Is your flat rate really flat?

Is your flat rate really flat?

In our experience we’ve come across several companies and organizations that advertise a low, flat rate billing structure, making it an easy sell for these organizations to seem to beat the competition’s pricing. The difficulty is that what you see may not always be what you get.

In light of the recent revelations at one major bank of inappropriate practices and account fraud to boost sales numbers, it has opened the door for further scrutiny and investigation into some of their other practices. One of these relates to their use of what is termed in the merchant services industry as “billback”.

Billback occurs when your merchant services provider (MSP) charges a specific advertised rate up front, then charges the remainder of the fees at a later date.

To understand billback, we need to understand a little bit about how processing fees are charged. For every credit and debit card, there are fees associated with processing that are called “Interchange.” There are specific categories assigned based on the type of account (consumer versus business), merchant category ( for example, retail stores have different rates than hotels or e commerce), as well as how the card is processed (card present, online, etc.). Given the huge amount of variation, there are hundreds of categories for interchange each with a different rate, sometimes in excess of 3% of the sale volume. With billback, the processing fees are initially charged at the flat rate that is quoted, then for the following month, the difference of any transactions that had fees that exceeded the threshold the processor sets are charged to the merchant. Creating confusion about the true cost of processing, and misleading the merchant to think they’re on a level pay.

The better alternative is to go with a pricing structure called Interchange Plus. This pricing structure is the most transparent, as your billing will reflect the true cost of processing, as well as a clearly defined margin for the processor. This means that when you accept cards with lower interchange, you see the savings from that transaction.

For a free, no obligation review of your processing statements, contact us at info@agapay.gives or by phone at (800) 644-3909.

The Durbin Amendment and You

The Durbin Amendment and You

In one of President Trump’s Executive Orders, he ordered a review of the Dodd-Frank Act. This brought it back into the spotlight and put it at the forefront of many people’s minds. The Dodd-Frank Act was legislation passed by Congress in the wake of 2008 Financial Crisis. It imposed sweeping regulations throughout the financial sector, most specifically targeting banks, investing companies, lenders and insurance companies. While there are many indirect effects of the Act on merchants and small businesses, the most apparent and direct effect was caused by the Durbin Amendment.

The Durbin Amendment specifically targets Transaction Fees and Interchange Rates that financial institutions are able to charge to businesses. The quickest summary is that it capped Interchange for most debit related transactions to $0.21 per transaction plus 0.05% on volume.

In this post, we want to speak of 3 ways the Durbin Amendment has affected businesses.

1. Lowered fees for most businesses
The Durbin Amendment was designed to help bring down debit fees for businesses. At the time of the legislation, the average debit transaction was roughly $40, and the average cost per transaction was roughly $0.44. After the legislation, these fees were reduced to about $0.24 per transaction on the same $40. This created a significant savings for many businesses, especially those with larger transaction amounts. If we assume the business does 1,000 of these transactions a month, that’s a savings of roughly $200 per month.

2. Increased fees for businesses with low transaction amounts
While many businesses benefitted from the changes in debit fees. There were some businesses who actually saw their fees increase, a lot. Prior to regulating debit interchange, banks would average the cost across different sectors, charging higher fees for some industries, and lower for others. For businesses with small tickets (transaction amounts under $15) they would pay as low as $0.04 per transaction and 1.55% on volume. For a $5 transaction that would mean a fee of $0.11. When the legislation took effect, the issuers starting charging all regulated transactions the legal maximum of $0.21 plus 0.05%. Now the fees on the same $5 transaction are $0.22. If we assume a business does 1,000 transactions, that’s an overall increase in fees of $95 per month.

3. No more freebies
Prior to the Durbin Amendment, many financial institutions would offer free banking services and they offset the cost through income off of payments made with debit cards. This income was generated by charging businesses steep fees for accepting debit transactions. The Durbin Amendment cut this income in half for many financial institutions. This resulted in huge amounts of lost revenue for banks who then had to make up that income in other ways, meaning a lot of free services were no longer free or had more restrictions. Account fees and penalties also went up significantly, especially for businesses.

With the review that was ordered, it remains to be seen what changes are likely to come. At this point only time will tell.

Processing Fees: They’re Deductible

Processing Fees: They’re Deductible

Tax season is here, and with tax season comes financial statements. If you have a merchant account, it’s very likely that you will soon be receiving your IRS form 1099-k from your processor. In a recent blog post we spoke about  what  the 1099-k is, what they show and what they don’t. Since the 1099-k only reports gross payments we wanted to discuss some of the ways you can reduce your tax liability from this income by deducting some of these common expenses:

Credit Card Processing Fees

All of the fees paid on your merchant account are deductible. Interchange, transaction fees, monthly fees, etc. Since the 1099-k reports unadjusted gross sales, you can reduce this amount by deducting any fees that were paid during your fiscal year.

Credits and Returns

It’s inevitable that most, if not all, businesses have processed a return or refund on a credit card processing account. As the amount reported on the 1099-k is not adjusted for credits, refunds or returns. These transactions reduce your income and are deductible.

Chargebacks

Nobody likes chargebacks. They’re costly, they come up suddenly, and they’re a pain to resolve. One good thing about them is they’re deductible. Since the money is a loss on your part, you are able to deduct it.

Equipment & Software

As Point-of-Sale systems are a business purchase for the purpose of accepting payments, all or part of the expense may be deductible. Software and online services used to accept credit card payments can also be deductible. On these it may be best to consult with your accountant.

While these expenses are deductible we would advise that you speak with your tax professional on how best to report these expenses.

To get industry updates and useful insights into your merchants accounts, subscribe to our blog. For questions or suggestions, contact us at info@agapay.gives.

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