Credit Card Tax

Business Solutions to avoid fees?

[aleksl]

Want to ask semi- and wildly successful ecommerce entrepreneurs. What is your solution as far as the business operations go? How do you avoid Credit Card Tax?

Are there solutions out there that will charge monthly fees instead of % off transaction? Is this industry ever going anywhere, because quite frankly, I am tired of being charged 2% of all transactions, and then yet one more time credit card fees when we miss payment of our balance completely in full by a few dollars.

[sun818]

How do you avoid credit card processing fees? Its not something you can really avoid since the infrastructure is in place. If your actual processing rate is 2% this is very good. When you add some transaction fees and other fees a payment processor charges, the percentage is actually higher for many processors.

The cost depends a lot on what type of cards you accept, the dollar amount, transaction volume, and what kind of deal you can get with a payment processor. Most of the payment processors I've run across are dishonest and sharks, so you have to be extremely careful.

The alternative would be to utilize payment networks like Dwolla, PayPal, or even gift certificate/cards to siphon payment dollars away from the major four.

There may be some programming involved with your shopping cart to talk with new payment vendors, but the one time fee can usually be made up in time as you save money.

[jwolthuis]

You are not at a competitive disadvantage with a 2% rate. That's a darn good rate. Your playing field is level, or slightly tilted to your advantage, compared to your competitors.

Alternatives like PayPal, Amazon Payments, or Google Checkout also charge a similar fee. Dwolla can be cheaper, but I'm not sure how many of your customers actually use it.

Checks by Mail don't involve a merchant fee, but there is risk of bounced checks. That 2% processing fee that you pay is not a tax, but rather insurance against bounced payments.

[sun818]

LOL, 2% processing fee doesn't guarantee against "bounced payments". I wish payment processors offered some sort of guarantee. We've eaten so much in fraud over the years, its not even funny.

[jwolthuis]

Fraud is different than a bounced check. I've bounced a check, and I'm no crook. The 2% fee moves the burden of accounts receivable to the banks, providing merchants with payment security, and a guarantee against "bounced payments". Criminal activity (fraud) is much different.

[topr8]

>>Checks by Mail don't involve a merchant fee

true, however, my bank account 'receives' electronic payments from my card processor for free, however i get charged for each cheque i pay in, plus someone has to physically take time to go to the bank and pay the cheque/s in, so there are costs involved with cheques too. (maybe you don't get these charges in the us though?)

[aleksl]

jwolthuis: the 2% fee moves the burden of accounts receivable to the banks

The what? :)
No, the burden is still with the merchant. Which way you are looking at it, merchants' or customers'? From standpoint of a customer, you can chargeback or say "this is not my order", merchant will pay for it, not the bank. From standpoint of a merchant, a fraudulent order is money AND the product lost, and in case of a refund, transaction fees both ways.

sun818: Its not something you can really avoid since the infrastructure is in place.

Well I don't care about the infrastructure. Banks get way to much in this. The most powerful players in the world are banks, yet the economies of the world right now are collapsing under a burden of DEBT. It is clear that the banking industry commercial PER-TRANSACTION TAX is something we can look at and eventually oppose. Even if it is 2% , compounded across all major economies it IS A LOT OF MONEY LOST for banker's priviledge of transferring bytes between 2 computers.


If you think 2% is pretty good, consider the fact that a major B&M store's profit margin can be only 2%.

[sun818]

If you believe so strongly in your views, why not accept only bitcoin? Let's see how prosperous your business is. There is an English phrase: "Cut off your nose to spite your face". If you want to run a business, run a business. If you want to change the financial industry, good luck to you...

[piatkow]

I am happy to absorb credit card fees as the workload for me is far less than for matching cheques to on-line transactions. At least I don't need to pay for card readers as there is no B&M element.

[jwolthuis]

The what? :)

Again, I wasn't taking about fraud. Re-read my post.

[HRoth]

There is no credit card tax. There are fees for processing credit cards. They are a cost of doing business and should be deducted as such on your taxes. Paypal also charges a fee. If you don't want to pay these fees, you can take cash/check/money order only. You won't have much business, but you won't have any credit card processing fees. I have known of a couple of companies that have done cash only, mostly old-fashioned mailorder without a web presence.

