What Are Merchant Services
Gym owners use merchant services to process credit card and ACH transactions. Furthermore, if you own a gym and would like to collect one-time or recurring credit card payments you’ll need merchant services. Easily accept credit card payments at your gym, on-the-go, or through your gym management software. However, if you don’t do your homework first, you’ll wind up being over-charged.
Watch Out For High Merchant Fees
Some merchant service providers charge as much as 4-5% per transaction. Generally, high fees add up quickly in a busy gym, therefore leading to reduced profits for the gym owner. Additionally, long-term contracts with the wrong provider can wind up costing thousands in mark ups and overbilling for unnecessary services.
Always review your merchant statement for hidden fees. Make sure you choose a payment processor that looks out for your best interest. Too often we see payment processors taking advantage of merchants. They promise the lowest fees but add huge markups to their interchange rates.
Reading A Merchant Services Statement
First, request a copy of your merchant statement from your service provider. Next, start by defining your current pricing model or setup. Are you are set up with Interchange Plus, Tiered, or a Flat rate pricing structure? Knowing this will help calculate your current rates and predicting any future processing costs.
The Interchange rate is the wholesale cost of doing business with the card issuers. Visa, Mastercard, Discover, and Amex all charge a fee to access their network. Hundreds of variations go into determining this fee:
- Card Issuer
- Type of Card Used (Debit/Credit/Rewards)
- How Was The Card Used (Point of Sale/Card Not Present)
Typically, the lowest interchange rates are for debit card transactions and the highest rates are from business reward cards or keyed-in transactions.
For example, if you run a visa debit card through a point of sale machine, the interchange rate is 0.80% + $0.15 a transaction. However, depending on the mark up size (basis points added) from your merchant processor you may be paying almost double on that transaction.
An example of an interchange pricing model would be: (Interchange + 0.25% + $0.25 a transaction)
Rather than using unique interchange rates for each transaction type, many merchant processors will also tier their pricing into groups for qualified, mid-qualified, and non-qualified transactions. With most tiered pricing models, standard debit or credit card transactions remain qualified. Transactions considered to be non-qualified are typically business or reward cards with points or other incentives.
An example of tiered pricing would be:
2.15% + $0.25 for qualified transactions. 3.25 + $0.30 for non-qualified transactions.
Flat Rate Pricing
This setup allows the merchant to pay a fixed rate for each transaction. It is by far the simplest pricing model but normally ends up costing the merchant the most money on a per transaction basis. The only benefit of this model is that there are typically no monthly fees associated with these accounts.
PCI stands for Payment Cards Industry. Generally referred to as technical and operational standards. Set forth by the card issuers, it ensures the security of credit card transactions. You must review your PCI fees to make sure you’re up-to-date and compliant with all the payment rules.
Your PCI fees may be billed annually or broken down into monthly payments. Make sure to complete any required surveys or test procedures, so you’re not charged additional non-compliance fees. The typical fees range from $60-120 per year.
Equipment, Software, Payment Gateway
Additionally, if you leased equipment, used software, or purchased point of sale equipment you may find even more fees. Mobile card readers and credit card machines could potentially add monthly service fees. Make sure to review those fees and determine whether you are actually using the equipment.
Gateway fees can run anywhere from $10-25 a month. More advanced software and Point of Sale equipment set ups can cost more than $100 a month.
Lastly, be sure to check your other monthly statement fees. Monthly minimums, online reporting fees, monthly fixed fees, and statement fees all add up. Most merchant processors charge anywhere from $10- 25 for those fees but they could be much higher.
Net Effective Rate
Finally, use this simple formula to figure out how much you pay in fees overall by determining your net effective rate. To calculate this, just take your total merchant statement fees and divide that by your total processing volume for the month.
For example, if you processed $11,000 for the month of December and you were charged $465 total fees for that month your net effective rate would be 4.2% ($465/$11,000)