you could be set up on for maximum savings is “interchange plus,” which means you are paying a slight increase on the cost to accept the card. This structure is called “Interchange Plus.”

How does this work? Well, the least expensive cards to accept are very basic & common cards like debit cards or convenience store prepaid cards. This is because these card types don’t offer their owners rewards, miles, cash back, or incentives to use the cards. So accepting a card like this might have an “interchange” cost of roughly .2% while a more sophisticated card like a Chase Saphire card might have an interchange cost of 2.2%. And guess what? There are literally hundreds of different card types in between! This is why “Interchange Plus” makes the most sense. With our service, the"interchange plus” that you pay is only .25%. higher than the cost of the card. So you could expect to pay between .2% and 2.2% example previously given PLUS .25% OR you can see it as a total of .45% and 2.45%, regardless of the card you take. 

This means that ANY card that you take will cost you less than the flat rate cost that some companies promise you at 2.75%.

Could you imagine paying 2.75% interest rate to accept a card that you should be paying only between .45% and 2% to accept?

Let's run some examples. Let's assume your business runs $500,000 a year on credit cards. The average cost to run a card on our interchange plus model is roughly 1.5%. Here is the difference you would see on our interchange plus model assuming the average of 1.5% versus what you know you are going to pay a company like Square at 2.75%:

$500,000 x 1.5% = $7,500 per year on our model.

$500,000 x 2.75%= $13,750 per year on Square's model.

A savings of $6,250 per year!

And guess what? As the amount you accept in cards grows or you scale to more locations… so do the savings. Let's look at the numbers at $1,000,000 per year:

$1,000,0000 x 1.5% = $15,000 per year on our model.

$1,000,000 x 2.75% = $27,500 per year on Square's model.

A savings of $12,500 per year!

Now let's look at the numbers at $2,000,000 processed:

$2,000,000 x 1.5% = $30,000 per year on our model.

$2,000,000 x 2.75% = $55,000 per year on Square's model.

A savings of $25,000 per year! Now take that number and multiply it by he amount of years you plan on staying in business. In just 4 short years it would be a total savings of over $100,000!

So, what are you waiting for? Lock in those lifetime savings with our no-price increase guarantee. 

Give us a call or send us a text message at 619-330-1285. We think you'll be glad you did!

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