The merchant services industry has undergone a tremendous transformation in recent years. Advances in technology have paved the way for merchants — small and large — to take advantage of credit card processing devices and services designed to improve the bottom line. In order to optimize cost savings on credit card processing fees, however, it is important to choose a merchant services provider that has your best interests in mind.
“What you are looking for is a business partner that will take the time to educate you and show you the nuances of the industry,” says James Kennedy, vice president, merchant services for MB Financial Bank in Chicago. “A business owner knows their business better than anyone else.”
Smart Business spoke with Kennedy about the importance of regularly reviewing credit card processing agreements, the types of added value services that are available and how to go about selecting a quality merchant services provider.
How have merchant banking solutions advanced in recent years?
Around 1984, processing went electronic and terminals were introduced. Now you have Internet protocol, wireless terminals, terminals that run on cellular and virtual terminals. These advances in technology have created a whole new list of priorities for those in the industry with security being a top concern.
Another aspect that has evolved significantly in recent years is the global nature of transactions. Dynamic currency conversion has changed the industry. We’re not just dealing with U.S. dollars anymore.
Why is it important for businesses to review their credit card processing agreements?
Due to the evolution of the industry, the most important reason is risk. Everything in the merchant industry comes down to risk. MasterCard and Visa assess their risk on a biannual basis. The changes come down to what these companies call interchange. They document 150 levels of interchange in the different card types that are issued. The risk assessment is done every April and October, and if merchants are not attentive to what they are currently paying, some processors will take this opportunity to adjust the rates so they can add additional profits to their bottom line. It’s important for merchants to regularly review their processing agreements to ensure they are getting the best rates.
What added value services are available?
Added value services include gift cards, check guarantee, PIN-based debit, remote data capture, payroll cards, online reporting, the cash advance payment vehicle and m-Commerce, which allows transactions to be conducted through wireless handheld devices. The best way for a merchant to take advantage of these products and services is to partner with a good merchant services company that is educated on the industry trends and is willing to take time to explain the benefits associated with each add-on.
How can businesses maximize cost savings on credit card processing fees?
The most important thing is to know what is required of them from the card issuers.
Each industry has different rules and applications to minimize its risk. This may be as simple as entering tax information separately on specific corporate cards when prompted.
What benefits can a merchant realize by utilizing cash advance options?
The way a cash advance option typically works is you get a lump sum advance based on future credit card processing sales. This option allows you an alternative to the traditional loan. It offers a quicker underwriting process, anywhere from five to seven business days, which bypasses personal credit inquiry and impact.
Another advantage is the merchant pays back the agreed upon amount plus a set percentage, which typically does not exceed 9 percent of its total daily credit card volume. So as the sales of a business fluctuate, the percentage ebbs and flows with the business, which is more forgiving than a set loan amount where the repayment balloons.
How should a business go about selecting a bank that will meet its merchant banking needs?
It is important to select a merchant services company that is associated with a bank or other credible source. Processors that are tied to a bank, like ourselves, have access to a number of financial institutions. If a merchant has an issue, it has several different levels of customer service it can take advantage of. Conversely, many independent sales organizations, or ISOs, tend to be small businesses that back in through a processor or third party. With these firms, the support level is often defaulted to the processor — who is likely to view you as just a number. Also, it is not uncommon for ISOs to sell or go out of business, which means the merchant could lose its main contact and any leverage it had.
JAMES KENNEDY is vice president, merchant services for MB Financial Bank in Chicago. Reach him at (847) 653-1980 or [email protected].
