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Costco Credit Card Processing & Costco Merchant Services – A Review

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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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Example of High Risk Merchants

  • 1-900 Phone companies – If you’re the type of company that charges people to have a chat on the phone, you’ll be considered high risk.
  • Adult Bookstores – Clearly a part of the adult entertainment industry, and an easy mark for the high risk tag.
  • Adult Entertainment – Any business labeled with the “adult” descriptor will automatically be assigned a high risk status.
  • Adult Toys – As “adult” is in the name, it’s an easy target for association with the adult entertainment market.
  • Airline Industry – Due to cancellations on high ticket purchases, this will put your airline company in the high risk category
  • Amazon Stores – By having a high rate of return, Amazon stores are seen as high risk.
  • Ammo Sales – Association with the weapons industry guarantees high risk status.
  • Annual Contracts – Any time an annual contract is involved it can be considered highrisk because most consumers forget they signed up and chance of chargeback can be high.
  • Antiques – With a high average ticket per item, antiques are considered a risky merchant type.
  • Astrology – The study of the celestial bodies and the influence on human affairs can be a chargeback target if customers feel like they aren’t getting the answers they want.
  • Auctions – Because of the nature of bidding on a product and not having a set price the risk level goes up.
  • Autographed Collectables – There is almost always a question as to whether an autograph is authentic, and therefore chargebacks are much higher in this industry.
  • Automotive Brokers – Brokers of automobiles have a very high average ticket are are therefore of higher risk.
  • Bankruptcy Attorneys – Since the people who are working with bankruptcy attorneys are usually in financial trouble, the odds that a payment would be charged back is higher.
  • Betting Services – In many states betting is illegal but for the legal states betting with a credit card has huge chargeback implications.
  • Brokering – When a third party is involved with selling a product the risk level goes up ten fold.
  • Business Loans (Merchant Cash Advances) – Loaning money is always risky, but with business loans and startup lending, high risk is present by the nature of the business.
  • Casino – Just like a betting service, if a customer gambles with their credit card the chargeback rate sky rockets.
  • CBD Products – CBD itself poses high chargebacks because of the legitimacy of the product and the health benefits promised.
  • CBD E commerce – CBD E Commerce has twice the charge back of retail CBD because many consumers don’t feel like the product they receive gives them the benefits promised.
  • Check Cashing (Check Processing) – The level of fraud in check cashing and cash advances is what gives this industry a higher risk consideration.
  • Cigarettes – With higher levels of risk for theft and criminal activity, cigarette sales are deemed high risk.
  • Collection Agencies (Collection Agency) – Many banks see collections as an unsustainable business model that is many times unreliable.
  • Collectible Coins – A higher level of chargeback in this industry gives it a high risk tag.
  • Collectible Currency – Due to the level of inauthentic collectibles, the risk of chargebacks are much higher with collectibles.
  • Copyrighted eBooks – When someone sells something copyrighted without permission many legal issues can arise.
  • Coupon Programs – With many coupon programs the coupons expire and once they expire the consumer wants the money back they spend.
  • Credit Counseling – Due to their clients usually being in financial problems, this industry is fraught with non-payment and fraud.
  • Credit Protection – Most people that need credit protection are bad with money so chargebacks abound.
  • Credit Repair – If a consumer needs credit repair then chances are they are a high risk for chargebacks.
  • Currency Sales – Many businesses that exchange currency do it at incorrect rates hence more chargebacks.
  • Dating Services – Dating is a volatile industry, and is also lumped in with the adult entertainment industry, making it a high risk account.
  • Debt Collection Services – As the collection of debt isn’t always possible, this industry retains the tag of risky.
  • Debt Consolidation Services (Debt Consolidators) – Consolidating debt is a challenging business and as debt is usually the problem, it’s seen as unsecure from a payment perspective.
  • Debt Repair Services – Since the clients of debt repair services are usually having financial challenges, it makes this industry seem a higher risk.
  • Discount Health Programs – Many people don’t feel they are really getting a discount so they try to get their money back and if they don’t the chargebacks sky rocket.
  • Discount Medical Care Programs – Just like the discount health programs if they don’t save the consumer wants their money back.
  • Drug Paraphernalia – Anything that is associated with the drug trade is considered high risk. Offshore merchant accounts are commonly used for this type of business.
  • E Commerce – As the source of the payment is unverifiable at the point of sale, any transaction without the card present has a higher risk of credit card fraud.
  • Ebay Stores – Many people sell items that aren’t as described so chargebacks can be an issue.
  • Electronic cigarettes – much like traditional cigarettes, e-cigarette sales are also deemed high risk.
  • Electronics – This industry has a much higher ticket compared with many other businesses. A chargeback for a $3,000 tv or two and your account can be in jeopardy rather quickly.
  • Escort Services – This is deemed a part of the adult entertainment industry and therefore needs a high risk merchant account and payment solution.
  • Event Ticket Brokers – If a customer buys a ticket and doesn’t use it they feel like they can charge the transaction back.
