Credit Card Fees — Wash Away Hidden Processing Fees From Your Monthly Statements
By William Collins

If your business operates like most in the car care industry, you probably accept credit and debit cards to offer added convenience for your customers; a wise decision, given the fact that consumers are steadily moving away from paper and coin currency in favor of card payments for products and services. According to a recent survey of consumer spending preferences by the American Bankers Association, cash and checks account for less than half of consumers’ monthly payments. Instead, consumers are paying electronically and debit cards now make up one-third of their in-store purchases — up from 21 percent six years ago.

INCREASING COSTS

However, if you’re like most businesses, you’ve probably also noticed the mounting cost of processing credit and debit card transactions. By the time a card is swiped, processing fees for a single transaction can range from 2 percent to 5 percent of the total sale. The fees for card-processing services may be among the four highest expenses your business incurs, perhaps outmatched only by labor, product, and property costs. Unlike overhead costs, you might not be sure what you are paying when it comes to card-processing transactions. Yet, it is critical to identify all of the fees and surcharges you’re paying so you can begin to control them and save money.

Just imagine how a customer would react if he ordered a deluxe exterior wash from your service menu that is priced at $7.95, but when the receipt prints out, he discovers the charge is now closer to $15. When the customer inquires about the inflated cost, you explain that it’s for the cost of soft-cloth wear and tear, nozzle/sprayer use for applying soaps, rust inhibitors, and waxes that are usually presumed to be included in the price. This may sound ridiculous; yet, card-processing fees are often hidden in a similar fashion.

JUNK FEES

Membership fees. Access fees. Compliance fees. These are just a few of many vague, deceptive fees you may find hiding in your processing statement if you take a close look — they could be stealing from your bottom line. Every payment processor approaches pricing differently. Many processors charge “hidden” fees — or “junk fees” — and hide them behind cryptic codes, jargon, and fine print in offers and contracts — making them purposefully hard to decipher, especially for time-pressed business owners. Monthly statements are so hard to read, business owners like you often have no idea what they are really paying.

You may have also been promised a great introductory rate for processing your card payments, let’s say 1.64 percent. But when you take a closer look, you are likely paying much more. Many processors quote a low rate just to make the initial sale and fail to point out that only a small percentage of your transactions qualify for that special rate. They don’t tell you the remainder will be charged at a fee that could be as much as double or triple that lower rate. These extra charges add up significantly over time, hindering your ability to turn a profit.

FORMULA

Try using this easy formula to determine what you are paying for each transaction:

Step 1 - Add up your Visa® and MasterCard® fees. *
Step 2 - Divide that number by your total Visa and MasterCard sales volume. *
Step 3 - Multiply that number by 100.

The resultant percentage is your true — or “effective” — rate. It includes the fees you pay card companies such as Visa and MasterCard — known as “interchange” rates ( as well as the fees you pay your payments processor. Odds are your effective rate is higher — perhaps a lot higher — than you think.

*American Express®, Discover®, or PIN-based debit card transactions are not included in these calculations as they may be billed separately.

TOOLS

Start controlling costs by taking a closer look at your statement to better understand what you are really being charged. A helpful tool to utilize is CostOfABurger.com, an educational site that discusses the complexities of processing statements and offers a fictional monthly statement to use as a tutorial when reviewing your own. As you examine your statement, keep these additional guidelines in mind:

1. What Types of Cards Are Being Used?
Many processors list Visa or MasterCard in the card type column — designating the card company — but not the card type. By not identifying the card type, many processors charge you more for lower-cost transactions. Also, debit card transactions, for example, usually cost less to process than credit card transactions. Without the identification of card type, it is hard to decipher exact costs.

2. “Total Card Fees” Don’t Represent Your Total Costs
Don’t rely only on the “total card fees” line item to determine your total cost. If your statement lists this amount, you will have to do a little math to find out the total you are really paying. Add the “less discount paid” (the fee you pay your processor) to the “total card fees” (the interchange you pay) to arrive at your real bottom-line costs.

3. “Discount Rates” Are Misleading
“Discount rate” is an industry-accepted term for the fee your processor charges. However, many processors quote you a low “in-the-door” discount rate without disclosing that most transactions do not qualify for it. Look at your statement carefully, and you will likely see many transactions charged at much higher rates.

4. Beware of Bill-Backs and Other Surcharges
Many processors hide arbitrary fees — often classified as “bill-backs” and “surcharges” — without disclosing them to you. They charge a low discount rate on all your transactions, and then add extra surcharges to them. Some are billed the month the transaction occurs and others the following month (making reconciling charges and figuring out your total monthly costs even more difficult).

5. Take Note of Additional Fees
There may be even more fees — from PCI security and per-transaction fees to batching, authorization, annual charges, and more. Understand what they are and why you’re paying for them. It’s possible some are just randomly included.

6. Don’t Do it Alone
Reviewing monthly statements can be overwhelming. Until you know what to look for and how to find red flags indicating hidden fees, consider contacting your payments processor to help you navigate your statement. Or consider having your accountant or even another processor take a look. At no cost to you, some processors will walk you through your statement to help uncover hidden fees and show you where you can save money.

By empowering yourself and learning the facts about payment processing — and the right questions to ask — you can ensure you are eliminating hidden fees and reducing your out-of-pocket expense on every card transaction — and put these savings toward more important things ... like your business.

William Collins is the senior director of vertical market strategy at Heartland Payment Systems® (NYSE: HPY), a leading provider of credit/debit/prepaid card processing, payroll, check management, and payments solutions to more than 250,000 business locations nationwide, including car care facilities. Heartland is the founding supporter of The Merchant Bill of Rights, a public advocacy initiative that educates merchants about fair credit and debit card processing practices. For more information, contact Heartland Payment Systems at (866) 941-1477 or visit HeartlandPaymentSystems.com, and MerchantBillOfRights.com.