Business Banking: How Banks Leverage Entrepreneurs For Wealth

Business Banking: How Banks Leverage Entrepreneurs For Wealth

As a business owner, you rely on a quality business banking relationship to help you be successful as banking is an integral part of paying yourself, your employees, and your vendors. And while having a quality business banking relationship is important, it’s equally important to understand how banks leverage your business economically for their own financial success.

Many business owners I’ve met have explained that they get an amazing deal on their merchant services from their bank because they give them 100% of their business. Some have even explained high signing bonuses to move their merchant services.

As a merchant service provider, even I started to wonder where all this money was coming from so I decided to do a little research.

According to the FDIC, Bank of America had a net income of 6,668,000,000 in their first quarter of 2018! Yes, that is over 6 billion with a capital B! That is their profit after all their expenses! Bank of America, according to Statista, earned in excess of 18,000,000,000 in 2017. That was eye-opening, so I chose to dig a little deeper to evaluate a few areas banks leverage business owners to create wealth.

Here are 4 of the top ways banks leverage your business to create wealth:

DEPOSITS

One of the most powerful ways banks create wealth is by accepting your deposits for virtually nothing in return and funding loans against your deposits. They convince you of the value they bring when you give them your money for free and they earn 5-10% interest by lending it to a business owner needing equipment financing or an SBA Loan.

INTERCHANGE REIMBURSEMENTS

If you accept credit & debit cards in your business, you may not know that it’s not only Visa making millions of dollars off the backs of business owners. It’s the banks that issue the debit & credit cards with all the frequent flyer miles that earn 80% of the merchant fees you pay every month. The banks attract new members to their bank by offering high rewards cards and then make you pay for them. Visa, MasterCard, and Discover only get a smaller piece of the action as we discuss here.

CREDIT CARD INTEREST

Banks issue credit cards, and purchasing cards for business banking clients to pay vendors with, allowing banks to earn income from the interest earned from the balance on the credit card and any other expenses related to their programs. This becomes another profit center for banks to profit from their business banking clients.

CREDIT CARD PROCESSING

Finally, banks offer credit card processing to earn additional revenue from their business banking clients. With over 90% of the banks not having ownership of a credit card processing company, they turn to one of the dozen credit card processing platforms in the U.S. under a referral program or a white-label program. The greatest misconception about the credit card processing offered to business banking clients is that they get some form of a discount by “processing” with the bank. This is inaccurate since the banks’ primary objective is to make money and they are often in the same position as some business banking clients, switching processors to find a better deal. You can learn more about the bank merchant services here.

The intent of this article is to open your eyes to how banks operate and the economics behind how they profit, not to shame banks for making money for providing a quality service. It’s important to remember the value you bring to the bank as a successful entrepreneur and how critical you are to their success.

If you are in the process of evaluating your business banking relationship and would like a referral, don’t hesitate to start a conversation! We’d love to help!

The Top 5 Myths Of Merchant Services

The Top 5 Myths Of Merchant Services

As a business owner, dealing with credit card processing can be challenging, especially when you decide to search for a new credit card processor.

When you start your search, you want to understand how the industry works so you don’t choose the wrong provider for the wrong reasons.

Credit card processing agents aren’t all experts, and some will intentionally deceive you to win your business.

Here are 5 of the top myths of merchant services you’ll likely hear from agents in the payments industry:

“We Lower Your Price By Being A Direct Processor”

90% of the fees you pay every month aren’t controlled by the payment processors, they are set by Visa, MasterCard, Discover, and American Express. The only fee your provider has control over is the profit they earn from transaction, percentage, and monthly fees. These fees vary from provider to provider and being a direct processor doesn’t mean less fees are passed to you as a business owner. In fact, many direct processing agents are employees and have less control over the proposals they design for their business customers.

“We Negotiate Better Rates From Visa & MasterCard”

No processor gets special rates or discounts from Visa, MasterCard, Discover, and American Express. The 90% of your bill that is set by Visa, MasterCard, Discover, and American Express doesn’t vary from provider to provider. All payment processors are required to pay the same fees to the banks that issue credit & debit cards. These fees are referred to as Interchange.

