MM Podcast Episode 016: Saving Money On Credit Card Processing For Auto Dealers with Mike Elliott (transcript)

This is a transcript of MM Podcast Episode 016: Saving Money On Credit Card Processing For Auto Dealers with Mike Elliott.


Ashley: Welcome to episode 16 of the motorcar marketing podcast. In this episode’s main segment, I’m going to be talking with Mike Elliott. Mike works with Pay Junction helping car dealers process credit cards. He’s got a lot of great information, explains some strategies to help car dealers lower their processing fees. So if you process credit cards at your dealership, you’re not going to want to miss this episode so stay tuned for that.


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A couple of quick notes. Any websites or links that I mention in the podcast can be found on the website in the show notes. I also publish a transcript with every episode in case you’d rather read the show or look at something later on. You can find all of the podcast show notes at


We recently put together a great free guide for car dealers called Quick Start Auto Dealer Marketing Guide. You can get it by going to It’s completely free. You just put in your email address and the lessons will be emailed to you over the course of the next few days. We’ve tried to concentrate on the high-leverage things you can do with each marketing channel so you can get the maximum results in the shortest amount of time. We’ll be adding more lessons to this guide in the future, but to start out we’ll show you how to increase your ROI and sell more cars on craigslist, how to quickly set up Google Pay Per Click campaign, how to begin generating leads from local search engine optimization, and how to effectively use email marketing to generate leads and correspond with your past customers. Again, this guide is completely free. Just go to


So now, let’s get to the main segment. Today I’m talking with Mike Elliott about credit card processing for car dealers. Here’s the interview.


Ashley: Welcome, Mike, to the motorcar marketing podcast. I really appreciate you coming on the show.


Michael:               Actually thanks for having me. I appreciate an opportunity to chat.


Ashley: So to start out, I wonder if you can give us a quick overview of your career and how you got to working with car dealers specifically and credit card processing?




Michael:               Sure thing. I was in sales for many, many years, had a friend who really got me involved in the company I work for and with the process I work for a few years ago. Was looking to do something that took into account new technology which has always interested me, and that’s really what made me gravitate towards it. The second reason I think because I come from kind of a blue collar background, I really just love car dealers and car owners, car dealership owners. The atmosphere in a dealership is very relaxed.


Ashley: Okay. So let’s talk about—you know—car dealers and processing credit cards. To start out, maybe you could just kind of give us an overview. How do credit card processors set their rates for merchants and then even specifically how do they set rates for a car dealership?


Michael:               Basically everybody is paying the same wholesale rates so processors all pay an identical rate for any particular card. So there tend to be two paths that card processors go down. Either they cluster different types of cards that cost different amounts to process into buckets or tiers and that’s sort of the old school way of doing it. So, for example, there is over 150 visa cards. Well, any one of those cards that gets processed has a specific cost, and I don’t want to get too much into the leads on it but the old school way of doing it was to maybe have a bucket or a tier and say these kinds of cards I’m going to charge two percent, and these types of cards I’m going to charge at three percent, and these types three-and-a-half and just cluster them in there and then basically make their profit on the markup between what it actually costs and that amount and that’s the old school way of setting rates for dealers. And I would say any dealer, big or small, has kind of experienced that in terms of negotiating or speaking with a card processor who set their dealership up.


Ashley: Now just to be clear, when you say these different types of buckets, maybe you can give us a real concrete example of what would determine why one card would be more expensive to process than another, exact examples of what would go in bucket A vs. bucket B?


Michael:               That’s a great question. The thing that always should go in bucket A, the absolutely least expensive thing to process is a debit card. Like my wife and I use our debit cards all the time because it leaves a paper trail. Those things cost pennies to process. So let’s say that definitely well under one percent per any kind of debit card, a major credit card that doesn’t have cash back doesn’t have an affinity, tends to be in that lower price as well. High price would be things like, let’s say I have a MasterCard and it’s connected to my university, has a cute picture and a mascot on it and there’s a benefit to my university because there is a little bit of money flowing out of the use of that card, those extra fees, those extra expenses have to be paid for somewhere. So an Affinity card like the university card that benefits them or a cash-bask card is going to be more expensive to process every other element considered. And then there’s the element of risk, if you swipe a card, the chances that the data is accurate is much higher than if you punch it in manually. Like maybe I’m making a phone order and I’m repeating my Visa number to the person taking the order, there’s a higher risk that they’ll be an issue or problem with that data vs. if I swipe it at my local Walmart or Card It.


