How To Master Your Merchant Account
How to Master Your Merchant Account
In today's online world, a merchant account is about as important as a bank account. But if you don't know how to use a merchant account properly, and work with the provider, life can get very uncomfortable quickly. In this episode a special guest talks about the what you need to know to keep the electronic payments rocking into your bank account!
Quick Guide to Merchant Account Success
- Don't over inflate your current charging levels. Risk management uses current levels to know what rules to put on your merchant account. Be accurate.
- Review your revenue growth with your merchant at least quarterly. If you're growing fast, review more frequently.
- Remember that your business is a risk to the merchant account provider. Keep the communication channel open to avoid undesirable surprises.
Transcription of Episode
Ryan: [00:00:00]Hey, this is Ryan Chapman with Fix Your Funnel, and in today's How to Fix Your Funnel podcast, we're actually going to be talking about a very important topic and that is the money. How do we get the money? Frequently in todays market, especially if you're using a product like Infusionsoft where we're collecting that money through a merchant account; if we're using something like Shopify, maybe we're using Shopify payments or something like that or Square or Stripe or a number of different options that are available out there. But all of these have different advantages and disadvantages and today our guest is Tyler Chapman. He's actually a very close relative of mine. He's my brother. I'm number 1 of 13, Tyler's number 10 of 13, right Tyler?
Tyler: That's right, number 10.
Ryan: So [00:01:00] actually I was out of the house by the time Tyler was talking. So we actually never got to live together, but we're still very close. In fact Tyler worked for my company, Fix Your Funnel, back when he was 18 so, a long time ago, but we gave him a little bit of knowledge and experience back then. Now he's working for a big large corporation, one which he is not allowed to disclose because we're gonna be talking about some pretty sensitive information about Merchant accounts. So I'm not allowed to give any more clues than that, even though I'm very highly tempted to. But for the sake of Tyler's employment and career, we will not disclose that.
Tyler: That's right.
Ryan: So Tyler when it comes to Merchant accounts, I mean for many people at least my experience has been that when I got the merchant account it seemed like the person setting up the merchant account was much more interested in getting the account set up than explaining to me things that I needed to know in order to protect my own business as well as to understand, you know, how they were going to [00:02:00] be acting as a merchant. And, unfortunately for many people, they don't learn exactly how Merchant accounts work until something's gone terribly wrong.
Tyler: Right, yes.
Ryan: So what are some things that you feel like businesses should know about merchants, like these processing companies, to better understand how they can protect themselves while also respecting the fact that there's risk that the merchant processing company takes on as well.
Tyler: Yeah. No, I think that's a great place to start. When you look at it from a from a perspective of just the business. I think you miss out on understanding what's expected now on your relationship when you're getting an account of being processing credit cards, right? Sometimes you look at it as, hey, I'm paying you a percentage fee or hanging monthly fee with a percentage fee. Just give me my money, you know, don't ask any questions about it.
But in reality there is a lot more depth to it on the merchant account side than a lot of sometimes strict requirements that, if they're [00:03:00] violated, even unknowingly, by the merchant, you as a business, you can lose the ability to cross the transactions and be down a few days, which, for a lot of us, is a pretty big deal. So yeah, let's definitely talk about, let's just start there, and talk about some of the risk that a merchant service provider is taking on. Right? And then understand why then there's some requirements that they're delaying out for you.
So, in the credit card process, Ryan, when you sell a product or a service online and the customer comes in and makes that purchase from you, the merchant service is provided there, helping facilitate that communications with the customers thing and then they make sure everything checks out there that sometimes, and depending on the security settings you'd like them to put in place, they'll verify the billing address the card code and do the checks there to make sure everything looks good for you to help prevent any potential fraud from hitting you guys as a business. And once they've done that side of things, they're going to go ahead and settle out that most [00:04:00] transactions at the end of the day and say, "hey, thanks, go ahead and send over that money that we got off trace with you earlier today." And then they'd help facilitate in the funding of those transactions into your bank account.
A lot of merchant service providers do next day funding, some might take three or four days, just depending upon your set up with that that provider. So that's a big thing to keep in mind is they're the one's touching the money and moving the money around, and as a result of that they're taking on some risk and let's touch on that risk.