“We Have The Best Payment Security”

The strongest security standards are currently referred to as P2PE, a form of encryption that encrypts your transactions when your credit or debit card is swiped, keyed, or dipped. You can determine if your current company provides PCI-Validated solutions on the PCI Security Standard Council’s website.

“We Do Your PCI Compliance For You”

PCI Compliance consists of 12 requirements that include your annual questionnaire, network testing, and a security awareness program to name a few. Unless the processor has taken on the responsibility of educating your entire staff on payment security guidelines, configuring your network, scanning the network, updating all the passwords for your office technology, and keeping an updated diagram of your network, they aren’t doing your PCI for you. The best way to reduce these PCI burdens is to use a PCI-Validated P2PE solution as previously mentioned.

“We Will Let You Process Payments For 0%”

Due to a legislation passed in 2013, you now have the right, in most states, to add a fee to credit card transactions. If you are an education or government institution, you can add a fee to a debit or a credit card. While this can get you 0% if you’re an education or government agency, it’s technically illegal for a business in any other category. It also doesn’t address the potential loss of business or negative sentiment you may experience when to add a 4% fee to your customers’ purchase.

How We Help

Northwest Advisory Group is a merchant service provider that helps businesses eliminate the stress related to managing payment processing. We accomplish that by understanding the needs of our clients and recommending payment solutions that help them reduce costs, save time, and increase revenue.

If you’re interested in learning more about the myths of merchant services, let’s start a conversation.

Where Credit Card Processing Fees Go

Where Credit Card Processing Fees Go

Every day, millions of business owners pay credit card processing fees without knowing where the fees go.

To make matters worse, there are millions of credit card processing agents calling on these business owners every day, promising them reduced credit card processing fees.

In today’s article, I will explain where your credit card processing fees go, so you have more knowledge about choosing your next credit card processor.

Here are a few definitions for the terms used in this brief article:

Card Issuing Bank: Bank that issued the credit/debit card being
used to make a purchase. The fees paid to Card Issuing Banks are
referred to as Interchange.

Card Brands: Visa, MasterCard, Discover, American Express. The
fees paid to Card Brands are referred to as Dues & Assessments.

Payment Processor: The service provider that authorizes and
routes funds from the paying customer to the business, while
paying the associated fees to Visa, MasterCard, Discover, American
Express, and the Card Issuing Banks. The fees paid to the Payment
Processor is referred to as Mark-Up.

WHERE MERCHANT FEES GO

When you sign up for a merchant account to accept credit cards, you are agreeing to pay several financial institutions when the fees are drafted from your bank account. You are paying the Card Issuing Bank, the Card Brands, and the Payment Processor.

The credit card processing fees paid to the Card Issuing Bank are called Interchange and equate to over 80% of your credit card processing fees. These fees are non-negotiable, so no credit card processor can reduce these fees.

The credit card processing fees paid to the Card Brands are called Dues & Assessments and are less than 10% of your fees and are also non-negotiable.

So 90% of the credit card processing fees you pay every month are non-negotiable and are paid to the financial institutions that issue credit & debit cards and the Card Brands like Visa, MasterCard, Discover, and American Express. The only fees that are negotiable are the credit card processing fees paid to the Payment Processor who provided you with the merchant account. Their fees are referred to as Processor Markup.

PROCESSOR MARK-UP

There are only a dozen or so companies that transfer money in North America for credit card processing. These are companies like TSYS, Heartland, First Data, Chase Paymentech, EVO, Elavon, Global Payments, WorldPay, Vantiv, and Clearent. Over 90% of all credit & debit card transactions are processed on these platforms. These organizations profit by charging you a Markup on top of the credit card processing fees you pay to the Card Issuing Banks, and the Card Brands. Sometimes they transparently bill you, other times the fees are hidden among fees paid to Visa, MasterCard, Discover, and American Express.

