This is not a sexy article, but reading it could have a noticeable impact on your bottom line in 2017. Changing your credit card/merchant processor could save you hundreds — or maybe even thousands — of extra dollars each month. Got your attention? It got mine.
What is merchant processing? Well, it’s the processing or settling or accepting of credit card transactions, like recurring monthly memberships or one-time protein powder purchases or even personal training sales. It’s you trying to get paid electronically by collecting funds from the bank that issued your member’s credit card and sending payment to your bank. There are a lot of details which determine the price you pay to have this process completed for you, and I’ll try to explain three of the most common programs, as well as some other key points to consider.
First and foremost, make sure you’re in what’s called a Cost/Interchange Plus Pricing program, rather than a Tiered/Category Pricing or Blended Pricing structure. The Tiered/Category Pricing structure is the most common because it’s the easiest to understand, but it’s the least transparent and secretly charges you more. It typically processes rates in three to five categories, like qualified, mid-qualified and non-qualified. These criteria include things like “card-present” versus “card-not-present” transactions, depending on whether the transaction was processed on the same day it occurred, and whether the transaction falls into a category like one-time retail or recurring monthly membership charge. This simplicity sounds great until you realize that most of your transactions aren’t qualified and will process at a rate much higher than originally promised to you.
MINDBODY, a popular member management system, appears to use a Tiered/Category Pricing model through a set of approved vendors. That’s good and bad news. Bad because the Tiered/Category structure is an expensive model for you as an owner, but it’s good that you can shop around and look for your best rates.
In Cost/Interchange Plus, you have a markup over whatever the interchange rate is for that particular credit card. Rates are usually shown as the interchange rate plus a markup, which can be a percentage, a flat per-transaction fee or both. So, a retail transaction might cost 0.18 percent plus $0.08 per transaction.
This is a more transparent model, but it can be confusing because of the different rates. For example, there are two different interchange rates on debit cards, depending on the size of the bank that issued the card. If the bank has $10 billion or more in assets, it falls into “regulated debit,” meaning its interchange rate is 0.05 percent. If the bank has less than $10 billion in assets, it falls into “unregulated debit,” and that interchange rate is around 0.75 percent.
The interchange rate on a card can also vary based on whether it’s swiped or key-entered. Rates are risk-based and if a card is swiped, it’s considered a face-to-face transaction where the customer theoretically signs a copy of the receipt and you verify the ID and signature at the time of transaction. If a transaction is key-entered, it’s typically a non-face-to-face transaction where you’re not obtaining a signature, which makes the transaction riskier to the processor, so it uses a higher rate. See how confusing it can be? But, it’s easily the best one for saving you money.
Wodify, another popular member management system, uses a Cost/Interchange Plus model, but at rates much higher than typical. They also don’t seem to allow you to change providers, meaning you must stick with the higher rates arranged through their processor, GoEmerchant. I can’t confirm this, as we’re not a Wodify gym, but I’d imagine you can speak to a contact at GoEmerchant and negotiate some better rates for yourself.
Square is a mobile-friendly credit card swipe system used in many small businesses, like restaurants, but hopefully not in Boxes because it uses a model called Blended Pricing, similar to Tiered/Category Pricing, but worse. In this model, the tiers are blended together into a single rate, meaning you pay a higher overall rate for the wide majority of your transactions. This model is only worth considering because it doesn’t include a base monthly fee, so if you have very few monthly transactions, your total monthly bill could be reasonably low. But, if you’re processing a hundred transactions each month, then Square is not the way to go.
A few other things to consider are:
Special thanks go to Don Massey, at BancCard, for his help with research for this article. He can be reached at firstname.lastname@example.org with questions. BancCard has support staff in all 50 states, so Don can put you in contact with a local rep if you’re interested in learning more.