Is It Possible to Receive Lower Costs than Current Processor Can Match while New Agent Profits?

Since I have been in the credit card processing industry for 16 years and have written two books and over 30 articles on helping agents help business owners accept credit cards, I have quite a few friends in the industry that contact me to discuss things they run across.

A couple of days ago, my friend Darren called from the Pittsburgh area credit card processing Independent Service Office (ISO) Steel City Payments LLC. He had found a Chinese restaurant processing about $167,000 per month. It is currently paying cost plus 60 basis points over Interchange plus $0.10 per transaction and Darren offered 6 basis points and $0.05 per transaction. (The specifics on pricing are for illustration. Cost per transaction listed does not include Interchange or brand fees which depends on card type and how processed and is the same for all processors).

If you figure a $30 average transaction and agent only profits from rate and transaction fees (they don’t, there are up to 40 different fees that can be assessed), each transaction costs (over Interchange and Brand Fees) an average of $0.28 per transaction and agent profit varies depending on the agent’s cost from the processor (called a Schedule A). Darren’s pricing offer would cost the merchant approximately 6.8 cents per transaction.

Darren’s offer to the merchant showed significant savings. The level of savings offered prompted the merchant to call the current provider, who told her that Darren’s pricing was not profitable and that there were bad reports on his company.

Comparing the offer from Darren to the current processor requires understanding a couple of things.

Comparing profitability

The current processor has a W-2 relationship with its agents. It pays 50% of the annual margin upfront and 15-25% residual (this agent makes 15%). Processors in this field include Heartland, and direct sides of Clearent and MainStream among others.

At 60 basis points and $0.10 per transactions with $30 average ticket. The cost to agent for transaction, overnight funding, and BIN (Bank Identification Number) fees are maybe 7 basis points and 3.5 cents leaving 53 basis points and 6.5 cents per transaction in profit. $167,000 with $30 average ticket is about 5567 transactions for the month. I calculate $885.10 for the 53 basis points and $361.86 for the transactional profit for total of $1,246.96. The upfront bonus for rate and trans fee would be about $7,481.76 (most have cap of $5,000 upfront). Monthly residual for this agent at 15% is $187.04 per month. Companies that pay upfront can reclaim the bonus if merchant leaves in the first year. The company also retains the full profit if the employee leaves the company for any reason before vesting (hitting about $2,000 a month in residuals).

On the 1099 (or Independent Contractor) side, cost prices for agent are lower and flexible depending upon the company and residual level contracted. I don’t know Darren’s rate but would estimate no early funding and BIN (as 1099 company does not have costs for benefits) and transaction costs of 2 cents with a residual of 80%. With profit levels at 6 basis points and 3 cents per transaction, $100.20 for the rate and $167.01 for a total of $267.21 with 80% residual so agent profit is $213.77.

Darren’s pricing is below the profitability level of the current processor, but as the math shows; Darren will be making about $26 a month more in residual than current agent. Also, with no upfront; Darren is not in danger of losing a large upfront bonus.

Company and Agent Reputation

Some agents are quick to condemn other companies for whatever reason. In the merchant processing arena there are two metaphors to keep in mind. One involves throwing stones while living in glass houses. The other refers to people slinging insults like monkeys slinging stuff at each other, no one comes away clean.

Agents that refer current customers or prospects to sites like to research competitors should not be surprised when they research the companies those agents represent.

If you look on sites like rip off reports or other consumer reporting sites, you will notice a high number of complaints for companies like North American Bancard (NAB), First Data, Global, Heartland, Chase, Bank of America, WorldPay, etc. But; those same companies are the largest companies in the industry. Many of which have over 100,000 merchants.

Most business owners do not know the name of their credit card processor without looking at their statement. If you ask many business owners who does their processing, most will say or think about the individual agent that signed them up. The one who made the promises.

Rip Off Report and other reputational companies rate the national companies based on complaints of people who felt cheated. Most every company out there has agents that cheat merchants and lie. Most every company has hard working, ethical agents who place customers’ needs over how much money they will bring in.

Of course, research the companies you are considering. But ask the individual agents about personal references of people they set up. Working with right individual is even more important than the company.


When I was a new agent, I tried to price as low as I could. I found complex pricing schemes that were costing companies thousands of dollars in unnecessary fees. But I found that by pricing too low that I was perceived to be inexperienced or worse.

The trick for card processing agents is pricing low enough below a competitor to get them to switch to you but to maintain a comfortable margin.

It is not always in the merchant’s best interest to consult with the current agent when considering competitor pricing. Although the current agent was correct to ask about other fees that might be involved, he should not automatically assume that pricing close to his cost would not be profitable to someone else. I also personally consider it bad form to talk smack about competitors. Remember that if you are researching competitors, take a look at current company through the same sources.

Different companies and different agents have different goals for profitability. When considering pricing options being offered, always ask about additional costs on the account. What level of service can you expect? Will you see the agent or talk to someone on an 800 number? Are there costs on the credit card terminal(s) or Point of Sale?

This article focuses on rates and transaction fees in a cost-plus environment for comparing profitability for the agent. But know that you will need to scrutinize other fees to be sure of overall cost.

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