By Arman Patel
For this instalment of Point of View, we asked Arman Patel, executive director of Flowers Canada Retail, to talk about merchant fees and how florists can calculate the fees to effectively determine what they are actually costing them each month.
An issue that is just now getting more attention in the floral industry is the escalation of credit card fees and assessment surcharges. The floral business model depends on credit cards and as merchants, it’s important that you understand and monitor your merchant services program. It is really quite simple, and, as business owners, you owe it to your shop to review these charges annually.
Merchants are always being told that they can get a super low rate on Visa or MasterCard, for example, that is below 1.60 per cent. Usually it is offered at, say, between 1.55 per cent and 1.59 per cent. There’s nothing wrong with getting a low rate, but here’s where the problem comes in. The actual net cost to process a standard credit card transaction in Canada is 1.54 per cent plus the fee from the credit card of 0.064 per cent. This adds up to 1.604 per cent. Now, as a business owner, you know that you can’t sell things for less than you buy them for, right? This means that if you see published rates lower than 1.604 per cent, the fees will be hidden from you or simply buried in the legal jargon in your contract. This is standard practice in the merchant processing environment. Credit card companies do this by charging you high non-qualification fees that occur when a customer pays you with a credit card that they collect points with. These fees also occur for all credit transactions that are deemed as “card not present” as well as for corporate credit card transactions.
Virtually every credit card today is affiliated with points, loyalty rewards or other incentives, and as a merchant you end up paying for them. The basic rate rarely applies. Forget about the low rate offers that still somehow seem to add up to big fees at the end of each month. As an industry we must educate ourselves on the real calculation of our merchant costs.
How can you do this? You need to do the math. The only rate you should be focusing on is the one rate that truly tells you what you are actually paying each month. This is called your Effective Rate. To determine this, just deduct the monthly cost of your terminal rent or lease payment from your total fees paid. Then divide this new net total processing fee figure by the total volume of credit card transactions performed in any given month. Multiply this number by 100 to establish your true Effective Rate percentage.
There are several fees that impact your Effective Rate. Which fees should apply and how high should these fees be? There are actually several rates:
Debit card rate: This is the most inexpensive way to have a patron pay for your products or services. It should be a flat single fee of six cents or less. Don’t be misled – some processors will tell you that you have five cent debit rate while charging you an additional 25 basis points (in most cases) on the volume of the transaction. In some cases, we have seen this cost merchants 26 cents a transaction or more depending on the size of the transaction processed. Debit transactions get deposited into your account faster, which is better for your cash flow. There is no possibility of a chargeback occurring with a debit card transaction.
Standard credit card fees for Visa or MasterCard: When you accept a credit card with no loyalty or points program attached to it a standard rate will apply. What matters is this: what is the total cost that you pay each month as a percentage of the total volume of transactions processed?
It’s also important to understand what the terms in your contract really mean:
What is a corporate card? This is a credit card that has been issued in the name of a business. For example, Bob Smith has a personal credit card and also has a credit card issued in the name of his business, Bob Smith Flowers. Both do the same thing, but are identified by the credit card company differently, and have different fees.
What are non-qualification fees? These are fees charged as a surcharge on top of your standard rate fee. They generate revenues to pay for loyalty card and points programs. Some non-qualification fees are levied as “high spend” fees and this occurs when the card-issuing bank flags a cardholder performing more than $25,000 per year on a credit card. Once the card is flagged as a high spend card, this card will always have a non-qualification surcharge of at least 0.54 per cent on every single transaction. That fee will then have an additional margin attached to it.
As your industry trade association, we encourage you, as merchants, to examine these fees for yourselves and see the potential for real savings.
Point of View appears regularly in CF and offers our readers the opportunity to hear the perspective of other industry members. If you would like to suggest a topic or be part of the Point of View column, please contact Sue at
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