TransFS, a company that I have written about a few times here, recently published a document called Five Steps to Saving Money on Credit Card Processing.  They outline more clearly and simply (but not in as much detail) some of the concepts that I have written about on this site, such as Overview - How to Get a Good Deal , Rip off Leases, Marking Up the Downgrades and Interchange Plus.  It's nice to see companies trying to make things better for us small merchants.

In these times of economic uncertainty, you may consider printing out a copy of this document and giving it to a small business friend of yours.  Just following those simple steps will likely save them several hundred dollars / month at a minimum.

I recently saw this review from the creator of ProductCart, a popular ecommerce package , reviewing a new tool from Transparent Financial Services called the Credit Card Processing Calculator. The purpose of the tool is to help you quickly determine if you are getting ripped off by your credit card processor.  

I tried it and it said that I was getting a good deal, but I already kind of knew that. It wasn't 100% accurate, but it was pretty close, more like 95%.  If you have any doubts about your credit card processor its probably worth the 10 minutes to try out this free tool.  

Some additional news coverage about this company:

Small Businesses Dissatisfied With Credit Card Processors (from Reuters)

Merchant Gripes Led Startup Comparison Site to Focus on Processing (from Digital Transactions)

New site helps e-retailers find reliable credit card processors (Internet Retailer Magazine)

Are you Getting the Best Payment Processing Deal (BizReport.com)

Most of this site is dedicated to explaining how Mastercard and Visa credit card transaction work.  Mastercard and Visa accounted for $1.7 Trillion of the $2.1 Trillion in electronic card payments in the US in 2005 according to the Nilson Report.  The remainder are mainly store cards (without a Mastercard or Visa logo on them), Discover and American Express. 

One of the worst practices of the Merchant Account industry is the use of inconsistent buckets because it is completely deceptive. 

Most merchants are billed on a 3-Tier or 3-Bucket price schedule.  The transactions, which VISA and Mastercard classify into one of 130+ interchange categories (see "What is Interchange"), each with it's own price, are grouped by the Merchant Account Provider into 3 buckets, each of which has a price determined by the Merchant Account Provider (and negotiated by you - see "3-Tier Pricing and "Reading a 3-Tier Merchant Statement").

If you want to process transactions over the internet, you will need a payment gateway.  I often find that people are confused about what the payment gateway does vs. what the merchant account provider does.  I also find that merchants are usually steered by their merchant account provider to a certain gateway because their merchant account provider gets a commission from that gateway, not necessarily because it is the best product for that merchant. 

When I first signed up for processing I had a difficult time figuring out with whom I was dealing.  Who were the guys calling me up and trying to sell me processing services when I first opened the business?  Who were the people on the other end of the phone when I had questions about my bill?  Who decided what rate I got charged?  

One way that processors make extra money is by using a strategy that we call "Marking Up Downgrades". Most merchants are charged for processing services according to a Three Tier Rate Structure.  In a Three Tier Rate Structure each transaction is put into one of three categories: "Qualified", "Mid Qualified" and "Non Qualified".  Transactions classified as "Qualified" will be charged the base rate.  Transactions classified as "Non-Qualified" or "Mid-Qualified" will be charged extra.