Elavon Costco Credit Card Processing: Is it Really the Best Choice for Merchants?
Here at Payment Depot, we have a lot of respect for Costco credit card processing. We love the fact that it’s a membership-based business and the company lets shoppers buy merchandise at wholesale rates.
As you may know, we use a similar business model for payment processing. In the same way that Costco gives consumers access to lower prices, Payment Depot offers members wholesale payment processing rates to lower their costs. And instead of taking a percentage out of a merchant’s sales, we earn revenue through membership fees.
But as much as we admire the membership side of Costco’s business, we can’t say the same about Costco merchant services. Read our commentary below to find out why.
The Basics of Elavon Costco Credit Card Processing
First things first. Costco itself doesn’t handle their own Costco merchant services division. The company has partnered with Elavon, a credit card processor and a subsidiary of U.S. Bancorp. Costco serves a reseller, so if you sign up for Costco merchant services, you’ll be dealing primarily with Elavon.
This isn’t necessarily a bad thing and Costco is upfront about its relationship with Elavon. But you do need to aware of this. Many merchants who look into Costco’s merchant services mistakenly believe that they will be getting the same money-saving experience that Costco’s membership model offers. In reality, though, the Costco merchant services are pricier than most.
The most significant misconception about Costco Merchant Services is that, because the retail side of Costco’s business is so well-known for low prices, merchant accounts through the company must be less expensive as well. Unfortunately, nothing could be further from the truth. Costco Merchant Services offers few discounts over what you’d likely pay if you signed up directly with Elavon, and most of them are limited to Costco members. In fact, the company’s advertised tiered pricing plans could be even more expensive than working with Elavon directly, especially for a larger business.
The Costs Are Higher Than You Think
Costco merchant services advertises its rates as follows:
- On-Site & In-Store: 1.22%2 Plus 12¢ per transaction
- Online: 1.99%2 Plus 25¢ per transaction
- On-the-Go: 1.22%2 Plus 12¢ per transaction
While the rates look reasonable at first glance, it’s important to note that Costco merchant services operate on a tiered pricing model, which, as we discussed previously, is one of the worst pricing methods in the world of credit card processing.
That’s because this type of pricing sets credit card processing fees based on three categories (i.e, tiers): qualified, mid-qualified, and non-qualified.
Qualified card present transactions have lower processing fees, while non-qualified transactions incur higher rates. The credit card processor determines these rates based on a number of factors. For example, debit cards and non-reward credit card payments typically fall under the qualified rate, while transactions involving corporate cards and higher rewards cards would be under the non-qualified category. Whether or not the card was swiped or keyed in can also determine the tier of a transaction. Some processors may consider card-not-present transactions as non-qualified.
Here’s where it gets tricky: credit card processors that use tiered pricing (such as Costco/Elavon) usually only advertise their qualified rates when trying to lure in merchants. The costs mentioned above are the rates you’d pay for qualified charges, but Costco doesn’t promote its rates for mid-qualified and non-qualified charges.
And since a good chunk of your transactions will likely be considered as mid- or non-qualified, you can be sure that you’ll end up paying higher rates than the ones advertised.
Now, you might be able to switch to an interchange-plus pricing model. According to Merchant Maverick, Elavon can set up interchange-plus pricing upon request, so if you’re set on using Costco merchant services, you may want to ask Elavon to use this pricing model on your merchant accounts. (Note: if you’re not sure what interchange-plus is, read this guide.)
Payment Processing Services Savings
Costco’s merchant services do have a few bright spots, especially for Costco Executive Members. For starters, their merchant services don’t charge an annual fee, reporting fees, a cancellation fee or an early termination fee, batch fees, and authorization fees, which is good.
There are also payment processing services perks for Costco Executive Members. According to Costco, Executive Members aren’t required to pay the application fee ($25) or monthly statement fees ($4.95 per month) so that adds up to savings of around $84 per year in statement fees. If you choose to not upgrade your membership, or if you forget to do so, you can expect to be charged what non-executive members pay.
And be sure to double check your monthly statement fees as we’ve seen reports of Executive Members still being charged what the non-executive members pay.
Costco Credit Card Processing Review – It’s Just Too Expensive!
Costco is a great place to buy lettuce, a TV, and maybe even a mattress. But it’s a terrible place to get your credit card processing!
At some point while Costco was selling cabbage, they decided they could make money by taking a percentage of your business sales. Yes, they want a percentage of YOUR BUSINESS! Is it a scam? A ripoff? No, it’s just too expensive.
Costco partners with a third-party provider called Elavon formerly NOVA) to offer you credit card processing. When you use Elavon card processing, Costco is getting paid a commission on your business.
Costco Payment Processing Review: 3 Reasons You Shouldn’t Use Costco Merchant Services for Your Processing Services:
1. Costco / Elavon offers you a card processing rate that doesn’t apply to most of your transactions.
The low rate is just for “qualified” transactions under a tiered pricing plan, which doesn’t include reward cards, business credit cards, or anything that isn’t a simple card that is present. Most cards have some rewards these days, so you’re out of luck.
2. Costco / Elavon wants to over-charge you for debit card transactions.
About 60% of all transactions involve a debit card, and it’s probably a higher percentage at Costco – since they don’t accept Visa and Mastercard themselves! Ever wonder why? Because the interchange (wholesale) rate passed along by Visa/MasterCard is 0.05%, but Costco / Elavon’s rate is 1.48%. That means they are raking in 1.43% from you. That’s your money they’re taking!
3. Costco / Elavon charges a ridiculous rate for “reward cards.”
Rewards cards now account for up to 70% of all credit cards (not including debit cards.) That means the rates Costco is quoting don’t apply to 70% of your credit cards! Be sure to discuss this with your payment processors and check your monthly statement fees for actual savings and overall annual processing rates. My conclusion for the Costco card processing review: way too expensive!
Ok, so you know you don’t want to be ripped off by Costco processing. This may explain some of the bad reviews they get online.
Buy your plastic forks from Costco, but don’t overpay for a merchant account at the same time.
Instead of paying them a percentage of your sales in these total monthly transaction fees, you can sign up with Payment Depot and get the direct Visa/MC interchange rate with no added percentage, just 25¢. Payment Depot is the new way to take credit cards. We don’t add a percentage, we give you the direct Interchange Pass Through rate so you know you’re getting no hidden fees and the best rate possible!
Alternatives to Costco Credit Card Processing
If you’re still shopping around for a payment processor, we highly recommend staying clear of providers that use tiered pricing (like Costco merchant services – even for Executive Members). This model can be misleading and cost you hundreds of unnecessary costs per month.
You’re much better off going with a merchant account provider that implements either interchange-plus pricing or a company that uses membership-pricing. The former adds a markup to the interchange rates of credit card issuers, while the latter charges a membership fee rather than a markup.
Payment Depot is a prime example of a membership-based payment processor. Unlike companies that use tiered pricing, we won’t mislead you by just advertising our low, “qualified” rates. We’re completely transparent about our fees and break everything down in your monthly statement.
Many merchants also prefer our membership payment processing model over interchange-plus pricing, because we don’t take a cut out of your sales. Like the retail side of Costco’s business, we give you access to wholesale credit card costs, for a low monthly fee.
If you’re looking to learn more about Payment Depot, feel free to get in touch. We’re also happy to review your statement or proposal and identify ways that you can save.