In “Feds Eyeing Credit Card Processing Industry? ,” part one of this series, I commended Robert Carr, CEO of Heartland Payment Systems, a massive card credit processing company, for reprimanding the card processing industry for deceptive tactics. In a language, Carr predicted that federal regulators would keep on cracking down on the industry, which, he said, should do a better job of policing itself.
My post drew both praise and criticism. Generally speaking, I find that merchants and affectionate salespeople appreciate and learn from my posts. However, I am sure there are a few in the market that would prefer I not expose the misleading problems and tactics.
In this report, I will show a few examples of why a CEO would reprimand his own business. By no means do I think any of those suppliers in the below examples do anything illegal. I am confident that each of the fees and rates mentioned below are mentioned somewhere in the depths of their suppliers’ merchant contracts or in terms and conditions arrangements. But, merchants are too often left with the impression they’re getting better pricing than they actually get. This is due to many reasons, including the fact that the merchant could be misled to think that the supplier is simply passing through particular card company fees when, in actuality, the fees are marked up by the supplier.
Merchant’s Perception Versus Reality
I showed an example last month of the EIRF fee — i.e., a surcharge for downgraded transactions — on a statement that was 0.50 percent greater than the real rate printed by Visa. The merchant thought that his credit card pricing has been set at 0.10 percent above interchange and pass-through prices and his debit card prices has been set at 0.40 percent over interchange and pass-through fees. And, as you can see from the insert below (see last two columns on the right –“Disc%” &”Processing Fees”), it appears this is true. The merchant was billed 0.10 percent x $9,746 = $9.75 for Visa credit cards and 0.40 percent x $17,896 = $71.59 for debit cards.
In this instance, the merchant was charged an inflated interchange rate.
However, as I showed last month, the merchant did not see that the interchange rates recorded on the announcement were inflated by 0.10 percent to 0.90 percent. After all, how many merchants really understand interchange prices? The merchant was overpaying by over $18,000 per year since the merchant had the perception he negotiated a pricing program that was based on real the interchange rates and pass-through fees.
Salesperson’s Perception Versus Reality
Unfortunately, many credit card issuers do not understand interchange rates, pass-through fees, or even how their particular company charges its merchants. Salespeople, in addition to merchants, occasionally send me their bills to audit since they’re confused or do not trust the supplier they represent.
This salesperson priced her merchant on which she told the merchant was an interchange-plus pricing program at 0.20 percent + $0.10 over the interchange rates and card firm pass-through fees. As shown below, Visa (VS) transactions were 383, totaling $12,794.21. There was one (01) client credit for $39.92, so the net sales were 12,754.29. The average ticket was $33.41 and the merchant was charged 0.20 percent + $0.10 for all these Visa sales, which totaled $63.89.
At first glance, the merchant appeared to be billed correctly on this announcement.
But below is an insert from the Fee Section of the exact same announcement and what she and the merchant believed was the true interchange rate for Visa Regulated Debit. The Visa published interchange rate for these controlled debit transactions is 0.05 percent + $0.22.
This excerpt from the Fee Section indicates the merchant was overpaying for debit cards.
It states above that there were 111 transactions totaling $4,665.77 of “US Reg” (regulated debit cards), which totaled $31.45. However, doing the math, 111 transactions at $0.22 = $24.42. The complete cost of $31.45 — $24.42 = $7.03. $7.03/$4,665.77 = 0.15 percent. This merchant was being billed 0.10 percent more compared to Visa published interchange rate. This mark-up was constant for all of the transactions, not just Regulated Debit. Hence, the merchant was really paying 0.30 percent + $0.10 versus the 0.20 percent + $0.10 quoted by the salesperson.
Inflated Pass-through Fees
I see more inflated pass-through fees by far than other sort of inflated rate or commission. Here are just two examples.
A couple of the ways card businesses collect revenue in the merchant account providers is by charging an appraisal fee and an access fee. Visa charges a 0.11 percent assessment fee. Accordingly, on a $100 sale Visa charges 11 cents.
Nevertheless, in the below example, this merchant was billed a Visa Assessment fee at 0.95 percent +$0.195 (column 5 and 6) totaling $1,054. This merchant was paying $20,000 a year more in evaluation fees than Visa really charged the supplier. On the surface, it seemed like this merchant was priced at 0.15 percent + $0.10 over interchange and pass-through fees. However, the reality was different.
This merchant was overpaying for the Visa assessment fee.
MasterCard calls for its access fee”NABU” — Network Access and Brand Utilization. Presently, MasterCard charges merchant account suppliers 1.95 cents per transaction. Nevertheless, in the below example, this supplier is charging a 15 cent (column 3) NABU fee. The supplier is collecting an extra 13.05 pennies per transaction from the merchant. It appears some suppliers find this an easy way to obtain revenue and place the blame on the card companies.
This merchant was overpaying for the MasterCard access fee.
I concur with the CEO Robert Carr’s comments. I feel the industry has made great strives to authorities and improve itself. However, since Carr stated, the business must do more. There should be more schooling and enforced standardization of language. Additionally, there’s a lot of a”buyer beware” attitude in the business.
However, because of the perplexing nature of the fee and rate structure, it’s just too simple for merchants to be taken advantage of. And, many merchants are hurt by their own merchant account providers.
Read my 5-part series, “How to Lower Credit Card Processing Costs and Obtain superior Conditions,” before renegotiating with your existing provider or searching for a new supplier. The show not only provides the methodology to get a competitive processing cost, but also walks through the verbiage and verification required to make sure the merchant actually receives the pricing he perceives he negotiated.
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