Let's take an example where you provide a product or service and either it's someone fraudulently stole a card to purchase the product or service, or the person was unhappy with the service or product, or just for the heck of it, they decide to do a chargeback against your business. It's something that every business owner has dealt with at one point or another, some more than others, right, and a chargeback essentially means [00:05:00] the customers bank is going to go ahead and talk to the merchant service provider and say, hey, hand over the money for this transaction, the customer's disputing it.
The merchant service provider, regardless of how the legitimate the dispute is or not, has to immediately hand over the money out of their own bank account, right, and you as the merchant may not even be aware of this during this whole process while tapping the first initial there too. And the merchant service providers then, of course, after handing over, whether it be fifty dollars or a thousand dollars or more, whatever the amount in dispute is, they hand over that money and now they're going to be reaching out to the business and say hey, a charge back just happened and we want to take money out of your bank account first off to cover it. And now you have to deal with providing us the documentation we need to help fight this with you, so the issuing bank said, no, the merchant Is the right, go ahead and return the funds [00:06:00] back to the business.
So that's the chargeback process. That varies over your perspective on it. With that whole process happening, as you can see, Ryan, there's a possible risk factor there for the merchant service provider if they go to your bank account to try to get that money and you don't have the funds to cover the charge back. So there's a huge risk factor. Sometimes merchant service providers do things like setting limits on how large your actual transaction can be, right. So if you're gonna sell that fifteen hundred dollar product, you have to be approved from the get-go with your merchant service provider for that amount.
Ryan: Okay. So let me let me interrupt real quick for a second there just to tie this all in for people that maybe haven't been through this experience. So, in the event that something's not going right, the merchant account services provider can basically shut down your merchant account and just say, okay, you don't get to charge anymore, [00:07:00] which is essentially for credit card based businesses, you know, businesses that primarily take their money electronically, that puts you out of business right there. So it would be the equivalent of someone just stealing your bank account for those days or whatever. So that's a pretty...
Tyler: Just going off your website.
Ryan: Yeah. It'd be a pretty big deal. Now, normally Merchants don't do that unless there's something really funky going on. More typically what they'll do is they'll start to implement their risk management rules, right? Which, say, if you're billing $10,000 a day, we're gonna take a percentage of that and set it aside for six months as a protection against these chargeback opportunities. But there are things that have to trigger that, that's not normally done by default. By default normally, if someone is going to pay you via credit card a thousand dollars, they're going to give you that thousand dollars minus their percentage and fees, right?
Ryan: But there are things that can trigger [00:08:00] risk management rules inside of a merchant processing provider that will say, oh we got to start holding funds. And some merchant processing providers are better than others about communicating when those risk management rules are put into place, right?
Tyler: That's right. Let's touch on that now. So charge back is one scenario that can trigger them to initiate risk management where they'll say they want to do a risk reserve and we're going to have, basically, we're going to hold a certain percentage of your funds and we're going to keep a reserve on our side. So if there's ever a dispute or chargeback, we have your money on file basically that we can use to cover it, not out of our own pocket, right? So that's how they're creating a cushion to protect themselves, the merchant service provider, from potential loss in the event that there is a a large portion of your business coming back as potential fraud or chargebacks.
Ryan: Before you go in to number [00:09:00] two, which I'm imagining is going to be if you exceed your limit, yeah, before you go into that, I mean, chargebacks happen with any business because there's always somebody that misunderstands what they bought, and obviously I think from a business perspective, most people would say, well, you know, most of those are illegitimate, you know, I actually provided it, I promise, and all that.
There's no guarantee that you're never gonna have a chargeback just because you provide great service delivery, you know, and are really committed to the customer. Chargebacks are going to happen to everybody, so merchant processing providers don't automatically implement reserve rules just because you have chargebacks, do they?
Tyler: No, that's about claim and everyone's gonna deal with charge backs. There's not really any requirement from these customers banks saying, hey, do you have any reason to issue chargeback, and then they can say they believe it's fraud, or they didn't get the proper services. And banks don't lose anything by doing a chargeback necessarily, so don't go out and act on that. [00:10:00] That being said, no a risk reserve wouldn't be necessarily, you know, be started at that point. It's when you start to have a certain percentage of your business, when it's starting to pile up there, a percentage of your business is now chargebacks.
Ryan: Is there a percentage that the merchant service provider will let the customer, you know, the customer being the business right? Will, they let them know, hey, our policy is if you get to this percentage of your transactions that are chargebacks then we're gonna look at implementing the risk reserves? Or is that something that's hidden close to the chest, or what do they do?
