Canadian Credit Card Processing Wars
April 28, 2009 by Matthew Hunt · Leave a Comment
Tim Wilson at the NationalPost wrote yesterday an interesting piece on Canada’s Credit Card Wars over regulating interchange and allowing Visa to introduce debit cards in Canada.
Tim states, “While we respect businesses’ desire to manage their expenses, government intervention is not the right solution in a functioning industry.”
I know many Merchants who would be as fast as a wild cat and pounce on this statement. However, after reading more of what Tim had said in his article reminded me how important credit cards are to a business. Tim states:
“Retailers benefit from the speed, efficiency and reliability that only electronic payments can bring. They also receive guaranteed payment and can avoid the need to extend credit directly to their own customers. According to the economics firm Global Insight, over the past two decades, electronic payments have contributed $122-billion to the Canadian economy, which represents nearly 20% of our total GDP growth over the same period.”
In reality, without credit cards businesses would not be able to be as profitable as they are. Just try and imagine how a website would be able to transact without the ability to accept credit cards or even by phone. How would your business sales be without credit cards…?
The REAL ISSUE (if you read between the lines) that merchants are really complaining about is they feel they are paying too much in fees. It always comes down to the “$”.
Now I am all for keeping Merchant processing fees as low as possible. The issue really isn’t Visa and/or Mastercard with their Interchange rates because the interchange rates are not that high. If you have really high rates it’s usually due to your credit card processing company. This is Moneris, Global Payments, Chase-Paymentech, Elavon, First Data, TD Merchant Services, and other sub ISO’s who also broker credit card processing services. They make their money by marking up on top of the interchange rates and they really understand interchange.
Let’s use Tim’s example of:
“Visa Canada’s premium product, the Visa Infinite card, is available to a small subset of cardholders and its interchange rate, which is the small amount of money transferred from one financial institution to another each time a Visa product is used, is one fifth of one percent (0.2%) higher than other card products.”
What merchants don’t understand is how interchange really works and how the Merchant Account companies that sell/set-up merchants are the ones who can sometimes mark-up those rates big time. So if the card present buy rate for a non-reward card is approximately 1.6% for most categories of business and then the infinite card is 0.2% higher that would make the buy rate 1.8%.
Now many Merchant Account Companies will offer those card present cards at almost cost (let’s say 1.7% – only 10 basis points higher than cost) but they’ll mark all infinite cards by a full 1% higher making the Merchant pay 2.8% on those transactions. Now this could be good or bad for your business, it’ll depend on how many of your customers will pay using an infinite card – which you will not know until you are processing.
The question again is do you really understand how your customers transact with you…? If not you will want to figure it out.
This is where it is important that the Merchants understand how interchange works for their type of business category and/or the way their business will transact. By understanding this they will have a better chance at securing competitive rates because they can then look at the interchange tables and understand what the buy rates are from their type of business. However, as long as the Merchant remains uneducated on how all this merchant processing really works they will continue feel confused, alienated and over charged.
Now there have been some major shifts in the industry that have compounded these issues.
“In 2008, Visa introduced the first significant change to its interchange rate structure in 30 years, which resulted in some transactions attracting a higher interchange rate and others attracting a lower rate. Even with the change in structure and the introduction of the Visa Infinite cards, Visa Canada’s effective interchange rate has remained relatively flat at 1.6%. Interchange rates for Visa Canada are transparent and are available on our Web site.”
What people don’t realize is the change in the interchange structure is not really the problem. The REAL challenge is in educating merchants on how all the fees work. They are really just upset because they don’t understand why they are being charge more for some cards and how all their fees have change so much over the last year. The transparency has not been there and so they feel lied to or even like they have been swindle.
And sending a merchant in fine print 60 days before the change that their rates are going to change is NOT being transparent nor is that any kind of education on how it all works.
I don’t blame Merchants – I’d feel the same way if I were in their shoes. Again, as usual with anything in life – it breaks down to poor communication between the card processors and merchants. Which is fine with me – because it’s this type of poor communication that keeps me in business. 
I take the time to explain and help merchants understand how all these complex merchant MDR’s work and how to structure an application that is competitive and fair to both the merchants and the card processors.