Here are 39 of the most commonly billed fees:

1. Monthly Support Fee
2. Statement Fee
3. PCI Compliance Fee
4. Transaction Fee
5. Per Item Fee
6. Authorization Fee
7. Next Day Funding Fee
8. Percentage Per Item Fee
9. Customer Support Fee
10. Monthly Maintenance Fee
11. Regulatory Fee
12. Annual Fee
13. Inflated Interchange Fee
14. Inflated Network Fee
15. Surcharge Fee
16. Backbill Fee
17. Qualified Fee
18. Mid-Qualified Fee
19. Non-Qualified Fee
20. Keyed Transaction Fee
21. AVS Fee
22. Batch Header Fee
23. Risk Monitoring Fee
24. Early Termination Fee
25. Non-EMV Fee
26. Data Encryption Fee
27. Interchange Clearing Fee
28. Monthly Minimum Fee
29. Voice Authorization Fee
30. Chargeback Fee
31. Application Fee
32. Gateway Fee
33. Retrieval Fee
34. Data Breach Fee
35. Savings Program Fee
36. Equipment Leasing Fee
37. Reporting Fee
38. Compliance Fee
39. Refund Fee

HOW WE HELP

When we work with businesses, we focus on taking the time to understand their industry, business and how they are currently accepting payments. We then analyze their systems to make sure they are processing with the most efficient payment processor for their industry and ensure they are being billed properly by their payment processor. Finally, we help them eliminate any unnecessary Mark-Up fees they pay while providing secure, flexible payment processing solutions.

If you’re thinking about your credit card processing fees and would like some help, let’s start a conversation!

Bank Merchant Services: Is It Right For Your Business?

Bank Merchant Services: Is It Right For Your Business?

When most business owners start their business, one of the first things they do after getting their business license is open a bank account for their business.

It’s an exciting time!

This is also a time when business owners are evaluating the financial products they may need as they grow their business.

Business owners along their journey in entrepreneurship may need an SBA Loan, Line of Credit, and most likely, merchant services so they can accept payment from their customers.

Since most banks have a good size network of business owners in their local community, it is important for them to offer critical financial products that a business may need to assist in attracting new business clients, while also adding an additional profit center for their institution.

This is where bank merchant services fit into their portfolio of products.

Only a couple banks actually own a payment processing platform, so what they do is act as a referral partner for an actual credit card processor.

Through this partnership with one of the dozen North American payment processors, they get paid a recurring referral fee to refer their business clients to the payment processor.

Are Bank Merchant Services Better For Your Business?

It really depends, most merchants we’ve transitioned away from the bank merchant services have been surprised at how expensive their bank relationship was in comparison to the bank independent offers we were able to secure for them.

This is usually because banks often mislead merchants by presenting their services in bundles or requiring businesses to use their merchant services in order to get loans, when in fact, the bank merchant services really have no impact on the actual economics of the loans being offered.

This isn’t all banks, there are many very honest and ethical banks that help their business owner clients secure competitive pricing on all of the financial products they offer.

Why Your Best Deal May Not Be At The Bank

Credit card processors approach banks an offer them better compensation, better products, and better service than their current processing partner. This causes banks to switch in search of greener pastures; much like us business owners do when evaluating our payment processing situation.

Here are 4 reasons why your best deal may not be with the bank merchant services:

  • Single Provider: When the bank signs the partnership agreement with a credit card processor, it is usually an exclusive agreement that requires them to refer business to that credit card processor. How competitive will a credit card processor be if they know there is no competition? Because of the nature of the business relationship, the processor generally charges a little more to make up for the referral fees paid to the bank.
  • Wrong Provider: All payment processors aren’t a great fit for all industries. If your bank is tied to Processor A, but Processor B specializes in working with businesses in your industry, then you are at a disadvantage by working with your banks’ chosen credit card processor. Having the right processor for your industry not only will help you secure the most efficient credit card processing rates, but will also help you find the most effective business tools for processing payments for your clients.
  • Dishonest Provider: All payment processors aren’t necessarily ethical. We often hear banks complain about their payment processing relationship because of how the processor hikes the credit card processing rates on their business clients, making it difficult for the bank to retain clients. If your banks’ payment processor isn’t being honest with them, they may not be honest with you either.
  • No Advocate: When you sign up with the bank merchant services, you rarely have an account manager that is responsible for managing your bank merchant services account. This makes it difficult for you to resolve challenges with your account, and also allows the bank payment processing partner to increase your fees without notifying your bank.

