18-35 Year Olds Use Credit Cards Less

When I turned 18, I couldn't wait to get a credit card. I was psyched the day that it arrived in the mail; I think that I went shopping with it the very next day. However, that does not mean that I was irresponsible with it. I understood that this was money that I had to pay back. I always paid more than the minimum every month and I was never late with it. During my early 20s I carried around about $3000 of credit card debt and then I paid it off. I haven't had any credit card debt since.

I was surprised when I read that debit cards are the more favored payment method over credit cards. Only 59% of 18-35 year olds use credit cards; in the "senior" population that number is 70%. So what's going on here? Is the younger generation smarter or less responsible? Or do they think they can't handle the responsibility of a credit card?

As of right now, I am still within the 18-35 year old bracket (Kudos to the news article that said this bracket was "young adults" - thank you!) and my husband and I almost exclusively use a credit card for everything. Groceries, gas, medical bills, vehicle registrations, almost everything we possibly can. We do this because we can afford to pay off the balance each and every month and collect rewards points for all of our purchases. Last year we were able to get almost $600 in rewards back which we put toward our Christmas purchases. It was awesome!

Credit cards can be your friend as long as you don't abuse them.

Retailers Not Happy With Checkout Fees

I wrote last week about the new credit card surcharges that went into effect on January 27, 2013 (also known as the checkout fee) that are designed to help retailers get some relief from credit card processing fees.

Unfortunately, most retailers don't see this as a solution.

Merchants in 40 states can now tack on a 1.5% to 4% surcharge on purchases paid for with credit cards (not debit cards). But most merchants have stated that they won't be passing this fee along in fear that customers won't buy from them all together if the fees are imposed. The law requires that customers know right up front that they will be charged a fee and the stores are required to have visible signage of this fact. The receipt must also itemize the surcharge separately. And this all holds true for purchases made online.

Many owners of small businesses said they could barely get people to comply with minimums they set on purchases made with a credit card (i.e., a $5 minimum purchase price must be met in order to use a card). Charging these fees would be next to impossible. To them, it's not a workable solution.

And the saga continues...

Credit Card Transaction Surcharges: Now Legal

Many merchants are unhappy with the fees they pay to accept credit cards from their customers, despite the fact that this is one of the many costs of doing business. Now business owners who feel they pay too much in processing fees in 40 states can rejoice: they are now legally allowed to tack on up to 4% extra when customers pay with a credit card (debit cards are exempt from this charge).

The new fee is called a "checkout fee" and is illegal in Californial, New York, Texas, Maine, Colorado, Florida, Kansas, Massachusetts, and Oklahoma. Many large corporations like Wal-Mart, McDonald's, and Macy's have already stated that they will not be imposing the checkout fee on their customers.

I really only see this happening with small, independent businesses as they have been the most vocal about payment processing fees. Some of them opt to go cash-only but they know that many of their customers prefer to use some type of plastic and could potentially lose the business altogether. I don't see how not accepting credit cards for your business is even an option in this day and age. Yes, there are merchant processing fees associated with taking credit card payments but there is also a cost associated with handling cash.

MasterCard has set up at website at www.CheckOutFacts.com to inform people of the new checkout fee.

What is 3rd Party Credit Card Processing?

With all of the industry mumbo-jumbo, it's hard to understand what the difference is between having your own merchant account of using a third party processor. But it's actually not as confusing as it needs to be.

When you sign up for a merchant account, you are essentially opening a bank account. You are given a merchant ID number (MID) and you are responsible for reaching out to customer service, etc if something isn't working properly. You'll be given a terminal to process the credit cards and the money you make off of those transactions will be transferred to your merchant account or another bank account of your choosing.

When you use a third party payment processor, you are using that company's merchant account (not your own). You aren't given a MID. You pay them to process your credit card transactions for you. Typically the rates are a higher than that of a traditional merchant account, but that depends on how much volume your business does.

There are advantages and disadvantages of using a third part processor. The advantages include:

1. Businesses can often get a approved more quickly and when they are just starting out.
2. If you're doing less than $1000 per month.
3. There are often no monthly fees for the account.

Of course, there are some downsides:

1. The fees end up being more if you are doing more than $1000 per month as a rule of thumb.
2. When you are processing online, customers are taken off of the website to the third party's site to process the payment.
3. The name of the third party processor is what appears on the customer's statement, not necessarily the merchant's name which can get confusing.
4. The money that you earn from the credit card transactions can be held for a longer period of time than that of a traditional merchant account.

Three of the most well known third party payment processors include PayPal, Clickbank, and 2Checkout.

Top Credit Card Processors of June 2012

Apparently there is a website, topcreditcardprocessors.com, that ranks the top 10 credit card processors in the US. I am guessing this happens every month, even though this is the first time I've heard about it. Here is their list:

1) Leaders Merchant Services

2) National Bankcard Inc.

