Is there really a difference between credit card processing companies?

I see merchants all the time and they often complain about all the calls they get from merchant processors. They complain that all the companies promise lower rates and then when they get their statements, there always seems to be hidden fees, and then they feel stuck and don't really know what to do.

Unfortunately, these merchants have legitimate complaints. Historically, the industry has operated on the assumption that the consumer of their services, merchants, don't really understand the process, nor do they want to understand the process. They just want to feel they have the best rates - regardless of what the facts are. The merchant can be relied upon to get caught up in making a living and running their business, and forgetting to focus on what credit card transactions are really costing them.

The credit card services industry is highly regulated, but rates are not. Similar to the purchase of any other product or service, you are on your own. You assume that because it is a financial transaction, that the company that is servicing your account is honest and ethical and looking out for your interest. That is not always true.

So how do you smell a rat?

Well, first you have to learn the business. In my book, "You're Getting Ripped Off by Your Credit Card Processor", and in my blog, I try to cover basic issues in the industry. It's not the difficult to learn the basics, but let me distill them into a few key points.

1. Every processor pays the same price for its product - Interchange, which is essentially the wholesale price of a credit card transaction is the same for every company.

2. You need to know your effective rate - the total fees you pay divided by your total monthly volume is your effective rate. So if you get a new deal from a new company, ask for a list of all the possible fees, including interchange, that they would charge in comparison to what you are paying now. Now you have a shot in making a fair comparison. Rates can be manipulated, but the final monthly fee you pay is what it is.

3. Avoid leasing equipment and avoid signing contracts - if you are not locked into a particular provider you are free to leave anytime if they play games.

4. Does the provider offer other services? - The expense side of the ledger is one thing, but what about your revenues? Some providers can help you with promotional programs to help you grow your business.

5. Service is important! - Don't just buy a product based on rates. It is easy to beat any statement by a few dollars, but will that company be there when you need them?

5. Get someone who you can trust who will tell you the truth - This is not easy , but there are honest sales people out there who truly want to help you make your business better. Here is a famous sales cartoon. Sometimes a guy will show up with just the right solution.


Michael Porter helps educate small and medium size businesses on the ins and outs of credit card processing and helps them develop payment processing strategies to save them money and increase revenues. Michael is a graduate of Duke University and has a law degree and an MBA.

After practicing law for 5 years, Michael decided to enter the world of business and he helped develop a retail concept that was later sold to a NYSE listed company. He has owned a toy company, and has consulted with companies to grow their sales function. He is also a published novelist, having written the book "Light and Shadows" about the photography industry.

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