The credit card processing world is full of broken promises. Credit card processors can pledge to give you a lot of wonderful benefits, just to get you to sign up with them. The ugly truth is a lot of those pretty guarantees are hollow.
We’ve seen a lot of sneaky tricks over the years that some companies have used to deceive merchants into thinking they are getting a good deal. We’re going to uncover the ones we’ve seen most often.
1). 1% Rates
Have you been quoted a flat 1% rate for all your card transactions? We have some bad news for you, there’s no way that’s the rate you’re actually paying.
How do we know this? Because the processor would be going into debt to run these amounts! Charging a 1% flat rate on all transactions does not even cover the interchange rates for the credit card companies (Visa, MasterCard, American Express). It’s equivalent to selling food for a price less than it costs to make.
There’s two reasons to be suspicious of this 1% rate.
- They are probably quoting you either the interchange rate, without their rate above interchange cost without telling you that they will be passing the interchange cost in addition to the 1%, or they are only giving you qualified rates. They’ll quote “teaser rates”, or lowest possible rate “qualified rates, swiped, debit”, and not what you’ll actually be paying for every card.
- If they really are charging you this amount for every card swiped, they are losing money and have very little business sense (and they’ll go out of business), or are going to rake you over the coals somehow.
2). Bait & Switch
This ties into the top rate, where they’ll give you a 2% rate, but not tell your other rates such as mid-qualified or non-qualified. If you want to read more in depth how rates are calculated, read more here.
Most likely, what the shady processor is doing is tying you into a 3-5 year contract, and attach you to a astronomical early termination fee. The way they have the contract written gives them the ability to increase rates at any time with a simple notice added to the statement one month prior to the increase.
How this normally plays out is the merchant signs up gets two months of ridiculously low rates, and then the rates are increased to higher than what they originally were told. By this point, the merchant is tied up in a contract and saddled with a colossal termination fee.
3). Daily Discount
This one is a bit difficult to explain, so bear with us. Some processors, will withhold money from your daily total of transactions. So if you made $500, you would have $475 deposited in your account as your “daily total transaction.”
Later, the credit card processor would send their statement to the merchant and “deduct” their processing percentage rate from that $475.
Basically, it would be the same as you having the maximum amount of your paycheck being withheld for taxes, and then having the IRS come back and tax you again for the taxes you had withheld already.
This one is a bit tricky, the processor will base your total amount of fees and rates based on your previous month’s transaction volume.
This can sometimes pay to your advantage, and other times where your processor will bill you based on the past statements transactions. So if you ran $5000, and they base your fees off the previous statement, where you only ran $2000, you’ll be charged 5% of $2000. The opposite way this could go is next month, you run $1500, and you’re billed 5% of $5000.
There’s no good reason from a processors standpoint for doing this. They claim it has to do with withholding funds to make sure there are not any chargebacks, but truthfully, there’s no good reason for this.
5). Marking up Interchange dues & assessments
There’s three identities who get paid whenever a credit card is swiped.
1). Merchant Service Provider (Processor/ISO).
2). Issuing Bank.
3). Credit Card Company.
With these three entities, there are are a lot of different fees and charges that go into making up your interchange rates. All of these rates and fees, are in your monthly processing statement, and if you work with a honest processor, they will make the statement easier to read.
BNG Holdings Inc. is transparent, and we assure the statements are easy to read as possible. Breakdown of types of card run, the interchange rate and rate they were charged. We show the transaction volume for that period, along with the rates for the transactions.
Other processors do not make it so easy. They will only show you your total fees and not your volume or rates. Essentially that make your statement impossible to read, and withhold information for your processing volume.
This takes away your power as an individual small business owner to calculate your rates, and assure your processor is being honest.
6). High cost terminal lease
We talked about this in a previous post, but simply put, processors should not be charging you $50/month for 5 years to rent a terminal that would only cost you $200 to own. That is a markup of 1500%.
7). “The Gateway Fee”
There was a processor that had something known as a “gateway fee”, that was charged separately from the merchant account on all merchants. Gateway fees are a valid fee, especially if you’re running transactions through the phone or online. However, none of the clients that this processor was charging a “gateway fee” for, were actually using a gateway.
They were also charging hundreds of dollars a month for this fee, that the merchant didn’t need or want. What’s worse, is a valid payment gateway fee, is usually between $30-$50, not hundreds of dollars.
8). Miscellaneous fees
This one can be the most frustrating, and easy to explain. The worst thing to see on your monthly credit card processing statement is a little line tagged as this *Miscellaneous Fees $30 (or sometimes more).
What’s even more despicable, is they will not tell you what it is for. Instead, they’ll give you a number to call to inquire about the fee. They will also, never give you a straight reason for what it’s for.
There’s a lot of shady tricks out there. Be smart when searching for a processor, and make sure you’re not getting cheating by any of these practices.
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