3 Examples of Misleading Credit Card Processing Charges

Editor’s Note: This is part two of a two-part series. The first installment, “Feds Eyeing Credit Card Processing Industry? ,” we released last month.

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.

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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.

Wrapping Up

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.

3 Credit Card Processing Quotes You will want to Hear

For ten years, Tony dreamed of owning his own restaurant. He knew just what the menu would look likehe planned out the table and lighting settings in his head repeatedly, and he also knew precisely which credit card processor and restaurant POS to pick.

… Okay, so maybe he did not have that last decision performed in his fantasies.  But it is a decision that restaurateurs have to create before they can accept payment and make a profit.  When it is time to pick your credit card processing and restaurant point of sale system, do you have a plan of action to get the most out of your investment?

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Can Credit Card Processing Become An Investment?

We had a board of experts, including Matthew Mabel of Surrender, Inc. and Marc Thomas of Upserve, talk about the consequences of credit card processing on your bottom line. Long story short, we wanted to understand how restaurateurs could turn their restaurant credit card processing into an investment with additional business value.

“You do not begin a restaurant because one day you would like to opt for a credit card processor.” — Matthew Mabel, Surrender, Inc.

Beginning a restaurant is all about diving into exciting fresh waters, and this Dallas-based restaurant consultant would understand.  Restaurateurs like choosing credit card processors around as much as they prefer to choose insurance companies and chemical suppliers, he points out. This isn’t the fun part of the organization. They’re so incredulous about boosting their profits, they become obsessed with saving a quarter point, and all providers become a commodity that appears exactly the same to them.

This isn’t the best way to look at it, however.  Your decision on processing can end up bringing you value far beyond the capacity to take a card — and it should — should you choose wisely.

“If interchange goes up or goes down, your pricing shouldn’t change.” —Marc Thomas, Upserve

Charges for processing can eat up as much as 3 percent of the final bill. And Marc would understand — a former credit card processing firm owner himself. Understanding pricing arrangements, and the fees that come together, is integral to making a decision that could affect your bottom line, ” he says. You need to pick a pricing structure that is suitable for you. Challenge the business, he urges merchants, inquire how the charges are applied to your company.

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“No one needs data only for the sake of information. Actionable insights are very valuable.” —Matthew Mabel, Surrender, Inc

What can your credit card processor do to you outside a fantastic rate? Restaurateurs are bombarded with technology which was not available to them before, or just available to chains, Matthew points out. This is exciting if you can harness your management staff and arrange them to use these pieces to boost revenue, profit, and employee and guest satisfaction. A processor should explain how their services fit into earning money and strengthening a new, and what their point of difference is when they have one.

The better you can understand options and choices — the more you can decide how to take in technology that you can use.   It’s great having all this information but if don’t know how to use it, or your resources aren’t matching your requirements, then what you’re paying for is useless and only a new additional cost.

Nowhere is team unity more important than at a restaurant. With such distinct workflows in front and rear of the home, it has become all-too-common to find the disparity in efficiency and service, presenting issues that can affect the whole business.

Happily, it’s possible that you already have a solution available, in the kind of your own restaurant POS system.

If your company has already moved away from spreadsheets and handwritten notes and implemented a restaurant POS, then it is likely you have the tools required to improve communication and streamline operations. Here is how:

First, the front…

Obviously, in the service industry, customer satisfaction is job #1. Since the front of home is where first impressions are made, your point of sale system’s significance begins there.

It starts with your servers. Though most of the better wait staff members may recall huge orders effortlessly, the human factor can often play a role. On busier nights, with complex specials on the menu along with an infinite selection of unique dietary requests, orders can get confused, creating a logjam between the floor and the kitchen.

Implementing a POS system in your waitstaff’s routine generates a special opportunity to take orders effectively, without running the risk of missing important information. This is particularly critical for large groups and intricate menu schemes. A POS provides servers the opportunity to enter details in a fraction of the time it would take to handwrite orders while keeping an orderly demonstration for cook employees to follow.

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(Plus, it just seems more professional and modern to clients. The times of tear pens and pads behind the ear are long over.)

Once orders are taken and supported on a POS interface, they are delivered immediately to the trunk, without any confusion from shorthand, handwriting or inconsistent vernacular. Cook staff becomes precisely the information that they need, eliminating unnecessary gaps and the need for servers to leave the floor to verify order needs.