Tyler: You know, they may not stay straight out on you, like you mentioned, I mean, you're setting up an account, sometimes you got to be proactive and ask these questions just to understand. And so you may want to touch bases and say, hey, just help me understand at what percent would [00:11:00] you guys start to implement a risk reserve. And sometimes they won't be able to answer that for you, they'll send you over to their risk reserve team.
Ryan: So does that, like, I would be concerned that that would raise a red flag with them, like, well why are they worried about it?
Tyler: Sure, right.
Ryan: Like, hey, do you guys have cameras showing where you keep the money? It's like, what are you doing, casing us, or what?
Tyler: I think you just explain that you just want to make sure you understand everything about your merchant account that would prevent any potential options. I get those questions, frankly, somewhat often, on a day-to-day basis from people wanting to know because of their past experience.
Ryan: So it's a pretty common question people are asking. It's not really causing for you any red flags just because somebody asked that question.
Tyler: Not necessarily, especially when it's a perspective merchant. I want to help them understand that they aren't just another merchant. We definitely want to help them understand what the goal is on this.
Ryan: I think where it really becomes an issue for businesses [00:12:00] is when you're either starting, when every dime counts, or you're in a high growth phase where you're very lean on cash flow, or you're doing high transaction amounts where just a few of those swinging back can cause a cash flow issue. In those scenarios, if you find your business in that scenario, and I'm talking to the listener right now, you want to make sure that you are aware of, what are the things that are going to kick in reserves?
Frequently, because you don't know how to ask these questions, and honestly, most merchant providers are really forthcoming with that, they want to keep the focus on their rates or some other benefit, your turnaround time and getting that money into your account, which is all great and good when you're first getting started. But, once you start establishing a business, I know that, personally, when had our training company back in 2007, 2008 we had grown very quickly. We didn't even know these questions or comments they asked.
We didn't even know [00:13:00] when we had kicked into exceeding our limits and stuff because we had grown so quickly. I do remember the day that we got a call from American Express saying, hey, we're about to release the $60,000 we've been holding on to for six months because your chargebacks have been good, I was like, what is that about? Fortunately, we were in a good cash flow position that it didn't hurt us, but that very easily could have been devastating to a company to have $60,000. I've heard of $200,000, $300,000, $400,000 being held.
When I talk about holding, a lot of people don't think of PayPal as in the same genre as a Wells Fargo or a Chase Bank in terms of merchant processing, but your PayPal, your Stripe, your Square, all of these companies that accept credit cards and then give you money for those payments, all of them fall under the same basic [00:14:00] structure in terms of risk that they they have and then risk that they need to protect. Being aware of this is really important. That's number one, is chargebacks. That's the the first thing that can trigger these risk management concerns for merchant processing service providers, but what's the other one?
Tyler: Like you were mentioning, there's these monthly limits that they impose as well as a pro transaction limit. When you are approved for an account, in fact, when you apply with our company on the application, that's one of the first things we ask is, how much do you plan on processing within a month, a dollar value? How much you are planning on being the average transaction amount? And then how much is the largest transaction amount?
It's important that, with these numbers, and maybe you have an account, you're scratching your head wondering, I don't have a clue what I wrote for that or what the limits are, it'd be good to find out. We take those numbers pretty [00:15:00] seriously. When you say you'll only be processing $20,000 a month, okay, good. We're gonna set that limit at 20,000. If you say, well, I think the largest will be $1,000 but occasionally I might have a $2,000 transaction, but that's so rare and in between I'll just say a thousand is my largest, we're going to take you at your word for $1,00 and we ever see you processing anything over a thousand, the funds for that transaction will be put on hold and we'll go ahead and send out an email to you requesting more information about that transaction. That seems like an old way of doing it, sending an email...
Ryan: If they do that, yeah. I've seen where we don't even know which email address that we used on the application because sometimes you maybe used your personal one because you don't have your business stuff set up yet, something like that. Things can get lost in the shuffle.
I would say, Tyler, based on what you're sharing right here, that it would be critical, number one for you to [00:16:00] always know what your limits are that you stated to your merchant processing company and then laminate those and post them up next to your computer or wherever you check your bank account. I would maybe even make your accountant aware of it and say, hey, trigger this for me. Do something, set up some sort of process so that as you are approaching these limits, or if you have a transaction that is over, everybody on your team that's involved in processing amounts is aware of what your limits are on your account.
