How to Discover Credit Card Processing Hidden Fees: A Quick Guide
Credit card processing is a confusing topic for most business owners. How do you know if you’re getting a good deal, or if a processor is ripping you off? Complex pricing, hidden fees, and smooth-talking salesmen can make it challenging to get to the bottom of it.
Fortunately, there are some things to look for (and ask!) to ensure you don’t get ripped off.
Questions to Ask
When you’re considering processors, there are several questions you can ask to avoid signing up for an expensive service.
Are there “qualified” rates?
When a processor uses “qualified” and “non-qualified” rates, you’re sure to get more expensive processing. That’s because qualified and non-qualified rates indicate tiered pricing, a type of pricing that a processor can manipulate to their benefit.
With tiered pricing, the processor decides which of your transactions will “qualify” for low rates, and which will not qualify. The processor will charge more for transactions it decides don’t qualify.
Many times, processors that use tiered pricing only tell you the “qualified” rate up front, or use wording such as, “Rates starting at 1.29%.” You’ll have to scan the fine print to find the “non-qualified” rates.
If you see these red flags, consider another processor.
Are interchange and assessments passed at cost?
Once you avoid the “tiered pricing” trap, you’ll likely come across interchange plus pricing. Interchange plus (also called cost plus) is more transparent, but it doesn’t automatically mean you’ll get a good deal.
One thing to ask is whether interchange and assessment fees are passed at true cost. These two fees make up the bulk of your processing costs, and they’re set by the card brands and banks. Your processor doesn’t control them, but it does control whether it charges you the real cost, or whether it adds fees without telling you.
You don’t want to work with a processor that “pads” interchange or assessments.
What does it cost to cancel?
Not all processors charge a cancellation fee (and at CardFellow, we insist they not charge such a fee to our members!) but some still do. It’s important to know how much that fee will be. Additionally, be sure to ask if it’s a one-time flat fee. Some processors use a method where they calculate the money they will “lose” if you cancel, and charge you based on that amount. This method can cost thousands of dollars.
If you do get into an expensive processing situation, getting out of it as quickly as possible is the best way to stop the damage. A hefty cancellation fee makes that more difficult.
If a processor tells you there’s no cancellation fee, be sure that’s in writing and that your contract doesn’t include a termination fee.
Remember, it’s important to ensure that what a salesperson tells you matches your contract. The merchant agreement that you sign will trump any verbal promises, so even if you ask the processor those questions, be sure to read through your agreement as well.
In addition to asking the right questions, it’s important to know what “hidden fees” you might run into. Some of these fees might come up right away or not for a few months into processing.
One unexpected source of lost income for some business comes from refunds. When you refund a transaction, will the processor return the fees you originally paid? In some cases, the processor keeps those fees. That means lost revenue for you. After all, you refunded the customer’s entire transaction amount but paid fees on the transaction. If you don’t get those back, you’re losing money.
Note that processors typically don’t receive all of the fees back, which means they can’t pass on the entire original fee you paid. However, you should receive some of the fees back.
PCI Non-Compliance Fees
Every business is supposed to comply with PCI requirements for secure transactions. However, many businesses don’t. In those cases, processors might charge a PCI non-compliance fee for every month that you’re not in compliance.
While this fee is avoidable by becoming compliant, it’s worth looking out for, as it adds up quickly. After all, why pay a monthly fee that you could avoid?
“Padded” Interchange or Assessments
I mentioned this one in the “questions to ask” section, but it’s worth listing in the hidden fees as well. That’s because if a processor is padding your interchange costs or assessment fees, they’re quite literally hiding a fee within another fee. Interchange and assessments are legitimate fees set by the card brands – your processor doesn’t control them. However, there’s nothing stopping your processor from slipping a few more cents or percentage points onto interchange and assessment fees.
When signing up with a processor, be sure you’re on a true pass-through model, where interchange and assessments aren’t padded.
Ellen Cunningham is the Marketing Manager for CardFellow.com, the leading free resource for businesses to easily compare credit card processors. She loves helping business owners and managers, whether they’re new to processing or looking for the lowest costs once and for all. When she’s not writing about merchant services, she enjoys spending time outside in the crazy New England weather.