Is your credit card provider secretly increasing your cost?
The fact that some providers periodically sneak in cost increases to their merchants isn’t new. I’ve mentioned before that one of the easiest ways they do this is under the auspicious notice that “The card companies have recently modified their rates and fees so we are passing on the cost increases to the merchant.” Of course, the cost increases implemented by some of these providers may have little or nothing to do with the actual card company modifications.
However, there are other ways in which providers can increase your processing cost and they may have nothing to do with changing the rates and fees stated on your contract.
Providers can increase your processing cost without changing your rates and fees
Below is a line item from a March 2014 statement
| Description | Amount | Rate | Fee |
|---|---|---|---|
| Visa Refund Consumer | $470.00 | 1.76% | -$8.72 |
Visa and MasterCard returns the interchange to the provider when you refund your customer (The amount returned to the provider is not necessarily the exact interchange, but it’s very close). In March 2014, this provider properly passed the returned interchange to the merchant. However, this provider made a policy change and is now keeping the returned interchange. Refund categories are no longer stated on the statements.
A provider’s returned interchange policy is important to understand, especially for eCommerce merchants as they generally have more refunds than retail merchants. Some providers return the interchange as the above mentioned provider did in early 2014. Some providers keep the interchange as is now the case with the above provider. Some providers not only keep the interchange but charge the merchant an additional processing fee for the customer refund. Merchants, and particularly eCommerce merchants, need to know how their provider handles interchange before signing a contract. I have seen merchants overpay by $1000’s per year simply because of the provider’s return interchange policy.
Merchants need to review their provider as well as their statements
Do you periodically google your provider to see if they are going through changes or to see if common complaints have been posted about them? If not, you should be doing this at least twice per year and certainly doing this prior to your contract expiration date.
There is consolidation taking place in the processing industry. Some of the bigger providers have been buying out other providers, especially providers that have a niche. Your cost and possibly your terms and conditions may change if your provider is purchased by another company. Here is an example of some disturbing audit results I’ve found recently with some merchants:
In June 2014 this merchant’s rate was on an interchange plus pricing plan whereby the provider had a set markup over the card companies wholesale cost (interchange and the pass-through fees). Here is an example of a couple of itemized items from that statement (I have removed a per-item fee that the provider piggy-backed with the interchange fee):
| Description | Amount | Transactions | Fee |
|---|---|---|---|
| Interchange | $4166.81 | 27 | $8.02 |
| Interchange | $2104.30 | 6 | $49.00 |
Doing the math, one can determine that the $8.02 charge on the $4,106.81 is properly set at the published regulated debit rate of 0.05% + 22 cents. The $2,104.30 volume is for EIRF credit transactions and is at the published interchange rate of 2.30% + 10 cents.
In March 2015, this merchant also had regulated debit and EIRF credit card transactions as shown below. Note – the statement had not changed and none of merchants were aware of any pricing changes.
| Description | Amount | Transactions | Fee |
|---|---|---|---|
| Interchange | $4386.66 | 55 | $29.19 |
| Interchange | $2152.30 | 11 | $72.13 |
Doing the math, one can see that regulated debit cards of $4,386.66 are now being surcharged 0.5% and the rate is now 0.55% + 22 cents. The EIRF credit transactions of $2,152.30 are being surcharged 1.0% and the rate is now 3.30% + 10 cents. In fact, all debit and credit card transactions are now being surcharged 0.5% to 1.0%.
Merchants need to review their provider’s on-line information periodically as well as review their statement. One quick and easy way to determine if your provider has increased or added new rates or fees is to simply calculate the effective rate of your current statement against 2 or 3 statements from a year or more ago. Say you processed $100,000 in April 2015 at a cost of $2,300. Your effective rate is 2300/1000000 = 2.30%. The card companies have not implemented any significant changes over the last year unless you accept a high percentage of foreign issued cards. Therefore, if your effective rate was consistently around say 2.10% in March, April, and May of 2014, and now it’s 2.30%, this would indicate that your provider has added cost beyond card company changes.
Summary
Merchants can’t just set their processing statement aside but instead need to review it for changes as well as review their provider periodically.
