Why You’re Overpaying for Credit Card Processing
If you feel you are overpaying for credit card processing, there are a few possibilities to explain how that’s happening. These issues usually won’t be solved by changing providers, but possibly fixed by addressing them with your current vendor.
Nearly 90% of credit card processing sales representatives don’t make it more than a few months in the business. The possibility of encountering an inexperienced representative is far more likely than an industry veteran.
So what wrong information can create an issue and later result in higher fees? They might make mistakes regarding the clients’ industry type, estimated sales volume, methods of accepting credit cards, or even forget to detail processing history. When the credit card processor’s risk/underwriting receives the initial agreement, they categorize the client accordingly. If these mistakes go uncorrected, unfair overcharges can occur for years before you realize what happened.
You may have heard of the boiling frog story. If a credit card processor has 100,000 clients and initiates a universal $10 monthly fee increase, most clients won’t notice. They may get away with up to 80% of clients failing to complain, which would net them an additional $800,000 in monthly revenue. They’ll try the same trick again every few months, and suddenly clients are paying an additional $50,100 or even $200 per month over time.
When a client first applies for credit card processing, they may not understand how their sales will increase over time. A startup client may initially estimate its processing to be $10k per month and eventually run $2 million per month. Since they didn’t initially predict, such as high sales volume, they may not receive the benefits. Similarly, the client may initially open up a retail store, only to later receive the bulk of its orders through a website. Finally, the client’s business model may experience a pivot, which may change the risk profile. For example, a B2C e-commerce client may have an initial average customer sale of $50 and transition into a B2B Enterprise environment with an average sale of $5000. All of these factors can change the rates and fees, and typically they will be increased rather than decreased.
Your Processor was Acquired
There have been a record-breaking number of mergers and acquisitions in the credit card processing industry as of late. There is a good chance the credit card processor a client initially signed up with is no longer the company they use. When credit card processors acquire their competitors, they calculate their buyout price mainly on the value of the client portfolio. Key metrics include the average dollar amount of profit and percentage of profit. The buyers know that the vast majority of clients aren’t brand-loyal and won’t bother to leave based on the acquisition. When the new processor takes over, they will likely completely change the format of the billing statements. When the billing statement format is changed, it is easy to increase rates and add more fees without most clients noticing.
Clients may see terms such as mid-qualified, non-qualified, EIRF, among others on their monthly merchant statements. These terms are known as downgrades or fee increases. While these fee increases may sometimes be unavoidable due to the card type, there are typically two reasons for this to happen. Most frequently, there is a lack of credit card information submitted on behalf of the client. On occasion, there are billing errors or outright fraud perpetrated by the credit card processors.
PCI Compliance became a big deal after the Heartland Data Breach in 2009. Since then, credit card processors have encouraged and forced clients to complete their annual PCI surveys and/or scans. Credit card processors have very few ways to force clients to become PCI Compliant. One of their tactics in this regard is to charge an ever-increasing monthly penalty known as a PCI Non-Compliance fee. The fee started as $5 or $10 per month and has increased with some processors to $150 per month. Credit card processors maintain that this is the best way to hold clients accountable for compliance, but the penalties are pure profit for them.
Don’t Take on the Credit Card Processors by Yourself
Since 2009, IdealCost.com has helped hundreds of companies nationwide reduce their merchant account fees through identifying and fixing hidden profit, overcharges, fake fees, and billing errors. Clients have saved $300-$20,000 per month on their credit card processing fees without going through the hassle of changing their processing vendor, bank, or equipment. Switching credit card processors should be a last resort, only reserved for funding delays, poor customer service, or technical difficulties. See if you qualify for IdealCost.com’s monthly savings program by uploading your most recent merchant statement for a free analysis. You’ll receive an estimate within 24 business hours.