Sorting Through A Merchant Service Statement: Find Those Hidden Costs
When you first signed-up for a merchant service account, you were inundated with sales pitches from everywhere. Your service representative promises were fantastic. How could you have been so smart, or so lucky? At least that is what some merchants think before they get their first statement. Those merchants find themselves saying things like, "The rep said they offered the lowest prices, and yeah, he did mention that there would be a statement fee, and a monthly minimum, but those are to be expected, what are all the other costs, for signing up for a lower rate why am I not keeping more of my money, what is up? "They promised next day deposits, but these rates I am being charged are absolutely NOT worth it, I am finding a new processor now."
Paying bills is not fun. Paying for something that you did not agree to buy is maddening. Not understanding what exactly you are paying for is just wrong. Merchant statements are frequently filled with cryptic codes and indecipherable jargon. Too often that is precisely what some banks or independent processors intended. If you can't read it, you may not notice that while you got a great rate quote, the fees they charged you are equal to or more than you saved on those deceptively lower rates. Many banks and processors lure the merchant in with low rates, and immediate deposits. Once you have been hooked the rate offered is now only an introductory rate or the cost of services outweigh the benefits of immediate deposits. Merchant statements can be so complicated that it nearly impossible to assess you REAL costs. Every processor calls commonly expected fees by different names. It is important to understand what the expected and necessary fees are, and what fees can be avoided by finding a top quality processor. The most common fees are: Monthly Statement Fees Monthly Minimum Fees Chargeback Fees 12 B Letter Fees Transaction Fees Authorization & Capture Fees Return Transaction Fees Batch Fees Wireless Fees Customer Service Fees AVS, ARU, Electronic AVS, and Voice Authorization Fees Annual Fees Reprogramming Fees Set-up Fees
A top quality processor will not charge quite a few of these listed fees. Annual fees, reprogramming fees, set-up fees, can almost always be avoided. The rest of the fees will be charged outright to you, or the bank and processor will pass them on to you in other areas. Negotiate the fees with your processor. While many of these fees are set by the associations, the mark-up can be negotiated. Often processors will offer "interchange plus" fees. Depending on your type of volume and industry, credit card processing costs can be greatly reduced. However, as always be aware that banks and processors can pad other charges to you to make up the difference.
Monthly statements should contain your total daily card sales and the fees charged to process them. If you were informed correctly by your processor's sales representative, they quoted you a "qualified rate", a "mid-qualified rate", and a "non-qualified rate." The interchange you are charged for a transaction plus the processing costs will be reflected in your costs. Far too often processors and banks do not inform merchants of the different rates a merchant may be charged. The merchant has been advised of the lowest rate, and not of the increase in rate they might pay when a transaction is "downgraded". Downgrade is the term used when a transaction is assessed a higher than "qualified rate." Reward credit cards and on-line transaction are charged a higher rate. Billbacks are used to hide higher interchange rates from the merchant. Some processors use something called ERR (earn reduce and recover), which is just another term for billback. Don't' fall for this scheme. A processor will charge a low discount rate on all of a merchant's transactions in a given month, bill back the higher rates on transactions the following month. Billbacks are coded with a BB, or ERR. The processor is passing on the additional cost of handling those transactions without showing clearly the actual rate a merchant is charged. To estimate your actual rate, determine your average sales ticket (transaction) and multiply it by the number of transactions for a given billback or ERR, and divide the charge by the previous amount (ticket amount X number of transactions). The merchant can save tremendous money by negotiating lower rates for "mid-qualified" and "non-qualified rates."" Don't let the sales representative get you to focus on the low "qualified rate" while ignoring the rates that cost you more and more, especially in light of the growing popularity of world and reward cards.
Banks and processors do not always pass on to merchants the savings of debit card use. Visa and MasterCard charge lower interchange fees when a customer pays with a debit card instead of credit. The processors, though, aren't required to pass these savings on to you. Quite the contrary, many sales people will actually use debit transactions as a very lucrative revenue stream.
Batch fees are common, and normally are very low, between $.20 to $.50 per batch or settlement. Most merchant settle their charges or "batch out" once a day. It is almost always in the merchant's best monetary interest to "batch out" within a 24 hour period after the sales transaction. Be weary of some processors who take a percentage of their fees when they reconcile your account at the end of each business day. The amount ("total card fees") is not a complete total, as it only treats all transaction as "qualified" and does not reflect the downgraded differences, transaction fees, and monthly fees etc.
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