In tough economic times, ski area operators all seek ways to cut costs. One particularly vulnerable area for excessive costs is credit card processing fees. At Wachusett, we have trimmed more than $50,000 from our yearly processing fees. Chances are, you can save a bundle, too.

To discover if you are over-paying for these fees, simply figure out your net effective rate. It’s real simple; just divide your gross fees paid by your net credit card volume. If you process more than $5 million a year in credit cards and your effective rate is much above 2 percent, you are potentially paying thousands and thousands of dollars more than you should.

Here are some things to keep in mind when thinking about your merchant accounts:

• A significant amount of money could be saved with a better understanding of the fees paid to merchant account providers.

• Most ski areas process a high volume of credit cards, typically 60 percent to 70 percent of total sales volume, so this is a great area to save money.

• The credit card processing business is a completely unregulated business, with many confusing aspects to it. In confusion there is profit, but not for us customers.

• How many ski area owners, senior management, and controllers really understand this whole process? My guess is, not many.


It Pays to Know the Jargon
Still think this is an expense you have under control? If you clearly understand the following terms and topics, then you are right. However, if you don’t, you will find great benefit in becoming more familiar with your merchant account:

• interchange fees—fees that the merchant’s bank (the acquiring bank) pays the customer’s bank (the issuing bank) when merchants accept cards using the card networks such as Visa and Mastercard. All merchants pay this fee.

• interchange plus or straight pass through (85 percent to 95 percent of merchants don’t know the benefits of this )—when the merchant pays the exact interchange fee plus a mark-up fee to their merchant service provider. This is usually the most transparent and cheapest way to process credit cards.

• MOTO—Mail order, telephone order. If you are processing a substantial amount of credit cards by mail, telephone, or online, make sure the account is set-up Moto to get the lowest processing rates.

• qualified, mid qualified, non-qualified—a tiered rate structure where your merchant service provider determines which interchange categories will go into each tier. Usually, this is a very costly way for the merchant to process cards.

• PCI compliance—Payment Card Industry Data Security Standards. All merchants who accept credit cards must be assessed at least annually if they are PCI compliant.

• EIRF—Electronic Interchange Reimbursement Fee. A fee charged by Visa if the card accepted does not meet certain qualifications. This fee can substantially raise a merchant’s processing fees, but most of it can be eliminated with proper internal training.

• chargeback—a fee charged the merchant when a credit card transaction is disputed by a customer and the merchant doesn’t have the evidence to reverse the chargeback. Can usually be avoided with good internal processes.

• credit card processor—the company that routes the authorization request from the merchant’s point of sale device to Visa or Mastercard, and then arranges for fund settlement to the merchant. These companies send out your monthly statement and will handle any questions that arise from the merchant.

• pin-based debit (and its advantages)—charge for which customers enter their pin number when using a debit card, and not a signature. This is the cheapest way to process a debit card.

Which is cheaper to process, a credit card or a debit card? Debit, because there is less risk to the card issuer, since the money is instantly pulled out of the customer’s bank account.

Of course, your relationship with your merchant account provider is not just about price. Good service is important, too. Every ski area should have a dedicated relationship manager for its merchant account, someone who will work hard to insure you are paying the lowest processing rates, help train staff or provide training materials, knowledgeably answer questions, and always be a direct phone call away. This may cost a little extra, but it is well worth it!


Key Points to Consider
Based on my experience, here are some points to consider in evaluating your current merchant account provider.

• The most transparent pricing method, and usually the lowest cost, is interchange plus. In this system, the true cost from Visa, MasterCard, and Discover (American Express doesn’t have interchange) is passed on to the merchant, and the merchant account provider adds on a transaction fee and an administrative cost. If you see on your monthly statement the terms qualified, mid-qualified, and non-qualified, you are not on interchange plus pricing, and are probably paying more than necessary.

• Are you paying a processing fee when a credit or refund is issued (in effect paying double what you should)? A good merchant account provider would not charge a processing fee for refunds.

• Are you paying the lowest possible rates? This is where the processing business gets complicated. Most ski areas have multiple revenue centers—food, retail, tickets, lessons, lodging, and rentals. Often, these have different POS systems, and multiple ways to buy these services and products—online, phone, mail, in person. Is your POS software capable of preventing downgrades to a pricing category called EIRF (very high rate) or handling corporate card data properly? Your POS system must allow you to enter a billing zip code when manually keying in a credit card so it doesn’t go to EIRF. Most POS systems allow this, but many do not have the fields to enter the data needed (invoice #, tax rate) for the best rate on a corporate or B2B card.

• If you process a high volume of phone and mail orders, is your data entry staff making sure to put in a billing zip code to get the proper rate for a key-entered transaction so it doesn’t downgrade to EIRF? Are the swipes at your POS terminals actually processing the transaction as a swiped (lowest rate) transaction, or putting it through as key- entered? If it’s the latter, the charge will probably downgrade to EIRF, because no billing zip code is entered. This would cause your rate to go from 1.54 percent to 2.3 percent—on a $100 dollar charge, you would pay an extra 76 cents. Trust me, those extra charges add up. And the list of potential triggers for higher fees goes on and on!

• Do you have a dedicated relationship manager who returns your help calls promptly, analyzes all your transactions so downgrades are kept to a minimum, and has the knowledge to educate the staff that handles credit card issues?

• When a customer uses a debit card as a credit card, are you getting the debit card interchange rate?


Debit vs. Credit
If your POS system can support pin-based debit, you can save a substantial amount of money. When a customer uses their debit card and doesn’t have the capability to enter their pin number, the card is processed through the credit card networks. To support pin-based debit, you can add a credit card processing terminal and pin pad for about $300 per terminal (assuming your POS provider can accommodate it). Depending on your transaction volume, the pay back period could be as little as two weeks.

Compare:

Visa swiped rate: 1.54 percent + $.10

Visa debit swiped rate: 1.03 percent + $.15 (if your processor has you set up right)

Mastercard swiped rate: 1.58 percent + $.10

Mastercard debit swiped rate: 1.05 percent + $.15 (if your processor has you set up right)

A typical pin-based debit rate would be $.65.

Assuming the above rates, the savings on a $100 transaction can be from $.50 to a $1.00. With the price of many lift tickets approaching $100, this is substantial money! Debit card use is starting to exceed credit cards, and this trend is only likely to keep rising.

If you are agonizing over laying people off, want to find the money for improvements, or increasing your advertising budget, take a good hard look at those credit card processing statements. You may be shocked to see how much money you could save.

David Eldredge is the internal auditor for Wachusett Mountain Ski Area.