We can't blame the the company, it's like they say, you can't blame the cat for being a cat. The cat is going to sneak into stuff. It's kind of get stuck. You can't be mad because it acts like a cat. The merchant account processing service provider, whatever we call it, really not sure at this point, but that company is going to be very consistently who they are. They may not communicate really well, which can create a bad reputation for them in the market. I know one that we used for a long time [00:17:00] has changed its name like eight times in the last eight years, probably because it's got a bad reputation. It's probably just simply because they haven't communicated clearly with their customers. Here's your limits. If you guys are getting close to those, we need to know, or maybe even doing a pre-emptive call out.
The reality is, and again, I'm talking to you as a business owner, you guys need to remember that you can't count on your merchant processing company to care about your business more than you do. Because of that, you have to keep a close eye on these two numbers, which is monthly total and maximum transaction amount. What you need to be aware of is what those are for your merchant account so that you don't exceed those and if you think you're going to need more, what do they do Tyler? Are they just out of luck?
Tyler: Well, that's a good question. With existing accounts, they don't want you to over do those numbers that you're requesting initially. And if you're a brand new business, you haven't processed a day in your life and you say you $100,000 a month, [00:18:00] they're probably going to ask you to be realistic and maybe ask, hey, can you tell us why you want that amount? Give us some more reasons. But after you've been approved, say that you've been processing for some time and you're coming up on those limits, that's the opportunity for you to reach out to your merchant service provider and they'll say, let's put you in touch with the risk department, or they may even have a form that you'll fill out and say, here's what I want my new limits to be up to.
But I think a really critical way to think of your merchant account whether these is like a line of credit, essentially. With your credit card, they reviewed under writing a review of you as the applicant and then they approve you at a certain amount based off of the information you provide. It's very similar with the merchant account. If you have an existing account and you have a history with them and they see, hey, this guy is processing 100,000 or 300,000 a month, they're coming close that limit. It's not unrealistic to think they're going to exceed that. Let's go ahead and bump it up for them to what they're [00:19:00] requesting now.
That's something that we should use in our mentality when we're approaching at merchant service provider about how to really keep things within the limits that we want with them. It seems so silly because it seems like it's such a small portion of your business and you're paying them a percentage of everything you make, but these are critical mistakes that I hear time and time again on a daily basis. People call us up and say, hey, I didn't know, my provider just shut me down out of the blue and said, go find someone else, and now they can't process payments. As insignificant as it seems, it's so critical at the same time.
Ryan: How do merchant service providers feel about having multiple merchant accounts, like with different companies.
Tyler: That's something that, if it's for the same business, that's frowned upon. I'll say that much. I don't know the legal rules behind that, but if they see that you have an account with [00:20:00] someone else, they'll probably shut your account with them. How they look at that is, say they approve you for $100,000. Well, if you try to get another account for another $100,000 and you just have all these accounts, it can raise some red flags with the service providers.
Ryan: The concern with the merchant service provider is that their liability is different from what they expect it to be if they have just a single account they're dealing with. The same bank account could be associated with two or three merchant accounts, and if one of those suddenly has some big issues and then drains the account, they can't really account for that in they're underwriting the same way they can if they're the only account.
Tyler: And another factor on top of that, Ryan, is the credit card industry, Visa, MasterCard, American Express, Discover, these big names, they set the rules essentially. You have a merchant account, you're getting a [00:21:00] lot of charge backs to that one account, the reason why that percentage is critical is if they say that you're going over a certain percentage of transactions and charge backs, then Visa, MasterCard, American Express, Discover together, all of these will work together on that. They'll say, hey, you know what? This business has exceeded that percentage. No one is allowed to give them a merchant account. They're not allowed to take our card type anymore. So it's really important that...
Ryan: So you're saying that it's at the Visa, MasterCard, American Express level, that they're dictating some of those restrictions on...
Tyler: Some of those rules. And I don't know all the rules on that, I don't want to say yes or no to that, whether you can or can't have multiple merchant accounts. I do know that there have been some legal actions taken on businesses that have multiple merchant accounts, that's why I'd say you'd want to do a little more research and investigate that.
Ryan: So the long and the short of it is whoever controls the money gets to make all the rules, so sucks to be us.
Tyler: That's right.
Ryan: All right, let's move on to another point. This [00:22:00] will be the very specific to Shopify. Shopify has its own payment processing gateway that they have incorporated into their platform, but sometimes, maybe because people didn't pay attention to it, I don't know if you know about the specifics of their situation, but are they following the same kind of process where you can find out, what's my my maximum transaction, my maximum per month and then communicate with them on that? Or are they being a little more dynamic about that? And again, I'm sorry for putting you on the spot. You may not know the answer to that question.
