[Jewelry making - Article 00202] - [Orchid] [BizTalk] Credit Card Dilemma

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    Credit Card machine technology and software changes make choosing a
    payment acceptance processing program as complicated as choosing a
    cell phone plan that fits your needs.  There are many choices, but if
    you understand which plan fits your sales patterns, then you can make
    an intelligent decision. 

    Here are some considerations for offering payment accepting
    processing programs. 

          a.)  Statistics show that accepting credit cards can increase
          your revenues by 25% or more. The ability to accept all major
          cards, Visa, MasterCard, Discover, Amex, Diners, Carte Blanche
          is a plus. 

          b.)  Many merchants don't accept American Express because
          their rates are higher.  But facts show that American Express
          card holders have an average income of $85,000 per year and
          their average ticket sales are 31% higher than Visa or MC
          holders.  2 out of 3 Amex card holders will NOT go into a store
          that does not display Amex decal on the window. Visa sale of
          $200 - 2% CC fee = $196.  Amex sale of $262 - 4% fee = $251. 

          b.)  Visa card holders represent 47% of the market. MC holders
          represent 24% of the market.  Amex represents 16% of the
          market & Discover card holder's represents 5% of the market. 

    Gift Cards 

    Gift cards are a great investment for jewelers and artists.  You can
    offer them at Art Festivals, Trade Shows and On-line.  Jewelry is a
    natural gift item itself.  Gift cards are personalized with your
    logo. You submit a copy of your business card and the Gift card is
    created to represent your business.  You don't have to own a CC
    machine to process a Gift Card.  They can be run on a Virtual
    Terminal online. 

    The cost to setup a Gift Card program is $295 (one-time fee).  You
    get displays for your counters and 50 cards initially.  Additional
    cards are generally $1.00 apiece unless you order 1,000  AT  $0.80 each.
    The transaction fee is only $0.35 per swipe.   No additional fees. 

    Statistics show that your return is very high since generally only
    85% of the gift cards are actually redeemed.  15% are lost or just
    forgotten.   So, if the item sold has a 100% markup (a $200
    necklace) and the gift card covers the price with 15% left over, you
    have made a $115 profit.  The gift card cost of $1.00 + $0.35
    transaction fee = $1.35 total fee. 

    If you are just starting out with Gift Cards, figure the $295
    one-time setup fee, divided by 50 cards, and the cost per card is
    $5.90 plus the $0.35 transaction fee.  The $200 necklace gives you a
    profit of $100 minus the $5.90 card + $0.35 transaction fee = $93.75
    profit for something that may not have sold if the Gift Card had not
    been available. 

    Smart Card / Chip Cards 

    A chip card is simply a piece of plastic with a computer chip on it
    that can store a large amount of data.  Some of the cards have more
    memory on them than the original PC's of the 70's.   Loyalty Cards
    can be used by a merchant to store customer information and
    demographics.  These cards can prompt for discounts on items, count a
    quantity (i.e. buy 12 get next one free), store a value (such as gift
    certificates), or all of the above.  It is a very effective way to
    get customers to come back into your place of business. 

    Accepting Credit Cards - At what cost? 

    The average business accepts 17% cash, 21% Debit Cards, 40% Credit
    Cards and 22% checks.  

    What does a valid credit card transaction require? 

          1.)  Proof the card was present at the time of the
          transaction, i.e., card swipe on POS Terminal or manual imprint
          of the card. 

          2.)  Signature on the Sales Draft.  If not signed by
          cardholder the sale is not valid. 

          3.)  Promised goods and services must have been delivered at
          the time of the sale. 

    If any one of these components is missing, then the cardholder has
    the opportunity to contest the transaction.  (Charge-back) 

    Charge-backs:  if goods and services are unsatisfactorily delivered
    or performed and the cardholder notifies their bank within 6 months
    (even longer in some categories) of the transaction, the merchant
    might receive a charge-back which means the money is taken from his
    checking account and returned to the cardholder. 

