Costco Credit Card Processing & Costco Merchant Services – A Review – Shift Credit Card Processing

Costco Credit Card Processing & Costco Merchant Services – A Review

Costco credit card processingOne of our favorite bulk discount stores is offering services to business owners, but how do we know if their product is any good? Costco credit card processing is one of those offerings, and they advertise that they can save $704 per year for your business if you switch to them from a competitor such as a Square reader.

Why Are They Offering Costco Credit Card Processing?

Let’s not fool ourselves here. Costco merchant services exist to make more money for Costco. For instance, some American Express reward cards from Bank of America may have some sort of monthly minimums attached to how much must be spent per month. These monthly minimums attached to cards are there exclusively to get the card manufacturer and the bank attached as much money as they can get. Similarly, Costco is trying to make as much money as they can through you.

Offering credit card payment processing is yet another product to increase their bottom line. An independent sales rep from Costo will try to push this service on any customer to make them as much money as possible.

Costco can be a fantastic place to buy things we need for the home and office, but they also advertise a few business services as well. Credit card processing solutions is one of the more prominent services that Costco offers to smaller sized businesses. The question is, should we do our credit card processing through Costco?

When you walk out of your local Costco, it’s pretty easy to find a brochure that showcases their merchant service program. As you read, you’ll notice that they use a third-party company called Elavon. In their latest ad at the time of this writing, they say that they can save Costco executive members an average of $704 a year and give us 20% off the cost of a terminal purchase. Sounds like a deal, but here’s the secret… It’s absolutely not! Here’s why.

We said above that Costco credit card processing uses a third-party company called Elavon, and while Costco partners with Elavon, Elavon sets the prices for Costco customers. Elavon uses tiered pricing for everyone who processes through them. We are all quoted a 1.22% rate for national processing, which sounds amazing! Where the truth hits the fan here is Elavon can manipulate what cards actually qualify at a 1.22% rate. Elavon isn’t really promising that all cards go through at this price… It will just accept credit cards that have been approved… If you read the contract they add surcharges on most cards, so when you actually get your bill you may be paying upwards of 3% per transaction. To quote the great poet Gwen Stefani, “That’s Bananas.”

PCI compliance fees and application fees are made up fees that you want to avoid in any merchant account, so be on the lookout for those as well.

What You Want For Credit Card Processing Rates:

When you choose a credit card processing company, you want to find a pass-through or interchange plus pricing structure. This means that the company is giving you the true cost of every card scanned and then adds in their mark-up. With this interchangeplus pricing structure, some cards can cost as little as .05%. This rate is a far cry from the rates and fees quoted above. If a merchant service company can’t offer you a true pass-through rate, you haven’t found the right credit card processor for your business. 

Insider Tip: There are some merchant processing companies that will try to use hidden fees inside pass-through pricing without telling you. Know to look for any additional one-time or monthly fees outside of the point mark-up, and know that these fees are made up and shouldn’t be paid.

Another merchant account option is to pass the processing fees along to your customer. You can give everyone paying with cash a discount and only those paying with credit card payments will incur the small interchange fee for the cost of acceptance. At the time of this writing, Costco doesn’t yet offer zero fee processing to save 100% of the merchant credit card processing fees.

Midqualified and Nonqualified Card Processing Rates:

One of the elements of every credit and debit cards processing solution is how they treat both mid-qualified and nonqualified cards when they’re used as payment. The qualified rates quoted are ones that you see from a merchant account provider, but it’s the fine print that discusses the other two types of credit cards that are used.

This is where the fine print can really get you in hot water if you don’t take the time to read the details and how much you’re going to pay for any card that’s not considered qualified. Check for transaction fees and swipe fees in addition to the card rates listed on qualified transactions. Take the time to look at both the nonqualified rate and the mid-qualified rate.

Costco Credit Card Processing Contracts:

Elavon (remember them? They’re the third-party company that enables Costco credit card processing.) gives most new customers a contract. Contracts themselves are not necessarily bad, but many times they exist to lock you into a 3 or 4 year deal and then add in a high cost cancellation fee, which can be even higher if you have poor credit score.

