Do You Understand How Your Credit Card Payments Are Processed?

Posted on January 13, 2010 by LCT Staff - Also by this author - About the author

TOMBALL, TEXAS — Most businesses today know nothing about credit card processing when they open up their doors. They know they need to take payments and that’s it.

When the first processing company comes around saying they are with Visa/MasterCard, the operator says sign me up not knowing there is a choice. The payment card industry is a lot more complicated than the average merchant realizes.

(This means you). Understanding the industry is your first step to knowing what you are paying for. As in any business, there is a manufacturer, (don’t forget shipping is always involved in distribution), and a distributor who then delivers to a store where the public can buy.

In the payment card industry this lays out as such:

Visa/MasterCard/Discover/Amex are the manufacturers and the pricing is known as Interchange. They set the rates and there is no negotiating what they set. Volume discounting will only happen with them when an organization that is strong enough lobbies to them directly to negotiate better pricing. Examples of this would be the National Grocery Associations or the airlines. Today there are more than 600 categories of different types of interchange.

Also crucial is the shipping method to get the product to its destinations. In this case, the association pays for the platforms that exchange the data information to keep the systems operational. This is known as the Dues & Assessments. Typically you will see this assessments around .0950% plus an extra .02 cents per transaction. Again these are fixed cost.

Finally the distributor is the processing company that sets you up. Every company has operational costs to keep its doors open. The chauffeured transportation industry has the cost of its vehicles, as well as licensing, insurance, overhead, etc. It is OK to make a profit. You wouldn’t be in business if you didn’t. So what kind of profit is the processing company allowed?

This is where the industry becomes tricky and hard to understand. The payment industry has changed more in the past five years than in the last 35 years collectively. Merchants, who have been processing, now are becoming more aware that they have choices and therefore can negotiate better pricing for themselves based on volume and average ticket. So what does this mean for the limousine industry?

Find a processing company that understands your industry and how it accepts payments. Most livery companies use some type of software and take the cards upon the reservation, either entering it into software or keying the information into a stand alone terminal, and typically do not swipe cards. An honest processor will make you aware of all the different types of cards and costs associated with taking those cards. This really should be a partnership between the limo operator and the processing company.

We will be reviewing several topics in the next few months, including chargebacks, whether wireless technology is really worth it, and regulatory compliance in the way you are taking cards. As always, if you have any questions about your processing, call your merchant services provider.

Source: Crystal Sulzer, managing partner, of Ferrari Merchants in Tomball, Texas. She can be reached at (281) 598-2133 or at

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