    7 Benefits to look for in a Payment Acceptance Processing Program: 

          a.)  Electronic Signature Capture.  A CC machine that stores
          and retrieves your customer signatures, resolves disputes
          without your involvement.  

          b.)  Discrete Receipts:  Printed receipts that hide all but
          the last four card numbers, protecting your customers from
          fraud. 

          c.)  Auto banking:  This saves you time, money and hassle.  No
          more trips to the bank, standing in line with receipts for
          deposit, your money is automatically deposited in your account
          within 2 business days. 

          d.)  Return Policy:  Your return policy is automatically
          printed on your receipt.  Protects you against customer
          disputes if that should occur at a later time. 

          e.)  Upgraded security System:  Extra peace of mind at no
          extra charge. CC machine can be programmed with password entry
          so that unauthorized staff cannot use the machine fraudulently. 

          f.)  Smart Card Ready:  Lease equipment that can be upgrade
          quickly and easily. 

          g.)  ATM / Debit Card PIN pad:  Debit transactions cost much
          less than CC transactions. 

    Debit card usage surpassed credit card sales for the first time in
    2002 - a trend that's expected to continue.  Clearly, more and more
    consumers prefer debit over credit - very good news for your business
    and here's why.  P.I.N. based transactions Cost You Less! 

    There are 2 ways customers can use a debit card, with and without a
    P.I.N.  when you accept payment without a P.I.N., you pay regular
    credit card interchange rate and transaction fees, which can total
    more than 2% of the sale.  You also have the same chargeback risk, as
    with a credit card.  By accepting a P.I.N. based debit, all you pay
    on average is 60 cents per transaction, and the sale is RISK FREE! 
    Here's how accepting P.I.N based debit could save you 63% on an $80
    sale: 

          Off-Line Credit: 1.69% + 28 cents = $1.63     

          Debit P.I.N. Based: $0.60                                     
             
          You Save $1.03 

    Credit Card transaction fee Rate Structure: 

    Every transaction for every credit card bears a cost by the merchant
    called the "Discount Rate."  This rate is a percentage of the amount
    of the transaction. There is also a "Transaction Fee" that is a flat
    amount regardless of the amount of the transaction. 

    Most banks have a 3-tiered system for determining the rate that will
    be charged to the merchant.  This system is based on the time a
    merchant batches out and the type of transaction either swiped or
    keyed in.  This only applies to VISA and MC transactions. 

    Qualified Rate (Best rate available) 

          Card swiped and batched within same logical day 

          A typical qualified rate is 1.79%. If a merchant runs a $30
          transaction, they will pay $30 x 1.79% = $0.54 in discount
          fees. 

    Mid-Qualified Rate (percentage added to Qualified rate) 

          Card swiped and batched next logical day (2nd day) 

          Keyed entry and batched same logical day 

          Voice authorization 

          A typical surcharge for Mid-Qualified Rate is 1.20% over the
          Qualified Rate.  If a merchant ran a $30 transaction that
          went mid-qualified they would pay 
          ($30 x 1.79%) + ($30 x 1.2%) = ($0.54 + ($0.36) = $0.90 in
          discount fees. 

    Non-Qualified Rate (higher percentage added to Qualified Rate) 

          Card swiped and batched after next logical day (3rd day) 

          Keyed entry and batched next logical day (2nd day) 

          Some foreign cards, VISA Corporate Cards, Gov. purchasing
          cards, and manual presentments. A typical surcharge for
          Non-Qualified Rate is 1.75% over the Qualified Rate.  If a
          merchant ran a $30 transaction that went mid-qualified they
          would pay ($30 x 1.79%) + $30 x 1.75%) = ($0.54) + ($0.53) =
          $1.07 in discount fees. 

    Performing a batch every night is very important for a merchant
    since their discount rate is partially determined by when they batch.
     There are times that a merchant might forget to batch, which will
    downgrade his transaction and cause it to be charged at a higher
    discount rate. (ABANCO has built into its software an automatic batch
    for all credit card transactions.  The software is programmed to see
    if there are any un-batched transactions at a predetermined time.  If
    there are, the transactions are automatically batched at the
    merchant's option of either 6 PM or 12 AM and sent for reconciliation
    and payment.) 

