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)

The classic bait and switch scheme has been around for ages. In this tactic, a product is advertised at a bargain price but is substituted with an inferior product before delivery and after the customer has paid. This bait and switch tactic exists in the credit card processing industry too. Here’s an example from Commerce Payment Systems.  

A merchant called and told us that she was offered 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 absorb the interchange rate into their own rate and keep the difference. Interchange rates charged by credit card networks are fixed and it pays (literally) for you to know these rates so you can filter out the fraudulent credit card processors.

So if the interchange rate is higher than the rate they quoted you, the processor will likely then explain that these are “mid-qualified” or “non-qualified” transactions that don’t qualify for their lowest rates. The reasons for mid-qualified and non-qualified expenses can range from customer reward credit cards to a card number being entered manually, and as a result, very few transactions generally end up falling into the lowest-rate category that was initially quoted.

These extra expenses on your statement are a result of processor upcharging and the credit card companies do not determine how these are manipulated, and they can add up for small and large businesses alike.

One way business owners can identify these malicious practices is by avoiding “Tiered Pricing” plans that claim to be ideal for their consumers. Instead, we encourage you to opt for a card processor that features interchange plus pricing (like Payment Depot) so you know exactly what expenses to expect when taking different credit card types. These misleading, vague, and often contradictory terms and conditions can frustrate any business.

At Payment Depot, we were tired of seeing small businesses 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.  With our tailored interchange-plus pricing, you will receive transparent and seamless credit card processing that works for your business.  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

When you receive lengthy contracts or advertising material from various credit card processing companies, immediately look for their list of fees. Sometimes, all the fees won’t even be listed so you will have to go back and ask them to provide you with an exhaustive list. 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 that 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. 

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Keep track of your sales data, transaction volumes, transaction sizes, etc., as you can use this information to negotiate the cancellation or reduction of the fees listed above. High transaction volumes mean better profits for your card processor, so leverage this data to get a better deal for your business. 

You have to research the prices and terms of other credit card processors. This way you can not only compare and choose the processor that works best for you but you will also be more knowledgeable when negotiating prices. 

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. It must be noted that interchange fees are charged on every credit card transaction. A part of this fee goes to issuing banks and the rest remains with credit card networks. 


Assessment fees are also set by credit card networks. As such, assessment fees make up the bulk of the income of credit card networks. Unlike interchange fees, assessment fees are charged on the monthly volume of sales of your business, and the entire amount is retained by credit card associations. This is another fee that you cannot negotiate with your credit card processor. The interchange fee and the assessment fee together are often referred to as a swipe fee.

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 the 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.

Don’t Lose Money to Scammers

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. Usually, such businesses tend to be run by first-time business owners and they can be particularly susceptible to scams.

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 will try to gain sensitive information from your business by using phishing attacks. They send emails that look legitimate or can call and pretend to be from an authorized institute. Using targeted questions and creating a sense of fear, they can obtain information that will give them access to your business data. Always check the email address of the sender carefully—there will always be tiny mistakes that shouldn’t be there in a company email.
  4. 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.
  5. 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.
  • You can even go a step further. Use a Google search to find out if the person named in these emails actually works for the company mentioned in the emails. 
  • Of course, choose a secure and trusted email client for your business. Good email clients should be able to filter out most of the scam and phishing emails and even detect emails with malicious software in them.
  • Cybercriminals can hack into the social media accounts of your inner circle to send you messages with attachments that can harm your computer.
  • Scan any documents sent to you by businesses over email—invoices, documentation, request forms, etc. They can have malicious software in them. Most operating systems these days have satisfactory in-built virus scanning software but it doesn’t hurt to shell out a bit more for robust security software for your computers.

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.
  • You can even send test emails to check if your training is actually working and is being followed by employees. The results of these test emails will let you know who you need to train further.  
  • Set up an email account where employees can report fishy emails that they have come across. Such threats can be used to educate the other employees and to also track down the source.

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.
  • Be wary of companies that ask you to give over control of your system to them. There are scammers out there who pretend to help you fix technical issues by asking you to give them full control over your terminal. Once you do this, they have access to all your data without needing a single password from you.

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 facing 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 that 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 them for ransom.

Conclusion: Prevent Unnecessary Processing Costs

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The credit card processing industry is 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.

FAQs about Bait and Switch in Payment Processing

Q: What is bait and switch?

Bait and switch is a deceptive marketing strategy where customers are lured by the advertisement of a product or service at a low price, only to find out that the advertised product or service is not available or the offer was misleading, and they are then pushed towards a more expensive option. This unethical practice can leave customers feeling misled and frustrated.

Q: How does the bait and switch scheme apply to payment processing?

In the context of payment processing, bait and switch can occur when payment processors advertise exceptionally low rates or fees to attract merchants. However, once the merchant has signed up, they discover that these low rates are only applicable under very specific conditions, or they are hit with hidden fees and charges that were not clearly disclosed upfront. This can significantly increase the cost of payment processing services, affecting the merchant’s profitability and operating costs.

Q: How can merchants avoid bait and switch?

The best way to avoid bait and switch schemes is to do your research. Don’t settle for the first payment processor you find. Research multiple providers, compare their services, rates, and fees thoroughly. Also, look for reviews and feedback from other businesses about their experiences with the payment processor. Once you have a processor in mind, carefully read the contract and terms of service. Look for any clauses related to fees, rates changes, and conditions under which promotional rates apply.

Q: How can businesses avoid unnecessary payment processing fees?

Firstly, be aware of different pricing models (e.g., tiered, flat-rate, interchange-plus, subscription) and choose the one that best suits your business needs. If you’re looking to lower costs, stay away from tiered pricing as these are the types of models that often obscure and facilitate bait and switch. As far as lowering your rates—depending on your business volume, you may be able to negotiate lower transaction fees or monthly costs.

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