EVANSTON — The monthly Chamber of Commerce luncheon for October featured Ron Flake with WyoBiz Solutions speaking about credit cards and credit card processing fees. Flake started his business about 10 years ago after seeing a community need with too many small businesses paying too much in credit card processing fees.
Flake opened the Oct. 11 luncheon saying, “We have turned into an electronic payment society,” and pointing out how rare it is to find a cash-only business anymore. Flake said current credit card volume in the U.S. amounts to about $4 trillion. He said most businesses take credit cards and they spend sometimes huge sums of money to be able to accept and process those cards.
Flake explained that every time a person swipes a card, or uses a chip reader, the bank that issued that particular card is making money, usually a percentage of the sale plus a set fee per transaction. Merchant credit card fees can be set up in a couple of different ways, including tiered pricing that Flake said hides the true costs by using teaser rates and not including all the fees a processor is making. In contrast, cost plus pricing, which is used by most companies, shows the true costs and processing margins.
Other fees charged can include statement fees, regulatory fees, debit access fees, monthly minimum fees, equipment lease fees and more. Flake said some of these amount to “junk fees” business owners should watch out for, such as merchant advantage fees, breach protection fees, membership fees and monthly maintenance fees. “It’s not uncommon to look at a statement and see more than $100 each month in junk fees,” said Flake.
Flake said he is particularly bothered by equipment lease fees charged to rent credit card equipment. “There’s a massive profit margin on these,” he said. “I consider them highly unethical.”
He explained there are different credit card processing rates associated with different types of businesses based on the risk associated with business types. Flake said a business accepting a credit card and then being paid for that transaction by the bank is essentially a type of short-term loan; therefore, risk is a consideration. For example, restaurants pay a different processing rate than auto parts stores, etc. The rates are set by the credit card companies and are the same regardless of whether the business is a large chain or a small local business.
Flake also discussed some security measures businesses could take to protect consumer information. He said it’s a good idea for a business to have an external scanner look for vulnerabilities by providing an IP address and letting an expert look to see where there might be security gaps. He also recommended businesses unplug their routers once a month and leave them unplugged for a couple of minutes to clear the log of IP addresses in the system, something he recommends people do with their home routers as well.
Flake explained how the chips in credit and debit cards work to make purchases more secure. He said every time a chip card is inserted into a reader, a new security code is generated and attached to that particular chip. The next time that card is used, the reader will be looking for the code generated at the last purchase point and will then generate a new code and so on. He said this feature makes chip cards much more secure than the magnetic stripe on the back, which he said is the equivalent of “an 8-track or a cassette tape.”
Flake said the technology associated with the old striped cards makes them much more vulnerable to hacking, especially as businesses like gas stations that still don’t have chip readers are relatively easy targets for criminals who install skimmers that gather all the information off a striped card and allow them to make duplicate cards. He said over the next couple of years gas stations should be transitioning over to chip readers as well.
Flake said there have been more hacks in the past six months than ever before, but also said the risk is still relatively low and consumers have zero liability for fraudulent purchases resulting from hacks and theft.
“Really, it’s absolutely amazing our financial system works as well as it does,” he said.