Editor’s Note: This is “Part 1” of a three-part series.
My article last month, “Credit Card Provider Sued for Deceptive Tactics,” generated questions from merchants regarding the suit, its impact, and the hidden, inflated, or dubious rates and fees they should be cognizant of when selecting a provider.
I won’t get into the specifics of the lawsuit — Heartland Payment Systems sued Mercury Payment Systems in U.S. District Court, alleging deceptive practices. However, merchants should realize that there are no enforced industry standards defining terms such as “interchange-plus pricing,” “tiered pricing,” “pass-through fee,” “access fee,” “foreign handling fee,” and many other terms.
Also, all providers do not play by the same rules. It is possible for two providers to offer the same interchange-plus rate with the same monthly and annual fees and yet Provider A can cost hundreds or even thousands of dollars more per year than Provider B. Similarly, two providers can propose the same tiered rate with the same monthly and annual fees, but again the cost between the two providers can vary by hundreds or thousands of dollars.
It is this lack of enforced standards and transparency that often prevent merchants from being able to make an apples-to-apples comparison when selecting a provider. My hope is that the lawsuit will help provoke enforced standards and needed transparency in the card processing industry.
Rates and Fees Merchants Need to Understand
Over the last two years, I have addressed hidden, inflated, and dubious fees. However, I will list important fees in this article for the reader’s convenience. I will also state the actual cost of these fees — i.e., the amount credit card companies charge merchant account providers — even if mentioned in previous articles, because some of the costs may have changed from my original article. My point is that providers often incorrectly price or describe these fees to merchants. I hope to help merchants understand the fees, to make better decisions.
APF/NABU/Data Usage Fee
One of ways that Visa, MasterCard, and Discover make money is by charging a per-transaction fee. The card companies actually charge the merchant account provider this fee and the provider should pass through the actual fee to the merchant.
However, some providers inflate these fees to generate more revenue. They do so because they know when a merchant sees “VISA APF FEE – 5.95 cents, “ for example, on the statement, the merchant will typically think Visa is charging the 5.95 cents and not the processor. Most merchants don’t realize that Visa is only charging 1.55 to 1.95 cents and the rest of the fee is hidden revenue for the provider.
I recently went through this exact scenario with a merchant. The merchant had a $10 average ticket and was being charged a 5.95 cents “Visa APF fee.” The merchant was paying 4 to 4.40 cents per Visa transaction more than it should have. It was also paying the inflated fee on MasterCard transactions. These inflated fees were costing the merchant thousands of dollars per year.
Here are the actual APF/NABU/Data Usage fees that should be passed-through to the merchant. Any amount above these figures is actually an addition transaction fee charged by the provider.
- VISA APF Fee for debit cards: 1.55 cents
- Visa APF Fee for credit cards: 1.95 cents
- MasterCard NABU Fee for credit and debit cards: 1.95 cents
- Discover Data Usage Fee: 1.85 cents
This is not a true pass-though as the card companies do not charge an “Access Fee.” They charge the APF/NABU/Data usage fees, which are known in the industry as access fees. Providers that list an “Access Fee” generally do so to inflate the APF/NABU/Data usage fee without calling the fee by its true name. For example, if you see “VISA Access Fee – 3.69 cents” on your statement, call the provider and have it explain what other fees beside the true APF/NABU/Data usage fees are being added to its “Access Fee.”
Another way Visa, MasterCard, and Discover make money is by charging a percentage on the transaction. This is generally shown on the statement as “Dues & Assessments” or simply “Assessments.” Here again, the card companies charge the fee to the merchant account provider, which should simply pass through the actual fee to the merchant. The actual assessment fees are shown below. Anything above this amount is an additional charge by the provider.
- VISA Assessment: 0.11 percent
- MasterCard Assessment $1,000: 0.13 percent
- Discover Assessment: 0.105 percent
The card companies also charge additional fees for cards issued by banks outside the U.S. Some providers inflate these fees or create a fee in addition to the ones charged by the card companies. The correct international fees are shown below — the actual name of the fee can vary by provider.
- Visa International Service Assessment Fee: 0.40 percent
- Visa International Acquirer Fee: 0.45 percent
- MasterCard International Cross Border Fee: 0.40 percent
- MasterCard International Support Fee: 0.85 percent
- Discover International Processing Fee: 0.40 percent
- Discover International Service Fee: 0.55 percent
Some providers combine the Visa International Service Fee, MasterCard Cross Border Fee, and Discover Processing Fee with the interchange rate for the specific card type used. If so, the fee will not be itemized on the statement.
Foreign Handling Fee
This is not a true pass-though fee as the card companies do not charge a “Foreign Handling Fee.” They charge the fees mentioned above. However, some providers add their own foreign handling fee, such as “Visa Foreign Handling Fee- 0.30%.” Similar to the aforementioned “Visa Access Fee,” just because the fee states “Visa” next to it on the statement doesn’t mean it is a Visa fee. Unfortunately, if you were to call the provider’s customer service department, the representative would probably tell you it is a Visa fee. The representative is not necessarily lying: most customer service representatives do not understand card company rates and fees.