United Dental Alliance
United Dental Alliance

Understanding Credit Card Processing to Reduce Monthly Fees

| September 26, 2012

Navigating the credit card processing industry is no easy task. Most business owners simply compare a few services and then settle on one for the life of their business. However, what you don’t know may be costing you. You should make an informed decision when choosing a credit card processing company, so you can choose the one that benefits you most (aka SAVES YOU MONEY!).

The Big Three

MasterCard, Visa & Discover are the largest credit card associations and their fees are very similar.  With hundreds of different categories of credit cards, each with its own risk level, MasterCard, Visa & Discover establish merchant processing rates, known as the interchange rate, to cover the transactional expense plus the potential loss of charges associated with fraud or non-payment.   Their portion of a merchant’s (or a dental practice) credit card monthly charges average well below 2.0% of monthly revenue billed.

The rest of the fees the business is charged come from the processing companies.

Processing Companies Decoded

There are many different types of models of credit card processing companies.  The different business models have names like a “single tier”, “three tiered”, “qualified/non-qualified”, “interchange plus”, “basis plus” or even “transactional.” It is confusing to understand what processing model is correct for your business.  The only way to understand the best option is to compare the charges for each one— and that is too time consuming for most business owners.

We look at the credit card processing industry a little differently.  We see three types of processors.  There are the “bucket” processors, the “basis add-on” processors and the “transactional” processors.

Know When to Run

As a general rule, we shy away from the bucket processors, simply because a merchant or dental practitioner cannot verify their charges.  Not enough detail is provided in the statements.  If you hear statements like “the processor uses the bucket model” or “they sort card charges into qualifying/mid-qualifying/non-qualifying brackets”, it is our recommendation that you seek another processor.

The “basis add-on” processors are a little more predictable because they promise to charge a fixed percentage of additional cost, like 0.025 or 0.035 basis points, added to the interchange rate.  Be careful what the basis add-on rate is though. We have seen 0.075 add-ons or generally whatever the market will bear.  The one thing to keep in mind with this type, as well as the bucket processors, is that their costs are defined as a percentage of your revenue.  The question that should be asked is: what does your dollar volume have to do with their service expense?  The answer is nothing.

The transactional processor is a relatively rare business model in credit card processing.    The transactional companies charge the actual interchange rate, also called the wholesale rate, plus a transaction fee.  All processors pass the wholesale rate through to you.  The difference is, the transactional processors add a simple, fixed, monthly management fee based on the number of transactions, not the dollar volume.  There are no other add-on costs such as statement fees, security fees, access fees etc., although certain card types will generate transactional fees from all three types of processors.

And the winner is…

We like the transactional model simply because it is predictable, transparent, and can be audited very easily.  And under the right practice circumstances, this model can provide your practice with a significant cost reduction in processor fees.

Get the Best Rates for Your Unique Business

UDA recommends that you research many different types of processors.  Do this by having them review a recent monthly statement from your current processor.  This will allow all potential processors to review the same history and then tell you what their charges would have been with their system.  That way, you can make an informed decision based on the business circumstances for your practice.

All that is required is to provide a recent monthly processing statement and allow them to return their results.  This cost analysis is confidential, it is free and it carries no obligation.  Best of all, it will help you make the best choice for your business.

Money-Saving Tips for Credit Card Processing

1.Never lease your credit card processing equipment, always purchase it. Lease agreements usually cannot be canceled and cost more than the equipment is worth.

2. Request debit cards for payment— these have the cheapest card fees

3. Seek service from a direct processor. Financial institutions, such as banks, are not direct processors and will assess additional charges to each transaction without providing incremental value.

4. Ask your service provider to advise you if the security protocols on your processing equipment (card swipe machines) are up-to-date.  Additional charges can be assessed by Master Card, Visa, and discover for out-of-date protocols.

About the Author

This article was written by Chick Cowan, President of the United Dental Alliance (UDA).  The UDA is a dental group purchasing organization focused on helping dental practices control their expenses.  For more information visit www.uniteddentalalliance.com or call 1-800-768-2715.

Tags: credit card, processing fees

Category: Practice Management

Comments are closed.