Editor's Note: Contributor Phil Hinke is a veteran of the credit card processing industry. He now consults with merchants to help them lower their processing costs, believing the credit card industry is often unfair to them. His latest installment is below.
There have been a few cases where I have allowed a merchant account provider to present a proposal to a merchant client that included an "address verification service" fee. I allowed it because the merchant may have been a higher risk than the average ecommerce retailer, and because I understand that some processors — i.e., the company that actually routes the transactions — charge merchant account providers a small AVS fee. And I know that if the processor charges an AVS fee there can be situations where it benefits the merchant to have the fee itemized on the statement. Most importantly, I have allowed it in a few cases because I make sure my clients know clearly why they are being charged the fee, when they will be charged the fee, and how much it will cost them per month and per year.
But I don't like it. You should never accept a proposal from a merchant account provider that includes AVS fees unless you cannot otherwise find an alternative.
AVS Fees Difficult to Quantify
Why do I say this? First, AVS is one of those fees that can be used to make merchants think they are getting a better deal than they actually are. For example, which of these offers looks better to you?
- Offer 1. 0.10% + $0.05 per transaction over published interchange and pass-through fees.
- Offer 2. 0.10% +$0.10 per transaction over published interchange and pass-through fees?
Offer 1 has a $0.10 per transaction AVS fee buried on page 3 of the merchant agreement. Offer 2 does not charge an AVS fee.
Secondly, the AVS fee can be charged multiple ways or times. You may be charged the AVS fee more frequently than the actual number of sales transactions. In fact, I recently audited a merchant’s statement where the AVS fee was being charged on both the authorization (when the sale is approved) and on the capture (when the funds are made available for the merchant to settle and get paid). This low risk merchant is overpaying for AVS transaction fees by thousands of dollars each year.
The third reason I don't like an AVS fee is because many sales and customer service personnel simply do not understand it. You could do this quick test. Look on your own statement in the section that shows the fees. If you see an AVS fee — labeled, perhaps, as “Auth AVS,” "CPU AVS” or similar) call your sales or customer service contacts. Ask them why you are being charged the fee. You’ll likely hear answers like, “It’s a Visa fee and the provider is just passing on Visa’s cost” or “It’s the cost to route the transaction to obtain address verification” or any number of explanations.
Address Verification Service Is Important
Remember, you want the address verification service to help reduce fraudulent orders. You just do not want to be charged a fee for it. AVS matches the address information provided by your customer at the time of sale against the actual information on file for the card number used. AVS reduces fraud. You want AVS. I just don’t believe the average ecommerce merchant should pay a fee for it.
Beware of Simple Application Forms
Stay away from website offers that enable you to simply input your processing data to get a quote. Practical eCommerce allows me the opportunity to educate its readers on the many pitfalls they can face every day with card processing. I use real statements, real merchant contracts, and real issues encountered by real merchants. Through these articles, I hope to provide information to help ecommerce merchants obtain the best possible card processing value. Value not only includes rates and fees, but contractual nuances, funding, service, and other factors. It's very confusing, and rarely simple.
For that reason, ecommerce merchants should avoid offers where you simply input a few pieces of information to get a processing quote without ever talking to a real person. There are many offers on the Internet. Some even offer the guaranteed the lowest rates. But a realistic processing evaluation cannot be obtained simply by plugging in a few numbers. Ecommerce merchants who choose providers by simply entering a few pieces of data could end up overpaying for fees like the AVS. I’m not saying that the providers with these websites are bad. Some may even call you after you input the data to obtain more pertinent information on your business. I’m just saying you want to talk to real and knowledgeable people who will spend time understanding your business before offering a proposal.
Update on Fixed Acquirer Network Fee
I discussed the new Visa FANF — i.e., Fixed Acquirer Network Fee — in "Credit Card Providers Increasing Rates and Fees," my article last month. As I predicted, some merchant account providers are inflating the actual cost. I have seen retail merchants pay up to 250 percent more than the actual cost. I just audited an ecommerce merchant who was being charged almost twice the actual cost.
If you have not already done so, check your statement against the actual FANF fees I outlined in the May article.
In short, remember these points when you encounter AVS fees.
- An address verification service is very important for ecommerce merchants.
- Do not pay an AVS fee.
- Understand that AVS fees can be charged more than once per sale.
- Per-item fees like AVS can be costing you far more than you think.
- Avoid websites that ask you to simply input data to get a quote.
Also, check what your provider is charging you for FANF.