Credit Card Processing: Be Wary of Savings Analyses

If you have been reading my articles, you know I do not believe business owners should give their credit card merchant statements to competing providers. Merchant statements disclose the pricing that competitors need to win over the account at the highest possible profit to them.

That said, I also know that it is a common practice, to facilitate a savings analysis. Unfortunately, I continue to see flawed analyses presented by providers and their salespeople. These analyses have a propensity for projecting more savings than are really there.

Missing and Incorrect Data Produce Incorrect Savings

Below is the reproduced MasterCard portion of a savings analysis — from a well-known regional bank — I recently reviewed. The merchant is currently on interchange-plus pricing and the competing bank is proposing interchange-plus pricing at a lower mark-up.

Current Cost Bank Cost
Description Amount Item Rate MC Fee Cost Rate MC Fee Cost
MC Discount Rate $170,622.00 0.10% $170.62 0.05% $85.31
DUES & ASSESSMENTS 1 $102.34 $102.34
DUE/ASSESSMENT>= 1000 1 $100.85
NABU FEE 350 $0.02 $6.48 $0.02 $7.00

MasterCard currently charges 0.11 percent on transactions for amounts up to $1,000 and 0.13 percent on transactions over that amount. As noted above, both the current provider and bank will pass through the $102.34 charged by MasterCard for transactions below $1,000. However, also note that it appears the bank will not charge the merchant the $100.85 in MasterCard fees on the transactions above $1,000. This is incorrect. The bank will definitely pass through this MasterCard fee. Therefore, this savings analysis stated an extra $100.85 in monthly savings that simply was not there.

Also note the MasterCard NABU fee in the last row. MasterCard currently charges 1.85 cents on every transaction. The fee will increase it to 1.95 cents starting in July. Maybe it’s my engineering background, but I am a stickler for stating exact numbers in savings analyses. The current provider is correctly passing through a 1.85 cents NABU fee — not 2.00 cents. However, my biggest concern is that I have audited merchant statements from this bank before. It has charged far more than 1.85 cents for the NABU fee.

If you choose to have a provider prepare a savings analysis, understand that to review it correctly you will need the same merchant statement used for the analysis, a completed merchant application form, and the provider’s terms and conditions. Be a stickler for detail. Have the salesperson show you each rate and fee on your current statement and also have him or her show you the corresponding rates and fees on their application or in the terms and conditions.

Regarding the first issue, I’m certain the application states that the bank will pass through the 0.13 percent MasterCard fee for transactions above $1,000. Regarding the second issue, the bank probably has the latitude to surcharge the NABU fee. Many providers have this latitude. Make sure the provider presenting the savings analysis does not surcharge this fee. A NABU fee of 1.85 cent — 1.95 cents starting in July — should be clearly stated on the application or in the terms and conditions.

Fictitious or Unrealistic Card Mix and Interchange Rates

Below is a reproduction of the Visa rate and fee portion of another savings analysis I recently reviewed. It was prepared by one of the country’s largest providers. This merchant is on a tiered pricing plan. The competing provider is offering an interchange-plus plan. This analysis is incredibly flawed and showed more than four times the savings the merchant could realistically expect.

Transactions Percentage Per- item Volume Cost Interchange Percentage Per- item Volume Cost
1 1.47% $0.05 $204.59 $3.06 0.05% $0.22 $204.59 $3.06
6 1.47% $0.05 $3,582.48 $52.96 0.80% $3,582.48 $52.96
4 1.87% $0.00 $657.28 $12.29 1.55% $0.10 $657.28 $12.29
1 2.61% $0.05 $315.00 $8.27 0.05% $0.22 $315.00 $8.27
1 2.61% $0.05 $75.00 $2.01 1.65% $0.15 $75.00 $2.01
1 2.61% $0.05 $204.59 $5.39 1.65% $0.15 $204.59 $5.39
3 3.01% $0.00 $483.87 $14.56 0.05% $0.22 $483.87 $14.56
6 3.01% $0.00 $1,766.57 $53.17 1.15% $0.05 $1,766.57 $53.17
1 4.25% $0.00 $1,178.84 $50.10 2.10% $0.10 $1,178.84 $50.10
1 4.25% $0.00 $152.02 $6.46 1.89% $0.10 $152.02 $6.46

First, note the third figures down in the sixth and seventh columns from the left: “1.55% + $0.10.” That’s the basic swiped credit interchange rate this provider will supposedly charge. However, Visa lowered this rate to 1.51 percent + $0.10 in 2011. Either the provider is still charging the old rate or the person preparing the analysis doesn’t understand.

Second, note the eighth figures down in columns six and seven: “1.15% + $0.05.” That’s the interchange rate very large supermarkets pay for the reward card used. The interchange rate for this merchant would be 1.65 percent + $0.10.

Third, note the ninth figures down in columns six and seven: “2.10% + $0.10.” This is a card-not-present transaction. The interchange rate is actually 2.40 percent + $0.10.

Fourth, note the tenth figures down in columns six and seven: “1.89% +$0.10.” This is a MasterCard interchange rate. The analysis is for Visa.

Fifth, by far the most serious flaw in this savings analysis is that it states a higher percentage of debit card volume than this merchant normally has in a month. You cannot see that from the analysis. I know it because I reviewed several months of statements to determine the normal card mix. It’s a very important point. If you are currently on tiered pricing, one of the easiest ways for a salesperson to show savings for an interchange-plus pricing plan is to use a month with an abnormally high percentage of debit cards or show more regulated debit card transactions than is normal.

If a competing provider prepares a savings analysis, make sure it shows the normal card mix, volume, and average ticket size. Also, have the salesperson point out every interchange rate based on the data on the Visa and MasterCard interchange rate websites — here are the links: Visa interchange rates and MasterCard interchange rates — and not from an internal document.

Phil Hinke
Phil Hinke
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