Most flooring dealers have been burned in the past with the costs of credit card processing. Chad Ogden, president of QFloors, shares insights into what retailers need to know to about credit card processing, surcharges and how to save thousands of dollars on transactions sold using credit cards.
FT: Chad, you're an authority on credit card processing. Can you give us a little background about your experience?
Chad: We have our software platform, which is QFloors. We've been doing that for 25 years now. For the majority of that time, our customers have needed to have the ability to collect payments from their customers with credit card payments. So we've gone through several partnerships in this area and learned some things along the road. We would partner with a credit card processing company and those companies tend to get acquired on a pretty frequent basis. They'll build up their customer base, then a larger company will come in and buy them. That's happened two or three times to us now. Usually it goes great with the smaller company. But when the bigger company purchases it, all the agreements and everything that we have with the smaller company are out the window. They start raising prices on our customers. Everything we were promising our customers would go away. So, that's kind of been kind of the pattern. But throughout the years I've learned what to do and what not to do. I've learned more about the finer points that go along with all of this, and how it actually works. In this industry it's really difficult with a lot of lack of integrity. Navigating those waters and helping our customers, because, when I recommend something, it reflects poorly upon us in our company if we’re recommending something that is not up to our standards. Just recently, we had this relationship that was really good for a long time. But then, again, the big company swoops and buys them, so we were kind of tired of that. What ended up happening is, about three years ago, we started our own credit card processing company so that we could control the price, the support and our customer experience, and we were no longer having to rely upon a partner to do that. That's where Qpay, the name of our new company and is owned by QFloors came. We created another company called Mountaintop Payments, which is for customers that don't have QFloors. So just a more generic credit card processing company.
FT: Can you describe traditional payment processing and how that works?
Chad: There's lot of different methods and ways that somebody can sell you credit card processing. One strategy is called flat-rate pricing. That's where a credit card processing company will give you a flat rate that every time you take a credit card from somebody, they're going to charge you a rate to process all the credit cards, it doesn't matter which credit card is. Now the problem is every credit card that dealer takes has a different rate attached to it. If you take a corporate card or a rewards card or a travel card, those are some of the most expensive credit cards that you can take. If you take a Visa from your local credit union, that's some of the best credit cards. So every time you take a card from somebody, it's classified as a different kind of a card and it costs differently.
If a credit card company comes to you and says it's going to be a flat rate of 2.9%, they have to charge a higher amount to make sure that they're going to cover the highest cards as well as the lowest cards. They're guessing that at what kinds of cards and everything you're going to take. In a sense, if somebody quotes you a flat-rate, there's a group of customers that are going to get a really bad deal and a group that are going to get a really good deal.
People that are living in New York and San Francisco and those very expensive places are probably getting a little bit better bill. Then the companies that are living in Utah, Nevada, the Midwest, those places are going to get a worse deal on a flat-rate. Flat-rates are really tricky because you're grouped in with everybody else.
There's another strategy which is called tiered flat rate, which means that for these cards, we're going to give you a different rate. It's just a variation of flat-rate and it is better than flat-rate. There's another strategy called cost plus. Cost plus means that instead of giving you a flat rate, we're going to take whatever that credit card costs. So if it's a really expensive credit card, we're going to take that rate and then we're going to just put a flat mark up on top of whatever that part costs. So, if you take a really expensive card, then they put this little cost, plus the rate on top of the cost and charge you the app. If it's inexpensive part, you're going to get charged a lot lower, and then just plus that rate. So in a sense, cost plus is always going to be a better deal for almost all of the dealers out there.
At QPay and Mountaintop Payments, we use the cost plus method. We don't ever do flat rate because it's going to turn out worse for almost every customer we have.
The other things that you need to look out for when you're getting into this is somebody might shoot you a really low rate, whether it's flat rate or cost plus. It will be an incredible rate, usually where sometimes the processor is going to lose money, and they'll charge you that rate for six months. After six months, it starts creeping up and creeping up and creeping up, and that rate never stays the same.
The other thing that people do is they'll charge you what we call junk fees, which are just fees that are in there. Sometimes you'll see this in the telephone business where they're charging fees on your bill even though they don't have to charge you. Are you going to buy a car at a dealership? They'll put all these fees in there that are really not real, so they'll give it to you for cheaper. But then they start charging you things extra that you really shouldn't have to pay for.