[woop01]

People think 2% is pretty good because in this sector, online payments, it is pretty good.

Getting upset about it won't be nearly as productive as finding a way to work with it.

[tangor]

Complaining about credit transaction fees is very like complaining about gasoline prices. If you don't drive a car, the price of gasoline means nothing. :)

Banks/credit companies don't work for free... and the cost of doing business (these fees) can in most countries be expensed off when filing tax returns.

[aleksl]

"Banks don't work for free" :) Look around, go into any downtown, banks and insurance companies own the majority of big buildings. Banks are now foreclosing on millions of properties, so no, they don't work for free but their cut is unfair. Obviously, 2% PER EVERY TRANSACTION IN THE WORLD is way above what it really takes them to pass bytes from one computer to the next.

HRoth: There is no credit card tax. There are fees for processing credit cards. They are a cost of doing business

It is CREDIT CARD TAX, no matter how you look at it. The banks tax every single transaction you process, i.e. AT REVENUE - at 2%. I suggest you re-read a definition of a revenue tax.

The fact that it is NOW cost of doing business doesn't say it should be so in the future. The fact that world economy is collapsing under the burden of BANKER DEBT obviously tells that what bankers charge isn't fair - neither to the merchants, nor to customers.

Clearly a government intervention is in order to fix this, either that or another processor that can charge not a % of revenue but something less.

woop01: People think 2% is pretty good because in this sector, online payments, it is pretty good.

Well, I do not think it is pretty good. I think it is extremely excessive. In our operations, bank fees are on par with shipping charges - in no way, shape of form it is "pretty good".

woop01: Getting upset about it won't be nearly as productive as finding a way to work with it.

Is there a way?

[tangor]

Only governments can TAX. Businesses charge fees/rates for service done. Change the language and the discussion will go more smoothly. Continuing to call transaction fees a TAX will win no supporters for lower FEES.

If your transaction fees are costing the same or near same as shipping costs, then your business plan is flawed, you do not have sufficient mark up in product.

[edited by: tangor at 5:51 pm (utc) on Jan 20, 2012]

[sun818]

> Is there a way?

The way is either to have government regulation like the recent Dodd-Frank w/ Durbin amendment. This changed the processing fee for debit cards to $0.21 + 5 basis points. Debit cards were supposed to be the replacement to checks. Debit card payments are virtually guaranteed since they are drawn on a checking account as opposed to a credit card where it is a short-term loan, and the buyer can choose NOT to pay it back if they wish.

The other option is to increase competition. You do this by supporting payment networks that are not on the Visa, Mastercard, Discover, nor American Express network. The best player at the moment in PayPal. Dwolla is another. They are both growing at astounding rates. Once these third-parties get into a position of dominance, this will hopefully spurn competition toward lower fees rather than collusion. Your role as a merchant is to include third party payment methods to your shopping cart. This is a long-term goal and if you are around long enough you may see the change you want.

[aleksl]

tangor: Only governments can TAX. Businesses charge fees/rates for service done. Change the language and the discussion will go more smoothly. Continuing to call transaction fees a TAX will win no supporters for lower FEES.

I am using language to show that there's no difference. If it is based on REVENUE (i.e. 2% of each transaction is fee based on REVENUE), it is not a "fee", it is a tax. Fee is a fixed amount. If I have to pay it or basically close my business, it is semantical trickery to call it "fee", it is a tax.

Fee:
1. A fixed sum charged, as by an institution or by law, for a privilege:
2. A charge for professional services: a surgeon's fee.
3. A tip; a gratuity.
4. Law An inherited or heritable estate in land.
[thefreedictionary.com...]

tangor:
If your transaction fees are costing the same or near same as shipping costs, then your business plan is flawed, you do not have sufficient mark up in product.

I don't think you are correct. Here's a quote:

Warehousing and shipping runs around 10 percent of costs for the average ecommerce business," said Nate Gilmore, VP of marketing and business development for Shipwire.
[prweb.com...]