Regardless, of what I think…what do you think…? Let me know in the comments below.
Accept Credit Card Payment With Your iPhone!
March 2, 2009 by Matthew Hunt · Leave a Comment
Ever since I purchased my iPhone about 6 months ago, my mind has really opened to where mobile payment processing is going. Just look at this awesome application for payment processing on the iPhone.
It is my personal opinion the future of merchant accounts and the payment processing industry is going to be very closely tied to our mobile phones.
Too bad it only works with US merchant account(s). I think I will try and get this iphone app to work with a Canadian Merchant Account service provider.
Does anyone know of an iPhone credit card processing application that works with a Canadian Merchant Account provider…? If so, please let me know in the comment section below.
Small Business Owners Lobby to Cut Credit Card Processing Fees
November 12, 2008 by Matthew Hunt · Leave a Comment
This is an article written in New York Times Small Business section and address US merchant account concerns address ever increasing credit card processing fees, but I think it is an article that speaks also to Canadian small business owners.
The article is called: Small-Business Owners Lobby to Cut Credit Card Fees and it is well worth the read. Some of the highlights and quotes from this article that I thought could spark some real conversations among Merchants are:
“In 2007, merchants paid $61.56 billion in electronic payment fees, up from $48.58 billion in 2005, according to the Nilson Report, a payment systems industry newsletter. The report estimated that lenders took in 82.5 percent of those dollars.”
These are the US numbers and assume as being the US northern neighbor that we are most likely not that far behind in our electronic payment fees.
“What merchants are getting for their money is convenience, risk management and guaranteed payment,” said Denise Dunckel, a spokeswoman for Visa Inc.
What do you think of this above statement made by the Visa representative?
“Merchants derive significant gain from the electronic payments system, which has evolved new features such as rewards programs,” said Trish Wexler, spokeswoman for the Electronic Payments Coalition, an advocacy group in Washington. “Ultimately, merchants benefit from rewards programs because people buy more when they use cards. Higher fees for rewards cards are justified because merchants and consumers both share in their expense — but merchants want to pass their fair share to consumers, who’d be hit with higher credit costs and reduced rewards if the merchants succeed.”
I am sure this above statement would get a ton of Merchant’s blood boiling, but I don’t want to speak for merchants – what do you think?
Kenneth J. Clayton, director of card policy for the American Bankers Association in Washington, called the bill “a dramatic proposal by big retailers to use political muscle to lower their costs.” Smaller retailers, he said, “are being put up as poster children to show how challenging it is for them. But behind the scenes are big-box stores that see an opportunity to lower their costs of participating in the electronic payments system that benefits them greatly.”
This is interesting, is this “movement” really just a big conspiracy for greedy large corporations to increase their bottom lines and increase share holder profits?
Just some food for thought. Regardless of the outcome, our current society in Canada and the US are greatly tied to using plastic and credit card processing is not going anywhere. This I am assuming will continue to be an ongoing battle between Merchants, Visa, MasterCard, and the Credit Card Processing Companies.
Merchant Account Warnings from a “Merchant’s Perspective”
November 7, 2008 by Matthew Hunt · Leave a Comment
Matthew Bredel talks about Merchant Accounts. He is not in the industry and is talking about US merchant accounts, but a lot of what he speaks about also pertains to the “Canadian Merchant Account” industry too.
I was going to write a post today covering some of the merchant account FAQ’s, but he did such a great job in his video that I decided to let him do the talking. Makes for an easy post for me!
Canadian Internet Merchant Account Services
September 27, 2008 by Matthew Hunt · Leave a Comment
There are basically 2 types of internet merchant accounts.
- Third Party Payment Processors – like PayPal, Google Checkout, 2CheckOut, etc.
- True Merchant Accounts – through a Bank or a Merchant Account ISO
Side Note: Google Checkout is currently not available to Canadians
Third Party Payment Processors:
- Do not perform credit check
- Rates are not negotiable
- They can not be used with a separate processing gateway
- The Third Party Processor’s name appears on your customer’s credit card statement
- You can discontinue the relationship at any time without incurring a penalty
- It can take up to one month to receive any deposited funds
- Discount rates can be as high as 6% and $1 per transaction
- Purchasers have to go to a separate site for payment processing
- Promotes Third Party Processor’s business
True Merchant Accounts Processors:
- In applying for a True Merchant Account you’ll undergo a full credit check
- High risk businesses will pay much higher rates (usually 4%-12%)
- Rates are somewhat negotiable
- A Merchant Account can be used with a separate processing gateway (Most of the time, but some providers do require certain security standards and will only approve certain gateway providers.)
