What Now?

Now that the financial reform legislation has passed, what is the next step? Well merchants will likely not see any effect on their current processing practices or costs for at least a year while the Fed attempts to implement some sort of infrastructure on their vague authority. Remember, the Fed has no numbers in place for proposed pricing reductions for merchants.

Unfortunately, it appears that this legislation will have a several negative impacts for business owners beyond just credit card processing. Read this article from Forbes describing some of the ways that businesses will suffer:

http://www.forbes.com/2010/06/30/financial-reform-haunts-small-business-entrepreneurs-finance-reform.html

Interchange Amendment

Senator Durbin of Illinois has seen his bill approved by a Senate majority. This bill is supposed to send shockwaves throughout the credit card processing industry.

http://durbin.senate.gov/showRelease.cfm?releaseId=324958

This bill has two distinct measures and we have provided those below along with our commentary:

1. The Durbin amendment would direct the Fed to issue rules to ensure that debit interchange fees are reasonable and proportional to the processing costs incurred.

What exactly does this mean? I don't see any numbers and why as a small business should I trust the Fed to have my best interests in mind? This measure has no value and if fees are even reduced in any slight measure we can surely expect the deficit to be made on up on the credit card interchange fees. Remember, Australia tried this already and even when fees were reduced there was no measurable effect to show savings for the consumer. Many businesses just pocked the extra profit.

Additionally, who is going to pay the Fed to monitor the debit interchange fees? We, as taxpayers, are responsible for this financial burden. In effect the consumers don't really save as the expense is really just moved around rather than eliminated.

2. The Durbin amendment also prevents card networks like Visa and MasterCard from penalizing sellers for offering discounts to customers for using cash payment.

This is redundant because many merchants already do this. This penalty was never really seriously enforced on a national scale so merchants who have offered discounts for cash customers in the past will continue this practice.

Ultimately, we at Ideal Cost believe that this is really just a smokescreen and will not have a huge impact on the credit card processing industry. One thing that we continue to note is that politicians continually attempt to protect businesses that swipe credit cards, but often neglect those who key-punch or have their customers key-punch their credit card numbers in a non face-to-face environment. At Ideal Cost, we don't get paid for policy, we get paid for results. To save on your credit card processing today, trust the industry experts rather than the government to have your best interests in mind. Visit www.idealcost.com for more information.

Animated Demonstration

Check out this video that ideally demonstrates how much credit card processing fees affective small businesses and consumers.

http://fightswipefees.com/cardfeesgame/main.swf

This is an interesting demonstration of the gas station/convenience store dilemna. Gas stations are in a tough position with constantly changing gas prices and stiff competition. I have consulted many gas stations that confide in me that they actually lose money on American Express transactions because the merchant fees eat away at their profit and then some. Convenience stores have very low average sales and the transaction fees (ranging from 10 to 25 cents per item) can eat away at the profit entirely. Remember, in most states merchants aren't able to require a minimum charge for customers to pay with a credit card.

Do I have much faith in the video? I think it is a great visual tool for consumers and merchants alike to realize that there is a problem in the processing world. The video seems to want to turn to the government for help regulating the interchange fees. What customers and merchants don't realize is that if this were to happen they would run into the following issues:

1. Government interference in private business matters is slow, painful, and often ends up with little or no benefit for the intended recipient. If legislation were to pass regulating interchange, there would likely be a very watered down version of the initial bill with tons of pork and earmarks to give incentive for the bill to be passed. Any changes may take up to 10 years for merchants to see effective changes. Will that really help today's merchants?

2. Government regulation implementation takes a lot of time and resources. How are we going to fund those things as a nation? We may end up seeing interchange fees go UP because the governemnt wants to tax them like they do for cigarrettes and gasoline.

3. Just because interchange is reduced, there is no guarantee that there will be a savings passed onto a customer. Just because the cost of doing business becomes reduced, merchants would likely feel entitled to that savings rather than passing it onto their customers.

What is the solution? Hire a private company to work with you rather than waiting around for the Government to solve your problems. Ideal Cost is an industry leader and helps merchants save up to 40% off of their monthly processing costs WITHOUT switching their credit card processor. Visit www.idealcost.com today to learn more.