Tyler: I'm not positive, I imagine they follow the same procedure that when they're applying, you dictate to them the limits that you need. That seems pretty standard for every merchant service provider so they can know what to approve you at. And then with Shopify, it's a great setup because not only are you getting yourself a part in the whole service there, but they make it simple because it's kind of all put into one package.
Ideally, you wouldn't be running into a situation where Shopify says hey, you know what? [00:23:00] We can't do Shopify payments with you, but you can keep yourself applying someone else. But I think that scenario usually will come up if you're exceeding limits, maybe a chargeback problem. I think the third point, Ryan, that we'll bring up here, this is applicable to every merchant service provider, but in particular to Shopify, is if your business model or business, the product that you're selling, that they're considered higher risk.
Ryan: Okay, that's interesting. There are categories of products or services that are considered high risk because of their history in the marketplace.
Tyler: That's exactly right.
Ryan: Is there a way that somebody can know if they're starting to create a business, if they're going into a higher risk industry that's either going to be more expensive for them or more challenging?
Tyler: Yeah, it's hard to turn to say that there's one list. I've got a few lists that I reference when I'm doing it with our merchants that are signing up with us. Depending upon the [00:24:00] merchant service provider, and just a whole array of factors, marketing in general, Ryan, could be considered high risk. Obviously that's part of your business, is you're providing marketing tools and products and it is not a whole lot of other services, right?
Just because you're in an industry does not necessarily mean you're high risk, but it certainly is one they're going to look closer at. It'd be hard to say. If you're looking to start a business, I'd recommend just giving a phone call out to a couple providers and discussing your business type and model and just see if they have any concerns.
Ryan: So would you asked, is this considered a higher risk industry or do I have anything to worry about?
Tyler: Yeah, absolutely. Just say, hey I just want to make sure this isn't considered high risk.
Ryan: Then, what I would recommend to people is just Google out there "high risk merchant account types" or something like that, and they can find those lists? Do you think you can share a couple links with us [00:25:00] after, like put them in the show notes?
Tyler: I'll look and see, I'm not sure if I can share those, but I'll check and verify.
Ryan: Are those internal documents?
Tyler: I'd be happy to give some resources there, I just have to check.
Ryan: We don't want to put Travis, or Tyler, sorry Tyler.
Tyler: That's number 11, Ryan. I'm Number 10. Get the names right.
Ryan: Ask my kids about that experience.
Tyler: Well, I'll verify on that and I'll let you know for sure. Going back to Shopify on that point, it's really just a matter of communicating that with them as well. With Shopify, if you're going to be using their platform, reach out to them and just kind of verify, hey, is this a business model that Shopify's okay with? They'll know exactly what business models they do and don't support. That's a good place to start for anyone, so the business you want to provide might not be applicable in Shopify.
Ryan: I think frequently, when this kind of thing happens, when either your merchant account is shut down [00:26:00] or if you're on Shopify and the Shopify store says, sorry that's not going to work anymore, the natural reaction for most people is to be angry. They're angry. They're upset. They even have some post-traumatic stress disorder from the experience because, suddenly, what they thought was the least of their concerns is the greatest of their concerns.
That's the main reason I wanted to do this podcast episode. I really want people to be aware of how these entities work so that you can work with them to prevent these kind of problems. Most of these problems are preventable, probably the only one that's not, if you can't change your business model, would be if your business model is a high-risk one and it could get shut down.
But, even in that scenario, there are different merchants that have different levels of risk tolerance. You can find those that are specialized for those industries, and if you're using something like Shopify, you can actually plug in a different merchants into Shopify besides the default one that they have. Shopify is going to [00:27:00] charge an extra 2% on top of that, but considering the platform and all the benefits you get out of it, it may be worth it still. I can't say one way or the other, but that's something to be aware of.
My personal opinion, and, Tyler, I'd love to hear what you think about this but my personal opinion on some things like PayPal systems like that where they are storing all the credit card data for you and they're kind of controlling, there's not a lot of mobility in that kind of scenario. My personal preference when it comes to Infusionsoft is that I always want my credit card and payment information actually be stored inside of my own database. And of course, I want my database to be secure so that I'm protecting people's data and everything. But in that scenario, I want to keep my credit card data for my customers in my own database, meaning something I have control over, versus something somebody else has control over. That's one of my issues with platforms specifically like PayPal, is that they are reserving all of the [00:28:00] control and it puts you in a very one-sided relationship if you don't have that payment information stored on your side.