- Your Business Name appears on your customers statements
- You may be locked into a multi year contract (usually 3 years)
- Funds are usually deposited into your bank account within 1-3 business days
- Discount rates can be lower then Third Party Processors (usually 2-3%)
- Purchasers don’t have to go to a separate site for Payment Processing (major benefit – less shopping cart abandonment.)
- Appears more reputable & have ownership of the relationship with your customers right down to purchasing
Both Third Party Processors and True Internet Merchant Account Processors have their ‘pros‘ and ‘cons‘. Most Internet start-ups do not survive beyond two years. If you are only testing the waters then you may want to just start out with PayPal, where you will have no contracts and approvals are instant.
For those that are committed to building an online business then you will require true internet merchant accounts and the savvy merchants will offer both – they will let their clients choose which way they’d prefer to check-out. There are no rules saying, you can only have one type of processor when it comes to internet merchant accounts.
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Virtual Terminal – Credit Card Processing
September 27, 2008 by Matthew Hunt · Leave a Comment
A Virtual Terminal is where you can turn any web enabled PC into a payment processing terminal. It allows you to work in several card processing environments. Retail face-to-face, mail-order, telephone-order (MO/TO), and e-commerce for your websites.
This solution is perfect for those that have recurring billing because it also supports automatic billing. Gym’s and membership based businesses find this a real time saver.
Even though this solution can be converted into a retail face-to-face terminal with adding on an external PIN Pad, many merchant just opt for the traditional POS Terminal instead.
This solution is mostly used by B2B businesses or any business that doesn’t ever see the customer face-to-face. Another key benefit to this solution is it allows unlimited users, so if you had a sales force of reps out in the field they all could login on the internet and processing transactions at their convenience.
One of the best features is that this system keeps all the headaches of being compliant with PCI because this POS solution stores all the pertinent credit card information on their secure site, leaving you worry free of ever being hacked into or sued due to poor PCI complaint issues.
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Canadian Merchant Account Services
September 27, 2008 by Matthew Hunt · Leave a Comment
There are basically only five different types of merchant account services available in Canada. Choose the solution that best describes your business needs.
- Retail Merchant Account – This is where most of your sales are face-to-face. You will use a Point-of-Sale Terminal, which is often referred to as a ‘Debit Machine’ in Canada. This type of solution is appropriate for restaurants, retail stores, chiropractors, dentists, massage therapists, grocery stores, convenience stores, etc. This section goes in detail about retail payment processing options: POS Terminals, rates & fees, and what to ask merchant account providers. Click on the following link to learn more about: Retail Merchant Account Services
- Wireless Merchant Account – Wireless merchant accounts are for businesses that want all the benefits of a retail merchant account, such as the face-to-face low card-present rates and the convenience of being completely mobile. Your Point of Sale Terminal goes where your business goes and can accept all debit and credit cards. This type of solution is appropriate for businesses that have delivery, mobile pet groomers, mobile massage therapists, taxis, etc. This section goes into detail about wireless payment processing options: Cellular POS Terminals, rates & fees, and what to ask merchant account providers. Click on the following link to learn more about: Wireless Credit Card Machines
- Internet/E-commerce Merchant Account – Internet merchant accounts are for businesses that want to be able to accept credit cards as a method of payment on their websites. This section goes into detail about internet payment processing options: credit card processing, gateways, shopping carts, rates & fees, how your site must be set up to be approved and what to ask merchant account providers. Click on the following link to learn more about: Internet Merchant Accounts
- Office Virtual Terminals - This is a merchant account solution that is appropriate for businesses that only require credit card processing and want an easy-to-use system where they log in through a secure website to process sales. One highlight to this solution is its automatic recurring billing option. This solution would be perfect for business professionals, B2B type businesses and business that have recurring billing like a Gym or other kind of specialty membership business. Click on the following link to learn more about: Virtual Terminals
- Phone Processing – This is often referred to as the MO/TO (mail order/telephone order) solution, where a merchant can process credit cards by getting authorization through dialing into a 1-800 number. Perfect for the business that is on the go and only requires credit card processing. Click on the following line to learn more about: Phone Credit Card Processing.
