Check Credit Card Processing Rates before Holiday Rush

Sales over the next three months will be crucial to the profitability of many ecommerce merchants. Credit card processing costs over this timeframe will affect profitability, too. This article is part 1 of a 2-part series wherein I’ll explain how merchants can review their processing statements before the holiday shopping season begins to ensure they are receiving competitive processing rates.

If you are with the same provider as last year, your rates and fees may have increased without your knowledge. Check for the following and correct any issues immediately or it could cost you dearly.

  • Rate or fee creepage.
  • New surcharges and hidden, inflated, or unwarranted fees.
  • American Express OptBlue pricing.

Did you change providers or renegotiate pricing with your existing provider? If so, did you verify that you were actually receiving the rates and fees you negotiated? Accuracy in the payment card industry is horrid. If you did not verify the new rates and fees, there is a good chance you are not receiving them because of application and order-entry errors.

If you did not verify the new rates and fees, there is a good chance you are not receiving them because of application and order-entry errors.

Did your provider convert your account to the American Express OptBlue program over the last year? In 2014, American Express introduced a program that should significantly reduce most merchants’ American Express processing cost. (I addressed OptBlue last year in a 3-part series.) Unfortunately, many providers have used the program to increase their profits instead of helping their merchant customers.

If you are a merchant with the same provider who did not renegotiate pricing in the last year, take the time to ensure you did not receive an unwarranted cost increase.

Legitimated Fee Increases?

The card companies — Visa, MasterCard, American Express, Discover — increased certain rates from September 2014 to September 2015. The most notable change was the Visa credit card assessment fee increase from 0.11 percent to 0.13 percent and MasterCard assessment fee increase for transactions below $1,000 from 0.11 percent to 0.12 percent.

Visa and MasterCard also increased their fees on international cards — 0.40 percent to 0.60 percent for MasterCard and 0.40 percent to 0.80 percent for Visa. Some Discover interchange rates were increased on debit cards. The most significant increases were for certain Visa corporate and purchasing cards which increased from 0.10 percent to 0.40 percent.

That said, unless you accept a high percentage of international cards and Visa corporate and purchasing cards, the increase in your effective rate from 2014 to 2015 will likely not be more than 0.03 percent. Any increase over this is likely caused by your provider, assuming that your average ticket and card mix has not changed.

Calculating Rate Increases

To determine if you’ve received unwarranted rates increases, first retrieve your statements for July and August 2014 and for July and August 2015. Then review the following steps.

  • Calculate the effective rate for all four months. To do this, divide the processing cost for that month by the processing volume. Say you processed $50,000.00 in July 2014 and the processing cost was $1,125.00. Your effective rate was $1,125.00/$50,000.00 = 2.25 percent. Conduct the same calculation for the other months to determine if your effective has gone up significantly.

Note that the processing cost on page 1 of some provider statements is actually the cost for the prior month. So make sure you are using the cost for the correct month. Also, remove any American Express processing volume and cost before determining your effective rate if you received a separate American Express statement last year or did not accept American Express at all and now accept it, so that the processing data is now on your Visa-MasterCard statement.

  • If the effective rate has not changed significantly, then your provider has not significantly changed your pricing. This doesn’t necessarily mean that your account is priced competitively. It simply means that the provider hasn’t increased rates and fees over the last year.
  • If, on the other hand, there was a significant increase, determine what provider rates and fees were changed or introduced over the last year. Call your provider’s customer service representative with your current statement in hand and ask him what rates and fees have increased over the last year. If he cannot disclose any, ask him to identify the provider’s mark-up over interchange and pass-through fees on your most recent statement so you can note them. It will probably include a percentage and a per-item fee — such as 0.10 percent + $0.10 — found on different parts of the statement.

Further, have the representative identify all AVS fees, gateway per-transaction fees, V/MC assessment and access fees (also called APF and NABU fees), the MC license fee, as well as all monthly fees (such as statement fees, PCI fees, service, and gateway fees). Now review this information with the information on your 2014 statement.

  • If you cannot identify any rate or fee increase, look for surcharges. To do this, find the list of detailed interchange rates on the statement. Again, the customer service person can help. Identify the interchange rates labeled EIRF and STD (i.e., standard) for Visa credit cards and calculate the interchange rate charged. The rate should be 2.30 percent + $0.10 for EIRF and 2.95 percent + $0.10 for STD.

For example, if you had 25 EIRF transactions totaling $2,500.00, the interchange charge should be 2.30 percent x $2,500.00 = $57.50 + 25 x $0.10 = $2.50 for a total of $60.00. If you were charged more than the correct interchange rate, then the provider is surcharging the rate.

Note that if the statement does not detail the individual interchange rates, the provider should change your statement format to do so. If your provider cannot provide a detailed statement, change providers.

Responding to Rate Increases

Once you find the increases, determine if you should renegotiate or find a new provider. There are more than 1,000 merchant account providers in the U.S. that seek your business. Hundreds of them can probably reduce your cost. Why would you want to stay with a company that is secretly increasing your rates and fees or adding surcharges without your knowledge?

In part 2 of this series, I’ll address why merchants do not often receive their negotiated rates and fees as well as why merchants must review their American Express rates.

See part 2, “Credit Card Processing: American Express OptBlue Rates Often Wrong.”

Phil Hinke
Phil Hinke
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