Ashley: I see. And is volume another big consideration in terms of getting the rates. It always seems like when I’ve dealt with these processors, the more you do the better the rate they’ll give you.


Michael:               I would say on the buyer’s end yes. In terms of the processor, no matter how little or how much you process with Visa or MasterCard, for example, you get the same rate. So I could be the smallest processor in the country, and you give me your Visa, I’m paying the same wholesale cost as a big processing company, but if you flip it around, if I’m a dealer and I’ve got seven locations and I’ve got a much higher volume of transactions of processed cards where there are a lot more processing fees, there is a lot more money there and, in general, somebody who processes a lot more volume should get better rates from this processing company.


Ashley: I see. A couple things I just want to back up on. You mentioned the debit card being the cheapest one. I notice when I go, as an example, I go to the gas station and I put my debit card in there, sometimes it will ask for a pin number, but sometimes it will ask for the zip code as if it thinks it’s a credit card. Is that meaning it’s not making the determination that it’s a debit card and would that affect then the rates?


Michael:               It should be able to determine it’s a debit card, and you know that you can use your debit card as a credit card or a debit card in most of these swipe terminals. Normally that’s more of an internal process to avoid fraud. I don’t know if you’ve noticed where you’re at or what part of town or maybe if you’re in another city, what I’ve found from being around the country is I’m more prone to have to put in my five-digit billing code when I’m at a station that looks like it has a lot more transient traffic.


Ashley: Okay. Okay. Maybe we could back it up too a little bit and just get some clarification. You keep mentioning getting the wholesale rates from Visa. So maybe you could just explain so that we have a kind of understanding of what the levels are between basically your car dealer and then Visa who is I guess at the top of the hill. How many businesses are sort of between and what are these different tiers of business, the wholesalers and that kind of thing?


Michael:               One thing that I think a lot of dealers don’t know—and I encourage dealers to do this—in fact, the actual costs, the true costs for the processor—it’s all public knowledge. I’ll give you an example. If you go on Google or Bing and you put in Visa wholesale rates or Visa interchange rates which is the term the industry uses, you’ll pull up a PDF, maybe it’s ten to 20 pages of nothing but card types and the actual costs so it’s all public knowledge.


Ashley: And that’s what Visa is charging to the merchants that process the cards.


Michael:               Exactly. Every merchant is paying that same wholesale rate, same thing for MasterCard. Amex is a little more expensive. They do their own thing, but really the high volume for car dealers is Visa or MasterCard, really more so than Discover or American Express. That’s where they’re made.


Ashley: There’s no difference. I mean, there’s got to be some of these processing companies that do a lot more volume. Visa is strictly the pricing is the same for all of Visa’s customers. There’s never any differentiation. They don’t have certain factors like these processors do more volume so we give them a better rate?


Michael:               That’s correct, and I was very surprised when I first got into the industry to find that out. I understand that on the buyer’s side, the dealer should get a better deal and should command a better deal for having more volume to process. But it was shocking to me that the rates are the rates. I don’t know absolutely why that is. I think because credit cards are so tightly controlled financial instruments that that’s why the wholesale price is it. And it’s all on the Internet, and I tell dealers that all the time. I’m like go look it up if you’d like or go throw some paper in the printer and print it up because it’s a pretty long list. And it will list everything for you.


Ashley: Okay. So now let’s just talk about just in broad strokes—and maybe dealers will kind of know what rates they’re paying—can you tell us very roughly what a car dealer should be paying for some of these different buckets of processing.


Michael:               Sure. I would say one of the best ways to just determine the percentage you ought to be—and it depends on the mix of cards—is you really shouldn’t be anywhere near three percent. If you’re maybe under two, that’s probably good. If you’re in the two to three range, that’s probably okay, and it really depends on the types of cards that you accept. One great example I think is people that do buy here, pay here or have situations where people are using debit cards a lot, should have a very, very low cost for the reason I mentioned because they’re mixed. It’s very low-priced cards. If you’re under two percent, there’s a good probability that you’re getting really good rates. The only way to know for sure is to analyze the statement that you get. Look at all the fees and everything else that’s added on to that number they gave you and divide it by your total volume and that gives you your actual percentage.