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The Critical Canadian Merchant Services Guide – Part 5
September 26, 2008 by Matthew Hunt · Leave a Comment
Choose the ‘Right’ Merchant Service Provider by Avoiding these 3 Common Mistakes Made by Most Small Business Owners.
You learn things several ways. One way is simply going out there and doing something and learning from your mistakes. Another way is to learn what others have done wrong and make sure you don’t repeat their mistakes.
Don’t repeat these common mistakes that many small business owners had to learn the hard way.
MISTAKE # 1: PLAYING THE RATE GAME
Most small business owners lose at the rate game. Calling all the merchant account service providers in the Yellow Pages or off the internet and choosing the one that states the lowest discount rate will not necessary secure you low rates.
Would you play a high stakes one-on-one basketball game with Shaquille O’Neal?
Of course not!
You wouldn’t because he is a pro and knows all the tricks in the book to win at basketball.
Small business owners who try to negotiate debit/credit card processing fees with a merchant account sales pro are attempting the business version of taking on Shaq. Can you guess who the winner will be?
The small business owner almost always loses because they do not understand the intricacies of rate structures and how to look at the over-all payment processing service program.
MISTAKE # 2: COMPARING APPLES TO ORANGES
Not all merchant account providers are created equal. Price is not everything. Small business owners must also consider:
- Service
- Tech support
- Equipment
- Software
- Warranties
- Training on proper protocols for using services, etc.
For example, one company I know offers a very competitive discount rate program, BUT their program has major flaws. At first glance it seems like a good choice to make, but if the business owner had the knowledge to be able to dig a little deeper they would be able to pinpoint why this program would probably not be right for them.
Let’s look at this example:
This company (I can’t say the name, because I am not looking for a lawsuit) offers every business the same rates-which in itself is a sign of misleading advertising. Not all businesses can qualify for the same rates. Different businesses have different risks associated with them, and higher-risk businesses will pay higher rates. Let’s look at what this company is doing:
- 1.69% on Visa and MasterCard
- 10 cents per transaction
- $26/month POS Terminals
- $899 to purchase
Looks like a good program, right…? WRONG.
If you look a little closer you will see in the fine print that this is an introductory rate, and that after six months of processing they will give your business the real rate.
- There are a few hidden fees, statement fee, admin fee, and an annual recurring membership fee.
- That rate only applies on qualified transactions (card present transactions). Anything keyed-in, any corporate card, etc. will be charged at a much higher rate.
- Their service hours are 9am – 5pm.
- They offer no lifetime warranty on the Point-of-Sale Terminal (just the standard one year manufacturer’s warranty, which is the legal requirement in Canada)
- If the hardware does break down and has to be fixed, it needs to be shipped to Texas to be repaired-probably taking two weeks before you have a working Point-of-Sale Terminal back in your business.
How well would your business perform without a working Point-of-Sale Terminal for two weeks? How many sales would you lose? Is this still looking like a good deal…? Probably not.
LESSON OF THE STORY: Not all payment processing services are created equal.
This above example is just one of many sneaky marketing ploys that some merchant account providers have chosen to use.
MISTAKE # 3: BEING FOOLED BY LOW BALL DEALS, HIDDEN FEES, AND “FREE EQUIPMENT”
We touched on some of this in the above examples, but let’s dissect this in a little more detail.
Low Ball Deals
It’s always a wise tactic to ask yourself: is it too good to be true?
Is one company offering much lower discount rates then any other company-if it is, then it’s probably not cheaper. Remember, don’t compare apples to oranges. Some companies will offer low introductory rates to capture business only to raise rates once they have secured your business into a contract.
It really isn’t that hard to figure out. Remember, a good merchant account broker knows the wholesale buy rates that credit card processors pay (as I mentioned earlier, it’s called interchange) and if a credit card processor is offering lower rates than what it costs them, its business would not be profitable. How long do you think a business will last losing money? They are either going to raise your rates or they are off-setting the lower rates with back-end hidden fees.