Especially if you're in a recurring transaction business, where maybe people come back and buy from you frequently and they like to use a card on file or in a subscription-based business like I am where you're charging their card on a periodic basis based on their instructions and your agreement with them. In that kind of scenario, it's very dangerous, in my opinion, to be heavily on that side of using something like PayPal. I would imagine, though, the same rules apply with PayPal as they do with any other merchant service, being that you want to keep in communication with them if you can. I don't know how PayPal does communication because I never really got attracted to them as a provider.
Tyler: I'm not sure either.
Ryan: You want to keep clear on your transaction limits, both monthly and maximum single transaction, and you want to be paying attention to that. I don't want to beat that dead horse too much for the [00:29:00] sake of time.
What are some other areas that people should be paying attention to when they're looking at a merchant account? Obviously there's the percentage, sometimes that gets more attention than it should because reliability of getting your money and speed of getting your money is probably even more important than a percentage point, honestly, in businesses that have done over a million a year. Yes, the percentage can add up, but if you don't get your money or they're holding it or they're not communicating well or any of those other factors, the best rate with the worst customer support isn't worth it. What are some other games where people pay that they may not be aware that they pay as they use merchant services?
Tyler: Well, I want to touch on two points there, which we'll use Shopify payments as an example because it's very similar to Stripe and Square and authorize.net and these companies that have you sign up with them, they have an all in one plan in many regards. They charge you this [00:30:00] 2.9%, and you'll see that a lot, it's pretty stand for online transactions. What that is is that's the fixed rate where they say, hey, we're going to charge you this across the board whether it's a debit card or if it's a rewards card.
In reality though, if you get a merchant account with some bank, sometimes they'll offer you rates where they're charging you inter-change, is what it's called. So you could be getting, for your debit card transactions, in the 1% to low 2% range, and then for credit cards that have a rewards programs associated with it, usually the business has to pay for that so that usually cost a little bit more, it can climb up.
Ryan: So it could be 4 or 5%?
Tyler: Usually not above 3%. 3.2, 3.3 is probably where you'd find yourself.
Ryan: Okay. So what's better?
Tyler: That's a good question. Ryan, I never use my debit card on mine, so it could be just better for you to have the 2.9% fixed rate, but it really depends on your transaction history as a business. That's [00:31:00] going to be something for all your business, what you should just do is look at what rate they're paying across-the-board, a monthly statement, look at, what are they paying total on the percentage point? Maybe they're a little above three percent right now, paying for the fluctuating amounts, like versus a rewards program and then also the different, there's unqualified and qualified and mid-qualified, all these fluctuating pricing plans that a lot of the providers will have, they might look at switching to a plan that is a fixed 2.9% rate. But then others who are on a fixed rate might actually benefit from switching to fluctuating one, just depending upon what card types are commonly being used by your customers.
Ryan: Is there a way for you to know if you're on a fixed rate already? I mean, is there a way for you to take that information and go shop it around, so to speak, to find out if you're getting the right deal.
Tyler: Yeah, usually your merchant service provider will send out the statement in the mail, you'll be able to look over those statements and it should have a lot of those details on it. [00:32:00] If you really look at what the fluctuating rates are. And one thing to keep in mind is Visa, MasterCard, Visa alone, I think they have about 120 different potential programs in cards they're enrolling, which means federal fees popping up here and there in every transaction. You just want to pay attention to them and shop around with your different providers to see who's able to kind of help to the next thing that you charge.
Ryan: Okay. How much do you need to be doing for a year before your fee difference really is making much difference? I mean, it could be the difference between like a Taco Bell meal and a Chipotle meal. If that's your difference per month, it really probably isn't worth much of your time to be investing in doing all that research. At what point do you think that the transaction amount says, okay, maybe you should be paying more attention to your fees?
Tyler: I don't think it's as much a single transaction amount as much as the [00:33:00] total dollar volume that you're doing in a month or a year. You just run the math. The percentage point is gonna make a big difference to you, whether it's the hundreds of dollars or thousands of dollars.
I just talked to a guy the other day. He was paying about 3.5% but didn't know it just because he hadn't pulled a statement together. I just got him onto a simplified plan and he ended up saving several $1000 a month. He felt like a winner, he just saved his company several thousand dollars a month.