Vermont's merchant fee legisilation

Merchants across the country have been waiting for their local and national government to step in and take change of rising credit card processing fees. Vermont has recently enacted legislation with the following provisions:

● Prohibits credit card companies from fining merchants for their pricing displays or for offering a discount to customers who use a credit card with fewer fines on the merchant;
● Allows merchants to set minimum and/or maximum transaction amounts without being fined or penalized by the credit card companies;
● Prohibits credit card companies from forcing a store owner to use their credit card at all of their store branches if they choose to use it at one;
● Prohibits credit card companies from mandating the acceptance of all of their cards if the merchant chooses to accept one of them;
● Prohibits central price setting by the major credit card companies.

This amendment will be included in S.138, An Act Relating to Credit Card Fees, currently being considered by the Senate Judiciary Committee.

Does this really help merchants? It certainly does if your average sale is $5. How many of us have an average per customer sale of $5? We sure don't! This bill is mainly targeted towards retailers with a low average sale, mainly convenience stores. The biggest concern for merchants is the consistent rising cost of merchant swipe fees, but this doesn't seem to be addressed in this legislation at all. Merchants should stop waiting for the government to bail them out and contact Ideal Cost to fix their fees. Contact Ideal Cost today at www.idealcost.com.

Debit or Debit? The Mystery of the Pinpad.

Many clients ask us how to encourage their customers to enter in their pin number when making a purchase with their debit cards. Consumers may wonder what the deal with the pinpad is and rarely ask merchants why they want the pin number. The difference between pin-based or "online" debit and "offline" debit where the debit card is run like a credit card can be huge. Usually a pinpad is recommended for merchants that have an average sale upwards of $40 because the fixed pin-debit cost becomes less expensive than the variable offline debit cost. For a merchant with sales that far exceed an average of $40, like a jeweler or transmission service shop pin-debit can be extremely valuable. Merchants can pay a fixed cost of $1.35 where they might otherwise pay $20.00 on a $750.00 sale without the pin number. The merchant also generally avoids the potential for a chargeback, or credit card dispute, from the customer because the transaction is instantaneous rather than delayed for a day or two.

The media is consistently driving customers to avoid using the pinpad because of rising debit fraud. There may be no recourse for consumers whose pin number has been stolen.

So how do both sides of a transaction, the merchant and the customer, reach a happy medium?

1. Merchants should be upfront with their customers and let them know that if it is all the same to the customer that they should enter their pin number to keep the price of the products and services down helping the merchant avoid excess fees. Merchants should also train their staff to do the same as we constantly see educated merchants and uneducated employees who cost merchants a lot of money.

2. We recommend that consumers who are uncertain of a merchant or are in an unfamiliar city should be cautious and do without entering their pin number and consumers. We recommend repeat buyers at a local small business give the merchant the benefit of the doubt and use the pinpad.


To save money on your credit card processing contact Ideal Cost at www.idealcost.com.

Banks offering merchant services

Here is something that most merchants don't know. When you get the idea to start your own business what is one of the first things that everyone does? You probably open up a business checking account so you can pay vendors and clients can pay you. Many banks boast that they offer merchant services, but what most people don't realize is that most banks do not handle the credit card processing in house. Most banks have a "referral relationship" meaning that they sell their clients to a third party processor as an additional revenue stream.

So what is the big deal? Well, the banks portray the service as if it were in house, but you'll learn that this is a big fat lie if you ever start to have problems with your merchant account and need some help. Suddenly, your banker won't have all of the slick answers for you that they had before you signed your merchant contract. Also, with all of the bank buyouts, many banks are constantly changing their referral relationships so they might refer you to one processor today and try to convert you to a new one next month.

Be very careful who you give your business to in the merchant services world because you can risk thousands of dollars over trying to pinch a couple of pennies. If you are ever unsure about a potential relationship with a merchant account provider or have questions about the contract you are currently in you can always contact Ideal Cost by visiting www.idealcost.com.

My Friend/Family Member Handles My Merchant Account

We all trust our friends and family members to have our best interests in mind on a personal and social level. Many of us in business like to work with people we have long-standing relationships with because we have enough stress in our daily lives without shopping the competition. This ideology has led many people request merchant accounts from friends/family members or for friends/family members to pester us until we finally let them have our merchant account. While, businesses feel comfortable giving this to service to those who they know and trust, there may be potential downfalls:

1. The friend/family member won't shop their merchant account around because they won't want to ruin the relationship.

2. The more the friend/family member overcharges the business, the more profit they make monthly.

3. The friend/family member doesn't have to give priority service because they don't fear losing the merchant account.


At Ideal Cost, we do not want to ruin family and friend relationships so we do not have our clients leave their existing merchant account. Our clients are often surprised, however, that they have been overcharged thousands of dollars a year by a friend or family member. At Ideal Cost, we preserve relationships and money for our clients.