Who Is the Cheapest Credit Card Processor?

 In Business, Video

One question that was going through my mind quite a bit here lately is a question that gets asked a lot in our business which is:  Who is the cheapest credit card processor?

That question is kind of a loaded question, because in my business, having been in it now almost 13 years, the credit card business is very unique.  Unlike some businesses it’s not something that can be answered simply such as ‘who has the cheapest hamburger?’  That’s easy to find out by just going around town to different stores.  And if you offer to buy 1 or 100 hamburgers the price is still the same for each hamburger.

But instead, the credit card processing business is more like: ‘Who has the cheapest pencils?’  Merchant services are more like that if you think of it in that sense.  Because if you go to Office Depot or you go to Staples, they’re going to give you a set of pencils.  And when buy the pencils and it’s maybe a five-pack of pencils or so.  Maybe it’s $3 for a pack of five, which is 66 cents per pencil. But if you go to Costco and you go to Sam’s Club and you buy a much bigger pack of pencils, then you’re going to get lower cost per pencil.  Maybe you can get 100 for only $20, which is 20 cents per pencil.

The same thing happens in the merchant services business.

Alternatively, it let’s say you go to a manufacturer and say I want to buy a thousand pencils from you then they’ll give you an even lower cost per pencil, such as maybe $100 or 10 cents per pencil! The same thing happens in credit card processing because what happens is, it’s all about volume.  If you want the lowest and the cheapest credit card rates out there, how much volume will you bring that processor?

So volume is the big factor.  If you bring a lot of processing volume then we can get a much better rate from Visa & Mastercard, and that’s basically how the rates work.

Now, I will say if you’re just measuring it based off of the flat rates and the flat rate processors then yes, you can easily determine who has the cheapest credit card fees and who has the cheapest rate.  Because Square charges 2.75% of you if you swipe it and 3.50% if you key enter it, plus 10 cents per transaction. PayPal charges 2.9% for everything across the board.  I think Stripe is right around in that area as well. They charge over 2.9% in fees with an additional 30 cent transaction fee.  Those are the flat rate processors, as we call them.

The problem with flat rate processors is they don’t give you rates based off of the Visa / Mastercard interchange rates, which is the base cost for every processor out there.  And by following the interchange rates, I can tell you that at First American we can get most debit cards at less than 1% for our clients!  So if you were to call up my company at First American we can get you much better rates on debit cards than any of the flat rate processors like Square, PayPal, and Stripe. Amazon even has a credit card reader now that’s in that same price range.  But since we mirror the Visa/Mastercard interchange rates we can get most debit cards at less than 1%, and our clients know that they can save a massive amount of money that way.

So on debit cards, the Visa MasterCard interchange rate is less than 1% on most debit cards.  Most processors don’t tell you that though.  The Square’s, the Stripes, the PayPal’s, they are charging you well over 2.5% on every single card and that’s a flat rate.  So don’t be tricked by the flat rate processors out there like Square, PayPal, and Stripe that are charging you well over 2.75% percent even sometimes 3.5% percent on most transactions when we can get less than 1% on most debit cards, and that’s what you want.  Because we leverage not only your volume to give you a better price and give you the best rate out there, we also mirror the Visa Mastercard interchange rates.

You want a processor that’s going to give you rates that follow the Visa Mastercard interchange rate system.  And if they do, then it’s all about volume.  Also known as Interchange Plus pricing, a processor that mirrors Visa MasterCard interchange rates, then from that point it’s just a matter of leveraging your volume to get the lowest rate possible.  Preferably as close to that interchange rate as you can.  And processors will do that based on your volume.

So when you think about Walmart, Costco and McDonald’s and you think about these huge conglomerates that are processing millions of dollars, and millions of transactions in volume, they have the absolute best rates.  Those companies are able to leverage that volume and get tremendously low rates to the point where they’re practically paying the interchange rate fees and that’s it.  And as a business owner, that’s what you want.

But steer away from those flat rate processors because that’s where you get taken advantage of and that’s where they really make a lot of money.  Because I have customers literally that have 70 to 80% of all their transactions that are debit cards.  And for them to pay 2.5% to 3.5% on those transactions, they’d be paying WAY TOO MUCH.  And in that situation, you’re paying more than you really need to as a small business owner.  Just do that math.  If you’re paying 2.5% to 3.5% on all debit cards, let’s just say best case scenario 2.5%, because that’s as low as those flat rate processes will go; If you’re paying 2.5% on those, but First American will get those debit rates at less than 1% for you, that’s over 1.5% that you’re saving!  And you might think, “well that’s not very much.” But believe me, that adds that up over the course of time, and over the course of months and years, you’ll end up paying $1,000s more in fees.

