¶ Introduction to Credit Card Processing Fees
Today on the podcast , we dive into the wonderful world of credit card processing fees with Patrick McClellan from Merchant Cost Consulting . Patrick's firm is able to save clients , on average , about 20% on their credit card fees and if you do the math on that , it can be a significant sum .
We talk about the main components of these fees , how to identify hidden or unnecessary charges , and we talk about how Patrick can help you negotiate with existing processors and get better rates . So for now , please enjoy this conversation with Patrick McClellan from Merchant Cost Consulting .
Welcome to the Craft Brewery Financial Training Podcast , where we combine beer and numbers to provide you with tips , tactics and strategies so that you can improve financial results in your brewery . I'm your host , kerry Shumway , a CPA , cfo for a brewery and a former CFO for a beer distributor .
I've spent the last 20 years using finance to improve financial results in our beer business . Now I'm helping other craft breweries to do the same . Are you ready to take your brewery financial results to the next level ? Okay , let's get started . Just a quick note . We'll be right back to the podcast .
I want to let you know about a new network for beer industry professionals . It's called the Beer Business Finance Association . It's an organization of financial pros just like you , looking to improve financial results , increase profitability , connect with your peers and share best practices . So I'd love to tell you a little bit more about this .
If you are interested in learning more , please email me , kerry , at beerbusinessfinancecom . That's K-A-R-Y at beerbusinessfinancecom . Or you can visit bbfassociationorg . That's bbfassociationorg . To learn more . Hey , patrick , welcome to the podcast . It's good to see you this morning . You as well , cary , thanks for having me . Absolutely so .
We're going to talk about the wonderful world of merchant card processing , credit card processing and dig into all the details , but why don't you give us a little background on you and your company ?
Yeah , absolutely so . Again , I'm Patrick McClellan . I'm the Director of Business Development here at Merchant Cost Consulting and we are a cost reduction and consulting firm here out of Boston , massachusetts , and we help businesses to reduce their credit card processing fees without actually having to change from their current vendors .
Me and my team we actually used to work for a processing company here in Boston and we kind of learned the ins and the outs of the business and the industry and fortunately we saw that there's a lot of unethical sales tactics and business that's not in the industry .
So that's why we decided to flip the script to help businesses get a better understanding of merchant services , what they're paying and why they're paying different fees and hopefully save them some money along the way .
I love it . That's great and that's one of our missions here at Craft Brewery Financial Training and Beer Business Finance trying to save people money , particularly in areas where it's not going to impact the customer experience or impact the business . Negative , Because you always think about cutting costs , is usually you have to give something up , right .
But in this way all you're doing is identifying an existing service and trimming those costs back a little bit . So I love that .
¶ Merchant Cost Consulting's Approach
Why don't you break down kind of the main components of those fees and where you see merchants often overpay ?
Yeah , so typically with our process and how it starts is we audit and we take a look at a recent merchant statement from a business and that way we can do an analysis . We go through it line item by line item and we identify there's a few different areas where we can save a business on their money and we would categorize it into three pillars .
You have the interchange charges or the charges from the card brands , so Visa , mastercard , discover and American Express . Depending on the type of card that's taken , they have different fees associated with that . Some processors pad those or there could be surcharges added onto those . So we want to make sure that those all align .
And then there are markups from the processor . So there's usually a percentage and a per transaction fee where the processor makes their money . We want to make sure that those are in line with the industry that they're in , that we essentially know what the fair market value is and really what they should be paying and just making sure it is something competitive .
And then there's all sorts of other miscellaneous fees , whether it be surcharging or just add-on fees that the processor can put on , and we essentially know which fees are bogus , which are not , which should be on their account and that's where we can come in and just make sure that the business isn't overpaying in different areas , because when you take a look at
a merchant processing statement , there's so many different line items , it can be very convoluted and it's almost like it's done on purpose it's to confuse the business , so it's tough for them to figure out what exactly they are paying and why .
Yeah , I would think so . You know , it's interesting , as you were saying that I'm like is that something that customers regularly get ? I mean , is this like what ? Does it come in the mail ? Is it emailed ?
Is that like a routine I'm just trying to think of when I've actually seen a merchant processing statement , you know , do they send it or do you have to ask for it or go find it ?