  • Extended Warranty Companies – Warranties are rarely used so people try to charge back the money that has been spent paying for them.
  • Federal Firearms License Dealers – Any organization associated with guns or firearms is automatically considered in this category.
  • Fantasy Sports Websites – Just like gambling, if a person starts to lose too often they try and charge back the transaction.
  • Finance Brokers – The entire financing industry is risky. By simply extending credit to other individuals, this business is betting that a majority of them will actually pay what they say they will.
  • Financial Advising/Consulting – The high risk tag on financial advisors isn’t about the advisors or their firm. It’s about the clientele and their current circumstances.
  • Financial Loan Modification Services – Due to a clientele in financial struggles, the high risk term is applied to any payments in this industry.
  • Financial Planning – Anything that includes risk for the consumer can have consumer implications with chargebacks.
  • Financial Strategy – Another risk and reward category, if money is lost, consumers try charging back making this a high risk industry.
  • Fortune Tellers – When a person doesn’t hear what they want to hear, or what is told doesn’t happen, the fortune teller can receive huge chargebacks.
  • Furniture Sellers – High risk only when its custom furniture.
  • Gambling – If money is lost the chargebacks rise.
  • Gaming – Chargeback levels skyrocket when consumers don’t win.
  • Get Rich Quick Programs – It’s rather common in this industry for an individual to purchase the training and then chargeback their purchase saying it didn’t deliver on what was promised.
  • Google Stores – With a high rate of return on their items, Google stores are considered high risk.
  • Gun Sales (Firearm Sales) – The gun and projectile industry is automatically associated with high risk credit card processing.
  • High Average Ticket Sales – With any high average ticket, just a couple of chargebacks can mean a massive shift in how risky the account is deemed by the processor.
  • Home/Vacation Rentals – Many issues with chargebacks can take place if the consumer decides not to travel.
  • Horoscopes – Many people believe this is hocum so will chargeback transactions.
  • How To Programs – A common practice in this industry is to purchase the program and charge it back with the description that it didn’t deliver what it promised.
  • Hypnotists – Many merchants will charge back these transactions if results they hoped for were not met.
  • Import/Export Business – Another example of taking goods over country borders which automatically brings in additional risk to any processing account.
  • Indirect Financial Consulting – When using a third party to consult, the high risk status gives the processor fraud protection.
  • International Cargo – Any time you introduce a multi-country element to credit card processing, the ability for fraud to be introduced skyrockets.
  • International Merchants operating in the US – Since the merchant isn’t operating from the United States, there are many unknowns about what is happening on the other side of their business, thus increasing the risk.
  • International Shipping – Transporting goods between countries is risky and introduces all sorts of elements to the financial stability of any transaction.
  • Investment Books – consumers get upset if the investor isn’t right which can lead to chargebacks.
  • Investment Firms – As investments are never a “sure thing” this is considered a risky industry for having a merchant account.
  • Investment Strategy – Anything with future promises can lead to chargeback.
  • Knife Sales – weapons of any kind are automatically given high risk status.
  • Kratom E Commerce – Accepting payments online is high risk, and Kratom is a substance in the health and wellness industry, which is also considered high risk.
  • Life Coaching – With no tangible goods involved in the transaction, life coaching is considered high risk.
  • Lingerie Businesses – Associated with the adult entertainment industry, chargebacks abound.
  • Lotteries – In most states you can buy lottery tickets with a credit card but if you’re allowed to and the ticket is not a winner, consumers try to chargeback the transactions.
  • Magazine Sales – Many magazine sales are recurring subscriptions, which can have issues with chargebacks.
  • Magazine Subscriptions – Same as magazine sales chargebacks can be huge when a recurring subscription happens. (often referred to as recurring billing.)
  • Mail Order Companies – When something is ordered through the mail chargeback risk can go up.
  • Marijuana Dispensaries – As marijuana isn’t a legal substance in every state, this is considered high risk due to the legality of the product. Cannabis credit card processing is available through Shift Processing.
  • Matchmaking Services – Another branch of the dating tree, and often associated with the adult entertainment industry.
  • Medical Devices – If a medical device doesn’t do what’s promised the purchaser may chargeback the transaction.
  • Membership Organizations – This is another instance of where the transactions don’t have any tangible product and are easily charged back to the merchant account.
  • Merchants on the MATCH list – If you are a merchant who has been reported to the MATCH list (Member Alert to Control High Risk Merchants) or the TMF (Terminated Merchant File) you are given high risk status.
  • Merchants with Poor Credit – Merchant accounts are given based on the credit score of the business owner. It’s assumed that the business owner is going to be making the financial decisions for the business, and a poor credit score reflects on the viability of any business transactions.
  • Modeling Agencies – At many agencies models are promised the world and it doesn’t happen. The consumer then wants their money back.
  • Movie Downloads – Transference of a digital product is considered of higher risk. Also, rarely is a physical card present at time of purchase.
