Hi, my name is James Shepherd.
We are in a mini series right now kind of back to the basics, just talking about merchant
services.
What is it?
How does it work?
In the last video, I talked about to you about what is merchant services and we talked about
moving money.
Basically we are just taking the customer’s money and getting it over to the business
owner.
What we talked about in the last one is kind of the history of merchant services.
How did it start?
What does it do?
What is it?
This time we are going to talk about how do you actually make money selling merchant services?
With the moving of the money around, how does that actually work?
As we discussed in the last video, there are some costs of moving the money around, and
those costs are primarily called the interchange fees.
Interchange fees are charged by the banks.
The banks say, “We are going to charge an interchange fee in order to move this money
around.”
They are going to hold a certain amount of money.
The way it really works with interchange is that, if you are a consumer, you walk into
a business, pull out your card and you spend $100.
What happens is when the money leaves your bank, so let’s say you bank at Chase and
let’s say that the business owner banks at Wells Fargo.
So Chase bank needs to move $100 from your account at Chase to the business owner’s
account at Wells Fargo.
What actually happens is your bank doesn’t move $100.
Your bank moves $98.40 or something, depending on the interchange fee for your particular
card and the way that you processed it.
They are going to hold some of the money back as interchange cost and they are only going
to move $99.40 or whatever over to Wells Fargo.
When the business owner gets their money, they don’t get all of their money because
these interchange fees were held back.
Okay.
Now in order to facilitate all that stuff, there is a couple things that really have
to happen.
If you think about the logic of this, there is no way that a small business owner is going
to be able to deal with all of these bank relationships.
Because even though you have Visa that is tying everything together in terms of like
getting authorization codes and checking the balance and making sure it is available and
all that, they are not moving the money.
The money still has to move from one bank to another bank.
It is not feasible for a small business owner to say, “Oh, yea, I just got a deposit yesterday
for $7.40 from Wells Fargo and another one from this bank and from this bank.”
They are not going to do that, right?
Somebody has to like tie this all together.
That’s where a certain kind of bank comes in called an acquirer, or an acquiring bank.
You have the bank that is the issuing bank, that issues the card.
Then you have an acquiring bank.
The issuing bank issues the money to the acquiring bank.
When you think of a processor, we think of these big processors, First Data, Vantiv,
Global, Tesis, these big processing companies.
What most of them really are is they are something called an acquirer.
An acquirer simply means they are acting as the bank for the merchant, and so the money
is going into their account and they are the ones that are pulling all the networks together
to deal with all these banks to get the payments, to deal with all the fees and funds and everything,
make sure it is all working correctly.
Then they in turn take the money from the merchant’s bank account in their company
and they move it to the merchant’s actual bank account.
They are kind of that middle man there.
How do you make money selling merchant services?
It is really simple.
There is cost and there is mark up.
That’s it.
There is a cost to moving this money around.
The interchange fees, the card brands have some costs, but in addition to that, credit
card processing companies mark up those costs in order to cover their costs and make a profit.
On that transaction, where that $100 we talked about a minute ago, where they are only going
to move $98.50 let’s say over here.
Well, in actuality, they are going to move $98.50 over here, but they are going to move
it to the processor.
The processor is going to grab another 50 cents and then they are going to move $98
to the merchant.
There is cost and there is mark up.
How you make money as a merchant services sales rep or ISO is that you are basically
grabbing that part of that 50 cents and splitting that up with the processing company in order
to make residual income.
There are multiple ways you can make money in this industry.
We are going to talk about that in the next video, but the core thing you have to understand
is there is cost and there is mark up.
Every processor has generally the same cost structure.
They are all paying the same interchange rate.
They are all paying the same fees to Visa, MasterCard, and Discover and American Express.
The only difference is in that mark up and if they are marking it up more or less than
their competitors and your choice as a credit card processing sales rep as you are selling
is you are trying to sell at a mark up to create some margin so you have a little bit
of profit to generate income.
Then there are other ways you can make money and we are going to talk about that in the
next video.
My name is James Shepherd.
Thanks for watching and listening.