Many funeral home operators falsely believe that all credit card fees deducted from their credit card transactions go to their credit card processor. The truth is, your processor only gets to keep a very tiny portion of each transaction. This article is intended to provide a clear understanding of how the fees work, what they do for you, and how you can avoid additional fees that you don’t need pay. It’s hard to negotiate fees that you don’t understand.
A transaction begins the moment a family swipes, taps, keys or inserts their credit card to pay you. Fees are based on the amount of the transaction. The fees are determined by important factors such as your merchant services provider, your bank, your customer’s bank, and the card brand that issued your customer’s credit card, such as MasterCard, Visa or Amex.
Some processors charge a fixed price per transaction without charging any additional fees. Others charge a little more than what the credit card brand would charge directly. Some processors have a tiered pricing system that depends on the type of card presented and other variables not within your control. These include rewards cards, government cards, corporate cards, non-rewards cards etc.
Different Types of Fee Pricing
Fees are based on one of three different pricing models. A flat rate is the simplest to understand but, likely the most expensive of the three. The processor charges your business either a flat fee per transaction such as Square charges 2.75% of each transaction processed using a Point-of-Sale system. Square also adds a flat fee of .15 for each manually keyed transaction. If you have low volume sales and looking for convenience as opposed to savings, this price model is probably okay for you.
Interchange Plus pricing is used for most funeral homes and cemeteries. Card brands such as Visa and MasterCard charge a fee for each transaction. This is called an Interchange Rate. The Interchange Rate is set by the card brands and is the same for all credit card processors. You might consider a wholesale cost of accepting a credit card. A processor using Interchange Plus pricing will mark this amount up a little bit and charge you the increased amount. As an example, you might see a fee of 2.75% + $0.10. The 10 cents is the marked up price, and the 2.75% is the Interchange Rate that goes to the card brand. The processor only gets to keep the dime. The Tiered Pricing model is a more diverse array of cost structures. The interchange rates fluctuate based upon the type of card presented, whether it’s a credit or debit card, and whether or not it is a rewards card. Someone has to pay for those rewards and that someone is you. A rewards card costs more to process and will be factored into the Interchange Rate. A small business may not find tiered pricing useful because it can get complicated.
Negotiating Your Fees
The amount of money charged for each transaction isn’t set in stone. If your processor only offers a flat rate pricing model, you are stuck and there is no negotiation process. For merchants using the interchange-plus or tiered pricing model, negotiating your card fees is possible. Negotiating involves talking to your processor and asking to get either the credit card processing percentage reduced, or getting a lower markup on the “plus” plan. If your sales volume is high, but your charges are small, ask about a lower per-transaction fee. Remember, if your processor is already at rock bottom and earning a dime per transaction, there isn’t a lot of wiggle room. We have seen rates as high as $0.25 per transaction when doing comparison quotes for merchants. Those fees could be that could be reduced down to $0.06. One last thing to know about processing fees is that fees vary based on how you accept payments. Your payment gateway is either a Point-of-Sale system or terminal in your funeral home, a mobile phone reader, or perhaps an online portal. Fees vary based on the risk of fraud posed by each type of gateway, with online transactions being the riskiest and therefore the priciest. FBA
Jim Luff is a Marketing Manager with Chosen Payments, a national credit card processor serving the funeral care industry. He is an active member of the California Funeral Directors Association serving on the Legislative, Public Relations and Expo committees with firsthand industry knowledge and 25 years of experience working with Central California funeral homes. Jim can be reached by phone at 805-427-9180 or by email [email protected]