My granny has actually constantly taken an interest in my individual and expert undertakings however I was still surprised when she revealed the desire to learn more about my task as a merchant account manager (not exactly a titillating position). Throughout the course of our conversation, I explained that we usually charge in between 1.5% and 1.75% for retail deals (depending on the type of card) and over 2% for Internet and MOTO (mail order telephone order) deals.
It was time to provide Grandmother the abbreviated course, Merchant Accounts 101. I discussed that our company, indeed all processing banks, are governed by interchange rates – consistent rates that Visa and Mastercard charge their member banks. These, in essence, are our buy rates and if we charge lower than the interchange rates, we will be losing money.
Definitely, business owners, especially those that are big and process an exceptionally large regular monthly volume of credit card deals, do not wish to hear that the costs must be raised! Some are even calling for federal government regulation to make sure a reduction in charge card processing charges. Big merchants, including Kroger and Safeway grocery chains, behemoth drug stores, such as Walgreen and Maxi Drug, and others are even taken part in a claim with Visa and MasterCard, declaring that Visa and MasterCard, for all intents and functions, are monopolistic entities that break antitrust laws. The merchants think that Visa and MasterCard’s standard, consistent fee structure need not alter, simply that the associated costs must be reduced.
How, in practical terms, is this going to be accomplished? Visa and MasterCard are unlikely to determine that their earnings are expensive and execute interchange price decreases. Retailers are prompting for state and federal/ legal intervention requiring Visa and MasterCard to embrace “cost-based rates.”
Cost-based pricing might be summed up by the following simplified formula:
Cost of product and services + Portion of set revenue = Cost-based pricing.
Determining the overall cost, consisting of Visa and MasterCard’s variable and fixed costs, are exceptionally challenging to calculate. But even if the cost side of the equation (on the far left of the equation) can not be determined with total accuracy, merchants are demanding that Visa and MasterCard minimize the set revenue portion.
My preliminary response to the retailer’s position was one of approval. It is disconcerting to know that corporate CEOs, CFOs and those on the board get enormous raises, rewards, advantage bundles and big retirement stipends when so numerous in the work force can barely make ends fulfill.
Maybe if credit card rates would be reduced, then these big retailers would use consumers lower costs. Customers would benefit and everyone will more than happy – well, save for the folks high up on the business Visa and MasterCard ladder.
Then I started reading more about this issue and discovered that large retailers might extremely well choose not to pass on their credit card processing-related cost savings. As one author composed, “the hypocritical sellers do not sell their own goods for ‘cost-based’ rates.” Undoubtedly, profit is the name of the game and these huge kids may have difficulty sharing their newly found good luck.
Moreover, if federal government policy were enacted, Visa and MasterCard are unlikely to just sit on the fence, regreting that they need to decrease their interchange fees. Somehow loan will be recouped and it most likely will be through the excellent, old American consumer/ credit card holder who will be examined additional charges to use credit cards. Think about the cause and effect that higher gas rates have caused, leader to greater costs in many markets.
There remains a silver lining even if the federal and/or state federal government does not intercede with Visa and MasterCard’s policies. There are merchant account service providers that want to price their service using “cost-based rates.” As long as such business remain in the black with their merchant accounts, they might want to make the slimmest margin of revenue. Less specific revenue might only make the most of overall earnings in the long run as these business will get their share of referrals.
Andy Lax is an Account Supervisor at ipaytotal, a merchant account business whose costs are among the lowest in the merchant account field. If you need a cost effective merchant account with impressive consumer assistance, please visit online gaming merchant account credit card processing . For more information about the merchant account field, please gain access to our totally free e-book: