Some business owners have a handle on their merchant account, but few are as familiar with their bill as they should be. As a result, most merchants failing to notice hidden fees. Usually there is a valid and even obvious explanations for certain costs, such as authorization and batch fees, but sometimes merchant service providers charge their clients unnecessary fees by burying them in the notoriously confusing merchant statements.
Here’s a list of hidden fees and costs that business owners reviewing their merchant accounts should watch out for:
Visa, MasterCard, and Discover charge between .11% and .13% on all processed volume. In most cases you will see “Assessments” or “Dues and Assessments” as line items. (If they are not included on your statement, rest assured you are paying for them in some way, shape, or form.) Some merchant service providers discretely increase that rate by simply showing the total amount charged for those items. To see if your assessments are getting unnecessarly increased, take the total charged for, say, MasterCard Dues and Assessments and divide that by the total amount of MasterCard volume processed. If that number is greater than .13%, then you are paying too much.
Interchange is a necessary fee that all merchant service providers charge their clients. It’s often listed as a pass-thru cost on your statement, but occasionally interchange is marked up by merchant service providers. There are several hundred different interchange rates, which are determined by card type (debit card, rewards card, corporate card, etc.), how the card is accepted (swiped, inserted or keyed), and industry type.
Similar to assessments, interchange is a necessary evil that leaves your wallet feeling lighter. In fact, interchange typically makes up the majority of your merchant services expense, despite the fact that few merchants understand it. Even business owners who have had a merchant account for years may still not know exactly what interchange is, so figuring out they are being overcharged is next to impossible. The best way to proceed is to contact other providers to see if they can explain what each interchange rate is and whether yours is being marked up before being presented as a pass-thru cost. Doing this just might also get you a better credit card processing deal.
Most merchant service providers take out their fees each month on one day of the month. This helps with reconciling as well as monitoring your credit card processing expense to make sure it’s not creeping up. Some providers set merchants up on “daily discounting” in which they take their fees daily, which hurts merchant cash flow and makes already confusing merchant statements even more so. Other providers dare to charge merchants to get monthly discounting instead of daily discounting. If you see that, make sure you argue forcefully enough to get it removed. In the end, daily discounts just keep you in the dark and hurts your cash flow. Insist on monthly discounting and don’t pay an extra fee for it.
Merchant service providers try to reel in business owners by saying that they offer the best rate. Although some do offer low rates for their clients, others prove to be misleading. Rather than explain the terms and conditions right away, some merchant service providers throw out an attractive rate only to reveal later on that it only applies to certain types of transactions, specifically in-store transactions in which a debit or non-rewards credit card is used. Any “non-qualifying transactions” result in a surcharge, which is usually significantly higher than the rate they promoted as the “best rate.”
Want to know what you’re actually paying for credit card processing? Take the total amount of the fees you paid for credit card processing in a given month and divide that by the total amount of volume you processed. That percentage is your “effective rate,” and represents precisely what it costs you to accept credit and debit cards for payment. Compare this with the “best rate” you were offered and you’re likely to see a difference.
The credit card processing standard contract is a three-year term. What few merchants know is that standard contracts contain a provision that allows your provider to notify you—even in a discreet message on your merchant statement—of a rate increase, and that your failure to object to such rate increase within a 30-day period is deemed to be your acceptance of such rate increase. So be sure to READ your monthly statements for notices of rate increases (most providers will simply waive them if you call to object) or periodically check your effective rate to see if you suddenly being paying more for your credit card processing.
This item will not appear on your merchant statement, but would be an item on the merchant services application/contract that you sign. This fee ranges from $0 - $500. In almost all cases, if asked, a merchant service provider will waive this one-time fee, as it is pure profit to them. Just ask to have it waived.
Some merchant service providers justify charging you more per month by offering a “service package” that they might refer to as “Gold” or “Platinum.” These service packages supposedly include additional services and perks, but it’s actually just a ploy to get you to pay more money each month, because the “extra” amenities you’ll receive should already be provided through a standard merchant account. Even if there is small benefit to signing up for such a package, it’s probably not worth the extra cost.
Find out how to lower your credit-card processing fees here.