So it is entirely possible to have 8% warehouse cost and 2% shipping cost and be an absolutely AVERAGE ecommerce business.


sun818, I agree with you, we do provide PayPal. We also support checks, money orders and wire transfers. We are also looking for other alternatives to Credit Cards.

[sun818]

Its okay to call it a "tax". The less common usage of the word tax means: "a burdensome charge, obligation, duty, or demand.". I think that fits your feeling about interchange plus.

[tangor]

I guess this is going nowhere. The transaction fees are fixed, with a sliding scale based on size (ie, fixed at each level) but are NOT taxes, they are a cost of doing business through a third party which accepts amounts from one party to transfer to a second party... and gets paid for the service and both first and second parties are able to conclude a transaction (sale). The way around this is to NOT use credit cards, paypal, or any other third party, ie. accept only direct payment from the customer in cash or check (and pay ordinary banking charges for the processing of same.

There is nothing "burdensome" in the world of financial transactions. If you don't like the fee charged, FIND A DIFFERENT PROCESSOR (that's capitalism).

<rant off>

This is beginning to sound like Occupy Wallstreet.

[sun818]

You made it political, not us.

[tangor]

You made it political, not us.

But you have, from message one by calling a transaction fee a tax. Cake and eat it, too?

It's not a tax. If you don't like the fee charged to handle transactions (sales... and international money exchange and all the other things hidden in that process) get a different processor. Else go out of business because there's not too many ways to transfer money from one person to another after you go beyond cash or check.

[buckworks]

Please let's stick to the original question and not get sidetracked over vocabulary discussions.

Are there solutions out there that will charge monthly fees instead of % off transaction?

------------

If you don't like the fee charged to handle transactions ... get a different processor.

That's exactly what the OP was asking for help with.

[aleksl]

tangor: There is nothing "burdensome" in the world of financial transactions. If you don't like the fee charged, FIND A DIFFERENT PROCESSOR (that's capitalism).

no tangor, when all processors charge the same 2% TAX "fee", it is not capitalism. It is monopoly-like oligarchy, socialism if you wish. Capitalism is when there's competition for being MY PROCESSOR (I create business, I create wealth for THEM, they should beat a path to my door with offers), and competition creates lower and lower prices. In this case, there's none. Sorry, you made it political, but seem to be rusty on definitions.

I don't want to make it a political question, but I will make one more point, hope this doesn't strike moderators as offtopic.

Imagine it is not a 2% per transaction "fee", but only 1%. In my world, it means I can stop working 10 hour days and instead can hire additional employee. Probably the same is true for 10,000 other ecommerce businesses out there. That is 10,000 REAL JOBS - right there. So what do we loose by doing that? The money VISA, MasterCard and others are collecting aren't going back as taxes, these are offshore entities that hide profits. The same entities that do "leveraged buy-outs" i.e. buy american companies with offshore money and "make them profitable" i.e. fire americans and move manufacturing to China. I see these examples every month. So, less offshore money for them, more money to local businesses, higher employment, etc.

Now imagine it is less than 1%, or even a fixed monthly fee. You and I run software companies, we know what it takes to pass secure bytes from one computer to the other - it DOES NOT take a 2% charge for every transaction processed anywhere in the world.

[HRoth]

If your profit is so miniscule that a shift from 2% fee per transaction to 1% fee per transaction would mean you could go from working 10 hour days to hiring a bunch of employees, then I would say the problem you are having does not have to do with transaction fees but that your prices are too low and your average ticket is too small. In the situation you are describing, your profit must be what, 5% or less? And you are selling one widget per sale? You need to set higher prices, or if you cannot, you need to find another niche or another kind of business entirely. Personally, I have set all my prices to include the fees that are charged by the payment processor, gateway, and bank. I think that is the usual practice. If anyone is paying those fees, it is the customers, same as they are paying for my stock, my packaging, my rent, my utilities, my office machines, my time, my knowledge, my ads, my TAXES, and everything else that goes into my business.

