Costco: Good for bulk chicken and paper plates, bad for credit card processing

Costco is a great store for certain things, anything that you need in bulk, really. But it should come as no surprise that buying credit card processing from Costco is not a good idea.

At some point, Costco paired up with a company called Elavon and decided they wanted to take part of small businesses’ profits. Here’s how they do it.

If you look at Elavon/Costco’s website, you’ll find very attractive, low, fixed rates. For example, when I went to their website this morning, the rate was 1.38% plus 19¢ per card-swiped transaction. Pretty great, right? The only problem is the fine print found at the bottom of the page corresponding to the little 1 next to the rate.

This is what the fine print says:

1 Visa/MasterCard/Discover service is sponsored through Elavon. Rates listed are for qualified transactions. A monthly minimum charge applies when total transaction fees and per-item charges are less than $20 per month. A $25 Application Fee and $4.95 Monthly Statement Fee apply for Non-Executive Members. Rates and fees may change without notice. Rate and acceptance are subject to underwriting. Call Elavon at 1-800-551-0951 for all terms and conditions.

The most important part of this paragraph is the second sentence, “Rates listed are for qualified transactions.” This indicates that Costco is using tiered pricing and the rate that you’re seeing only applies to some of the card transactions that your customers will be making. This also means that the other tiers are going to be more expensive—the Qualified tier always has the lowest rate, then the Mid-Qualified and, finally, the Non-Qualified has the highest rate. Whenever you see rates being advertised for qualified transactions, know that you’re going to be charged more for the majority of your card transactions.

As it turns out, debit cards are within the Qualified category but rewards credit cards are not. Because debit cards have low interchange rates around 0.5%, that means Costo/Elavon is keeping the other 1.33% their charging you. It also means that you’re grossly overpaying every time someone uses, what should be, your cheapest card transaction.

Furthermore, for any cards that aren’t qualified, you’re going to pay much higher rates than advertised on their website. Considering the fact that most credit cards these days (around 70%) are rewards cards, you can count on paying higher rates on most of your credit card transactions.

Let’s pretend for a second that you still think Costco credit card processing is a good idea and you want to give them a shot. After all, they do have good deals on those rice noodles your kids like so much. So you give them a shot and it turns out you’re paying way more than you should be. You can just cancel their program and walk away, right?

Nope. It turns out they require extensive three-year contracts that come with pricey cancellation fees for any business owners that wise up. Although they aren’t being honest, Elavon and Costco aren’t stupid. They need to keep people in their program somehow. Luckily, you’re reading this before signing up with Costco/Elavon and can make the more intelligent move and sign up with us.

At 99 Merchant Account, there is no tier pricing, no bait-and-switch rates, and no unfair cancellation fees. We’re committed to bringing small businesses wholesale prices and transparent billing. Join today at 99 Merchant Account and start saving!


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