Costco has a lot of things going for it. In addition to low prices, it boasts one of the largest selection of organic products offered at a wholesale discount house and almost a cult following among members. It’s unfortunate that Costco Merchant Services doesn’t have the same track record.
When you sign up for Costco payment processing, you may think you are working with a direct processor but that’s not the case. Instead, Costco Merchant Services is a reseller of Elavon, which is one of the largest processors in the United States.
There are plenty of businesses that are resellers for bigger processors but don’t disclose the relationships. Costco Merchant Services makes note of its partnership with Elavon on its homepage. That’s a good straightforward approach and helps with any confusion that often surrounds resellers relationships with backend processors.
The Real Problem
There is this assumption that signing through Costco will somehow save them more money because it’s a discount warehouse known for its good pricing. The truth is people may be better off signing up with Elavon directly. For instance, Costco Merchant Services offers a tiered or qualified pricing plan. This structure, which is not uncommon in the industry, is a rate structure that includes hundreds of different processing rates into several pricing tiers. Most often, the tears are broken down into qualified, mid-qualified, and non-qualified rates. These tiers represent the possible fees that a provider can charge for credit card transactions. Qualified transactions, which most merchants will not be able to take advantage of, require the lowest markups. Most merchants will fall into the other two tiers, as the tiers increase, the markups get higher.
Typically, signature swiped debit card transactions are “qualified.” Business cards, card-not-present, and foreign card transactions fall into the “mid-qualified” and “non-qualified” rates. The problem is that how merchant account providers package and present their tiers are not regulated, so the figures can be different depending on the processor.
In the case of Costco payment processing, it is not transparent about what types of transactions it is routing to the qualified tier.
As of this post, Costco lists processing rates for online transactions at 1.99% plus $0.25 per transaction. In the fine print, Costco notes that these rates are for qualified transactions. However, it is not transparent about what types of transactions are being routed into the qualified tier. If only debit card transactions are being routed to the qualified tier, you need to think about your business and what it means to your bottom line. Keep in mind some customers have reported “non-qualified” rates as high as 3.25% plus $0.29 per transaction.
This type of pricing makes it difficult to comparison shop since you don’t have all of the information to make a quality decision.
Other Charges Associated with Costco Payment Processing
In addition to its tiered pricing, Costco Merchant Services charges a monthly minimum charge when total transaction fees and per-item charges are less than $20 per month. It does not disclose the amount of the charge. Also, a $25 application fee and $4.95 monthly statement fee is charged for those that aren’t Costco members.
No Support for High-Risk Businesses
Costco Merchant Services and Elavon don’t work with high-risk businesses, so if you are merchant in an industry known for excessive chargebacks or have a poor credit, then you should look elsewhere. There have many complaints from customers that they are approved for accounts and pay for terminals and other equipment and they suddenly get shut down. In some cases, Costco/Elavon closes account after it finds out a business is high-risk or because the merchant has a higher volumes of transactions than projected.
Our Last Word
If the lack of high-risk business support, tiered pricing, and other fees were enough, you get few discounts when you sign up for services and you are a Costco member. The discounts don’t add up to any real savings when you look at the rates you will be paying for processing.
Since Elavon performs the actual transaction processing, does the billing, provides the customer support, and handles all of the other related merchant account services, it seems that dealing with it directly instead of signing up for Costco payment processing may be the better option.
When it’s time to find a payment processor, turn to one that can offer you direct quality customer service and the best possible rates. If you want to work with a trusted payment processor, contact First American Merchant (FAM).