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Chapter 16 - Demystifying Equipment Fees

Fees Demystified

Are there fees beyond Interchange? When I first entered the bank card space I was asked a million times ‘What’s your rate?’. Today the same questions are asked by a merchant base generally in the dark as to how fees are assessed, not educated on ALL the fees from equipment to early cancellation fees. Which brings us back to both interchange - the core fees which constitute the majority of the fee assessed to the merchant, and all the ancillary fees charged against the merchant.

PROCESSING FEES

Merchants must pay fees to the issuing and acquiring banks, as well as the card associations. Processing fees are discussed, including who gets what fee. We review interchange in this context as well.

EQUIPMENT FEES

Consumers require some means to conduct a purchase. Whether face to face in a store, online purchases, or mobile transactions we review the expenses which are tied to each solution. We also discuss the merits and downfalls of each purchase method - cash, lease, and rental.

CONTRACTUAL FEES

The processor (third party, ISO, or MSP) plus the agent receive their compensation within the fees assessed as part of the merchant agreement.  There are many fees which, collectively, constitute a significant earnings opportunity for processor and agent alike. We will discuss many of the fees to set the stage for our pricing discussion in a future chapter.

iProcess - Knowing the Payment Industry (Part 1)

Chapter 15 - Processing Fees Simplified

 

Be Creative. Use unconventional thinking. And have the guts to carry it out
- Lee Iaccoca

Equipment Fees ‘Demystified’

When any merchant accepts credit cards, there must be some method to conduct the payment process. Typically, there is a physical device, but not always. In the early days before the advent of electronic equipment, card imprints were made using a device called an imprinter, also affectionately referred to as a ‘knuckle buster’. You would place your card in the tray, place a multi-part receipt on top, and push a slide back and forth making an ‘imprint’ on the paperwork.

This process required the merchant to call the bank to receive an authorization, or to look through a list of published lost and stolen cards if a floor limit existed. A floor limit allowed merchants to process small card transactions with the necessity of calling the acquiring bank. It was time consuming and many fraud issues arose.Credit Card Terminal

That is old school, though you will run into them from time to time.

Today, most consumers and merchants are familiar with credit card terminals where the card is swiped and the data is collected electronically and submitted for settlement.

If you have never seen such a device, you must be a relative of the ‘Boy in the Plastic Bubble.’ Immediately go to Target, Starbucks, McDonalds or almost ANY retail store and use your credit card to make a purchase. The equipment staring back at you is an example of what I am talking about at the moment.

Seemingly, there are an infinite number of equipment types, styles, and systems that will facilitate card processing. Loosely, they fall into physical - equipment based or software - virtual based systems.

The following are some examples of equipment-based solutions:

Terminal. Simple equipment that provides card-processing capabilities yet lacks the fuller features of larger systems (cash drawer, inventory management, etc.)

POS. Point of Sale terminals are more robust than their smaller siblings and provide ancillary benefits to manage inventory, provide cash drawer solutions, etc.

Mobile Card Reader. An attachment that works with your smart phone allowing a merchant to capture card data by ‘swiping’ through a device on the phone – the device is often referred to as a ‘dongle’ or ‘magnetic-stripe reader’

Purchasing a mocha at Starbucks, fueling up at BP, or buying your groceries at Kroger’s are all examples of transactions which are performed through physical equipment solutions.

The following are some examples of virtual based solutions: . . . 

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