Yeah , so I mean it is a back end expense , so it's definitely something that's not looked at all of the time and it depends . It depends on the processor . Sometimes they do send it in the mail . I know that the businesses that I deal with they typically just like any sort of your cable bill ,
¶ Breaking Down Credit Card Processing Components
your insurance bill , usually goes right in the trash . Some processors they do give you the ability to obtain the processing statements on an online portal , but you'd be surprised that a lot of businesses don't even know that they have that capability of doing that right .
Exactly I would . I would think that would be . Step one is know that , you know it's out there and then figure out how to find it and then , yeah , get to the point of untangling . What the heck does this thing even mean ? It's got all these line items .
Take us through , um , so we you know our audience is is primarily breweries , and you know they'll have some sort of point of sale system , um , and maybe take us through this sort of bundling or unbundling , like a lot of point of sale systems have their own , like processing fees kind of baked in or or they kind do it together .
Maybe take us through how that works .
Exactly , yeah . So a lot of the POS systems are kind of transitioning , where they're doing the processing in-house , so they're the one-stop shop , and they're providing the whole solution , whether it be the POS system , the actual processing itself .
So they're providing the equipment , the software and the processing , but with that there can be some added or additional costs . It definitely does make the business's life easier in terms of just having to deal with one vendor as opposed to many different other vendors and bringing them all in together .
So that way it definitely does make sense and it's becoming more and more popular as these software and POS companies are starting to do their own processing .
Gotcha . And are you , are you able to run your same , your same process whereby you do that audit and analysis ? If someone has a processor that's , or a point of sale that's a one-stop shop , like how would you , I guess ? Yeah , you can unbundle it yourself .
Yeah , exactly . So we don't want to impact the relationship between the , the pos company , the , the processor whatsoever . So with our services it doesn't affect those relationships whatsoever . It's just making sure that the business is being priced fairly . And that's where we come in and try to find those inefficiencies or just areas for improvement .
But yeah , we don't want to have them to change anything on their end whatsoever . So with our services , the business would keep everything the way that it is , so their system remains unchanged .
Got it . And when you say priced fairly , how are these things usually priced ? Is it based on volume , I would assume like the bigger volume or are you able to negotiate kind of just on a basis of you see kind of what other comparable companies are paying , or how does that work ?
It's interesting because there are just there's so many different variables that come into play and how a business is priced .
It could depend on just the sales rep , whoever is setting the account up and signing the account up , because essentially it's the processor's job , or these reps job to charge the most amount , because that's what puts the most amount in their pocket , and just because of that .
That's where the unethical sales tactics can come into play and the hidden fees and all of the different pricing increases . So that's where there could be a brewery you know A and you have brewery B , right down the street from each other . They're using the same processor , but once they could be on completely different pricing structures .
One could be priced you know where they're paying , all in 2% , and the other one could be paying 4% . It just all depends . There's really no rhyme or reason . But that's where the businesses that are overpaying we want to make sure that they're getting that fair market value and they're priced competitively with other businesses in the industry .
Gotcha and are you able to ? Do you guys have like benchmarks or an actual understanding of what market rate should be Like in that example ? I mean , if you were able to , how does that work ? How do you identify if somebody's out of spec and paying too much ?
Yeah , exactly so .
We use our data and analytics and that's where we essentially know that , based on the business and the industry , that they're in their monthly volume , their per ticket item , what types of cards they're taking , whether it's primarily consumer cards versus business cards or versus high-end rewards cards , and that's essentially the information that we have on our end that
we can bring to the processor and that's where we know that they should be priced at . And that's , yeah , exactly what we kind of use as the benchmark .
Gotcha ? Do you help at all with or get into like what cards if one of your customers should accept or not accept ? I know a lot of times it's like , oh , we don't take American Express or whatever . Do you get into that at all ?
We definitely have helped customers , or at least giving them the knowledge saying , hey , if you have the ability it's tough to tell a customer saying , hey , can you please use your debit card versus the card that has all the rewards , because people want to use that so they can get their flyer miles , their cash back , want to use that so they can get their
flyer miles , their cash back . But for the business , if they take a majority of debit cards , the debit card is going to be the least cost of processing . It's the least risky transaction because the money is taken right out of their account and especially if there's with a debit card , you have a four-digit PIN number .
