Bait and Switch: Ways Credit Card Processors Trick Small Business Owners (And How to Prevent Extra Costs)
Here is a classic bait and switch tactic from Commerce Payment Systems. A merchant called and told us that she was offer 1.39% and wanted to know if we could beat that rate. Anytime someone comes to us with a quote for flat rate credit card processing, we know that they are being lied to. Since all credit card processors have to pay the Visa/MC interchange rates – anytime someone offers a flat rate, they are absorbing the interchange rate into their own rate and keeping the difference. So if the interchange rate is higher than the rate they quoted you, they will call it Mid or Non-Qualified and tack on a surcharge which can be seen in the contract below. In this example an extra .92% and $0.10 was added for Mid-Qualified transactions and an extra 1.92% plus $0.10 was added to Non-Qualified transactions. How do they determine which tier the card is placed in? It is completely up to the processor although they list a few reasons why your transaction might not be “Qualified”:
- If you do not batch out daily, expect to be mid qualified
- If you key enter the transaction (Card not Present), expect to be mid-qualified
- Certain Rewards and cash back cards will also be mid-qualified
Avoidable Credit Card Fees and Costs for Small BusinessesThe credit card processing industry can be very complex and confusing, but taking the time to make sure you’re not being overcharged or paying unnecessary fees will pay off for your business in the long run.
Negotiable and Avoidable Credit Card FeesThe following list outlines the fees that are not necessary in order for your business to accept credit cards. These fees are levied against you by your credit card processing company and go directly to the processing company’s operations, profits, etc. These fees are the ones that you can and should negotiate. It’s best to look for a processing company who charges you the fewest amount of these.
- Terminal Lease Fee
- IRS Reporting Fee
- PCI Compliance
- Statement Fee
- Minimum Monthly Processing Fee
- Monthly Fee*
- Contract Cancellation
- Payment Gateway Fees
- Qualified Transaction: Tiered Pricing Structure
- Mid-qualified Transaction: Tiered Pricing Structure
- Non-qualified Transaction: Tiered Pricing Structure
- Marked Up Discount Rate
Interchange: Non-negotiable and Unavoidable FeesThese are the fees that come directly from the card brands (Visa, MasterCard, Discover, and Amex) that must be paid to accept credit cards. Since these fees can be understood as the wholesale cost, they do not vary between different processing companies. The bottom line, you will pay these fees with every processor.
Interchange RatesWholesale rates charged by the card brands to merchants accepting credit cards at their businesses.
AssessmentsFlat rate percentage charged by the card brands that applies to the volume processed on the respective brand’s card.
Fixed Acquirer Network Fees (FANF)Charged by the card brands based on whether the card is present or not present at transaction, the number of locations, and volume.
Kilobyte Access Fee (KB)Charged on each authorization transaction submitted to card network for settlement.
Network Access and Brand Usage Fee (NABU)Charged by MasterCard on all settled or refunded credit/debit card transactions.
Acquirer Processing Fee (APF)Charged by Visa on all U.S. based businesses Visa credit card authorizations. *This is not a comprehensive list of assessments, rather it is a list of the most common ones that merchants face most often. In addition to these fees, scams can also cost your business unnecessary time and money. Small and medium-sized businesses continue to be a top target for scammers and cybercriminals.
How to Spot and Prevent Small Business ScamsThe most vulnerable organizations are either understaffed or lack the proper training needed to spot scams and stop scammers before they can do any damage. Becoming a victim of fraud hurts not only your reputation but also your hard-earned profits. All the hard work you have put in to lift your brand can come crashing down when customers get wind that you’ve been scammed.
Anatomy of a ScammerBelow are some of the tactics scammers will try to use on you. Knowing what these are beforehand can help you spot a scam from a mile away.
- Scammers use out of the ordinary and untraceable payment methods that legitimate companies would never use, such as reloadable cards, gift cards, or wire transfers.
- Scammers will try to get your guard down by pretending to know your business contacts. They’ll pass themselves off as someone who’s connected with a government agency or a company you do business with to make the ruse more believable.
- Scammers use fear and intimidation tactics. They’ll tell you something bad is going to happen if you don’t send payment immediately, usually before you can even check if their claims are bogus or not.
- Scammers always create a sense of urgency and will try to rush you into making a quick decision.
Protecting Your Business From ScamsHere are some of the ways you can protect your business from scammers and criminals.
Know Your Technology
- Protect your network and computers with security software from a leading vendor. Use a VPN to encrypt your internet traffic and encrypt your sensitive data.
- Don’t trust your caller ID because scammers use software to mask their real ID and show you they’re calling from a government agency or a U.S. number.
- It’s easy to create a fake email address and website using misspelled or spoof domains. Scammers try to copy legitimate websites and emails, using stolen letterheads and the names of real people they got online. Think about why you got such an email before clicking any links. Search the email address to double-check if an email is real or fake.
- Cybercriminals can hack into the social media accounts of your inner circle to send you messages with attachments that can harm your computer.
Regular Employee Training
- A properly trained workforce can spot scams faster and will be more resistant to falling for the ruse.
- Proper internet hygiene should be included in your training module, such as not sending passwords and other sensitive data via email, even if the email looks legitimate.
- Practice proper communication that encourages coworkers to be proactive in warning other employees of a scam attempt.
- Make it a point to verify all payments, invoices, expenditures, and new business contacts. Never pay for a bill unless you know for a fact that you ordered the items and received the delivery.
- Only one person should be authorized to handle expenditures, so nothing slips past unexpectedly.
- If someone asks for payment via wire transfer or gift card, they’re trying to scam you 100%.
- Check all companies you come across by doing an online search and adding the term “scam” to read what other people are saying about them. If you need a service or product, do your research and ask for referrals. Knowing whom you’re dealing with is half the battle won.