A really common one is called the PCI certification fee, which is a real thing, but the fee to get you certified under PCI, that is not a real thing, and people don't know that. One very big company out there charges $125 a month just for PCI certification fee. So, the rates are maybe low or in a good area. There's very few fees that are really necessary past the regular processing. So those are things to watch out for.
FT: How about surcharging? How does that work?
Chad: Surcharging, this is the next thing kind of past credit card fees, right? So the whole reason behind surcharging is dealers are sick of having to pay for people's trips—credit cards that they can get points for their travel for cash back for—and it's really expensive. Businesses are tired of having to pay for everybody's extras. And so, about five years ago, the credit card companies really fought against surcharging. What surcharging is, is it being able to be allowed to charge the customer for the credit card fees so that the dealer doesn't have to pay for the business. The merchant doesn't have to pay for them.
For quite a while, it was kind of dicey because Visa and Amex were all fighting against this because when people do that, then they tend not to use their credit cards. There was a nationwide ruling about five years ago in the court system that made it legal for surcharging to come about. Now it's just starting to spread—in some bigger cities like New York people are seeing surcharging popping up a lot more. Often coffee shops, food establishments are all putting surcharges on credit cards now. In the floor covering industry, it's starting to catch hold a little bit. When you are dealing with surcharging, it's able to charge your customer for the credit card fee. What's really important to know is this is regulated. A lot of dealers out there are just adding 3% or whatever onto their ticket to help charge for the credit card fees.
We have to notify partners in the industry. When you are doing surcharges, we have to change your account to be a surcharging account. Now, there's a lot of things that have to happen. One of the regulations is a dealer cannot make any money on the surge, so it's kind of like sales tax. You know how you go out and charge sales tax to somebody? You have to remit the whole thing back to the state. This is the same exact thing. When you charge a surcharge, you have to remit the whole surcharge that you charge that customer back to the company, and if you don't set it up correctly, that dealer is actually making money on the surcharge. They might get charged 2.5% on a flat rate, or whatever it is, or on the on the cost plus rate that we're just talking about. Then hey are charging the customer 3%, and that you cannot do. They could actually get their merchant account taken away. The other thing is, you cannot charge surcharge on debit cards. One thing that just happened as of April 1st, you cannot charge more than 3%.
There's a lot of accounting things that go that you have to keep track of as a retailer. If you're not having to pay that 3%, and you can put that back into your pocket instead of paying all these credit card fees for your customer, there's huge savings in this.
One of our customers—a dealer that is fairly sizable—but he's saving $10,000 a month in credit card fees. Now think of what he can do with that $100,000, right? So there's a huge savings in that can be taken here. You have to be able to explain it to your customer why they're going to get a surcharge and you have to be able to take payments in a different way, like e-checks and debit cards.
FT: What else do flooring retailers need to know?
Chad: There are more advanced things that are going on here. Things that are really useful are the integrations that you would get with software integrations with the credit card companies. Take somebody's credit card, and it doesn't matter if it's surcharging or traditional, take a take a token and then you can use that token or that card vault to pay off a balance in the future. So you don't have to get their credit card back from them again. You can save the token, it's a very secure way of doing things. It's the way that people do subscriptions to where they're hitting their credit card. It's more or less the same type of thing. You take a token, you store it in QFloors, and then you use that token later to pay off another balance.
You can also send an email or text message with a link on there, and when they click on the link it takes them to a web page where they can just type in their own credit card information. We see this as a tool. It's kind of like the next generation of tokens. You don't have to type it in for them. You don't have to do it over the phone. They can just do it right on their phone or on their computer. What we're seeing is people are closing deals a lot faster using this request, or they're collecting money a lot better, too. It's called Pay Now request where you're sending a link in an email or a text, or even putting a button on your website that they can click on. That will take them to a site where they can just type it in.
So all these things are kind of the new advanced ways to get people paying easier. I think most dealers have probably been burned in the past. That's the truth of it, right? Somebody has. Almost everybody has had a bad experience somewhere where they will promise something they weren't. One thing we do for free is if you're unsure, you could give us your last three credit card statements, and we can tell really quickly if you have junk fees or if you’re not getting a good deal, if you're being taken advantage of. If you have QFloors, or if you don't.
