Where did we leave you?
If you’re starting with this post, stop. Go back and read Part 1. It’s awesome (if I do say so myself). Go ahead – clicking it will open Part 1 in a new window. I’ll wait…
Okay, back to the story. We talked about interchange fees, and how two statements for the same dollar amount of transactions could result in a different net payout to you. The variation in credit card fees is the toughest thing for merchants to get their heads around. (Honestly, there are days when credit card processing pros have their heads spinning, too.)
Back to our story…
Let’s consider how your credit card processor handles all these fees before you see your statement.
Most merchants in the USA. today are on a Tiered Pricing Structure with their processor. It’s not the only pricing structure available, but it is the most common.
Your processor takes your transaction interchange fees and sorts them into bins or “tiers”. The transaction types with a range of the lowest fees get sorted into what they might call the “Qualified Tier”. These might generally be the swiped payment card transactions. The transaction with a range of slightly higher fees would be grouped together and put in the second tier which they might call something like “Mid-Qualified Tier”. Let’s say these are generally the transaction where the account number was keyed into the terminal because the magnetic stripe wouldn’t read. The remaining transactions, the one with a range of highest interchange fees, are grouped into the third tier that they might call something like “Non-Qualified”. Let’s say these are the phone order where the card wasn’t present at the time of the sale.
Once all the fees are grouped, the credit card processor will add their mark-up to the fees. For the sake of ease let’s say that the “Qualified” tier gets marked up five cents. The “Mid-Qualified” tier gets marked up ten cents and the “Non-Qualified” tier gets marked up fifteen cents. (These are not typical mark-ups but we’re trying to keep this simple and easy.)
That all sounds pretty simple and convenient right? The merchant doesn’t have to wade through page after page of the monthly statement, and since most of the store’s transactions are swiped card-present transactions, most of the transactions should fall into the “Qualified Tier.” Well, that sounds simple… but reality is a different matter.
Let’s say your gift shop is located in a big college football town. Half of the weekends in the fall you get students and alumni coming in to buy merchandise with the college logo or mascot. Unfortunately, a lot of the alumni are using rewards cards, and others are using a co-branded card that gives money to the college with each purchase. You don’t realize it because the customers swipe the card and you never see it. All of those transactions will have a higher interchange rate and be downgraded by the processor into “mid-qualified” costing you an extra nickel (in our example) for each transaction. Some of the students are using prepaid cards that their parents can load so that the parents control the level of spending. Yep, those have a higher interchange rate as well so those transactions just got downgraded. Right in the middle of the rush, your card reader stops reading the magnetic stripe because one of your customers dropped a big magnet on it. Your sales clerk now has to key in each account number by hand. All those transactions just picked up a higher interchange rate and got downgraded to “mid-qualified” as well.
When you get your statement a month later it looks out of whack compared to your previous month because there are a lot more “mid-qualified” and fewer “qualified” transactions.
Your bill is higher than most months, and you can’t figure out from looking at the statement what happened. You start to think the processor is playing games with your money, and you call in to complain. When they tell you it’s because of how the transactions posted and the charges are as outlined in your contract, you tell them that nothing has changed and now you’re sure they are playing games with your money.
Now add to this mess the fact that MasterCard and Visa publish their interchange rate twice a year (meaning they can change twice a year) and things get even more complicated.
When you add in all the fees and assessments that can pop up month to month like a retrieval fee, or a monthly minimum fee or a PCI monthly fee that you don’t understand, and you become convinced you’re being ripped off.
In most cases, you’re not being ripped off at all.
In all fairness, I will say that we have known of credit card processors that use tiered billing to take advantage of their customers. Let’s say they used “aggressive” pricing to help their bottom line. Since they set up their tiers they can draw the line between tiers so that it’s easy for a transaction to get downgraded. Sometimes the salesperson will tell the customer that their rate can be as low as the swiped debit card rate and “forgets” to tell the customer that the “qualified tier” is only for debit cards and doesn’t include most of the merchant’s typical transactions We’ve had a couple salespeople try things like that; we fired them, they are not welcome here.
The credit card payment processing industry is so complex and filled with so many variations that only computers can keep track of everything. Do some processors and salespeople take advantage of that? Of course they do; this is a money industry. Some people would rather make a quick buck while some of us want to build long term, mutually beneficial relationships.
We’ve provided materials on our website and in our blog posts explaining pricing as well as anybody can quickly. If you are one of our customers, we would be happy to sit down with you and our statement every month, and go line by line explaining it. Heck, we will even sit down with you and a statement from another payment card processor and try to help you figure it out if you want us to – give you a second opinion so to speak.
We’ve also provided some material that we hope helps keep you from falling into a bad relationship with an “aggressive” payment card processor and what to look out for in a sales pitch. As far as we’re concerned this is a credit card payment processing industry problem that needs to be cleaned up for everyone’s sake.