So if you give them the ability to enter in that four-digit number Again , it's even less risky , which in turn is less expensive , Whereas you have your American Express cards . American Express is kind of a different beast in the payment processing world , where they have all the rewards attached to them . Therefore their costs are a lot higher .
So it's the same with Visa and MasterCard . You have the high-end end rewards cards and they're not the ones that are paying for those rewards . That's where they pass along to the merchant . So that's why you may see that some businesses don't accept american express at all because of their higher costs .
Um , but yeah , it can be tough for a business to dictate which card their customer is going to be using . But if we can at least give the business the knowledge in terms of the differentiations between the types of cards and what their charges are , then I'd be obviously want to give them that leverage .
Gotcha so do you have a sense I mean , I imagine you have a data on this but on average , like how much you're able to save customers , or do you have any examples of clients you've worked with that you go in and you've identified savings , and what does that look like ?
Yeah , I would say . In a hospitality industry , our average savings is about 20% on their all-in fees . So that's where they're , whatever they're paying . We call it their effective rate . You can get your effective rate by taking the total fees you pay and dividing that by the total sales , and that's what we're usually able to reduce that by 20% .
All in Sounds pretty impressive . I like that . Yeah , there can just be there Again . There's so many different areas for improvement , whether it's just renegotiating the contract itself and just areas for optimization . Got it .
All right . So step one is understand what your fees are . Get that , got it All right . So step one is you know , understand what your fees are , get that statement , get all the details . Step two is you know , send it to you guys . You do the audit and analysis , identify , you know areas where you can , you know , save some costs .
And then what happens next ? You have to negotiate with who . What do you guys do at that point ? If , like , you get in and you say , all right , we can save this , this and this , how do you actually achieve those savings ?
Yes . So the business is interested in utilizing your services , assuming we found that there are savings to to be obtained with their processor , they they would engage with our services , which would then give us the ability to contact the processor on their behalf . So it's very little legwork on their end . We
¶ Point of Sale Systems and Processors
take care of all that doing the renegotiating , having the conversations directly with the processor and bringing our data to them and saying , hey , we know what they should be paying , we can reduce these different areas or remove these fees from the account completely . So we're kind of working with the processor directly .
So it's again it's not affecting their businesses day-to-day operations whatsoever and it's not a , you know , time consuming for them either .
Gotcha , and do you find that there are times where you have to recommend , like switching providers entirely , or is that part of your process ? So if you're doing the negotiation and let's just say the merchant processor is not budging , and how , how might , how might you go about that ?
Yeah , I mean there could be the instance where , for whatever reason , the processor just does not want to adjust their pricing . They think that they are at that fair market value . When they take a look at their margins it's already summing up so they can't make the adjustments .
If that is the case , we want to tell the business saying , hey , you're actually in a good spot and we initially , during the initial audit , we'll tell them that they are priced competitively and our services may or may not be a good fit . Initial audit will tell them that they are priced competitively and our services may or may not be a good fit .
But then at that time , if they want to make the switch , we do have relationships in place with processors or knowing the industry , what other businesses , what they're using . But again , just changing processors can be difficult .
It can be time consuming , there's a learning curve with everybody trying to adjust to the new POS system , entering in all the menu items , and there could be an upfront cost for new equipment . So it's not really a bread and butter . We don't encourage to make the change just because of the time and cost component of it .
So obviously that's why we want to take that headache away from them . If they don't have to change it , we can still save them money . Then that's where we want to try to help .
But if the business has outdated equipment or they're just again their processor isn't willing to make the changes and they're still being overcharged , then we want to obviously make the recommendation saying hey , if you were to switch processors , this is what it would look like from a savings standpoint , so it may be worth it .
Gotcha . You know we're all familiar with the credit card brand names . You know Visa , mastercard , american Express , discover , on and on . Who are these processors ? I hate to say they hide in the shadows , but how many of them are there ? What are they banks ? I'm not even sure I know what . What are they banks like what ?
I'm not even sure I know what , what role they play , where they come from yeah , I mean there's , there's thousands .
