Bait and Switch: Ways Credit Card Processors Trick Small Business Owners (And How to Prevent Extra Costs)

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

For the Non-Qualified category, they are even more vague.  They only tell you that anything listed above in the mid-qualified group can also put you in non-qualified in addition to corporate, business, and rewards cards.

At Payment Depot we were tired of seeing small businesses get taken advantage of by people claiming to offer flat rate credit card processing.  We wanted everyone to be able to get the same honest pricing no matter how big or small they are.  For a low monthly subscription starting at just $20 and $0.25/transaction you will only pay what it costs us from the major card brands.  It’s that simple, no tiers, no tricks, and no hidden fees.

Avoidable Credit Card Fees and Costs for Small Businesses

The 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 Fees

The 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.

*Often, the monthly fee covers a lot of the other listed fees, so you should avoid paying separately for the other fees. 

Interchange: Non-negotiable and Unavoidable Fees

These 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 Rates

Wholesale rates charged by the card brands to merchants accepting credit cards at their businesses.


Flat 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.

The 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 Scammer

Below 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.

  1. 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.
  2. 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.
  3. 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.
  4. Scammers always create a sense of urgency and will try to rush you into making a quick decision.

Protecting Your Business From Scams

Here 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.

Verify Everything

  • 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.

Small Business Scams You Need to Watch Out For

When it comes to crime, information is your best defense. Learning what types of scams target businesses and how to avoid becoming a victim should be your top priority. Here are the most common types.

Criminals create fake invoices that resemble services or products your company uses or has used in the past. It could be anything – from computer antivirus software to office supplies and other products your organization is most likely to use. Scammers are banking on your billing department, not asking questions, and automatically assuming that these are legitimate purchases. These criminals know that invoices for products and services that are essential for company operations often go unchallenged. But it’s all fake, and you lose money when you fall for it.

Scammers call and either offer a catalog with a free product sample or pretend to verify your address to confirm an existing order (office supplies, other merchandise). If you weren’t paying attention and made the mistake of saying YES, the scammers would send you stuff that you never ordered. If you refuse to pay, the criminals will harass you and demand payment by playing recorded audio of you saying yes.

Fake directory listing scams and advertising fraud have been around for ages. Scammers try to dupe you into paying for a nonexistent directory listing or counterfeit ads. Con artists pretend they’re from the Yellow Pages. Their modus operandi involves asking for contact information in exchange for a “free” listing, or they call to confirm your details for an “existing” order you never made. You’ll get a fake billing statement later on, and scammers will harass and pressure you to pay, using the details you gave them on the first call and maybe even a recording of the conversation.

Criminals impersonate representatives from utility companies, mainly water, gas, and power. The con is to scare you into believing that you’ve missed a payment (or payments), and the late bill must be paid immediately, or they’ll cut your power. The giveaway here is that payment must be made via a wire transfer or reloadable gift card, which utility companies would never do.

Con artists pretend to be government agents and threaten businesses with fines, license suspension, or legal action if taxes and renewal fees are not paid. Another scam involves scaring businesses into buying workplace compliance posters from the scammers or face penalties, but in reality, the U.S. Department of Labor gives these posters away for free.

Tech support scams begin with an alarming pop-up message that tells you there’s a problem with your computer, and you need to call the number listed. Scammers pretend to represent tech companies like Microsoft, Google, and Apple, or one of their support affiliates. Their goal is to get money from you, steal your data, or both.

When you call the fake number, scammers will tell you that your computer has a virus or a nonexistent problem and that there’s a one time fee of X amount of dollars if you want them to fix it. Criminals may ask for remote access to your computer not to repair your nonexistent problem, but to install malware that can harvest your sensitive data such as credit card numbers, login credentials, banking details, and contacts.

Cybercriminals often run social engineering attacks on employees to trick them into sharing confidential or sensitive information. Scammers are always looking for login credentials and financial details. Criminals use bogus social media accounts, phishing emails, or calls that pretend to originate from a trusted source within the organization (manager, supervisor) to trick targets into sending money or log in details. Once criminals gain access to the network or computer, they can install malware that locks and encrypts all the files, holding it for ransom.

Conclusion: Prevent Unnecessary Processing Costs

The credit card processing industry is a very complex and confusing, especially for most merchants when they already have their hands full running their business. And adding on malicious efforts by scammers certainly does not make running your business any easier. Despite the complexity of reviewing this information, taking time to make sure you’re not being overcharged or paying unnecessary fees will ultimately help the health and success of your business.

We’ve looked at many many credit card processing statements and seen merchants being overcharged left and right. In most cases, these merchants didn’t realize they were paying more than they had to. Most of them were able to save their business thousands by learning about the industry and learning about avoidable credit card fees. Contact us today to learn more.

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