PERSONAL FINANCE
For merchants, processing fees for accepting credit cards can vary
By Kevin G. Demarrais
- THE RECORD
Updated: 07/22/08 6:54 AM
HACKENSACK, N. J. — Consumers aren’t alone in being confused by credit card contracts.
They can be equally perplexing to merchants, and making the wrong choices can cost a business hundreds or even thousands of dollars a month, said Arthur Bergman, whose Leonia, N. J.-based company serves as the middleman between merchants and banks.
“Most merchants are not knowledgeable about credit card processing,” said Bergman, the president of Merchants Choice Card Services Nationwide LLC. “. . . You need patience to explain it to a merchant who is interested in saving money.”
The often-confusing credit card rules have attracted considerable attention in Washington this year, but the proposed legislation in the House of Representatives and Senate has focused mostly on the impact on consumers, not merchants.
But companies of all sizes are equally affected by the complex rules and fees, and Bergman and his Denver-based business partner make their money by helping businesses understand how the system works.
Those complexities sometimes result in a company blindly accepting fees that are routinely assessed, he said. What counts is the final cost, not just the basic fee.
Anyone who takes a credit card needs an intermediary to authorize and process the card so it returns back as cash in the company bank account, Bergman said. “MasterCard and Visa are not paying you; a processing bank pays you.”
Merchants Choice is one of those middlemen, a registered agent for The Woodlands, Texas- based Woodforest National Bank. It has about 700 customers around the nation, from hotels and restaurants to supermarkets and retail stores.
Merchants Choice is one of hundreds of independent sales organizations — many with similar names — that compete for the merchants’ business. Many are much larger — such as Chase’s Paymentech, with more than a million merchant locations — and each seems to promise the lowest rates and the highest levels of service.
“There are many banks that issue credit cards to customers, but not all issuing banks are processing banks,” Bergman said. “The big thing to consider is not the name and/or affiliation of the card in question, but rather the bank that will be processing accounts.”
When a customer uses a credit card, the transaction is transmitted first to the bank that issued the card for validation and then back to the merchant and to the bank that processes the sale for that merchant.
From what the customer pays, the processing bank collects fees that are generally about 1.69 percent, but that vary widely from bank to bank, Bergman said. In addition, the merchant may be hit with several other monthly fees.
Those fees can push the bottom- line cost for accepting Visa and MasterCard cards higher than for American Express and Discover cards, which are “widely recognized as being among those cards charging merchants higher processing fees,” Bergman said.
“Instead, these two cards define their actual rate structure, and accompanying fees, if any, much more clearly than do the purveyors of bank cards,” he said.
