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When and Why Do Credit Card Rates Get Raised on Business Owners?
By Dat To
I can’t tell you how many times business owners (or ‘merchants’) ask this question, and they only ask because no one wants to explain it to them. When: This can happen after being with a credit card processing company for 3mths, 6mths, 12mths, 24mths, or whenever they set up a review process. Why: *Also read my free report on ‘Why Is Credit Card Acceptance So Much More Expensive Than Debit Card Acceptance For a Business Owner?’ This article will explain the real business relationship of credit card acceptance to a business. 1 This can happen when the average sale amount OR the estimated monthly and annual estimated credit card volume that was put on the application have proven to be incorrect. Incorrect in that either the average sale indicated was too low, or that the estimated monthly and annual volume was too high. The rate given is always based on avg. sale amount and estimated volume.
a) Higher average sale amounts equals risk in the credit card processors’ thinking. I.E. when comparing a $50 transaction to a $500 one: stolen credit cards are not used to falsely purchase low ticket items/services, employee negligence, or fraud affects a larger sale amount greater than a small sale amount.
b) Lower volume equals less profit for the credit card processor, more expense, and shorter longevity of the account in the credit card processors’ thinking.
A lower rate may have been given for a high volume amount stated. When that is proven untrue, then the account becomes a money losing account to the credit card processor. I.E. on application: $10,000/mth in credit cards v.s. actual upon review: $2000/mth.
c) Low volume accounts generally become the default accounts because of business failure from mismanagement, inadequate capitalization, etc., so long term profit cannot be realised (shorter longevity of the account) from this size of a business.
d) Also, low volume accounts are the hardest to please and the easiest to lose, which equals more risk, more expense, and shorter longevity of the accounts. 2 This can happen when the business model is proven incorrect. I.E. the application says 10% orders by phone with no card present, then the result after a timely review suggests that the phone order percentage is 30%. Multiple this by the actual business volume and could be a huge problem. 3 This can happen when there is an unusually high volume of charge backs (even though a business owner pays for each charge back). A high percentage of charge backs indicate a poorly maintained business with lots of unhappy customers, or a lot of fraud by owner or employees. 4 This can happen when the credit card brand like Visa or Master Card decides to raise their wholesale rates across the board to all the credit card processors. This is NOT a common occurrence, so it rarely happens.
When this happens, everyone is forced to raise their rates, and unfortunately, they often use this time to raise a little extra more, and blame it on their supplier. 5 This can happen in an attempt by the credit card processor to make the money losing part of
their network become profitable, or they are streamlining operations, or creating
cashflow for steady expansion, or beefing up margins to sell to a larger credit card processor. I hope you found this free report helpful, and I hope you choose to use my services to help you set-up your payment processing solutions.
Regards, Dat To DISCLAIMER: The information contained in this report is for informational purposes only. Neither CanadaPaymentProcessing.com, Dat To, nor any of its affiliates shall be liable for any direct, indirect, incidental, inconsequential or punitive damages arising out of use of any of the information contained in this report.
Neither CanadaPaymentProcessing.com, Dat To, or any of its affiliates nor any of our or their respective licensors, licensees service providers or suppliers warrant or make any representation regarding the use or the results of the use of the information, content and materials contained in this report in terms of their correctness, accuracy, reliability or otherwise. The statements herein are intended as guidelines only. Individual situations and results will vary.
*** No part of this material may be reproduced or transmitted in any form whatsoever, electronic, or mechanical, including photocopying, recording, or by any informational storage or retrieval system without express written, dated, and signed permission from the author(s).
Copyright 2008
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Contributor's Note
Might be adding to my payment solutions website in the future, but is first published on Qassia.
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PLEASE VISIT THE CONTRIBUTOR'S WEBSITE
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The copyright for this content entitled "When and Why Do Credit Card Rates Get Raised on Business Owners?" has been specified by the contributor as:
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This content may not be copied, distributed or adapted by anyone under any circumstances.
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This intel was contributed by Dat To
Dat To
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May, 2012
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