A few days ago, I received a call from a merchant who was thinking about switching to our merchant account program. She was unhappy about her seemingly high rate structure, and just as upset about her confusing credit card processing statement. Her complaint strikes a responsive chord within me because, I , too, have a lot of difficulty figuring out the fees on the statements that I receive. (I suppose that I should know about regulatory and administrative charges, and how they can increase my phone bill, for example.)
People always say the only two things you can be guaranteed of in life are “death and taxes,” but you might as well add bills to that short list too. We rarely get anything for free these days.
The problem with most bills is you need to be a descendant of Albert Einstein to decipher them as they come with numbers and various types of charges and hidden fees all over the place. I’m sure you’ve heard the saying, “It’s all Greek to me.” Well that’s how bills appear to the average person.
When the credit card processing statement comes in the mail, or you read it online, you want to be able to understand exactly what you’re paying for. This is especially true with the discount rate, which is the processing fee you must pay the credit card company for transferring funds.
1.-Check your rate
Most monthly credit card processing statements you receive will outline the daily total of credit card sales as well as the various fees charged to process them. This will show you the amount it cost to process the sales. For example, you may have been charged $5.50 for the processing of Visa card sales of $450 on August 3rd. This means you were charged a discount rate of 1.22 per cent. This rate should match the one you were offered when you signed up with the processing company. If you find the rate you’re being charged is higher than promised, make sure to ask questions about it. The credit card processor uses this money to pay the fees they are in turn charged by the cardholding associations and banks. Of course if there’s anything left over, it’s profit for the credit card processor. Beware that not all credit card transactions cost the same though, as various types of rewards cards and online transactions come with higher interchange fees assessed by the likes of Visa and MasterCard, which translate into higher processing fees.
2. Beware billbacks
When some credit card processors are charged higher Interchange rates they use billbacks to cope with them. In this case, the processor will charge a low discount rate on all of your transactions in a given month and then bill back surcharges on specific transactions the next month. These Billbacks will be coded on your credit card processing statement with a BB. This line of the statement will show a total number of transactions for the month that were charged higher Interchange fees. Since it cost the processor more, it’s going to cost you more. The problem is you can’t see the actual rate you’re paying as you can only see the number of transactions and not their dollar amount.
3. Calculate the markup
However, it’s not too difficult to figure out the actual rate you’re being charged. You just have to take the average sales value and multiply it by the amount of transactions for a given billback. Next, divide the surcharge by that amount and you will know the rate you have been charged for these sales. For instance, if your average sales value is $50, multiply that by the amount of transactions, say 1,000, and you get $50,000. Then divide the billback surcharge, say $1,200 by that amount, and you end up with 0.024 or 2.4 per cent. The difference between what the credit card processor is paying to the powers that be and what you’re being charged is again pocketed by the processor.
Make sure to ask your credit card processor for information on your billbacks as some of the transactions might not qualify for the discount rate you were quoted. If you find out you’re being charged steep billbacks, it might be a good idea to find a processor with better rates on billbacks to save yourself some money. Better yet, find a merchant account provider that does not use a bilback pricing system which some experts claim will cost you a lot more to accept credit cards.
4. Qualified versus mid-qualified versus nonqualified
The credit card companies’ Interchange fees can be very confusing as transactions are often categorized as qualified, mid-qualified, and nonqualified and each category will have its own rate.
For example, if a customer pays with a generic Visa card, Visa will charge a set Interchange fee. The credit card processor will categorize that as a qualified transaction and will also charge a set discount rate, which is generally a little higher than the interchange fee. But if a customer pays with a Visa rewards card, the Interchange fee will be higher. The processor may categorize this as a mid-qualified transaction and will also charge a higher fee. Each processing company sets its own levels of pricing, which means one type of transaction may be categorized as mid-qualified by one processor and qualified by another. Make sure you inquire how your processor categorizes the transactions.
5. No deal on debit
Most credit card companies such as Visa and MasterCard will charge the processor lower Interchange fees for debit card transactions as opposed to credit cards. However, the processors might not charge you a lower rate. It’s a good idea to ask about the difference between debit and credit card rates and ask for the lower debit card fee.
6. Watch out for skimming
Some credit card processors will take a percentage of their fees when they settle your account at the conclusion of each business day. This will show up on your credit card processing statement as "total card fees." However, the figure isn’t a true total. To figure out your actual costs, you need to find a line on the statement called "less discount paid." This figure will show how much your processor has skimmed from your sales during the month. If you add this amount to your "total card fees" you will be able to see how high your fees really are.
7. Hidden fee No. 1
As with most bills these days, you will find there are some hidden fees. One of them on a credit card processing statement is AVS, which means address verification service. Most merchant account providers will charge you 5 to 15 cents per transaction for AVS where your customer’s billing address and the address listed on the customer’s credit card is compared. These extra cents can soon turn into dollars!
Also, when you make a credit card sale online or on the phone the transaction is charged a lower Interchange if you key in the buyer’s address (at least the zip code and it matches). This rate is generally lower because most credit card companies consider AVS / matching address a proficient method to fight against fraud. Check with your processor to see if you can get a better rate on AVS fees.
8. Hidden fee No. 2
Some processors charge a set rate for each credit card sale, refund, and authorization which may be higher than the norm. For merchants that have only a few, high-priced transactions in a month, this fee won’t affect them too much. However, it can sure add up if you have a large amount of smaller transactions.
The easiest method to find out what your actual rates are is to divide the total fees by your total monthly credit card sales. You may be shocked to find out you’re paying quite a bit higher than the low discount rate you were quoted by the credit card processor. If this is the case, be sure to shop around for a less expensive processor.
If you’re able to understand credit card processing statements properly, you‘ll then be able to evaluate the true fees and make an educated decision regarding your processing company. You may be satisfied with them or it could be time for a change, like the merchant who first called me decided after she gave up translating her old credit card processing statement.
To learn more about our merchant services, please see http://www.intelli-collect.com