Hidden Fees: What you do not know can hurt you. Many payment processing companies are very good at creating an illusion of being competitive, but make up for it many times over by sneaking in tons of nickel & dime fees on the back end. These could consist of:
- Monthly warranty fees
- Monthly minimum processing fees
- Administration fees
- Monthly/Yearly membership fees
- Added value fees
- Monthly system access fees
- Monthly maintenance fees, etc.
These merchant account companies can be very creative when it comes to naming bogus monthly fees. Of course, it is almost impossible to avoid getting dinged with some fees, and some are perfectly legitimate. Paying $10-$15/month in additional admin-type fees is acceptable, but anything beyond that and the odds are you are paying too much.
Free Equipment: Let’s keep this one short. Nobody gives anything away for free. Enough said, right?
Choosing a Payment Processing Provider is a serious decision, and you want to make sure you have crossed all your “t’s” and dotted all your “i’s” before committing to an agreement. Most Companies’ volume runs through Debit/Credit Card Payment Processing and most payment processing costs are 2-5% of that volume (when all said and done), so making a good decision is important.
Therefore, in order to evaluate the cost effectiveness of any Debit/Credit Card Payment Processing Provider, you need to consider ALL the fees and charges, not just the discount rates. You are most likely starting to see the huge benefit that a solid merchant account broker can provide.
cforms contact form by delicious:days September 25, 2008 by Matthew Hunt · Leave a Comment Before getting into all the nitty-gritty of navigating the complexities of Canadian Merchant Accounts I would like to take a quick moment to explain how I ended up in this industry and was FORCED to write this guide in order to make sure that someone was taking responsibility for doing what is right in the Canadian merchant account service industry. My name is Matthew Hunt and I wasn’t always in this line of work. In fact, my background and training is as a professional theatre actor, through which I’ve been involved in touring productions like the Overcoat. I still occasionally act, but find myself slowly exiting “the biz” (traveling the world performing in theatre is a not an easy thing to do with a family!). I was initially lured to the merchant account services industry because I could do this job in between productions, or while on I was on tour with my theatre shows. I have to admit I never really intended on staying very long in this industry. But one thing leads to another and the next thing you know five years have passed… and Sha-Bam! Now I run a very successful Canadian Merchant Account Service Brokerage. It’s hard to believe that a flaky artist like me has been successful with something as analytical and (let’s face it) dry as merchant accounts. The truth is I don’t do this job because I love “merchant accounts.” I do this job because I love entrepreneurs. You small business owners are actually a lot like artists: you have to be gutsy, creative and driven to be a small business owner. And like many Canadian artists, small business owners are never given enough credit-and yet you are the backbone of Canada’s economy. I have so much fun every day watching creative Canadian entrepreneurs drive thriving markets forward. Let’s face it: in today’s marketplace it is almost impossible to be in business for oneself without the ability to accept payments by debit card, Visa, MasterCard, and/or American Express. I feel privileged to be a small part of helping people with something as important as payment processing, and having the opportunity to watch small businesses grow and thrive up close truly inspires me and encourages me to maintain the highest standards. Let’s Make an Agreement I have written this guide because I have personally witnessed too many small business owners being taken advantage of when seeking merchant account services. It sickens me to watch good, innocent people being lied to and manipulated with unethical marketing and sleazy sales tactics-all for the sake of securing more business. I promise to tell the whole truth and nothing but the truth when it comes to Canadian merchant account services. I will become your human lie detector. I promise to make sure I help you understand merchant accounts by presenting the facts in a concise and easy to understand format. I will give you all the tools and knowledge you need to ensure you’ll never be taken advantage of by a shady merchant account company. In turn, if you feel that I have done what I promised above, then you agree to process your merchant account applications through my merchant account brokerage firm. This is probably not a surprise, but I do not make any money by giving this Guide away. I only make money when my name is on your merchant account application-very similar to how a mortgage broker works. Does this sound like a fair agreement? Then please continue reading by clicking here…The Critical Canadian Merchant Services Guide – Part 1
