Payment Processing Pains – Hidden Charges

Payment Processing Pains

Payment processing is a necessary part of doing business. However, there are sometimes hidden charges that you need to be aware of.

Pricing schemes can be difficult to understand and merchant statements can obscure reality. In addition, promotional rates can be misleading. Furthermore, there is an incredible amount of fine print.

Credit card processing businesses and card networks have many tricks up their sleeves. They keep businesses from seeing the true costs and hidden charges of accepting credit and debit cards. These strategies cause confusion and increase your payment acceptance costs without calling attention to themselves.

Therefore, you must be aware of these practices to keep your business safe from price gouging. Keep an eye out for the following four common hidden charges in payment processing costs:


1. Padded Assessment Fees

There is a wholesale processing cost in every type of card transaction. This cost is made up of two valid, non-negotiable charges:

  1. the interchange fees paid to card networks, and
  2. the assessment fees paid to card brands like Mastercard, Visa, or Discover.

The exchange rates are easy to verify and they are continually growing. It’s not just raising rates twice a year they’re also anticipating the largest fee increases in more than a decade. Most credit card companies, however, do not disclose their assessment fees.

Because of this lack of transparency, assessments are a target for price gouging. To make matters worse, each card brand has a wide range of additional fees, naming conventions, and cost structures. This makes it difficult to identify and aggregate them all.

Assessment costs should be in the range of 0.13 percent to 0.15 percent for each transaction. However, some processors will pad them by a few basis points. You can easily miss this because they are so little.

The difference between 0.13 percent and 0.135 percent on a $100 transaction, for example, is less than a half-cent. However, for a monthly card sales volume of $10 million, the processor would earn $6,000 in hidden costs. On top of that, they are coming to many businesses in the disguise of assessment fees each year.


2. A New Hold on Merchant Funds Puts Your Cash Flow in Jeopardy

According to PYMNTS, prominent payment processors such as Stripe, PayPal, Square, and Worldpay have begun putting freezes on merchant cash. They do this to protect themselves from chargebacks among other things.

In one instance, the sum was as much as 30 percent of each transaction in question. Furthermore, merchants may have to wait as long as four months before being able to retrieve their cash. This technique has significant ramifications for a merchant’s capacity to meet their working capital requirements on a wide scale.

The consequences are twofold. First, merchants have to deal with a rise in the cost of refunds and chargebacks. Second, their processors are also deliberately withholding funds and reducing their cash reserves.

Fortunately, there are alternative payment options available that do not target your revenue stream. Payments made through Trustly’s Online Banking Payments have a guarantee and the company absorbs all chargeback risks. Therefore, you can send merchant funds effortlessly through the ACH network in near-real-time and get them the next business day.


3. Lost PINless Debit Card Transactions

There has been a lot of pushback against PINless debit transactions by the card industry. As a result, retailers in the United States are leaving behind at least $2 billion in processing savings every year.

PINless transactions are becoming increasingly available from a rising variety of PIN-debit networks. They often have lower interchange fees than the Mastercard and Visa networks. This new feature allows merchants to route debits from card-present and card-not-present transactions through more cost-effective worldwide networks.

The Durbin Amendment calls for card issuers to give retailers a variety of unaffiliated debit network options to be compliant. However, issuers have financial incentives to continue pushing transactions toward more lucrative options. As a result, they try to send them through Visa and Mastercard, which generate more revenue for them.

Furthermore, neither card network is using PINless capabilities which would drastically cut businesses’ processing costs. This has prompted a federal probe into the matter.


4. Tiered Transaction Downgrades

A processor with a tiered pricing structure will divide your card transactions into buckets, each with a different rate. Usually, there are three tiers: “qualified,” “mid-qualified,” and “non-qualified.” The lowest fees are at the bottom and the highest ones are at the top.

Unfortunately, there are no formal classifications made by card networks which creates a dilemma. Tiered-pricing processors are responsible for creating and defining these categories. Therefore, they can downgrade transactions to less “qualified,” more expensive levels, increasing their profit margin.

As a result, merchants are left with uncertain and excessively expensive processing expenses. In addition, some organizations even use a rate bait-and-switch strategy. They promote the lowest eligible rate to entice merchants to join, only to hike charges later on.


Image Credit: Mart Production; Pexels; Thank you!

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