The Fine Print
Thomas Jordan learned a lot about the costs associated with accepting credit cards when the point-of-sale terminal in his wife’s Santa Barbara, Calif., clothing store broke down.
Like many retailers, the expertise at Socorro is not on payments, so when Jordan called the store’s credit card processor to ask about getting a new machine and was told that he would have to pay $900 upfront for a new terminal or take out a four-year contract at $40 per month, “I got mad,” he says.
“This was my wife’s store, but I was looking out for her best interests,” he says. “The costs sounded usurious to me and I told the people at the bank that I thought so. They just laughed at me — they literally just laughed.”
Jordan performed an Internet search for credit card terminals and processing fees. He found rates from dozens of processors, but it was difficult to compare prices: Some had fixed processing fees, others charged a percentage of the transaction cost; some had hidden and equipment fees added to the total costs; and some even charged different rates for different cards.
“Most of the processors would post their best rates,” Jordan recalls, “but when you looked into it … most of your transactions don’t qualify for that rate.”
Then he found FeeFighters.com. This website did much of the work for him, comparing the total costs in an easy-to-understand format. Additionally, the site had a lot of information about what contributes to the cost of accepting credit cards and what a retailer can do to lower its rates.
After answering some basic questions — type of business, typical transaction volume, etc. — Jordan was given a comparison list of the lowest-priced alternatives. The first company on the list had only been in business about a year and therefore did not have a track record with which he was comfortable, so then he checked out the second company — Dublin, Ohio-based Merchant Focus.
“The fees were slightly more than the first company,” he says, but they had a strong customer commitment and provided references.
Not only were the proposed transaction processing fees less than what he had been paying, Merchant Focus told him he could purchase that same $900 terminal at Office Max for $150 – or directly from the processor for $125.
In the seven months since switching to Merchant Focus, “we’ve had no real trouble,” Jordan says. “And we’re finding we’re paying about $200 a month less” in processing bills.
“Like many small retailers, my wife and I really did not know much about credit cards and how much [accepting them] costs us,” he says. “The bank was able to take advantage of us because we didn’t understand the business.”
For example, Jordan did not know that many specialty credit cards — those with added perks for cardholders — have extra costs associated for the retailer. “Customers may get extra miles or points on these cards,” he says, “but we end up paying for it.”
For processors, FeeFighters provides retailer exposure and an opportunity to showcase lower costs. Sarah Schiffer, director of sales and marketing for Merchant Focus, says her company has been working with FeeFighters for about two years.
“You have to agree to abide by their rules, such as not charge any hidden or cancellation fees,” Schiffer says, “and you have to live up to what they expect from a quality processor.”
An independent sales organization for HSBC Bank, Merchant Focus works with clients ranging from small boutiques to large chains throughout the United States. While there are hundreds of interchange rates in the marketplace, Merchant Focus has simplified its business model so that it charges retailers 20 basis points over the stated interchange rate plus 10 cents. Terminals are sold at cost. “We make our money on processing, not on reselling equipment,” Schiffer says.
The processor has received a number of referrals from FeeFighters, the majority of which are retailers that already have a credit card processor but are looking for a better rate or better service, Schiffer says.
FeeFighters began as CEO Sean Harper’s graduate school project at the University of Chicago. He started working on the project in 2008, and the site launched at Finovate in April 2009. As of mid 2011, the company has made nearly 20,000 retailer referrals, Harper says.
Besides posting rates, FeeFighters often works with processors to simplify pricing and improve customer service. “We have to do a lot of retraining because there are a lot of bad practices in the market,” Harper says. “We do a background check on every processor and make sure they practice our rules.”
FeeFighters receives a referral fee when a processor signs a new customer. Before making referrals, FeeFighters looks at what a particular retailer is seeking in a processor — not just lowest price. Additionally, with the emergence of mobile payments, FeeFighters tries to match processors with the capability to handle advanced systems with retailers that have that requirement.
“If a customer just needs bare bones credit card processing, we can find them more options,” Harper says. “But if they need more advanced capabilities or if their needs are very, very specific, we will find processors that closely fit their needs.”