Example 100 debit card transactions at $20 each = $2,000 total volume
Square – 2.75% + 10 cents per transaction = $65 in total fees
Stripe – 2.90% + 30 cents per transaction = $88   total fees
First American –  0.90% + 30 cents per transaction = $48 total fees

If you take a full percentage point or a percent and a half and you multiply that by thousands and thousands of dollars, or hundreds and hundreds of transactions, that comes out to a lot of money for your business. So don’t get tricked into the flat-rate credit card processors out there, like Square, PayPal’s, and Stripe. Because not only are they going to give you a flat rate across the board where you end up paying A LOT MORE but also from a customer service standpoint you’ll take it in the shorts.  Because the truth is, for years you couldn’t even call them.   I know businesses that have processed with them and if they have a problem or an issue, and they’ve had a very difficult time contacting them.  Typically you have to email them and hope they get back to you.  I’ve been on Square help forums where people have complained about missing transactions or missing money, and they can’t get ahold of anyone!  It’s like trying to contact Facebook.  Have you ever tried to call Facebook?!  It’s impossible! You can’t even call them.  These huge companies, you know Nike or Amazon.  So that’s the great thing about going with a regional processor like First American.  Our customers have our cell phones they can call or text us anytime 24/7.

Because not only are we going to:

  1. Give you less than 1% on debit cards and cut your rates drastically across the board which is first and foremost.  But also…..
  2. You get fast FREE cell phone support to where you can call or text us anytime night or day.

Our customers have our cell phones.

And they love that they can literally text or call us anytime they need us and that’s what makes us very unique very different.

In fact, I don’t know ANY processor that offers the level of service and SPEED that we do to our customers.  And for our customers that are nearby us and local, we also offer free on-site support within an hour and I don’t know any processor actually that offers that in our business. So those that are local and in the Midwest get that extra benefit as well.

So just keep in mind these things, when it comes to “Who is the cheapest credit card processor out there?” or “Who is the cheapest merchant services provider”?  It’s about volume and whether they mirror the Visa/Mastercard Interchange rates.  And steer away from the flat rate processors because it sounds simple.  Don’t get duped into thinking, ‘Oh I’m going to go with Square because they’re a little lower than Stripe or Paypal.’  Because they are killing you on debit cards!  Processors like First American can crush these rates when the Visa Mastercard interchange rate is less than 1% on those cards!  So just be careful out there, you heard it from us directly.

And if you have any questions or need any help, feel free to reach out to us. We’d love to help in any way we can and we love to help you save that money and put that back in your pocket.  Because just imagine saving 1% or 1.5% multiplied by thousands and thousands of dollars or hundreds of transactions.  That can come out to $10,000s of dollars in fees a year that you pay!  What could you do with that money?  I mean if you could save to $10,000 a year in credit card fees, that’s a lot of money!  Just imagine what you could do with that in marketing, just imagine what you could do with that with more employees, with better staff, with better service,s with better products, or better equipment. You could help launch your business to the next level!

And with our new Cash Discount method, we can even help companies eliminate their credit card fees COMPLETELY.  I have a bakery client here in town that is saving $1,000s in fees per year through our Cash Discount Program.  Because utilizing that program, we’ve been able to set it up where they don’t pay anything, by collecting that fee upfront.  You may have seen stores that do this.  They charge an extra 3 or 4% percent on every single transaction.  And it’s becoming more widespread and acceptable.  Lots of companies are moving towards that.  And that’s a whole other conversation that I’ll talk about in future podcasts and future blog posts. Or feel free to contact us if you’d like to know more.

But don’t get duped into paying those flat rate processors!  They’ll get you every time especially on debit cards, which frankly is one of the fastest-growing forms of payment in the country.  Debit cards are basically replacing checks in the marketplace.  Gone are the days of people using their checkbooks all the time.  That’s because of the rise of debit cards.

In addition, make sure you leverage your volume to get the best rate you can.  And that’s how you get the cheapest rates and the credit card processing business.  Again, I am Adam Roberts. Feel free to reach out to us anytime at amroberts@firstamericanNE.com or call our office directly at 402-261-6700. Thanks again for checking in with us and God bless.

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