If you are a business owner, do you really understand how the pricing works with a merchant account? Are you able to dissect and audit your processing statement to ensure you are paying fair and honest pricing? Do you know if you are being taken advantage of or not?
I have met and spoken with a large number of business owners who have told me they know how much they are being charged for processing credit cards. But, do they really? In my experience, the majority of business owners know a rate, but do not know the details. Oftentimes, they know a base rate, but don’t know the surcharges or added fees on the account. Honestly, this isn’t necessarily the fault of the business owner. In fact, many processing companies will provide statements to businesses that are complex or confusing. Is this by design? I believe so. Many people stop trying to figure out their statement and accept it for what it is. I have spoken to many accountants that look at statements regularly, and even with their expertise they need help understanding these statements.
Recently, I sat down with a business owner that runs an independent movie theater. They have processed through one processor for many years. However, the original processing provider sold out to another company. The business noticed that once this occurred, they started paying higher fees. They contacted the processor and asked to have the rates adjusted to their original pricing. This was done, but they didn’t see a big difference in what they were paying. I was connected with the business to help them see what could be happening. This was a great learning experience for me. One that surprised me as well, and makes me wonder, how many other companies is this happening to? At the first look at the statements, I noticed they are on a cost-plus pricing. I went line item by line item, to make sure there weren’t any added fees they didn’t need. I also noticed, that the statement showed that the majority of cards were passing through at debit card rates, and many times under Durbin and small ticket interchange rates. This means they are paying low rates as they should. I ran a calculation to figure out the effective rate they are paying. I was surprised at how high it was for a business that runs mostly debit cards in a face-to-face environment. To be honest, I was a bit puzzled with what I was seeing. I knew something was off, but I couldn’t figure it out, because in appearance, all looked correct, but the numbers didn’t add up.
The breakthrough came when the business owner showed me a statement from when they had the rates adjusted. The new statement showed a zero increase over the interchange rate and no transaction fee. Knowing the processing company is in business to make money, I knew there was something up. When I took a closer look at the individual interchange rates listed on the statement, they were in alignment with the Visa/MasterCard rates. However, when I actually calculated the posted rates by the number of transactions, the posted totals were much higher than the math calculated them out to be. Uncovering that the processor had hidden their transaction increase inside the totals of the interchange.
I have seen thousands of statements over the years. I have seen many tricks, and although I shouldn’t be surprised, I am surprised when I see one that is intentionally throwing people off, or not being fully transparent with rates and fees. For this reason, I firmly believe every business owner should understand and know how pricing works. I feel businesses should have an understanding of how they are set up, and how they audit their statements on a regular basis. All businesses need to have a trusted merchant professional to consult with. A trained professional should be able to assist and be a source of information for the business. If you don’t have a personal relationship with your provider, I highly recommend obtaining one. It could save you thousands of dollars every year.
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