  • Multilevel Marketing Sales – Often associated with pyramid schemes, MLM sales are considered a risky business.
  • Music Downloads – Purchasing any digital product is considered to be of higher risk than a physical transaction. Most of the time the card is not present in a digital transaction using a shopping cart.
  • Not A US Citizen Doing Business In The US – It’s possible to get a merchant account without a US social security number, but not having a SSN will increase the risk the processor will have in issuing a merchant account for your business.
  • Online Adult Membership Sites – If you’re running a website that is adult themed and requires payment for access, this is a highly volatile account and definitely high risk.
  • Offshore Corporations (Offshore Merchants) – The international element is what gives the high risk tag when looking for domestic merchant accounts.
  • Online Gambling (Online Gaming) – Without a card being present and gambling as the activity, there are two reasons why this would be on this list. Online payment alone is risky even without the gambling element.
  • Overseas Exporting Services – The introduction of the international element is what gains access to this list.
  • Pawn Shops – There’s a general stigma that goes along with pawn shops, and it’s reflected in their assignment to the high risk processors list.
  • Penny Auction Sites – Even though the customers are usually bidding at only a penny more per bid, users will commonly charge back the transaction when they don’t win.
  • Pepper Spray – Considered a type of weapon, pepper spray vendors are considered risky.
  • Points Programs – Points programs that cost money can cause chargeback issues if points are not used.
  • Pornographic Merchants – If you’re a part of the adult entertainment industry in any way, you’re considered high risk.
  • Precious Metals – Counterfeit metals can be a problem in this industry, making it more risky to accept payments for.
  • Prepaid Calling Cards – Anything prepaid that a consumer may not use increases chargeback issues.
  • Prepaid Debit Cards – When they expire or are lost consumers want their money back.
  • Psychic Services – “Honey, did you visit a psychic? No babe, I don’t remember visiting a psychic.” I’ll just reverse that charge then.
  • Real Estate – A common target for scams and identity theft is how real estate makes this list.
  • Replica Products (Watches, Handbags, Wallets, Sunglasses, Etc…) – As the product being sold isn’t authentic to the original manufacturer, the percentage of requests for refund is much higher than a traditional merchant.
  • Rewards Programs – If rewards are not spent, the consumer wants the money back.
  • Self-Defense – Since the payment provided is for instruction and not a physical product, the self-defense industry makes this list.
  • Self-Hypnosis Services – Yet another instance where the goods being transferred are of a service and not a physical product.
  • SEO Services – With a high rate of request for refund, SEO agencies make this list.
  • Social Networking Sites – Just like a dating site, if a consumer does not get what they want from it, they always like to chargeback.
  • Software Downloads – The software industry makes their way on to this list because of the digital nature of the goods being sold.
  • Sports Forecasting – An example of paying for information and not for a product, and usually not in person where the card would be present for the transaction.
  • Startups – Every startup is considered risky, and the percentage of startups that make it is quite small compared to the number that fail.
  • Student Loans – With the cost of a college education continually on the rise, so is the percentage of loans that default and never receive payment.
  • Strip Clubs – Associated with the adult entertainment industry gains the strip club access to this list.
  • Stun Gun Sales – considered a type of weapon, which makes it a high risk merchant.
  • Supplement Sales – The request for refund in this industry is quite high due to the nature of the product.
  • Sweepstakes – “Hey, I entered a sweepstake and I didn’t win. I’d like my money back please.”
  • Talent Agencies – “I paid thousands of dollars for headshots and glamorous outfits and I haven’t gotten any paid gigs. Pay me back my money please.”
  • Telemarketing Services – Telemarketing services many times do not have the results the purchaser would like to see, so the services are charged back.
  • Telephone Order Sales – Anything ordered over the phone has a increased risk of chargeback.
  • Timeshare Companies – When timeshares aren’t used, people want their money back.
  • Travel Agencies – If trips are not taken, consumers would like their funds returned.
  • Travel Clubs – Many travel club discounts aren’t what they were promised, increasing risk for chargebacks.
  • Vacation Rental Brokers – Third party brokers on prepaid vacation can have issues when customers cancel their trips.
  • Vape Shops – The level of criminal activity and theft is higher with vape shop merchants and therefore carries a high risk label.
  • Vitamin Sales – If the vitamins don’t provide the results the merchant would like to see they chargeback the transactions.
  • Web Designer – Because this service is prone to chargebacks, it has been classified as high risk.
  • Weight Loss – Considered risky because the results aren’t really up to the company, but rather the individual has to stick to the plan to get results, often resulting in chargebacks.
  • Yahoo Stores – Since the goods sold through Yahoo can easily be returned, they are considered a risky merchant.

Turn Your Residuals into Immediate Cash Today

Selling your residuals doesn’t impact your merchants—they’ll keep processing happily. So, if you need extra funds, explore a credit card residual buyout. It’s fast, easy, and a smart move for your financial game plan.