Ashley: Can you tell us like roughly what sorts of fees you should be paying, a per transaction fee, a monthly fee—what are those fees usually add up to?


Michael:               I would say when you aggregate them, that’s where you want to be not too far over two percent because some companies will charge a use fee or like a flat fee plus a certain amount for each kind of card. That’s more common in the industry when somebody’s very small and just doesn’t have much volume. Most car dealers unless they’re just a little mom and pop that just sells maybe a car a week, any full-service dealer is going to be doing volume where that’s not going to be an issue, and honestly they shouldn’t be paying any kind of monthly maintenance fees. But whether they are of whether they are not, if they just take their total cost, the bottom line of what they get charged with all the fees added together, their market gross volume of what they process that month, that’ll give them their actual percentage. So they may say I’ve got two percent on most of the cars, etc. Then they calculate it and find out that they’re 2.9 or 3.1 because of how the different cards are put into different blocks or how they’re marked up.


Ashley: Yes. Okay. So let’s say a dealership does that, I basically get what you’re saying is that everything in aggregate—and you’re saying a buy-here pay-here dealership system processing so many debit cards, that’s going to bring this aggregate number down, but the bottom line is if you’re somewhere around two percent, you’re good. If you’re around three percent, you’re probably a little high. What can a dealership then do if they find that they’re closer to the three percent than the two percent?


Michael:               One thing they can do is actually talk to other processing companies and ask them to analyze and explain to them where the markup is and why they’re getting to that point. They might have a richer mix of Affinity cards, cash-back cards, and that would impact the costs to the processor. But in general, a full—service dealer, because of the sheer volume of activity, the mix of business that most of them get all around the country is really very, very similar even in different cities and different communities. So I would say if I were over 2.3 or 2.5, I’d probably want to have someone other than my current rep just analyze it for me, show me what the true wholesale cost was and show me where the markup is. What I found doing that with people is that sometimes some cards aren’t maybe put in the bucket that the dealer would expect them to be in, meaning, they get marked up quite a bit, and that’s where a lot of those hidden costs come in which you can describe in the vernacular as kind of nickel-and-diming, but that adds up quite a bit if you’re processing a couple hundred thousand a month.


Ashley: Can a car dealership reject certain cards or say no, we’re not going to take a what you were calling a university or a cash-back card; we’ll only take the debit cards. Are they allowed to do that?


Michael:               They are. Honestly it kind of surprises me as a consumer, but look at all the stores and all the retail establishments that take Visa/MasterCard but don’t take American Express because it’s a little more expensive to process. If they’re logical about that, they must have a really small profit margin because Amex does cost a little more to process. I can’t give you the exact number to be honest off the top of my head, it’s a little more expensive but not a lot. But I find a lot of retail work that doesn’t take Amex; that surprises me.


Ashley: Yes. A lot of the dealerships I work with, I know that they will offer a cash discount so if you’re going to pay with credit cards, they are going to basically wrap whatever it is at two or three percent into the cost for the person uses it. Is Visa and MasterCard, do they allow that? /Do they care that these dealerships are doing that?


Michael:               If the dealership is accepting cash, they’re not processing through Visa and MasterCard. I guess if it happens in large numbers, Visa and MasterCard don’t get as much volume. I think that’s great for the consumer; I love seeing a merchant do that, that if you pay me cash, I’m going to give you that discount because basically you’re lowering my ad costs, and I’m going to pass them on to you. I think that tells me that that dealer is very consumer-focused. I like that quite a bit.


Ashley: So one thing—and we’ve kind of discussed this—but I wrote this down as a question, and I just wanted to kind of throw it at you because it’s always been my experience—I’ve done a lot of different E commerce and so I’ve been on the phone a lot of times when I’m trying to negotiate these rates—and I’ve got to tell you like you mentioned this Visa interchange rate to Google, and I’m sure that I will go take a look at that, but one of the things that’s been frustrating to me, and I’m sure car dealers are doing this is that it seems like they make it overly complicated like when I’ve done this where I’ve tried to get two companies to bid against each other, they quote so many numbers and it’s so complicated that it’s very difficult to get like an apples-to-apples comparison from one—and maybe it’s just because I’m not familiar enough with these terms that I—you know—the terminology might be slightly different, but I’ve just never been able to get this apples-to-apples comparison, trying to get different companies to bid against each other. Is there any advice you might have for me and a car dealership that’s facing that?