    Transactions Fees:  VISA and MC only 

    Qualified Rate	
    Typical transaction fees are $0.29 per item.

    Mid-Qualified Rate
    Typical surcharges are $0.10 per item.  

    A Mid-Qualified		
    transaction would be charged $0.29 + $0.10 = $0.39 per item	

    Non-Qualified Rate 
    Typical surcharges are $0.10 per item.  A Non-Qualified transaction
    would be charged $0.29 + $0.10 = $0.39 per item. 

    Examples:  A merchant rings up a transaction and swipes a bankcard
    in the amount of $250.  His rates are 1.79% and $0.29 per
    transaction. This merchant would pay $250 x 1.79% + $0.20 = $4.77. 

    If this same transaction were hand-keyed because the magnetic strip
    on the back of the card didn't work, this transaction would now
    downgrade to Mid-Qualified.  This merchant would no pay the $4.77
    from above + ($250 x 1.20% + $0.10) = $3.10 + $4.77 = $7.87.  Please
    note there are many reasons that transactions can downgrade. 

    If this same transaction were swiped on a corporate Visa or MC, the
    merchant will now pay the $4.77 plus the Non-Qualified surcharges. 
    This merchant would now pay $4.77 = ($250 x 1.75% + $0.10) = $4.77 +
    $4.48 = $ 9.25. 

    Account Maintenance Fee - Some CC processing companies charge a
    lower rate but their account maintenance fees are much higher. 
    ABANCO's monthly accountant maintenance fee is $9.95. 

    Minimum Fee - There is a $25 monthly minimum on discount fees.  A
    merchant processing at a 1.79% discount rate would have to process
    at least $1,395.65 ($25 / 1.79%) in monthly VISA and MC volume to
    avoid paying the monthly minimum.  If a merchant falls short of this
    minimum, the difference will be assessed.  For example, if a merchant
    processed only $1,000 in Bankcard volume, he would be charged $7.10
    in addition to his regular discount fees. 

    Batch Header Fee - $0.25 will be assessed each time a merchant
    batches out either manually or automatically. 

    Address Verification Fee - A fraud prevention service designed to
    protect the merchant by checking a cardholder's zip code.  The
    charge is $.05 per occurrence. 

    Voice Authorization Fee - an extra fee charged to the merchant when
    he has to call in to receive an authorization.  The charge for this
    is $0.50. 

    Annual Fee - There is a $75 annual charge, which covers
    administrative costs incurred on an annual basis by VISA/MC. 

    Examples: 

          A.)  A retail merchant does 10 swiped bankcard transactions in
          3 days during the course of a month with an average ticket of
          $100.  His monthly payment acceptance processing fees are as
          follows: 

          10 x $100 x 1.79% + (10 x $0.29) + (3 x $0.25) + $9.95 +
          Monthly minimum.  Since 10 x $100 x 1.79% is less than $25.00
          the merchant is charged $17.90 + an additional $7.10 to make
          $25 of discount on the monthly minimum.  We still need to do
          the rest of the equation:  $25 (Monthly Minimum) +$2.90 (10
          transaction fees) + $0.75 (3 batch fees) + $9.95 (Account
          Maintenance Fee) = $38.60.  It will cost this merchant $38.60
          in fees to maintain this account for this example month. 
          Please note, this doesn't include any cost for leasing
          equipment. 

          B.)  Another retail merchant swipes 50 VISA transactions
          averaging $50 each and 40 MC transactions averaging $50 each. 
          They also hand-keyed 20 transactions averaging $100 each.  They
          batch out 20 days during the month.  It will cost this merchant
          the following:  90 swiped transactions at $50 each = $4,500 x
          1.79% = $80.55 and 20 hand-keyed transactions at $100 each =
          $2,000 x 1.79% = $35.80 plus the discount surcharge for
          Mid-Qualification $2000, x 1.20% = $24.00.  The transaction
          fees are 90 + 20 = 110 at $0.29 each = $31.90.  The hand-keyed
          transactions have an additional charge of $0.10 each so that
          adds another $2.00.  We know they batched out 20 days and were
          on an automatic system so the fees are 20 x $0.25 or $5.00. 
          The merchant far surpassed the $25 is discount fees so there is
          no monthly minimum.  The Monthly Account Maintenance fee does
          apply (statement fee) in the amount of $9.95.  So this
          merchant's total monthly expenses for payment acceptance
          processing was:  $80.55 + $35.80 + $24.00 + $31.90 + $2.00 +
          $5.00 + $9.95 = $189.20. 