Why in the world would you want to sign a 3 or 4 year contract with a processing company and then have to pay to leave them if their service is terrible or they jack up your rates? Be sure to check the month’s statement fees every month to ensure that your rates are not being elevated.

If you decide that the Elavon pricing structure isn’t for you and you try to move on, they threaten to charge your account with a DE conversion fee. These annual fees can range anywhere from $250 to as much as $800 for your account. Don’t sign up for extra fees or contracts that you can’t get out of unless you pay your way out.

What You Want For Credit Card Processing Contracts:

The best credit card processing agencies in the world have month-to-month contracts with no early termination fees and without a monthly statement fee. Processors that follow this model will generally have much better customer service and be willing to do what it takes to always make sure the customer is taken care of. If you’re a month-to-month customer at a payment depot, you know that the payment processor is going to work their buns off to keep you happy. I don’t know about you, but that’s the kind of people I want working for me.

Insider Tip: If a merchant processing company gives you 3 or 4 year contract then read the fine print very carefully. These companies will also most likely charge a termination fee if the 3 or 4 years are not reached. The fine print will state that they can change the pricing at any time for any reason. You may start with them at 1.22% and a year later you do the math on your statement rates fees and find you are paying 2.5% overall. If Costco merchant services can’t lock your rates in for life, many other processors can and will. Those are the guys you want to work with.

Costco Merchant Services Equipment:

The latest advertisement from Costco credit card processing is 20% off a new EMV Terminal for new customers. I love a sale as much or more than the average human being, but let’s do the math here. The brochure tells us that the retail cost of the credit card terminals are $449. They’re willing to give us a 20% discount, which takes about $89 off the price of the terminal. So, when it’s all said and done we only pay $360.00 for a terminal. Is that really a discount? Turns out it’s not. Check out the right way to do equipment below. If you’re running an online store, a credit card terminal probably isn’t the solution you’re looking for. POS software is like a virtual terminal with a shopping cart that will be the perfect solution for your business and for online credit card acceptance.

What You Want For Processing Equipment:

Processors should have multiple programs when it comes to buying card readers and credit card processing equipment. In the processing industry, the cost of a new EMV terminal usually ranges anywhere from $150 to $250.00 per terminal. If the company you’re looking at does not offer you a brand new terminal in that price range, keep looking. Knowledge is power, and when you know the true fees and costs of equipment, you can’t be taken. We all now know that $360 is a very healthy profit margin built-in.

Insider Tip: Don’t sign up for a lease on credit card processing equipment. You will probably be told that, “a lease has its advantages…” but it definitely isn’t an advantage to you the business owner. We see leases that customers of other processors have signed on for that are paying $1000’s of dollars over the value of the equipment they’re leasing. Why pay $29.99 a month for 48 months for a terminal that costs $200?

You would pay… $29.99 x 48 = $1,439.52 over 48 months for a $200 terminal.

If you’re looking for retail POS or restaurant POS systems (point of sale system), there are great payment solutions out there that also won’t break the bank.

Data Security and PCI Compliance:

Costco does the job when it comes to protecting your data and making sure that you are compliant with PCI regulations. The most important security step you can take to protect your business is understand from the beginning whether you’re working with a reputable business or a fly-by-night organization. Both Elevon and Costco are doing their part to keep your data and the data of your customers safe. Both companies try to obtain advertiser disclosure so that the customers are not being deceived and lied to.

Compare processors and find which ones would be your top picks before deciding.

For many day-to-day items, Costco can be a great place to shop. When it comes to merchant services, our advice is to look elsewhere. While it may be true that Costco can save your business an average of $704 per year, if you find the right merchant service provider that number may be substantially higher. You may be convinced to sign on for the $704 in savings that’s stated on the brochure to improve your cash flow, but like the last Cinnabon you ate in the mall, you’ll probably regret it not long afterwards.

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