Michael:               I would contend—and I sound a little cynical—but I think there is some intention to that where the information isn’t transparent; it isn’t shared with the client. One thing that reminded me of listening to you is how technology and especially the Internet has really affected consumerism. It’s really made everybody in manufacturing and sales have so much more information; the customers have so much more information in front of them. Using your example, I would have multiple companies take this same exact mix of cards, same exact statement and tell me what they would charge me for that statement because that way I’ve got apples-to-apples. Your mix will be a little different every month, but over time you’re going to have those same trends over and over. What we do is we ask for a minimum of two, preferably three months in a row so we can account for some of that cyclical nature of what happens. The classic example is the end of the holidays people tend to use their credit cards a lot more. They don’t have a lot of cash flow so you get a lot more credit card usage in general where you might get debit card usage in place of that during other months. But you’re right, I think it’s done intentionally. I think that it’s more confusing than it needs to be. It should be transparent; you should be able to sit down with your vendor and they say you processed a thousand different cards, and here’s the entire list of what you did and how many in the dollar amounts. You can do the algebra; you can do the math yourself to see how it’s done with it.


Ashley: I think that’s a great tip, though, doing what you’re saying with the statements if you pull up your statements and then give those to the companies, then it will be much more clear as far as an apples-to-apples comparison. That’s a good tip.


So let’s talk a bit about Pay Junction and Can you just kind of give us maybe the two-minute elevator speech about what those are and how they could potentially help car dealers?


Michael:               Oh absolutely. Lowered dealer costs which is really just my individual brand in terms of representing Pay Junction to the full-service and the mom and pop dealerships both. Pay Junction has been in business for about 13 years. They process over a billion dollars. They’re backed by a very, very large national bank, the Bank of Omaha, and, more importantly, I represent them because I think they’re great people. They’re honest, they’re forthright in an industry that certainly could use more of that. It could use more transparency, and that’s what attracted me to those individuals. They’re California-based, and those folks that work for them was that they were very honest people. They were very up front and that appealed to me as a salesperson. My interest is somewhat more individually. is simply my branding of what I try to do for dealerships and for shops.


Ashley: I see. Perfect. So maybe you could just tell us exactly what Pay Junction offers in terms of what a dealership can use them for.


Michael:               Basically Pay Junction will offer proprietary software that is cloud-based that will process any credit cards, any debit cards. They’ve even added a function for dealers who want to process his checks electronically so they don’t have to go to the bank. Basically it’s what is called a lock key system in that you literally can sign up for an account, plug things in, go on the web and you’re owning your lives. It’s such a simple system, it’s amazing how simple it is, but because it’s cloud-based, everything is happening in real time. That also means that anything that changes with any credit card anywhere, the moment the industry’s made aware of that change, it happens instantaneously for your dealership. There is no programming or anything involved. Everything’s in real time on the cloud.


Ashley: Perfect. Perfect. So what’s the best way for people to keep up with you and potentially contact you if they want to learn more?


Michael:               I appreciate you asking. If they’re on Twitter, I’m at lowerdealercosts or they can go to the website and there’s a contact page. They give a little blurb about what they want to ask about, and that’s probably the easiest way to reach me.


Ashley: Perfect. Perfect. I will put those in the show notes so if someone’s listening to this in the car or something, they can just find the show notes and then I’ll put direct links in the show notes. They can click on over to that. Well, Mike, you’ve been very generous with your time. I know I’ve learned a lot about processing credit cards. I think this has been very informative, and I think car dealers will get a lot out of it.


Michael:               Well, I hope they do actually, and I appreciate your time as well. Thanks for letting me come on and talk about cards.


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Just a quick thought on today’s interview with Mike. I’ve done credit card processing for a variety of businesses over the years so I know it can be really complicated, and it’s a real pain in the neck to constantly be calling these companies and trying to compare rates. To me, though, the big take-away is doing exactly what Mike recommends. Get your past statements and then have a new company look at them and see if they can save you any money. This really will be an apples-to-apples comparison, and you should know pretty quickly if you can do better. Shopping around can definitely save you a lot of money especially if you’re processing some significant volume each month. These processing companies are hungry for business so never just settle.


Good luck. I hope this episode has been helpful. So anyway, that’s our show. Thanks for listening.

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