To be honest with you , it's they . They really start at the , the bank level . So you know , you have your wells fargo and they're the , the processing bank , and then there's different types of companies . You have global payments , heartlands , um , just to name a couple , and then , yeah , the banks do the actual processing themselves .
And then you have independent sales offices , which are smaller mom-and-pop shops . There's so many different types of processors out there , but especially in the brewery and the hospitality industry , you have toast as a big player , which we see a lot of them . So , yeah , there's a lot of them out there .
It's tough to distinguish who are the good or the bad guys , but , yeah , that's typically where we just try to follow different trends . If we're seeing that there's , you have your processors or POS providers that cater to specific industries . That's where we want to kind of make sure that they're set up correctly and kind of aligning with their industry as well .
Gotcha . One of the other issues I guess surrounding this processing business is like the time to actually get the funds . Is that standard or how does that work ? So I come in , I buy a beer , swipe my credit card . How long does it take to actually get that money in the bank for the brewery ?
It should be 24 to 48 hours . Better processors do have the capability of setting you up with next day funding . It's of no charge to them but sometimes they do charge the business for having that next day funding as kind of a benefit to them to get their money faster . But essentially there are a lot of processors out there that do not charge anything .
But it should be next day funding , or the next business day at least .
Gotcha , and is that part of your audit or analysis ? Do you kind of go in and see how fast the money is moving , or is that outside of what you guys do ?
No , we absolutely help with that process . So if that's a concern for the business and saying , hey , the turnaround time to get our money is taking much longer than we anticipated , we'll help to get them set up on that next day , funding making sure that there is no cost associated with it .
Gotcha Okay . Are there any processors that you can't , for whatever reason , audit their statements , or are there certain ones where you typically would find more savings ? In other words , are there processes like oh yeah , I know typically where these guys are overcharging , or this process , they're usually very competitive .
Square is probably their payment facilitator and in order to have a conversation around pricing with them , they like to see a sales volume threshold . So a business typically has to be doing over $100,000 in sales volume per month for them to even have a conversation around the pricing .
So that's one that we haven't had a ton of luck with , but their pricing is relatively competitive . Toast has been a little bit more difficult lately in terms of having conversations around their pricing as well . That actually just started within the past few months . Could just be a pause on that just again to get their strength in numbers back up .
But again , we've had plenty of success with Toast in the past and hoping to regain and making sure that businesses are price appropriate with them .
You mentioned earlier , we've got the three main fees . I think if I get this right you can just correct me if I say it wrong but interchange charges , markups for your processor , and then there's miscellaneous fees , add-ons , and you said there could be some bogus charges in there . There's an ancillary charge .
Are you able to give examples Like what sort of charges might you find that you're like oh yeah , that shouldn't be there , that shouldn't be there , a big one
¶ Negotiating Better Rates
is a non-PCI compliance fee .
So , businesses , if you're accepting cards , you must complete what's called a PCI or payment card industry compliance survey , and it involves basically completing a survey making sure you're storing your credit card information legally and securely and you're not just writing a credit card number down on a notepad and a lot of businesses just it , something that is
time-consuming . A lot of businesses don't do the survey , don't even know they have to complete the survey , don't know what PCI compliance is , and because of that there are a lot of add-on charges , both monthly , quarterly and annual fees , especially if you're being non-compliant .
So that's just one of those fees that we want to be able to call out and help a business become compliant , to remove that fee completely . And then again , it does depend on the processor and who it is , but some processors charge non-EMV assessment fees or risk assessment fees . They almost call it different processors .
Call it whatever they want it to really , but it's just a surcharge at the end of the day , making themselves more profitable .
That's amazing . There's like little opportunities hidden everywhere .
It really is . And that's what makes those statements so difficult to read is because it's tough to figure out saying , hey , this is an actual fee , that is , you know , passed along from the car brands , or this is just a line item that they they just made up again to to make themselves more profitable .
What are the responsibilities of the ? I'll use the example of , like a tap room for a brewery . You know you're taking credit cards presumably . You know you take the card , you swipe it , you know , tap it , whatever , what ? Where does that data live Like ? Who's ? Who's responsible for sort of the protection of that customer's data ?
