Credit Card Processing For Your Salon/Spa Made Simple

Tips to Help You Profit from This Convenient Payment Option
by Marc Mataya

Credit and Debit cards are very quickly replacing cash and checks as the preferred method of payment in all types of businesses including hair salons and spas. Their convenience for business owner and consumer alike result in many benefits including more efficiency, greater customer satisfaction and increased sales.

But how can you know whether or not you are getting the best value from your credit card processing agent or how to compare one agent to another to make the best choice?

Total Cost: The Only Thing That Counts

If you currently take credit and debit cards, you can quickly determine whether or not your costs are reasonable by calculating your hair salon's Total Cost Percentage for processing services. Take your total monthly Visa and Mastercard credit card processing fees, divide by your total sales, then multiply by 100.

(Total monthly bill / Total sales for the month) x 100 = Total Cost Percentage

This gives you the percentage of sales that is going to credit card processing costs. This formula is very important because it encompasses ALL of your fees collectively. If this amount is more than two percent, you should consider shopping for a better deal.

In the tradition of "trust but verify," this article provides some essential background information about the credit card processing industry as well as some advice on how to compare agents before making your choice on who is best for your hair salon.

You Are Buying a Service

Choosing a credit card processing agent is a lot like choosing an auto mechanic. You are buying a service from the mechanic, but remember that he also has business expenses. He has to pay rent for his shop, buy his tools and supplies and pay other bills. When you find a good, honest mechanic, it becomes a partnership that benefits both parties: He recommends the right services and options and keeps your car running smoothly. You, in turn, pay for those values, enjoy a safe and reliable car and lower costs in the long run.

In credit card processing, expansive technical resources and networks must work harmoniously to handle transactions and ultimately put money into your checking account. These are some of the costs your agent will be paying in order to handle your account.

Your choice of an agent has a great deal to do with Total Cost, but you are also shopping for reliability, integrity, access to solid information and advice, and someone who will work with you as your business grows and changes to make sure you have the tools you need.

All agents start with the same rates and fees from Visa and Mastercard. These are called "Interchange Rates and Assessment Fees" (see Chart). The difference in transaction costs between one agent and the next is the difference between the agents' rate structures. As long as your Total Cost is within an acceptable range, you may choose to pay slightly more for better advice and services such as faster deposits, better equipment, better support, etc., but you should do so consciously.

Interchange Rates = Wholesale

Visa and Mastercard are associations of banks that lend money to consumers. They base their rates on risk and to pay for the perks they offer. Rates are set each April and change by plus or minus .02% per year on average. Rates differ by the type of card to which they are applied ("standard no perks," "rewards," corporate, etc.). Rates also are set by type of transaction (e.g., riskier "key entered" transactions garner higher costs). You cannot choose which types of cards to accept, but you can control things such as swiping versus manual key entry of card numbers, which can help you manage costs.

The rates structures used by Visa and Mastercard -- Interchange Rates and Assessment Fees -- are publicly available information. The following is a sample of Interchange Rates and how they break down.

Sample Interchange Rates and Assessment Fees

Card Type Interchange Settlement Fee Assessment Fee
Visa DEBIT Card 1.03% $0.15 .0925%
MC DEBIT Card 1.05% $0.15 .095%
Visa Credit Card 1.54% $0.10 .0925%
MC Credit Card 1.64% $0.10 .095%
Visa Rewards Card 1.65% $0.10 .0925%
MC Rewards Card 1.74% $0.10 .095%
Visa Key Entered 1.85% $0.10 .0925%
MC Key Entered 1.95% $0.10 .095%

These are just a few examples of card and transaction types and their rates (2006). For a full listing of rates, search "Interchange Rates" or go to the following web addresses: Visa or MasterCard

"Downgrade," "partially qualifying" and "non-qualifying" are designations Visa and Mastercard use to indicate riskier transactions for which they charge higher rates, and are terms you may see on your statements.

The rates you are ultimately charged break down as follows:

  • Authorization fee: You will not see this fee on the Interchange chart. This is a rate charged by your processor at the point of the transaction. Authorization fees (usually about 15 cents) are important when your average charge is small (say, under $10). Otherwise, always go for the lowest transaction rate you can get and don't worry too much about Authorization fees since 15 cents on a $100 charge is nominal.
  • Interchange Rate: This is the rate Visa and Mastercard charge all agents equally to process the transaction and includes a percentage plus a Settlement Fee (usually around 10 cents per transaction).
  • Assessment Fee: This is an additional fraction of a percent that Visa and Mastercard charge for every transaction. Currently these are at 0.0925% (0.000925) for Visa, and 0.095% for Mastercard. They typically do not change.
  • Agent's Rate: Also referred to as a markup for the purposes of this article, this is the percentage of each transaction amount the agent adds to cover his services.
    In addition, there may be a monthly fee from the processor of about $10, and you will need to purchase equipment (card reader, pinpads or terminals) as well.

Controlling Transaction Costs

Today's trend is toward more and more "rewards" cards which have higher rates than standard "no perks" cards however, approximately 65% (versus 50% just two years ago) of all credit transactions are now debit cards, which can prove to be a real cost savings for your hair salon since debit cards have the lowest risk and, in turn, the lowest rates compared to all other credit cards.