Ryan: How much was he doing annually or monthly?
Tyler: I think he was about 200 to 300 thousand dollars in volume every month. It only takes half a percentage point to be saving a few thousand dollars, and that's how much he was processing.
Ryan: I think if you're listening to this call, if you [00:34:00] have action items, that's one, of course, if you already have a merchant account, go find out what your limits are so that you're aware of when you need to be communicating with them.
Then, two, go ahead and take a look at your rates that you're paying and go see if half of a percentage point would make a huge difference. If it's a significant difference, it would be worth your time to investigate. You have to figure it's going to take some hours to contact, go through, review, and get some feedback from people. It'll take a few days and a few hours to go through and check that out.
One of the other places that I'm always confused about is also these per transaction fees. The obvious part is the the rate. I'm going to pay 2.9% fixed. What about these other per transaction fees? Are those typically charged on the transaction if it's successful or not? Sometimes we have failed transactions that occur, so do failed transactions incur fees, typically? If [00:35:00] you do a refund are the fees refunded or are you out that as well?
Someone says, oh, 100% money back guarantee, somebody buy something for $100, I'm going to pay my 2.9%, which is $2.90, and then I'm gonna pay my transaction fee. But when I refund that, I'm going to refund the full $100 if I were to do a refund. So that full refund is actually costing me some money. How does someone figure out what those are and also, for companies that maybe do small transactions, should they not be doing super small transactions? Should they find ways to group those transactions so that they're a little bit bigger so that the fees don't eat them alive? What's the per transaction fee situation?
Tyler: There's a lot to cover there that you kind of went into but, maybe just touching on the point about the [00:36:00] refund even. So when you're processing in your store, you've already paid your percentage, whether it be 2.9% or one of the other rates, if you refund, no merchant service providers that I'm aware of, and I think that's pretty safe to say no merchant service providers, will charge an additional percentage when you refund the transaction.
I have heard of some saying, oh, yeah, we'll give you back the 2.9%. It's very unlikely and very uncommon, but I have heard that some providers quote that and say that's something they're willing to do, I just haven't actually seen it in action.
That being said, you will only typically see that 2.9 or whatever that rate is, once you refund you won't have to worry about anything other than the per transaction rate of maybe 20 cents or 10 cents or whatever it is that your provider is giving you. On a smaller [00:37:00] transaction, that's a good question, with a one dollar transaction where a lot of people are selling these smaller items, they look at a 30 cent transaction fee as 30% of their sales so that one can be a little bit trickier. That's why I recommend you discuss that with your merchant service provider because what they'll look at is how many transactions you're doing a month. If you're doing over 2,000-3,000 a month, maybe that's a good starting point, going from there, that's when they generally push that per transaction amount a lot further down.
Ryan: Okay. That's another amount that they'll ask you, is how many transactions per month, and if you're not sure you could be shooting yourself in the foot. If you don't state that property, if you're transitioning from one merchant account to another, it's really important that you have that amount because that amount could save you quite a [00:38:00] bit then.
Tyler: We do the math for you and we ask you what the average transaction size is and what are you processing in a month. We do the division there and find out, well, what's the average number of transactions that you get month? That way we can know in advance what to anticipate and how to really help retain you as a potential business. But if you're doing a lot of transactions, maybe they're smaller, but a lot of transactions, we'll go ahead and bring that per transaction amount down a little bit. Those are things that, for the sales side we'll look at, but then on your side of the business, you want to just make sure, yeah, you understand yourself that you can potentially get better rates on that front as well. We covered a lot of the big points.
Ryan: Yeah, just one last question I had which was, so someone comes to your website, they do a transaction, but it fails for some reason. Is there typically a fee charged for the failure?
Tyler: So, the per transaction fee, you charge a decline [00:39:00] transaction fee, and that doesn't include the percentage fee, just the transaction fee, so it might be 10 cents, that might be 30 cents that you'll incur there.
Ryan: So if someone keeps screwing up their credit card number or their address, billing address, that, in theory, could end up costing you if they're doing that.
Tyler: It could, yeah.
Ryan: I know I've heard of people where they get targeted by a hacking group and the hacking group starts trying to check stolen credit cards through their order form.
Tyler: Yeah, that's a big type of fraud. That's just something to be aware of.
Ryan: Are there protections for the actual merchant when they're a victim of this kind of thing, or are they used as the punching bag by the merchant service providers?