    Shop for the lowest rate for your business by calculating your
    average ticket sales then  multiply by the discount rate and add the
    transaction fee. This will give you the Transaction Cost per average
    ticket. 

	Average Ticket	Discount Rate	Transaction Fee	Transaction Cost
	$10		1.60%		$0.30		$0.46
	$10		2.40%		$0.00		$0.24
	$50		1.60%		$0.30		$1.10
	$50		2.40%		$0.00		$1.20
	$20		1.60%		$0.30		$3.50
	$200		2.40%		$0.00		$4.80

    Calculate the Net Effective Rate by taking the transaction cost then
    dividing it by the average ticket.  This will help you determine
    which companies can provide the lowest costs in payment acceptance
    processing. It allows you to compare apples with apples. 

    Mail Order / Telephone Order / Internet Orders 

    Any merchant that does in excess of 25% of their transactions as
    "card-not-present" is considered a MOTO merchant (Mail Order Tel
    Order). These merchants are in a higher risk category due to the card
    not being present.  As with all other processors, ABANCO's MOTO rates
    are considerably higher than standard "card-present" swiped rates. 
    ABANCO's MOTO rates are 2.49% and $0.35 per transaction. 

    If you are selling jewelry items online and want to accept credit
    cards, you can qualify for a Virtual Terminal.  The setup cost is
    $299 (one-time fee) with monthly internet access fee of $19.95.  The
    discount rate would depend on the best rate your business could
    qualify for. 

    Leasing Equipment:  98% of our customers lease their equipment for
    the following reasons: 

          1.)  Allows for positive cash flow rather than paying for
          equipment. 
          2.)  Deductible straight expense for tax purposes. 
          3.)  Fully transferable lease to newer upgraded equipment. 
          4.)  Equipment services are constantly being improved. Does
          not lock merchant into outdated machines. 

    Wireless systems generally lease for $95.95 / month. Top-of-the-line
    systems that do everything except "check" swipes, lease for $79.95 /
    month.  

    Re-Programming older equipment the merchant owns:  

    Many models of equipment can have P.I.N. pads added to accept Debit
    Cards and reprogrammed to accept ABANO newer systems.  

    There are many ways to "wheel & deal" with lease buyouts and
    equipment swaps.  Each merchant can be quoted depending on their
    unique situation. The first step is to take a look at your latest CC
    statement and see what 'hidden' fees are being charged that you can
    eliminate by shopping around.  (ABANCO costs less per month 89% of
    the time.) 

    Final notes: 

    To qualify for ABANCO payment acceptance processing (as well as most
    other processors) a merchant submits an application and it is
    approved based on the amount of time the merchant has been in
    business and their credit.  Business verification consists of
    photographs of the inside and outside showing signage of the business
    name, copy of business license, Tax ID or seller permits, etc. 

    Mail Order / Internet businesses complete an application with photos
    or copies of the merchant's advertisements or brochures.  DBA name
    should be stated on the Application Agreement, the type of goods or
    service sold should match the information on the Application.   

    *Check Processing can be covered at a later time, and if anyone is
    interested, I will put together another "facts" posting on the
    latest ways to accept checks. 

    I hope this has been beneficial and not too complicated to
    understand. Please feel free to call me if you would like a quote on
    your individual situation.  Realize that I will need a copy of your
    latest CC statement to see if we can offer you a lower rate.  You can
    "black- out" any confidential information if you prefer.  My fax
    number is: 520-616-8684. 

    I look forward to helping anyone who needs advice. 

Best regards,
Virginia Vivier
Rep:  ABANCO International
Tel: 520-616-8683

 

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