3) Cornerstone Merchant Services, Inc.

4) Electronic Transfer Inc.

5) PaySimple

6) Heartland Payment Systems, Inc.

7) Merchant Warehouse

8) SafeCharge.com

9) Charge Anywhere Direct.

10) First Data Corporation

After seeing this I was really curious as to how this website determines which companies are in the Top 10. I looked up the "evaluation criteria" that they use, which is as follows:

1. How reliable the actual credit card processing service is.

2. How quickly customer service can handle/fix an issue.

3. How much volume the processor can handle.

4. How "stable" the service is. (This sounds a lot like the first one to me, they probably could be combined.)

5. Whether or not the company can accept automatic payments/charges.

According to the press release, topcreditcardprocessors.com also contacts customers of the companies to talk about their experiences. What stood out to me is that the customers were referred to as "references" which means that the processing company tells the evaluation team who to contact. Obviously the payment processor is going to have them contact the people who will give rave reviews. It's just like a job interview; you don't give out the contact info of people who won't sing your highest praises.

The other thing that sounds a little strange to me is that you have to apply to be evaluated. So this isn't a completely thorough review of all the processing companies; only those that have applied. How do we know that only 10 companies applied and that's why they are the "top 10"? 

I checked out their full disclosure and they state: "Any rankings are ultimately based on subjective opinions; our rankings provide a glimpse into whom we believe would rank #1 or #2, etc. based on our exhaustive research process.  We believe there is no one company that is the right fit for all potential buyers. The rankings are strictly our opinions based on our research process."

OK, that makes sense. So I read further. "We charge a standard fee from agencies and software developers for our time to evaluate."

Aha! I knew it. So it's a pay-to-play type of thing. I suspected that. It's kind of weird to pay to be evaluated to try to be the Top 10; I guess it's just good press for those companies.

What the Heck is a Qualified Rate for Processing?

One of the biggest questions people ask me is about how credit card processing pricing works. The cost is always one of the biggest things on a merchant's mind. The pricing for payment processing varies from company to company but it is always typically based on risk; the riskier your business model is and the method by which you are accepting transactions, you can expect to pay a higher rate.

The rates are broken down as follows:

1. Qualified Rate: This is the lowest rate that a merchant will pay when they accept a credit card. You can get a qualified rate when you physically accept and swipe the card to process the transaction (this is called card present). As you can see, this really only applies to businesses that have a physical location. If you are taking card numbers over the phone or through your website, you cannot get the qualified rate because those methods are considered more of a risk for fraud.

2. Mid-Qualified: Also called a partially qualified rate, this is the middle of the road of what you will pay and typically means that you are not physically swiping the customer's credit card into the terminal. The mid-qualified rate can be used if you have to key a credit card number into a terminal (instead of swipe) or if you have a website that uses a virtual terminal to process payments. This rate is the lowest rate an eCommerce store or telephone order operation can receive.

3. Non-Qualified: This basically means that you are not qualified to get the lower rates; this one is the highest. When people use special kinds of credit cards, like business credit cards or rewards cards, their transaction often will get charged the highest rate. In addition, if there is a situation where a card is acepted without the address verification being performed, that transaction will get the non-qualified rate. 

One of the misconceptions of the pricing is that your business will fall into only one of the three rates, but any of your transactions can fall into the above rates. Each and every transaction may not necessarily get the same rate. Just remember, if you have a brick and mortar business, it is likely that the majority of your transactions will get the qualified rate. If you have a web store, you will never get the qualified rate but most of your transactions will be mid-qualified. And anyone can have transactions in which the non-qualified rate is applied when customers use what is considered "special" types of cards.

I hope that helped clear things up a bit!

Businesses That Don't Accept Plastic Lose $100 Billion in Sales Annually

Intuit announced today the results of their research on small businesses in the US and how they accept payments from their customers. Apparently 55% of these businesses do not accept credit cards and they are missing out. On the whole, $100 billion in sales is lost every year, averaging out to about $7,000 per business (15 million SMBs don't accept cards). When you hear $100 billion, you think "WOW!" But then when I heard it only averaged out to about $7,000 lost per year I didn't think that number was very impressive.

"Oh, just $7,000 per business? That's not much," I said to a group of coworkers. But one of them piped up and reminded me that these are small businesses and another $7,000 a year in sales could mean a lot for them. She's right.

It makes me wonder why over half of small businesses in the US just won't accept plastic. I mean, I do know why - the majority of them don't want to pay the fees - but they would still make more money if they just took the plunge. I have tried to convince many a merchant of this fact unsuccessfully. When you are a small business trying to make it, every penny counts and they don't want to hear about a service they have to pay for. But this doesn't stop me from trying to convince them otherwise every chance I get!

If you are interested in more fun payment facts from Intuit, they put everything in a cool infographic: