Material Retail Dumps

Welcome to Material Retail Dumps, episode 14. In this episode, we're gonna talk about credit card processing rates. It might be a little bit of an annoying and boring topic, but it's super important and it really impacts your bottom line. So without further ado, let's jump in. Every time a customer buys something with a credit creditor debit card, there's a fee being charged. Most of the time the business is paying the fee. Some businesses are starting to choose to charge customers a processing fee. If they use credit cards, I'd like to strongly recommend against doing that unless you're Ticketmaster or a car dealership or some really big ticket items that people normally pay with check or wire transfers. I would not do this if you're just a run in the mill store in your local town, or even in a big city or anything like that.

Just take the credit card, eat the fee, and you know, move on. Customers will have a really bad taste in their mouth if they get the checkout and all of a sudden that $30 item they bought actually costs $32 because you have a little bit of a processing fee for them not paying cash. So now that we have this expense, let's figure out what to do with it. So credit card pricing fees are usually two, two to 3% of the sale. So if a business doing a million dollars in sales, it's 20 to $30,000 a year. It's probably your largest expense after rent and payroll. So naturally we wanna get the lowest rates possible to keep our expenses as low as possible. So let's talk about that. So first, there's two different types of rates that you'll see in the world. One is flat rates and the other are interchange plus rates.

So flat rates are exactly what they sound. They're flat rates no matter how you charge the customer. So for example, Square has a flat rate of 2.65% and 15 cents on every transaction. That doesn't matter if you are gonna charge an Amex card or if your customer's actually gonna use a Visa debit card. It doesn't matter you pay the same exact fee. Um, the other type of of rates are interchange plus fees. Now these are variable rates and they usually start helping businesses once they get, um, to like that three, $400,000 a year in sales range, uh, is where you'll start saving one at on these interchange plus rates versus flat rates. Um, and basically they're just variable rates that change based on the card you charge. So debit cards be much cheaper than credit cards. Um, Amex cards might be more expensive than a Visa MasterCard.

Discover Cards might have their own charge. At the end of the day, you pay some blended rate that usually is a little bit lower than those flat rates. A lot of times you'll see a lot of newer, um, point of sale systems and other software providers offering these flat rates. And they are sometimes like super enticing. Like Shopify has advertised rates of 2.4% and 0 cents per transaction for in-store transactions. And some business owners will jump on that, get super excited. They're paying 2.4% and it's amazing, but really they're a little bit worse than advertised. Why are they worse than advertised? Because it's a flat rate no matter what kind of card you're charging. For example, if you are on an interchange plus plan and you charge a debit card, chances are you're gonna pay less than a quarter of a percent for that transaction. Not a percent, a quarter of 1%. So on a hundred dollars charge, you're gonna pay a

Quarter quarter, whereas with Shop Fire Square, you're gonna pay that $2 and 40 cents. Doesn't matter what type of debit card gets used, debit cards are gonna be, uh, charged at the same rate as credit cards. So that's just one of the ways that they kind of get you a little bit. So it's really important to look at this even if you have flat rates. Cuz even if you have flat rates that are maybe the best advertis in the market, they're probably worse than advertised. So you might wanna look at getting interchange plus rates. Now that we know that we might want interchange plus rates, how can we get the best rates? Um, so, you know, this is actually one of the most simple things I've ever seen in the retail industry in my life. Um, basically what you do is you take your credit card statements and you go find another credit card processor.

You send them your statements and you say, Hey, can you save me money? And 99 out of a hundred credit card processors, material retail included, will come in and say, Sure, we'll save you 20% on your fees and that's it. Everybody's happy. You sign up with them and you get lower rates and your old processor is not happy. Your new processor is very happy and you're very happy, you're saving money. Um, so that's, it's just simple as that. Take your current statement, go to a new processor, tell them that, Hey, I want better rates. They'll get you better rates. Most likely, there are some cases where you might have extremely aggressive rates for your current processor, they won't be able to beat. But in my years of working with credit card processors, I've only seen that happen once in my life. Now that you have good rates, it's really important to look at your statements on a regular basis to make sure your rates are not going up.

At the end of the day, these credit card processors are businesses. Most of them are huge public companies that need to show a profit to their shareholders. So the natural way to do that is to raise rates over time on you. If you don't look at your statements for a couple of years, you might find that your rate went up by 20, 30, 40% over the course of those years. Um, they might add different compliance fees. They might add different services that you never signed up for that you had to opt out of to not get charged on. But it's just a standard practice that you gotta look out for. The way to get around those is just look at your statement every couple months and when you see your rate starting to go up a little bit, contact your current processor and ask them for a rate review.

They'll most likely take you back to your rates, what your rates were a few months back where they were lower. If they're saying no, guess what? Get out there. Take those statements, go to another processor and save some money again. Now one thing to note is that you wanna make sure that your credit card processing integrates with your point of sale system or whatever software used to run your business. It's not worth the two or $3,000 that you're gonna save over the course of the year to have to manually charge customers outside of your software. There's too much human error, too much time consumed. Imagine having a long line of customers and all of a sudden you need to go to two systems to charge customers. So that's the one caveat I'd say. I'd say definitely you wanna make sure your credit card processing integrates with your inventory solution or whatever you're using for your point of sale.

One thing to know, we've been seeing a lot of popularity with alternate payment methods lately, or the biggest one you've probably been hearing about lately is Venmo. And that's a good way to get around credit card fees. But Venmo started to catch on and started to kind charge businesses 2.9%. So just be really careful there. Um, if you could get away with taking a couple grand worth of Venmo every month, um, and not paying those feess and, uh, that'd be great a for your bottom line, but B, your customer might wanna pay with Venmo and it's, or it's always good to service your customer. Another type of alternate payment method we've been seeing a lot lately, especially in e-commerce, is buy now, pay later, and buy now pay later is, you know, sometimes great for getting customers to buy more. You know, the jury's still out.

Uh, I think, um, a lot of people are kind of starting to see the downside of that. So you gotta be careful there. But if you take a buy now pay later service, chances are you gonna pay between four and 6% for that payment, um, for that service as opposed to two or 3% you'd be paying a standard credit card processing company. So it's not all bad, even though it's more expensive, they do indemnify you for fraud. You never have to worry about a chargeback or anything like anything like that. It's true to get your customer to spend a little bit more money. So the extra couple of percent that you're paying in credit card fees should be wiped out by the increased amount of money your customers spend. Um, but you know, the jury's out on that. So moral of the story is if your customer wants to pay a certain way, definitely listen, um, and just, uh, try to accept the payment the way that they wanna pay.

But you gotta just have those standard ways of accepting payment. Obviously cash credit card, you know, nobody's gonna make you take check. Nobody's gonna make you take Venmo. Nobody's gonna make you take buy now, pay later. But cash and credit card are def two necessary payment methods that you gotta have. Well, that's it for today. Thanks for listening. I know it's a little bit of a boring topic. Nobody wants to talk about credit card processing and it's not gonna increase your sales, but guess what? Every penny we save is another penny in our pockets where you could go out and reinvest in your business or just go buy something for your kids or buy something for your mom or buy something for yourself. But there's no reason why you should be giving the money to a huge corporation as opposed to keeping it in your pocket. Looking forward to the next episode. Thanks so much.