So it's . It's both on the business and the processor side . So it's both on the business and the processor side . You know you want to make sure that you have a safe and secure internet system . You know your Wi-Fi , everything is protected that you don't have . You know every single person in the business has access to different things or different backend systems .
You know , into the portal you want to make sure everything is password protected and same with the portal . You want to make sure everything is password protected and same with the processor . It's their job to make sure that everything is running smoothly through their own gateway , that everything is very , very safe and secure . So they can't be compromised either .
So you obviously want to make sure you're using a reputable company .
Okay , and is that something you might look at for one of your customers to say all right , how are you actually safeguarding ? I mean , you're not in charge of the processor , but if you're working with a brewery , for example and maybe that goes back to the PCI compliance survey Maybe there's specific steps , checkboxes you have to follow .
What does that look like ?
Yeah , it's something we don't really have a lot of insight into . It's just not knowing how their system is really set up , what type of firewalls they have set up and kind of on that side of the business .
But yeah , again , I think just making sure that the PCI compliance is in place definitely does protect them , just in case something is compromised , that themselves as a business , that they're protected . But yeah again , and it's usually not something much of concern either , so it can be tough for us sometimes .
Something to talk to the IT company about , I would imagine .
Exactly , yeah , you have an IT person on your staff , or yeah , some some , just make sure everything is set up properly .
Do you how about contract terms or clauses , things like early termination fees , auto renewals ? Are there any of these that you see that you can help your clients navigate or renegotiate ?
Yeah , absolutely We've been able to . Even if a business is in a current contract with their processor , we still have the ability to come in to adjust their pricing again , making sure that they're paying that fair market value .
If there is some sort of early termination fee or liquidated damages or canceling that contract early , we have had the ability to lower that fee or making sure that we can shorten the length as well .
So , yeah , we've definitely had success in helping them with their terms or just at least getting them on a month-to-month agreement , which you should be with your processor . It's tough being locked into a contract with your processing company .
Gotcha . So that's part of your process . As you say , send me the contract , send me your merchant statements , and then you kind of go through and know what you're looking at there Exactly .
Yeah , it's not necessary , but it is very helpful if we're able to see the contracts , because you'd be surprised . You sign a contract at one price and you look at the statement and it's completely different . It's 2x of what you signed up for .
It's because in their fine print and the terms and conditions , the processor says that they have the ability to adjust their pricing at any time , with or without notice . So , yeah , we want to take a look at that to see where those discrepancies lie and if they are locked into a contract , which is typically in the fine prints as well .
Contract compliance is tough because , just being human nature , we don't read those contracts very well , do we ? We just sort of sign , sign , sign and you're off and running .
Exactly , it's like the Apple terms and conditions , where you scroll , click agree and you move along .
So it's very similar . How about ongoing monitoring ? Right , so you guys come in , you identify savings , you renegotiate To your point . The contract might say they can change it at any time without . What does that ongoing monitoring look like , or what do you guys do in that regard to make sure that the rates are staying competitive long term ?
Yeah . So that's probably where we can make the most impact in helping a business is because we're monitoring their statement monthly to ensure that their rates stay at that bottom line , just because , again , these processors they have the ability to change their pricing at any time .
¶ Contract Terms and Ongoing Monitoring
So we typically notice a trend where most processors will adjust their pricing towards the beginning of the year , the middle and the end of the year . So we essentially know , especially with the processor , when that is coming up . So we try to prevent that , get ahead of it for our clients .
But let's just say if we didn't know ourselves , after we monitor , audit a statement , we'll catch that increase or an added fee and then we'll contact the processor to get it removed as well as refunded . So always making sure the business is paying the least amount per month .
Gotcha , one of the hot topics that comes up pretty frequently these days is passing the surcharges on to the customer and as a consumer myself , you know you see it pretty regularly out there where it's a gas station or a restaurant or you know you name it . So I wouldn't say it's pervasive , but it's pretty darn close to that . What is your
¶ Customer Surcharges: Pros and Cons
take on that ? I know you guys have kind of like some resources and I can share that with folks as like pros and cons considerations . Um , how would you , if somebody asks you that question like , should I do this ?
how would you help them make that decision ? Yeah , exactly , carrie . So it does have a lot of pros and cons to it and it is something that's becoming a lot more popular because these processors are pushing it , because it makes them more profitable . But , yeah , it depends on the industry that you're in .