Hosts and captains can benefit in a similar manner. A restaurant POS system allows the front of house to rapidly assess floor designs, occupancy, traffic flow and kitchen workload in a few clicks, as opposed to countless measures through a busy restaurant. This affords them the opportunity to discover optimal seating and customer service solutions that accommodate guests while relieving the strain on staff.

Let’s not forget the back of home…

Though reality TV has certainly done its best, the majority of individuals don’t know precisely how frantic a badly managed back of home can be. Between busy workflows and frequently chaotic communication with management and waitstaff, it is clear how orders can get confused. The thing is that this confusion can all but guarantee disgruntled customers will not return after one bad visit.

As we have discussed previously, a restaurant POS system can shave valuable minutes off the turnaround between placing an order and providing an accurate meal. Messy, incorrect handwritten orders only postpone the understanding required for food to be prepared correctly, which not only poses the probability of unhappy clients but also losses which mount from food that is wasted.

POS systems may enhance communication, and can correctly monitor the time required to take, prepare, complete and send orders, providing management information on areas to improve moving forward.

This is where POS systems glow the most — in analytics for restaurants.  When correctly implemented, your POS can save valuable time in every area of workflow, sending specific information to the ideal regions of the line, eliminating unnecessary communication gaps in the trunk. Now, salad prep and appetizer stations only obtain the information they need, freeing up the chefs to concentrate on other areas.

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In turn, all stock and inventory replenishment needs can be addressed in real time, so direction can upgrade menus, correct specials and adapt to rush hours effortlessly. Clients will benefit from knowing exactly what is available from the beginning of the trip, while cook team will enjoy a calmer, more coordinated night at stake.

At the end of the night, a POS system for restaurants may quietly but efficiently deal with every area of your operations. After the front of home communicates with the back of home, fewer mistakes are made, and customers are happier resulting in repeat visits.

With competition in the hospitality industry at these high levels, and social websites feedback driving remarks of your restaurant, there is very little room for error. Your POS is much more than an”order taker” — allow it to work to unite communications across your restaurant, to guarantee the only feedback you get is positive.

The Biggest Mistake Small Firms Make on Credit Card Processing

At Bindo we Speak to merchants on a daily basis regarding credit card processing.

We see all kinds of companies processing credit cards with a range of credit card processors.   Though these merchants generally have a strong handle on their business operations, many of them Don’t know the actual rate They’re paying on credit card transactions.   If you ask them, they will respond with a number, but that amount is often a huge misrepresentation of the real speed (aka effective rate).   Because of the disconnect merchants will often stay faithful to a particular credit card processor, and lose out on a meaningful savings opportunity.

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Why do merchants make this error?

1. ) Processors like to market the”Qualified Rate”: If you search for credit card processing rates on the internet, you will see a wide range of rates cited.   Obviously the lowest prices will catch your attention initially, but those super low prices are not representative of the actual rate you will payoff. Oftentimes that advertised rate is less than Visa and MasterCard’s lowest credit card interchange rate, which is a baseline for your credit card processor’s cost on a transaction.   In other words, the speed that is advertised is significantly less than the chip’s cost.   How can a processor provide a rate that is below their cost? They can do this because that rate will apply on a very small portion of cards that you take in your company (“Qualified” cards only).   Any credit card which has a rewards or miles program attached to it Isn’t qualified.   Processors will charge higher rates on cards which are considered”Mid-Qualified” or”Non-Qualified” and easily recoup losses in the extremely low rate which applies on Qualified cards.

Merchants will frequently be under the belief that their speed on all cards is the very low one the chip advertised initially.   This isn’t right and merchants should look carefully at their processing bills to discover the true rate that they’re paying.

2. ) Snail mail rather than Documents: Your credit card chip probably does not need you to examine your credit card processing invoice.   If you examine your statement you may realize that you’re paying a much higher speed than you thought, or you might find you are paying extra charges each month that you were not previously aware of.   Processors make a barrier to assessing these statements by sending them in the mail on multiple sheets of paper with hundreds of lines.   Some may send announcements as PDFs, but You Won’t find chips that make statements available in a spreadsheet format.   On credit card processing statements you will see a line for each class of credit card which you took during the month, a corresponding speed, and a fee.   You’ll see numerous sections with various fees recorded, and somewhere on there you will get the total fees charged, but it likely won’t be recorded near to where the complete volume processed is recorded.

