Many different processors are out there who offer merchant services. Weather the services are provided through a Member Bank or ISO, every application is subject to a very similar adjudication from Visa and Mastercard. Different processors do however, have different rate structures. There are a few reasons as to why these differences exist.
Let’s look at two of North America’s top two providers of merchant services, Elavon and First Data Merchant Services.
Elavon broke through the industry by offering rates that are closer to interchange than any other provider. How were they able to do this?? Well, they came into the market through Costco, a very big business buyers club who deal exclusively with Business to Business retail. As Costco was already dealing with a customer base made up solely of business owner’s, they saw the potential for their entire customer base to utilize their own Merchant Services program. Costco was able to ensure Elavon a certain volume of processing annually, so in turn, Elavon was able to offer rates lower than competitors at the time. This is one of the factors that will cause a major difference in a rate structure: the very volume of customer’s the processor has, will allow them to be more competitive. When providers host these buying clubs, they can charge a different rate structure as again, the volume is guaranteed to make them money.
On the opposite side of the spectrum, some providers like, First Data Merchant Services, have higher rates. This is a result of a few different factors, the most prominent being the RISK involved in hosting an account. When the risk of loosing money on processing for a merchant is evident, the provider will charge a higher rate right at the point of transaction, to ensure that they cover any assumed losses. The riskier the business, the higher the rate; To protect the provider from loosing money right from the point of purchase. Allot of merchant services will not provide credit card processing at all for potentially high risk accounts and restricted business types, so merchant’s will pay the higher rate just to be able to offer the services.
The way in which the processors present their rate can sometimes be different as well. Right now in the industry, processors have Interchange, the basic “cost” handed down from Visa and Mc. Sometime, processors will have “tiered” transaction pricing, meaning that for qualified cards you pay one rate, and for specialty, club, corporate or points cards, there is additional rate structure. Other processor lump everything together, for one base rate. So depending on how the processor’s presentation of the rates, you will see a difference.
At the end of the day, the differences between what the processors provide are minimal. Every processor is victim of interchange and the rates will only differ depending on the processor’s customer base, the risk involved in boarding the account and the way in which they present the different levels of card processing costs. It is best to do research when looking for a provider and remember that the differences in the rate are subject to negotiation as well.
