Editor's Note: Contributor Phil Hinke is a credit-card veteran who now consults with merchants on lowering their processing costs. Hinke believes the credit card processing industry is often unfair to merchants. He explains his views in his articles for us, including the one below.
It’s no secret that providers have always found ways to increase merchant rates and fees, or add new ones. Every merchant agreement I have seen contains provisions allowing the provider to raise rates and fees or add new ones. However, since the enactment of the Durbin Amendment last year — which lowered the debit card interchange rates charged by larger financial institutions — it feels like the majority of providers are trying to find ways to take some of those savings from merchants' pockets.
Even some of the more reputable providers have increased rates and fees or added new fees. In fact, even some of the providers that claim to be passing all the Durbin Amendment savings to merchants have found ways to increase rates and fees or add new fees. But if a provider claims to pass through the lower debit card interchange rate to the merchant then adds new fees, is it really giving merchants all of the Durbin Amendment savings? When interviewing a potential provider, always have it explain any and all fee increases or additions over the prior year.
I have never seen as many new fees, or increases to existing fees, than I have seen over the last several months. Some providers are also changing how they implement fees. For example, most providers charge a minimum monthly fee — say $25.00 — if the merchant does not produce processing fees of at least $25.00. However, increasingly providers seem to be adding the minimum monthly fees, no matter how much processing volume the merchant has.
Also, as I mentioned in "Credit Card Processing: Red Flags for Ecommerce Merchants, Part 3," my article last month, there are no industry standards defining which transaction types fall into the Qualified, Mid-Qualified, or Non-Qualified pricing tiers. I spoke to a vice president of a large provider last month and he candidly said that his company has now placed some transaction types in the higher cost Non-Qualified tier that used to be in their Mid-Qualified tier. If you have read any of my previous articles here, you know the solution to this issue is to never be placed on a tiered pricing plan. I always recommend "interchange-plus" pricing.
Examples of Rate Increases
Here are just a few examples of some recent rate and fee increases announced by providers that I believe are unnecessary and are taking advantage of merchants.
As I mentioned in "'Interchange-Plus' Pricing Not Necessarily Fair, Part 3," my December 2011 article, some providers inflate the pass-through fees — i.e., their cost — before adding their mark-ups. The above is an example of just that. Providers pay MasterCard and Discover 1.85 cents per transaction for the NABU and data usage fee. Yet this provider, and there are more providers now doing this, is now inflating its fee to the merchants by up to 10 cents. Even more disturbing is the fact that while providers are inflating these fees, Visa has actually lowered the APF fee on debit cards from 1.95 cents to 1.55 cents. The cost to this provider has actually decreased while it is increasing the cost to the merchant.
A new $15.95 fee? In my opinion, this is simply a “how can we take some of the Durbin Amendment savings out of the merchant’s pocket to increase the provider’s profits” fee?
There is no reason, other than increasing provider profits, why any provider should be increasing the Non-Qualified surcharge rate by a penny, much less a full 1.00 percent. Again, the cure here is to stay away from tiered pricing.
Your discount rates will increase by 0.200%.
A client recently sent me this rate increase notification. There is no justification for this rate increase. Why would this bank increase the rate? Keep in mind, major banks were the big losers with the Durbin Amendment, since interchange rates go back to the bank that issued the debit card. Banks presumably want to recoup that money any way they can and increasing merchant rates seems to me like a possible way. Fortunately, we were able to work with the bank and not only eliminate this rate increase but actually reduce this merchant’s cost by over $5,000 per year. Remember, don’t just accept any rate or fee increase. And make sure the provider doesn’t add new stipulations when agreeing not to implement a previously announced rate or fee hike.
Watch for New Visa Fee
Watch for the new Visa FANF (Fixed Acquirer Network Fee) and make sure your provider does not inflate it. Visa introduced this new fee to the providers. The providers will certainly pass it on to you the merchant. At the same time, Visa lowered the APF — "Acquirer Processing fee" — for debit cards from 1.95 cents to 1.55 cents per transaction. According to a Visa spokesperson, the lower APF is to offset the new FANF. I couldn’t compute the math to work for the average ecommerce merchant. In addition, the Visa spokesperson is naive if she really thinks that merchants will automatically receive the lower APF. As shown in the provider notice mentioned above, the APF fee to the merchant is going up not down.
In my opinion, the new FANF is more punishing to ecommerce merchants than the average brick and mortar merchant because it is based on sales volume for ecommerce merchants, and on location for the brick and mortar merchant. As an example, a one-location brick-and-mortar merchant processing $40,000 per month in gross Visa cards sales should pay $2.00 per month. An ecommerce merchant processing $40,000 per month in gross Visa cards sales should pay $45.00 per month. I say “should” because some providers may inflate this fee just like they do other fees.
Visa charges the provider this fee on a quarterly basis. Your provider may charge you on a monthly or quarterly basis. Visa has 16 tiers of fees for ecommerce merchants, depending on gross monthly Visa sales. Here are some typical tiers you need to know so that you can check to determine if your provider is overcharging you for this fee.
|Tier||Gross Visa Monthly Sales||Fee|
|4||$1,000 - $3,999||$7.00|
|5||$4,000 - $7,999||$9.00|
|6||$8,000 - $39,999||$15.00|
|7||$40,000 - $199,999||$45.00|
|8||$200,000 - $799,999||$120.00|
- Some providers are unnecessarily increasing or adding rates and fees.
- Look at the notices on your statement.
- If you do not understand a notice, seek help.
- Do not simply accept any rate or fee increase or addition.
- Make sure the new FANF is not inflated.