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Processors make it hard to examine your credit card processing statement because in case you don’t examine your statement you won’t understand the rates that you are actually paying.

3. Extra fees and other fine print: There are often additional fees recorded in the fine print of your credit card processing arrangement which will appear on your monthly invoice.   These fees can make it so that your effective rate is much higher than the speed you think You’re paying.   Frequent fees which appear on statements are”Monthly Statement Fee”,”Monthly Minimum”,”PCI Compliance Fee”,”Chargeback Fee” and much more.

An Example:

  • Merchant signs up for processing using an advertised speed 1.5%.
  • Merchant processes $10,000 in credit cards in 1 month.
  • 10% of those cards are eligible for the professional speed of 1.5%, whereas 60 percent are processed in a Mid-Qualified rate of 2.75%, and 30 percent are processed in a Non-Qualified rate of 3.25%.
  • Merchant is billed $15 (Qualified) + $165 (Mid-Qualified) + $97.5 (Non-Qualified) = $277.50
  • Merchant is charged a $10.00 statement fee
  • Total charges on the merchant announcement are: $287.50
  • Actual speed merchant is paying is 2.875%

Until the merchant in this example looks closely in their processing announcement, they may be under the impression that the rate they’re paying to accept credit cards is 1.5%.

What should you do?

If you are an existing business owner take a good look at your credit card processing invoice and if you are uncomfortable with crunching the numbers send it to someone who is.

If you are a new company and you do not have a statement to work with be careful and don’t sign any long term contracts.   Do your best to find a chip that offers a fair rate.   It is ok if you work with a chip whose prices are high as long as you have the ability to change chips.   Take a good look at your initial statement and be certain it lines up with your expectations.

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Future of in-store payment processing

Technology is continuing to evolve at an exponential rate and the changes can be tricky to keep up with. There always appears to be some new hardware or software to get to grips with and the payment processing industry is no exception. Whilst we have already seen some gigantic jumps in where, how and when we could make payments, we can expect much more developments in the next ten years.

A brief look at the background of payment processing system can tell us a lot about how far the industry has come in such a brief time. The initial payment processing terminals started life as a simple system consisting of a low-powered chip, keypad, single-line screen and modem. They weren’t able to support any external devices like snare printers or pads. The rapid evolution to customer-facing terminals a couple of years later saw the addition of color screens, pin pads and hot 32-bit processors. The change was comparable to moving from a Nokia 6210 to an iPhone.

But obviously, tech-types did not stop there, along with the greater technology becomes, the more consumer expectations grow. Streamlining payments to make them easier and more secure is part of creating an efficient, noninvasive and high quality spending experience. So as to keep companies successful and clients happy we will need to adopt these demands. To do this we have to make certain that our payment processing apparatus and POS systems have the capacity to accept these new technologies.

So what direction can we expect payment processing technologies to take?

Currently, just about all customer-facing terminals systems accept smart cards. These are the credit/debit cards which have the microchip in that imply that clients just have to input their personal pin number into a keypad to produce a payment. A more recent development is the growing preference for contactless payment that only requires close proximity between your smart card and the terminal. Usually used for smaller payments, some credit card companies and banks have really capped spending limits which increases the powerful security measures the system has set up.

Both chip and pin and contactless transactions work with frequent cash registers. However, they’re also exceptionally well suited to cloud POS due to their mobile nature. With transactions being undertaken on iPad or other cellular POS apparatus, cheque payments could be made anywhere, anytime. An added benefit of cloud-based POS is that receipts can be emailed directly to the customer, streamlining the process further

As we proceed into the future one form of payment processing that’s called to become extremely popular is the ability to make payments using your cellular phone. Using a process called near field communication (NFC for short), experts believe that a lot people will adopt this new system as a secure way to make transactions, eliminating the need for credit cards and money altogether.

There’s not any definite way to predict the future of payment processing technologies. But, we can be sure consumer demand and anticipation will continue to grow. Whether your POS is presently traditional or cloud-based, having the ability to adapt to new developments will be essential to the sustainability and expansion of your company.

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