Credit card processing

As you’d expect for a Web business, credit cards comprise at least 90% of my payments. That makes credit card processing fees a significant nondiscretionary budget item. After delving into the shady world of “merchant service providers”, as the credit card industry’s sales force is known, I eventually concluded that Merchant Express had the best deal going. (Despite the kvetching that follows, they’re probably still the best of a bad lot. If you need to accept credit cards yourself, please visit them via the link at the bottom of Curio City’s main page. I’ll get a referral bonus if you open an account.)

They charge a 2.33% discount rate – the amount that they skim off the top of every transaction. The discount rate is a merchant service provider's main competitive hook. They talk less about the 25 cent transaction fee, or the 5 cents for address verification (a basic security measure). They soft-peddle their $9.95 monthly statement fee, and they absolutely don't let on that they're going to charge you another 25 cents to process that. I have a $15 monthly minimum that prevents charge fees from scaling down properly during the slowest months. I also pay a $14.95 monthly gateway fee to another company.

American Express costs more, and is billed differently -- the discount is charged at the end of the month, rather than as each transaction is processed. Discover rates are even higher. Since that card is the least-used, it was an easy decision not to accept Discover.

When you place a credit card order with Curio City, your transaction goes to Authorize.net. They charge me 30 cents, regardless of whether the transaction is accepted or rejected. If you're rejected, I pay another 30 cents each time you retry; some customers enter invalid information four or five times before they give up. Then, when the day’s batch settles at midnight, the credit card processor (a minion of the merchant service provider) skims their 2.33%…unless, of course, you used a rewards card. Who do you think is paying for your bonus miles or cash back? The bank? Hah! No, that would be me. Rewards cards impose a surcharge on my discount rate.

Some days later, your money finds its way into my automatic bank deposit. The amount doesn’t match the sale because of the discount (unless you used Amex), and of course each day’s sales are batched. Sometimes the credit card processor deducts their monthly "statement fee" from my deposit, too; I only know that when an early-month deposit comes up about $10 shorter than it should. There’s a separate monthly charge for Amex discounts. Another monthly deduction covers miscellaneous premiums that I never can understand; these are explained on an indecipherable paper statement that arrives a week after they take the money (four pages of tiny agate type showing columns of numbers and codes). Twice, they erroneously charged me a $95 annual fee, which I had to call the merchant service provider to have refunded.

When business is slow, matching my charge receipts to actual bank deposits is vexing, but it's a minor puzzle. When it’s busy, though, reconciling deposits becomes a major challenge. Woe unto me if I neglected to enter a transaction into Quickbooks, or if I entered an Amex charge as a Visa or MC. If a dumb bookkeeping error collides with one of their unannounced fee deductions, it can take me hours to sort it out.

I was briefly excited last month when the indecipherable statement arrived with a flyer announcing that statements are now available online. Hooray! I called the signup number immediately (why would I would need to sign up for this in the first place?). The operator unhelpfully referred me to my merchant service provider, who promised to enroll me. A few weeks later, I finally got an email with a URL...and guess what? The online statement is identical to the indecipherable paper statement. It is not even updated daily. It is useless.

In ancient times, when I was setting up Kraken Enterprises, I figured that credit card acceptance would take 3% of my gross sales. For safety’s sake, I budgeted 3.25%. Thanks to all of the folderol I explained above, my actual credit card expense in 2006 was 4.16%. (Not coincidentally, that's almost exactly what PayPal charges, too).

That’s nearly 1% over budget. And that’s huge. Unless you’re the federal government, there are only 100 percents available. Believe it or not, reducing credit card costs is one factor in favor of opening a store (see “Curio City Offline”). Cash transactions could lower my overall processing costs by as much as a full percent of gross.

Another interesting tidbit: when a business attains serious sales volume, it can negotiate better rates by playing merchant service providers off against one another. We little startups are the ones who bear the full-price burden. You can bet that Amazon.com is not losing over 4% of their gross to bank fees.

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While I'm on the subject…is there any difference between Visa and Mastercard? I’m old enough to remember when Visa was more prestigious than Master Charge. That ceased to be true long ago. They are identical from a merchant's perspective. Why do the separate brands persist?

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Today’s post is a day late. Mea culpa. It’s the first time I’ve missed my Friday routine since I started this blog. Did I disappoint anyone yesterday?

Now that I’ve now blown through the history and ongoing challenges of Curio City, the blog is getting a bit harder to write. Two of the three future topics listed below are just updating previous subjects. Leave a comment if there’s something you would like to read more about. Come spring, I might start updating every other week instead of weekly. I don’t want to waste your time or mine by posting just for the sake of posting.

Future Topics:

• A Moving Target
• PPC Advertising Update
• Phases Reconsidered