If we tear ourselves away from the teabagger economics of "socialism" and "taxes," then we recognize right away that no business in the world is going to offer us a set fee per month for transactions because we could have one huge transaction or millions of tiny ones for the same charge, or as you put it, "tax." Who's going to do that? Would you?

It doesn't matter how much it costs them to actually process the transaction. They are charging what the market will bear. That's not socialism. That's free market capitalism at its most quintessential. Don't like it? Make a revolution. Or become a Luddite and go live in a hut in the woods and run a mailorder biz cash only. The choices are right there.

[aleksl]

HRoth, your assumptions are all incorrect, I will not describe anything here though, just see the usual situation on this forum. don't worry about anything I've said.

sun818, thanks for pointing Dwolla to me, I'll have a look.

[woop01]

What do you consider to be a reasonable fee?

[ytswy]

sun818 touched upon debit cards. I'm assuming that this discussion is about the US, and I'm not sure how it differs from the UK, but while we pay a little over 2% for credit card transactions, we pay a fixed rate (about 25p) for debit cards. For large transactions this can be a very significant saving - paying 25p rather than £50 on a £2500 order makes a difference.

Debit cards are very widely used in the UK (Visa Debit accounts for well over half our transactions).

I seem to remember a few years ago reading here that there was a stigma attached to debit cards in the US - they were seen as something that was only used by people who couldn't get a credit card - whereas in the UK using a debit card means "I actually have money in my bank account". Not sure if that is still the case, but you might want to discourage the view if it is...

[HRoth]

The way I understand it, you need to be brick and mortar to tap into the cheap network for debit cards. My processor is treating them like credit cards. I would like to know if others who are ecommerce only are able to get the cheap rate for debit card processing. Been wondering about that since this court decision.

ytswy, in the US, people still do look upon debit cards as something less than a credit card. And they charge you more. If you rent a car with a debit card, they authorize $300 right off the bat and ask for various backup information that they don't request if you have a credit card. If you buy gas with one, they will authorize way $75, even if your tank could not hold more than $30. I think that debit cards are better all the way around, because not only do you not spend money you don't have, but you don't have to pay any interest. I have not had a credit card since 1985 for that reason, just debit cards. I can handle the stigma.:)

[Marshall]

My processor is treating them like credit cards. I would like to know if others who are ecommerce only are able to get the cheap rate for debit card processing.

To my knowledge, all processing terminals (in US) treat debit cards as credit cards insofar as the merchant fee is concerned. The only difference in processing as a debit card versus a credit card is the need to enter a PIN. Of course, now a days, credit cards have the VISA or MasterCard logo on it and, are in effect, credit cards against a specific account. Many banks require a backup account in the event the primary account is overdrawn, while others allow a small overdraft as long as it is covered within 24 hours. Depends who you bank with. But, a debit card does not (necessarily) offer you the same buyer protection as a credit card does even with VISA or MasterCard printed on the front.

Personally, I prefer the debit card. While a lot of people are suffering during these hard economic times and have my deepest sympathy, I can relax knowing I do not owe anyone anything. So, in effect, it is my way of screwing the banks.

As for the OP, you are never going to get away from processing fees. The financial institutions are, in fact, doing you a service and deserve to be paid for such. How much? That is another topic.

<rant>The advent of credit cards was the beginning of the downfall of everyone's' financial security, IMHO</rant>

<humor>Why do drive-up ATM's have Braille dots?</humor>

Marshall

[lgn1]

Of that 2%, 1.6% is the visa interchange fee, which goes directly to all the behind the scene players, such as the card issuing bank,Visa to fund there operation,etc,etc So the payment processor only gets 0.4 percent. On high volume merchants, like walmart, the discount rate drops very close to 1.6%, so the payment gateways are just making a fraction of a penny on most transactions. I would'nt be surprized if Walmart actually tried to negotatite the base interchange fees.

Also, you are not getting 2%, as there are always other fees, such as non-qualified credit cards, in which you pay a few tenths or a percent to fund reward programs,etc.

Corporate Purchase cards are the worse, when it comes to unqualified fees, with some cards adding almost an additional 1%