Securing the best merchant account for your business requires having access to all the payment platforms available to you.  At the Northwest Advisory Group, we give you access to the platforms and tools you need to be efficient and effective with handling payments in your business while also helping you manage your payment processing relationship.

If you’re using the bank merchant services and you’re wondering if it is right for your business, we’d love to have a conversation with you.

Let’s talk!

You Don’t Need Another Payment Processor

You Don’t Need Another Payment Processor

I know it sounds odd that I would say that, but it’s the truth.

There are 10-15 payment processing platforms in the United States that deposit money.

The most commonly used platforms are Elavon, First Data, WorldPay, Vantiv, Chase Paymentech, Global Payments, Heartland, TSYS, EVO, and Clearent. Over 90% of all payments processed in North America are processed on these platforms, which means, there’s a 90% chance you’re using one of these providers currently.

There’s also a 90% chance you will be solicited for credit card processing in the next 7 days by a provider.

How do I know that?

Because there are thousands of resellers selling credit card processing for these platforms and their reselling partners.

These companies hire hundreds of credit card processing agents every year and retain about 10% of their team annually, which is why the customer service always falls apart.

Why It Always Falls Apart

The reason it always falls apart with your merchant account is this:

  • You Don’t Have An Interview Process:

Would you hire an employee without first having a job description and a formal interview with a list of questions? Likely not! Why do we only ask a couple questions when it comes to selecting a merchant account provider then? Having an interview process will help you weed out agents that wouldn’t be a good fit for your business. It will also help you secure a provider based on what is critical for your business as it relates to price, technology, and customer service.

  • Savings Is Your Only Goal:

Payment processors have intentionally deployed deceptive billing practices so they can overcharge merchants after promising them significant savings in their proposals. Choosing a provider based solely on how much money they claim they can save you is deadly and causes merchants to waste a significant amount of money on credit card processing. We recently helped a merchant that had wasted over $60,000 by working with a processor that promised low rates but buried fees in their statements.

We find that the merchants that sign with the company promising the lowest rates often get taken advantage of with equipment leases, high termination fees, and poor customer service.

  • You Have A Credit Card Rep Instead Of An Advisor:

A credit card representative that works for a payment processor has a job to do, and that is to get you to sign a contract with their company. When you sign a contract with a credit card processor, what’s their penalty when they underperform? They don’t have a penalty which is why we don’t recommend you sign one.

A contract signed in their favor is what allows payment processors to treat you so poorly while they make money on your account.

These processors are also great at teaching their representatives how to sell the services, but not how the industry works, which costs you more money as a business owner.

Most of my coworkers and managers at the processor I worked at didn’t know how to read a credit card processing statement. Can you imagine that? Yet they will walk into your business and promise you savings!

You Need A Relationship.

You need a relationship that is positioned to do what is right for your business. One that understands the industry, the technology, the various payment platforms, and how to manage your payment processing expenses.

If the relationship is right, the processing rates and technology will be right.

The right relationship will empower you to focus on running your business instead of trying to sort through all the capabilities of the various credit card processing platforms.

The right relationship will position your company to receive the most favorable payment processing terms and technology while removing the failure points in customer service.

That is what the Northwest Advisory Group was established to do.

We have partnerships with most of the payment processing platforms available in North America and leverage our experience and relationships to extend the best solutions to our clients.

If you’re looking for the right relationship, let’s talk!