If you do have a surcharge , if someone wants to use a credit card , first you want to make sure that you have the in writing somewhere , whether it's on the receipt , whether it's at the front counter , just making sure that you have a display saying hey , if you use a credit card , there's going to be a 3% surcharge on top of that . But then it gets into .
Are you going to upset any customers ? Are they going to come back ? So you have to weigh those options out .
But if you're looking to completely cut costs and reduce your merchant fees and seamlessly and just passing those fees along to the customer but just again making sure , because there are a lot of gray areas you just want to make sure that everything is set up , it is compliant , because I know there are a lot of reps out there from the car brands that if you
are to get caught and you don't have the proper terms in place , you can be subject to a lot of fines and then being even put on lists where you can't accept cards at all in the future .
So that's the most important part is this if you're going to do it , making sure you're doing it correctly , working with your processor to making sure everything is is just set up legally , um , and depending on the state you're in , they have , you know , different terms and what you can and cannot do .
So , yeah , again , it's just , it's weighing out those options gotcha , gotcha , okay , um , and then so for your .
How does your firm get compensated ? Like , what are your ? What's the fee structure ? Because you're coming in , you're doing a lot of work , right . You're analyzing statements , you're looking at the contracts
¶ Fee Structure and Getting Started
, you're negotiating with the payment processors . How do you , if you're guiding a client , maybe take me through that process ? I'm a brewery . I give Patrick a call because I want to check this out , what happens next and how do the fees work ?
Patrick a call because I want to check this out . What happens next and how do the fees work ? Yeah , so if a business is to utilize our services , we're able to obtain them savings . We're strictly a contingency-based firm , so the only way we're compensated is by sharing in the savings that we're able to obtain for a business .
So we don't have any upfront fees . There's no monthly consulting fees . It's strictly based on the savings month over month and that's where we'll put together a savings breakdown to showcase exactly where the savings took place .
So we would show them the business , the old fees they were paying before our services and then the new fees they were paying after because of our services , and then we would list each and every line item out , showcase exactly where we were able to achieve those savings and then , yeah , we just ask for a certain percentage of that for a certain time .
Length .
Gotcha Okay . So I imagine most everybody listening to this takes credit cards , has these fees and we just sort of pay them and maybe grumble about them or wonder if we can . So if somebody is listening to this and they're like all right , well , this sounds interesting . I'd like to talk to Patrick . How should they get in touch with you ?
What's the best way to do that and learn more ?
Yeah , I think just even going to our website , merchantcostconsultingcom , just to learn a little bit more about our services , the different industries that we cater to . But it really starts with us taking a look at a recent statement and we can put together the analysis .
There's no commitment for that and there's no cost , but just to see what the potential savings look like and we can report back , just to see if our services are a good fit or not , there is the chance that we can come back and say , hey , you're priced appropriately , you're doing what you should be doing and just .
There's no need to utilize a service like us . Yeah , sounds like a no-brainer to me .
Any questions ? I didn't ask , but should any topics that you feel are important for us to cover ? No , kerry , I think you covered all the main ones . Yeah , the surcharging is definitely something that's been more prominent and something we're seeing more and more of .
But even if any listeners have questions just around credit card processing , merchant services in general , I'd be more than happy to just have a conversation around anything , just because it can be a complex industry with a lot of moving parts .
Absolutely Well , Patrick , this has been great , great information . It's funny . You dig it . You take what is what is a relatively , I think , straightforward and simple fee , and then you break it down . You're like that's not straightforward , nor is it simple , and there's lots of ways to maybe save some money .
So I appreciate you sharing your time and knowledge with us today Absolutely . Thank you so much for having me , Kerry . I really appreciate it .
Thank you for listening to the Craft Brewery Financial Training Podcast , where we combine beer and numbers so that you can improve financial results in your brewery . For more resources , tools , guides and online courses , visit craftbreweryfinancialtrainingcom and don't forget to sign up for the world-famous Craftbreweryfinancialtrainingcom .
And don't forget to sign up for the world-famous Craft Brewery Financial Training Newsletter . Until next time , get out there and improve financial results in your brewery today .