The Rising Cost of Credit Card Processing

Over the last few years, the credit card processing industry has seen a significant increase in risk, cost and overhead combined with a simultaneous dramatic decrease in profit margin.  Several factors have caused this nearly half a billion dollar swing with the end result being increased fees to you the merchant.  Although a giant leap forward, the internet, advanced technologies, increased communication speeds and information networks have created a security nightmare for the credit card processing industry which now spends hundreds of millions of dollars annually to protect critical information from hackers.  Additionally new government involvement regulating how much can be charged to cardholders and merchants has significantly effected the industries profit margin and hence the ability to pay for the additional expenditures. And to top that off the Fed now requires detailed annual 1099 reports on total transaction volume for every single merchant as well as the withholding of deposits on merchants with invalid Tax ID numbers.  For reference as to the magnitude of this alone, if you were to ask the average accountant to compile this data and to file this annual form for you it would cost in excess of two hundred dollars.  These new government policies have forced all companies to revamp their entire systems, employ 3rd parties to monitor, to report and collect data, and to dramatically increase the workforce to service and support the new requirements all the while being regulated on how much they can charge to process certain types of debit cards and credit cards. The amount of money the credit card processors are now spending to comply and adhere to all of these new government & security requirements combined with a regulated profit stream has forced them to come up with new creative fees they now pass on to the merchant.  The bottom line is that the fixed cost of a merchant account has increased significantly and whether high transaction volume or low, one way or another all merchants are going to pay for having the ability to accept electronic card payments from customers.    

Maybe you, the merchant, haven’t heard about all of this but I guarantee you have been a victim or very soon, you absolutely will. New monthly fees and annual fees are being assessed to merchants industry wide to cover all of the increased costs and decreased profits.  These fees are sometimes called PCI Compliance, PCI Protection, PCI Non Action, or an IRS 1099 Documentation Fee.  If not one of those you will see the addition of a $25 monthly minimum to your account, a dramatic increase to your monthly statement fee, a simple annual fee or more than likely all of the above especially by the companies that claim they don’t have these fees while they are trying to suck you in.  And Buyer Beware, the contracts, not the merchant application, the actual Terms and Conditions and the Program Guide which a merchant rarely sees nor reads but still agrees to in full when they sign and personally guarantee a merchant application, are iron clad and the providers are completely empowered to add or change any fee they see fit. So make sure you know exactly what you are agreeing to before you sign and be sure to get valid references and BBB reviews of the company you are considering.

The bottom line is that every company in the industry has the same cost, overhead, risk and requirements.  There will be monthly or annual fees for you to have a merchant account on file. This is a fact.  Nothing is FREE, no matter how much you would like it to be. Yes if you are merchant, processing a high monthly and annual volume, then certain fees can be waived because the costs are being offset by the profit being made on the account.  But if you are a merchant who does minimal processing and come across a company offering you a higher rate, and no monthly fees whatsoever, boy are you in for a ride.  You are about to fall victim to the typical “Bait & Switch”.  In today’s market the average cost for a credit card processor to maintain your account on line is over $200 per year.  This is their fixed overhead for Account On File Fees, IRS reporting, PCI Compliance, etc paid to all of the 3rd parties meaning the back end networks, security scanners, settlement banks, card issuers, the gateway & wireless providers among others.  On top of that are up front fees that they incur for boarding the accounts and activating them.  So for a low volume merchant, even a transaction rate of 10% per would be highly unlikely to cover these fees because, keep in mind, this percentage fee is also split among the front end & back end processors, the settlement banks, and the card issuers so the merchant service provider is only earning a small piece of that pie.  So you can rest assured, at some point this merchant will see an annual fee assessed followed up by a monthly fee assessed across the board for all to make up for all of the continued loss on the account.  

You need to be aware of this if you are currently accepting credit cards or plan to do so in the near future.  The new smart phone technologies provide a perfect example of the type of trap of which you need to be aware.  Several providers are offering “Free Everything & No Contract”.   They claim there are no monthly fees, no set up fees, no equipment costs and no termination fees, just a higher rate and transaction fee.  Keep in mind these same companies have invested tens on millions of dollars in the development of the devices, software and gateways and on top of that they are spending even more on marketing with ads almost everywhere you look even going as far as putting huge advertisements in the middle of Times Square, NYC and TV commercials on the most popular channels.  They are going to have to pay for all of this somehow and continuing to board accounts that barely process any transactions while having a huge annual fixed cost on each account is simply not going to cover it. At some point they are going to end up changing their price structure and charging the same types of fees as that of the other 95% of companies in the industry. And remember, no matter what you may think or what they tell you, the processors are contractually able to do this to you at any time.  And they will, in fact, do just that as a quick annual fee to the millions of customers that fell for their trap, followed up by a recurring monthly fee to those clients as well.  What a racket!!  

While the overall costs increases and the smart phone technologies are new, all of the shady tactics being used by all too may providers are not. Companies in the credit card processing industry have been pulling the wool over the eyes of merchants for years.  We, at 1st National Processing, have tried our hardest to spread the word and make merchants aware of all the unfair business practices that are blackening the eye of our industry.  In fact on our website we have an entire “Buyer Beware Guide” detailing all of the things of which you need to be aware. If you are currently process credit cards or are in the market to do so, take 10-20 minutes and read it. It will be well worth your time.

1st National's mission since inception, nearly 15 years ago, is to establish a long term, mutually beneficial relationship with each and every customer. We strive to build a personal rapport with our merchants, regardless of size, while providing superior service, support, products, and services and to never compromise our policy of Honesty, Integrity and Full Disclosure. This is truly our goal and we are confident that maintaining these standards has enabled us to achieve the success we have reached thus far.

1st National has recently renegotiated our agreements with all of our vendors to deal with the rising costs of credit card processing. We are confident now, more than ever before, that we offer the hands down most competitively priced deal for merchant services in the industry.  Combine that with our complete line of Technologically Advanced Products, our Superior Service and Support, and our A+ Rating on the Better Business Bureau, you will not find a better merchant service provider in the industry.  We guarantee it!!

So if you are in the market for merchant services, credit card machines, supplies or accessories and are looking for a partner that will give you the pricing, service and support essential to the success of your business please visit 1st National Processing at www.1nbcard.com, or contact us at sales@1nbcard.com  or Toll Free: 877-964-1622.  You may also contact me directly president@1nbcard.com if you feel so inclined.  I am here to help and I truly value your business. 

Sincerely,

Michael DiGiovanni
1st National Processing
President

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