Well, not really but that is the kind of pitch a sales rep for “reverse processing” would likely lead with. If they can get your attention when they come in the door or call on the phone, they may ask a question like this… “how would you like to process your credit card transactions for FREE. Sounds pretty appealing, doesn’t it? Let’s face it; if you’re like most merchants, they usually aren’t real thrilled with the fees involved with accepting credit/debit cards. But hey, it’s the times we live in. You have to take plastic for payment of your goods or services or you are missing out on sales.
So, let’s break this down and see what this really is and then at least, you can make an informed decision whether or not it is for you. Let’s first of all take a look at what current rates are for processing, as an example, a generic/no perks type Visa credit card. This will give us a basis point for the purpose of this discussion. Currently, the Visa Interchange (I hope you have an understanding of what “interchange” is) rate for this type of card is 1.65% + $.10 (that may change slightly in April which is typically when Visa and MasterCard make interchange adjustments). Realize, of course, that other card or transaction types have their own Interchange Rates, mostly higher with a few lower. I’m using this Visa Interchange Rate solely for illustration purposes. So, if you’re processor has you set up on Cost Plus or Interchange Plus pricing (and you should be since this is the most transparent form of processing) and the “plus” portion is.25% + $.10 for example, your total cost would be 1.90% + $.20. So, in other words, for ease of illustration, your total fees on a $100 transaction would be $2.10. Keeping in mind, of course, that the Interchange Fee, or $1.75 of this total goes directly to the card issuing entity. The processor, for providing this service, is making the $.35 difference.
Now that we have that baseline let’s get a better understanding of what is being offered with Reverse Processing. What these reps tell you is that there is some “new legislation” than enables you to do this. I started in this industry over two decades ago and have searched and have yet to find this “new legislation” they are referring to. Apparently, they either provide you with signs or say you are now able to put signs up in your establishment that say something like “all prices marked are for CASH transactions”. Now, I have seen merchants, while trying to reduce their overall costs of processing cards, say something like “discounts for cash” (typically they will give about 2% off when paying for cash which subsequently ends up netting about the same amount if paid for with a credit card less fees) but this is a new spin. Let’s face it, when you look at the total number of transactions that you do in a day, what percentage of that is cash? Very little, am I right? That’s just the way it is today. People tend to carry very little cash and prefer paying with plastic or through some app on their phone The reasons vary from “it’s simpler” or “I get perks for using my plastic”.
Okay so let’s move on with this analysis. The next part of this “deal” they tell you about is that they offer “unique equipment” that when a customer insists on paying with plastic, it will automatically add 3.95% to the transaction. Now let me ask you this… how many of your customers would be pleased with you for doing that? Do you want to alienate them from doing future business with you? Probably not! Additionally, if you did decide to go with this program, they charge $35 monthly fee and you need to purchase or lease equipment from them. They are talking a purchase of terminal with the appropriate software of in the neighborhood of $2,500. Or, a three year monthly lease amount that varies based on what your current typical monthly processing fees are. In other words, the higher your volume of sales, the higher your lease rate will be… RIDICULOUS!!! As I mentioned earlier, I have been in this business for a very long time and I have only leased one piece of equipment in that time and it was at the merchant’s insistence. It’s a great commission generator for reps but, I believe, a total ripoff for merchants. Quite honestly, I prefer giving away equipment for FREE and offer no contract term.
So, be aware and, as always, do your due diligence when they come calling. And, please know that springtime is when you will typically be bombarded with new reps contacting you. They get maybe a day (if that) of training (and I use that term loosely) and then they are sent to the streets. The failure rate is high for these people because they are ill-equipped and merchants send them packing often simply because of the sheer quantity of them that call. It gets quite irritating and, let’s face it, you’ve got a business to run and don’t have time for every Tom, Dick and Harry that comes calling… who are those guys anyway?
To wrap this up, let me just say that as a long-term professional in this industry, I would steer clear of this new “game”. There are plenty of processors out there that can provide you with this valuable service and those of us that truly care about you, your business, and building long-term relationships. Until next time, thanks for reading.