Tyler: Merchant service providers see that and they'll probably just shut you down if you're getting enough chargebacks because they view that as your responsibility to secure your site. Whether you're going through a payment gateway, [00:40:00] which communicates with merchant service providers, or using Shopify payments or any one of these payment processors out there, you're going to want to look at what fraud prevention tools they're going to give you. Whether it be the ability to check and block IP addresses, the ability to set a daily transaction limit or an hourly transaction limit, we might say a single IP address can't try more than three times. If they can't get their card right three times. I'm gonna block them. Those tools are out there.
Ryan: That's almost another episode, Tyler, to talk about all the fraud protection tools that you need to be aware of. Basically, just to sum it up for the people on this podcast, because I know that we're running out of time with you, the long and the short of it is you should be communicating with whoever your representative is at your merchant account provider and talk to them about, what are the fraud prevention tools? What are some things I should know to protect myself?
Frequently what happens is we're so focused on just getting the thing open so we can start making money and [00:41:00] start running our business or if we're transitioning, we're thinking about, okay, I just want to get the better rate. I want to get the maybe better customer service, those kind of things. We're rarely thinking about the things that could go wrong because you don't think about that until it happens to you.
You would recommend taking that time with your representative to say, okay, what are my fraud protection tools so that I don't become a victim of some of these fraud scams that go on. I reached out to you when somebody who was a customer of ours got caught up in one of these through her Infusionsoft web form where they had like nine thousand transactions run overnight that were just basically checking a credit card to see if it was legitimate. The people weren't trying to order anything like that, and through that process, she incurred thousands of dollars in fees from per transaction fees. On unsuccessful ones, then we have all the ones that are going to be subject to chargebacks [00:42:00] that were not successful. Maybe in between all those were some real transactions.
It really puts the business owner at this huge disadvantage of having to clean up a huge mess that has nothing to do with their business or how they were operating as a business, but because they didn't know about the fraud prevention tools that were available to them, they didn't have them set up in place. I think someone leaving this conversation might go, oh my, I've got all these new things I got to pay attention to.
But I would say, just have a conversation with your merchant account and ask about fraud prevention tools, get to know what your limits are, number of transactions that they're estimating so you know if you can negotiate a cheaper fee on your per transaction fee. And, pay attention to your limits so that you can be proactively communicating with your merchant service provider so that you make sure that you don't get caught up in the risk management rules that get triggered automatically when these limits get hit. [00:43:00] Understand that, Tyler, is it true that your track record actually does help you? If you've got this track record of doing really well for a long time that you can go and say, hey, I need my limits raised and they're more likely to raise them?
Tyler: Yeah, that's part of the underwriting process or the risk review process. They're going to want to look at your statements and your history.
Ryan: So this is like your credit history for accepting money as a business. The longer that you go of taking it and keeping your chargebacks in check, then the better you're going to be so. Try and look at your customer experience. We've all made mistakes. I know we have. Occasionally we have somebody that will do charge backs and they feel very justified in them. We would much rather refund people than have them do charge backs. That's what my team is generally taught, sometimes even my team will make mistakes and we'll do the wrong thing and then we have to deal with a chargeback.
But, there's things that you can do, and doing those things will protect your ability to be able to accept money electronically, which is a huge deal in today's society. [00:44:00] Thank you so much for joining us. If you have any closing words, we'll give you the last word, but I really do appreciate you making time. I know you didn't get to eat lunch because of this.
Tyler: I appreciate it. I think that you hit it on the head. It's really one phone call can save you a lot. I'd recommend that to all the listeners, take some time in your schedule to give your merchant service provider or your payment gateway a call, and ask them these questions and have this discussion just to get a better understanding about your account, where you're at, and better grasp what you can do to help protect yourself.
It's one phone call, and if you implement some suggestions from us or from the representative you speak with, it could save you time and money in the long run. I definitely recommend just taking some time, becoming familiar with what you're already have in front of you, and avoid cliffs that, a lot of businesses, unfortunately, fall into that keep them from being able to [00:45:00] process. Thank you for your time, Ryan, I appreciate being able to come on, and I'd be happy to give you any other feedback or resources that your listeners might request, so I appreciate your time.
Ryan: If you guys have questions about this episode in particular, just go ahead and text them to us or message them to us wherever you find this podcast and we will make sure to get Tyler on again if we need to. Thanks again, Tyler. Bye.