When A Good Rate Goes Bad

A credit card processing buyer's guide
by Jim Olizarowicz

Anyone who has ever had the responsibility of choosing credit card processing services for a hotel knows the drill. You call your local Merchant Service Provider and request a rate quote. After being grilled about your average ticket size, your volume, your business credit and your sales projections, you finally hammer out what appears to be an acceptable discount rate. Think you’re over the hump? Well think again.

Just as that warm and fuzzy feeling sets in- the MSP salesperson swoops in for the kill. How you ask? There’s a small, yet essential, issue of exactly how you will connect your point of sale systems (PMS, Restaurant and Retail POS, CRS, Web Site, etc) to the MSP’s processing host. Beware, the technology you chose to process your transactions will have a profound effect on just how good that discount rate turns out to be.

Based on transaction volume you may require high-speed leased line connectivity, but more often than not, a standard dial-up line will do the trick. But whichever method you choose, be cautious when your MSP encourages you to use a single MID (merchant identification) for all your points of sale. The sales pitches are subtle and varied, and their motives may not be in your best interest, but they typically sound like, "You’ll save yourself a lot of time and headaches by running all your systems though the PMS interface, using the hotel merchant ID". Red Flag #1 has just been raised.

What is a MID?

To get a better sense of what we’re talking about let’s review exactly what a MID is. A MID is a Merchant Identification number. These numbers are assigned to each of your company’s profit centers and identifies them as distinct accounting entities, allowing each point of sale to be recognized individually on your monthly statement. For all practical purposes your MSP and Processing Company classify all businesses under one or more of the following business types: Retail, Food & Beverage, Hotel, Mail Order/Telephone Order, Auto Rental, Advanced Reservations (Hotel), Automated Fuel Dispenser, Airline, Supermarket and E-Commerce. Each MID type has its own set of rules that govern how transactions are authorized, deposited and qualified and each has its own base discount rate. It’s important to note that the highest Retail MID rate is still very much lower than the lowest Hotel MID rate and, according to card association regulations, these transaction types can never be mixed. The significance of this fact will become more evident later on in this article.

The assignment of individual MIDs enables you to separately track the transactions for each one of your profit centers. In a hotel environment it is nearly impossible for a hotel auditor to split out food & beverage charges from front desk charges from retail outlet charges without MID separation. In addition to simplifying your accounting process and enhancing reporting capabilities, the use of different MIDs for different profits center types enables a hotel to take advantage of the best discount rates available for each profit center. The common practice of routing all charges through a single Hotel MID causes transactions from your non-hotel points of sale to be "unqualified" for their lowest rate. So remember, your ability to separate transactions based on their MID type has a profound effect on your discount rate.

"The Salesperson for my bank/processor tells me we should write an interface direct to their host. Is that a good idea?" Red Flag #2

Only if you plan to stay with the bank/processor for a long, long time. A bank/processor has the goal of keeping your business for as long as possible. If you write a direct interface to a bank/processor, you have built your own barrier to moving to another bank/processor. Having to re-write an interface to a new bank/processor takes time and costs money and is disruptive to your organization. The bank/processor counts on this fact when they raise your discount rate and/or lower their service level.

Direct interfaces also mean that each of your point of sale system vendors has to write separate interfaces. This means that if you have 4 interfaces (Front Desk PMS, Restaurant POS, Lounge POS & Gift Shop POS, for instance) you’re locked into the bank/processor 4 times. Point of sale system vendors would rather write an interface to universal gateway that can give them access to multiple processors, without requiring them to change a line of code. For that reason they are resistant to writing direct interfaces and will charge more for a direct interface.

In short, the answer is NO! Don't let yourself get locked into a direct interface.

So what should you do when your MSP encourages you to use their proprietary gateway application to process your credit cards? As with the direct interface, you need to carefully examine the motives behind this offer. If your MSP’s solution does not allow you to change banks and or processors without buying new software, then run Flag #3 up the pole.

We’ve done a pretty thorough job of telling you what not to do. But what should you look for when its time to choose payment processing technology? We suggest using the "Seven C’s" approach.

No one said this process was easy. But if you ask the right questions and know what your options are, your efforts will be rewarded. And remember, if your MSP tries to convince you to write a direct interface, run all transactions through a single hotel MID, use gateway software that only works with their processor, or agree to a "bundled/single" rate deal, just say NO. Because it’s a shame when a good rate goes bad.