Melvin Waldron, CGCS said: I have to admit Clay that I am not really knowledgeable about how all this works, so bare with me.
Now when we are talking about the credit card companies that the business is paying a fee to, is it the same credit card bank or company that I make my purchase with? So they make money from the merchant and from me if I don't pay off my bill completely? Aren't they making enough money off of me? I know they are taking the risk on me in-case I don't pay my bill, and I agree to pay interest since I am basically borrowing their money, but why should the merchant have to pay a percentage? I could maybe see a transaction fee, but to charge a percentage? Heck on a $500 dollar TV, the merchant at 3% would pay $15 of their profit just to get money from the card holder? If you sell one TV a day, a mom and pop or small business it could really hurt. The big box stores of course could absorb it easier. I do wonder could a big retailer demand a better rate then a mom and pop or small business?
As I thought about it though, could as you call them merchant service providers, are these just stand alone companies that are gathering money from the different credit card companies and banks that customers are using to give to the merchant? Why would these companies exists? All they are doing is moving money around and making money while providing really no value or service. I'm just wondering, like I said, as I thought of it, I'm not really as knowledgeable about these things as I should be, but I think we try to make things a lot more complicated then it should be.
I would like to hear what you call ridiculous regulations that are what is killing business. I hear it all the time from the right, but I never hear what exactly they are? If I knew what they are, heck you might get me to agree with you.
Mel
Mel,
The merchant service company makes the lion's share of the fees. The merchant service companies (MSC) are middlemen, so to speak. The MSC provide the service for the transaction to occur between the retailer and the credit company and banks. A processing company, if you will. Kinda like a stock broker purchasing/selling stocks on your behalf.
Why do they exist? The same reason there are manufacturers, wholesalers, distributors, retailers, and consumers. The manufacturer could cut out all the middlemen and sell directly to the consumer, right? This seems reasonable, right?. It would cut out all the middlemen expense, right? And we could buy products less expensive, right? The problems are the manufacturers are not equipped to distribute, wholesale, and retail. The manufacturers do not want to be in the wholesale, distribution, and retail businesses. Additionally, imagine all the jobs we would be eliminating if we cut out all the wholesalers, distributors, and retailers. Imagine all the construction jobs that would be lost because there would be no need for retail stores. Imagine all the lost lending by the banks. Imagine all the lost tax revenue because the state, county, and local would not collect tax at the wholesale, distribution, and retail level. The "trickle-down" effect is very significant. Therefore, the need for the merchant service companies.
Ridiculous regulations. I will give you a brief example: A business owner starts a new business and it takes a few years for the business to turn a profit, not uncommon. Many times, the business owner will not take a pay check during these start up years to make sure the business stays afloat. However, the business owner pays the employees and pays the various employer taxes including unemployment tax for the employees. The owner is also required to pay unemployment tax on each owner of the business as if each owner made a minimum of $20,000 per year. Lets say there are four partners. Therefore, the business is required to pay unemployment tax as if the owners made $80,000 per year. Now lets back up and remind ourselves that the owners did not make one dime. But yet they are still required to pay into unemployment as if each owner made a minimum of $20,000. The coup de grase is the business owners cannot collect unemployment if the business folds. So why the unemployment tax on the owners that made zilch and can collect zilch?
This example brings up another good point. You see, in the example, the business owner did not make a penny during the start up years. And it is a very real potential that the business could fold within the the first few years. The business owner put up his/her own money to start the business. The business owner secured the loans to start the business. The business owner put up his/her house, car, and any other personal asset to secure the loans to start the business. Therefore, if the business fails, the business owner loses everything. The business owner risks his/her personal assets. Yet many people look at business owners as the boogyman. I've never understood this mentality. I can only chalk it up to innocent ignorance or just plain ol' stupidity.