No one likes credit card fees and no one likes dealing with credit card processors. However, in today’s world, accepting credit cards is simply a must (see these blog posts: “Show Me the Money”1 and “Why You Should Love Paying Credit Card Fees”2). Because it’s a necessary evil, it’s extremely important that you understand the basics of credit card fees, contracts and red flags. In this article, I’ll focus on what you should look out for when setting up an account with a new processor and the best practices to follow to keep your current processor honest.
What to Expect
Account Types, Discount Rates and Transaction Fees. When looking for a new processor, you need to know what fees to expect. I’m going to assume that you process transactions through your home inspection software (for example, HomeGauge, Home Inspector Pro [HIP], Horizon, Inspection Support Network [ISN]) and that the tran-sactions are “non-swiped” (refer to “To Square or Not to Square”3 for information on swiped accounts).
There are two ways to structure fees associated with merchant accounts (that is, credit card processing accounts), and neither one is inherently better than the other. The first is a tiered account and the second is an interchange plus account.
Tiered accounts are set up so that all transactions fall into one of the following three categories:
• Qualified: normal Visa, MasterCard or Discover transactions
• Mid-qualified: rewards cards
• Non-qualified: corporate cards, international cards and transactions for which the zip code and security code don’t match
Interchange plus accounts simply charge you a certain percentage (generally a set number of basis points) above cost or “interchange.”
With both of these types of accounts, you also will pay a per-transaction fee. The percentage that’s charged with these types of accounts is referred to as a “discount rate.”
Monthly and Gateway Fees. On top of the discount rate and the per-transaction fee, you also will generally have a monthly fee. (Refer to “To Square or Not to Square”3 for more information about accounts that have no monthly fees.) This fee is typically $5 to $10 per month. If you process transactions through your home inspection software program or on your website, you also will have a gateway fee. Depending on which payment gateway your software developer recommends, you’ll pay $5 to $20 per month for this feature. The payment gateway is required for any and all online processing; it is the security feature that credit card companies require to keep your customers’ information secure when processing transactions online or through a software program.
FANF. Visa introduced a “fun” new fee in 2012 called the FANF (Fixed Acquired Network Fee). This fee is applied to every merchant account and the amount of the fee is based on processing volume. For the average home inspector, a monthly FANF will be $0 to $15 (which means you process $0 to $39,000 during that time). This fee comes directly from Visa and individual processors have no say in the matter.
PCI Compliance Fee. Payment Card Industry (PCI) compliance is another relatively new fee that is now applied to every merchant account. Some charge it monthly, most charge it annually. It can range from $60 to $150 per year. Also, most processors will charge you more if you don’t complete the required Visa/MasterCard PCI compliance questionnaire every year. Essentially, the card companies require that you annually state that you are still compliant. Each processor has different procedures for how to remain compliant and each has different penalties for not keeping up with compliance. Make sure you find out what your compliance fee is, what the penalty for noncompliance is and what the procedure is for remaining compliant.
What to Look Out For
Cancellation Fees and Contract Terms. The most important thing to watch out for when setting up a new merchant account is the cancellation fee. Never sign an agreement with a processor that locks you into a term contract and charges a cancellation fee if you terminate early. (Many processors will try to lock you into a three-year agreement.) If you are locked into a contract, the processor then can increase the rates to whatever they want, knowing that if you cancel, they will get a lump sum cancellation fee, and if you stay, they will make a killing on your processing fees. So, again, do not ever sign a term agreement with any processor.
Junk Fees and Clubs. Beware of junk fees. Many processors will try to get you to sign up for equipment maintenance programs or “club” programs that add additional monthly fees. Make sure you look at all the fine print to see if there are any additional (potentially hidden) monthly fees.
Equipment Leases. Never, ever, ever, never, EVER sign a lease for equipment. Please just trust me on this. It is never, ever, ever, never, EVER worth it.
Start-Up or Application Fees. You should never have to pay start-up fees or application fees. Just say no…the processing company will waive it.
Smart Card Readers. Smart cards are a hot topic right now. It’s likely that companies will contact you to try to scare you into thinking that you need new equipment that is “smart-card ready” for when the government requires all merchants to use smart cards. Simply put, this is not true. You don’t need to update your equipment yet—the time may come someday, but we are not there yet.
Currently, the only thing that has been “required” when it comes to smart cards is a slight liability shift in certain situations. Here’s an example: Let’s say you are face to face with a client who hands you a credit card that you swipe (instead of using a smart card reader). If the card your client gave you was counterfeit, you would take on the liability for that transaction; however, if the card the client gave you was stolen, you would not have any liability. Also, if you keyed in the credit card numbers either over the phone or online before the inspection or even at the time of the inspection, you would not take on any additional liability.
It might be reassuring to consider that if someone goes through the trouble of making a counterfeit microchip and then embeds it on a credit card with a counterfeit magnetic stripe, the last thing that person is likely to do is take that fake credit card and use it to pay for a home inspection. Now, if you sold high-end big-screen TVs or top-of-the-line car audio equipment, that’s a different story, and I would probably say that it’s time for you to upgrade your smart card equipment. But for the typical home inspector, it just isn’t something you need to worry about yet. Especially if you process transactions through your home inspection software, this is something that simply does not apply to you. The important takeaway is to not get sucked in by a sales pitch to buy new smart card equipment that you don’t need.
How to Keep Your Current Processor Honest
Assuming that you are already processing credit card transactions, one of the easiest things you can do to make sure you don’t get taken advantage of by a credit card processing company is to calculate your effective rate every month. To do this, you simply take the total amount you processed and divide it by the total amount of fees you paid out. If you do this every month, you’ll be able to notice if there are any significant changes. Now, because processors determine rates according to the type of cards that your customers use for your services, your effective rate probably will change a little bit every month. This is normal. What you want to be looking for are changes that are larger than 0.25%. If you notice a pattern that concerns you, you should contact your processor to clarify the amount of the fees.
I understand that most home inspectors hate dealing with this part of their business, but I urge you to remember this: Your credit card processor sees your money before you do. So please, if you do nothing else, take two minutes each month to determine your effective rate, compare it with your rates from previous months and take action if you notice any significant discrepancies. If you do nothing else, this one small thing could save you hundreds of dollars per year.
If you have any questions about credit card processing, please don’t hesitate to contact me or anyone in the Guardian Financial office. We’ve been in the credit card processing business for 14 years, and for more than a decade of that time, we’ve worked almost exclusively with home inspectors. We understand your business, your industry and your inspection software. We can help you integrate your credit card processing with your website or software. Even if you don’t use Guardian Financial, please feel free to contact us for help you might need to analyze your current rates and fees. We can help you negotiate with your current credit card processor to get you better rates.
1. Guardian Financial Blog. Show Me the Money. http://www.smallbizguardian.com/company/ our_blog/e_771/Guardian_Financial_Blog/2015/8/ Show_Me_The_Money.htm.
2. Guardian Financial Blog. Why You Should Love Paying Credit Card Fees. http://www. smallbizguardian.com/company/our_blog/e_773/ Guardian_Financial_Blog/2015/8/Why_You_ Should_Love_Paying_Credit_Card_Fees.htm.
3. Guardian Financial Blog. To Square or Not to Square. http://www.smallbizguardian.com/ company/our_blog/e_770/Guardian_Financial_ Blog/2015/8/To_Square_or_Not_To_Square.htm.
Aaron Fuhriman started Guardian Financial in 2002, right after graduating from Boise State University with a degree in secondary education. For more than a decade, he has focused on the home inspection industry and has become the industry expert when it comes to credit card processing and home inspectors.