  • Accepting PIN-based debit cards (having customers enter their PIN number) can realize substantial savings because they are charged a flat fee with NO percentage-based rate. This becomes advantageous on transactions above $50, where the authorization and settlement fees are offset by the transaction rate savings.
  • To get the best qualifying rates, you must settle your transactions within 24 hours. Late settlements will incur higher rates.
  • Train your staff well to guard against higher transaction rates and surcharges that result from human error. Avoid key-entered transactions: If the card swipe doesn't work the first time, try again, don't immediately enter the information by hand. Also, make sure your staff answers all inquiries the terminal makes during a transaction rather than pushing the Enter key to bypass them. Prompts can include employee numbers to corporate tax amounts which help your patients better manage their credit card purchases.
  • Automatically collecting money (recurring billing) is always a good thing. Memberships or loyalty programs with recurring billing can provide a steady, predictable influx of cash. You can offer this option to your hair salon guests on high-cost services or treatment series to help "close the deal" while allowing them to absorb costs incrementally. Just note that after the first swiped transaction, subsequent billings are considered key-entered transactions and are charged at a slightly higher rate. This additional cost is normally well justified by the income generated.
  • Use an "integrated" credit card processing solution if at all possible. Many software programs for hair salons and spas now incorporate this service into their systems, offering greater accuracy and efficiency. Not only are there fewer steps involved in processing a transaction, but there is less chance for human error, records are kept automatically, and all transactions -- cash and credit -- are available on your reports and receipts.

Guidelines for Choosing an Agent

There are a number of quantifiable points of comparison which you can use to help you choose an agent that's right for your hair salon. The credit card processing industry has exploded in recent years, opening up both your choices for getting a good deal and the chance that you could be taken by a clever, but deceptive pricing structure.

These guidelines will help you determine the truth about what a prospective agent is offering.

  • Trust your gut and choose someone you feel comfortable with, whether they're someone you've worked with for years, such as your bank or CSM software company, or someone new who demonstrates integrity in their approach. It's easy just to go to your bank, but banks don't always offer the best deals on credit card processing, and since any agent can deposit funds into any bank account, access is not the issue. Still, check with your bank; it will serve as a good basis for comparison as you shop for an agent.
  • For hair salons and spas whose smallest charges are likely to be co-pays, but whose transactions can run hundreds or even thousands of dollars, authorization rates are really not an issue. Your main concern should be the transaction rate and, more specifically, your prospective agent's markup of Interchange.
  • Look for "Interchange Plus" where the "Plus" is a SET percentage rate for ALL transactions and card types. A "tiered" system, where the agent's markup percentage varies depending upon the transaction (qualifying, partially qualifying, non-qualifying) or card type (standard, rewards, corporate, etc.) is inherently unfair to you. For one thing, in order to come up with a tiered charge structure for your business, the agent has to attempt to forecast your sales volumes, transaction amounts and likely card type usage. This usually results in a system of inflated rates and surcharges. Tiered systems are smoke and mirrors. Skip the magic and look for an agent who charges a flat percentage over Interchange, regardless of the transaction or card type, and you'll be getting the better deal.
  • Debit cards are charged at the lowest Interchange Rates, but again, make sure you are on an Interchange Plus rate structure. A tiered system will likely set a higher transaction rate across the board that will apply to debit cards as well, resulting in your paying too much for debit transactions.
  • Look for clear, concise reporting on your monthly statement. Ask to see a sample statement from any prospective agent. The statement should clearly show each type of transaction and card taken, the rate charged for each, and any additional itemized charges (such as monthly service fees or transfer fees for American Express transactions).
  • Be wary of agents who offer "custom" deals, who refuse to show you Interchange rates (should you ask for them) or who won't show you their statements and other paperwork.
  • Be suspicious if a prospective agent wants to see your previous statement(s), and don't provide them. With Interchange Plus, they don't need to know anything about your customers' purchasing habits or card types; the markup is the same regardless. If you do a high volume of sales with large tickets, telling them the average ticket amount might allow you to negotiate for a better rate or lower authorization fee. Again, the lower transaction rate is always going to be the better deal on larger charges.
  • Buy your own terminals and other hardware from the agent. Don't lease equipment and don't accept "free" equipment for signing up. In this business, there is no "free"; you will end up paying for it somewhere in your fee structure. You should not have to pay "set up" fees or annual fees for card processing, although some specialized equipment, such as wireless terminals, often require a setup fee for their network. Most agents charge a monthly fee (usually around $10). Expect to pay $350 and up for your terminal.
  • Look for a processor who gets the money from your charges into your account within 24 to 48 hours and make sure it says that in your contract. Note that the clock starts when you settle your transactions, not when you swipe the card. For example, if you settle the batch on Friday night at six o'clock, some banks won't begin the process until Monday morning during normal business hours.
  • Choose an agent with a flat cancellation fee and be sure the fee is written into your contract. Believe it or not, there are companies who will charge a percentage of past transactions upon cancellation. A standard fee should be no more than $300 for cancellation within three years.
  • Don't be afraid of the cancellation fee. If you find that you are paying more than you expected in higher transaction rates or surcharges and decide to find another agent, the cancellation fee likely will be offset by the lower rates and fees you get from your new agent.

To get started, ask around. Talk to someone you know and trust -- business colleagues, associations of business owners, your accountant, others with whom you have had a business relationship in the past. Find out who they use and what kind of experiences they’ve had. Then you can begin to talk directly with the agents themselves.

Credit and debit cards have been proven to increase average sales by significant margins and are an excellent customer service as well as an easier way for you to keep track of sales and payments. The right processing agent can be a tremendous asset, contributing to the growth and future success of your hair salon or practice.

Marc Mataya is Vice President of Sales and Marketing for ClienTrak! Software, Inc., which develops and markets customer management software and integrated payment systems to medical spas and practices.  Marc specializes in the intricacies of the credit card processing industry and enjoys helping business owners understand and utilize this valuable resource to their best advantage. Call Marc Mataya at 888-313-1308.

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