Credit Card Processing Blog
Hidden processing fees,
what most processors aren't disclosing.
By Nicolas Beique
October 16, 2008
Most businesses today have had bad experiences with credit card processors, and rightfully so. The industry is plagued with undisclosed fees, hidden charges and "assessment fees" that often pad your monthly statements. To help you make better decisions when choosing a credit card processor, it's important to understand how fees are structured and what to look out for. This article is especially important to retailers, restaurant owners and merchants dealing with customers face to face. Merchants with terminals who take orders over the telephone should also take notice, as manually keyed transactions are considered non-qualified transactions (explained below).
Interchange-fees: always changing
Interchange-fees are the percentages taken by the credit card companies, such as Visa and MasterCard, when a transaction occurs. Interchange-fees vary with every single transaction processed, based on a wide range of factors. From the size of the transaction, to the location of the business, to the type of card (whether consumer or business), to the type of rewards available on the credit card; all of these factors come into play when a credit card transaction occurs. When the processor authorizes the transaction, Visa or MasterCard will inform the processor whether the transaction was "qualified" or "non-qualified" and what the interchange percentage was. Because every transaction offers a different rate, processors will offer a fixed "discount rate" to merchants for simplicities sake. The processor will then make a margin on some transactions while taking hits on others.
To qualify or to non-qualify, that is the question!
Now let's discuss the difference between qualified and non-qualified transactions. In general, qualified transactions occur when cards are physically swiped at a terminal using a standard consumer credit card. This accounts for roughly 90% of retail transactions. When processors advertise their rates and compete for your business, they are advertising their qualified discount rate. This rate usually ranges between 1.69% all the way up to 3.50%.
Dirty practices
Finding a low qualified rate is important, but where most merchants get blind-sided is during non-qualified transactions. With some exceptions, most non-qualified transactions occur with corporate credit cards, premium credit cards, some international cards, larger than normal transaction sizes, and manually keyed transactions. All of a sudden, the low discount rate merchants were expecting is replaced with a rate that often doubles, or appears on your statements as "assessment fees". Most processors have played this trick on unsuspecting merchants, offering them too-good-to-be-true offers without disclosing their complete pricing structures.
Please note: Most e-commerce transactions are considered non-qualified, which is why most online merchants are not faced with these varying rate issues.
The best thing for any merchant to do is to ask for a full disclosure of both qualified and non-qualified discount rates. Any processor unwilling to provide you with a concrete non-qualified rate is most likely spiking your rates during those occurrences and charging you much more than they should. Merchants should demand for a fixed non-qualified rate, just as they have for their qualified one. By controlling your non-qualified charges, merchants will almost always see large reductions on their credit card processor expenses.
The result: more savings for you, less money for unfair processors.
Nicolas Beique is a director at Helcim Inc., a merchant account provider and processing company with headquarters in Calgary, Alberta.
You can contact the author at nbeique@helcim.com
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