Are Hidden Card Processing Fees Eating Into Your Profits?

By Dennis Carpenter
Director of Association Alliances — Heartland Payment Systems

What if you order a burger and the price on the menu is $5.99 — but when the check comes, you owe $10.99 — all because your server didn’t tell you about the added fees for the ketchup, lettuce and more? You might think this is ridiculous. Yet, card processing fees are often hidden in a similar fashion.

You may have been promised a great rate — let’s say 1.64%. But when you take a closer look, you are likely paying much more. Many processors quote a low rate to make the sale and fail to point out that only a small percentage of your transactions qualify for that rate. They don’t tell you the remainder will be charged at a fee that could be as much as double or triple that low rate.

Determine What You’re Really Paying for Each Transaction
To figure out what you’re really paying:
  1. Add up your Visa® and MasterCard® fees*.
  2. Divide that number by your total Visa and MasterCard sales volume.*
  3. Multiply that number by 100.
The resultant percentage is your true — or "effective" — rate. It includes the fees you pay card companies such as Visa and MasterCard — known as "interchange" rates — as well as the fees you pay your payments processor. Odds are your effective rate is higher — perhaps a lot higher — than you think.

Why? Because many card processors hide fees behind cryptic codes, indecipherable jargon and fine print in offers and contracts. Then, their monthly statements are so hard to read, you have no idea what you’re really paying.

Control Your Costs by Understanding Your Statement
Don’t get fried on the fees you pay. Start controlling them by understanding your statement and what you’re really being charged.

Processing statements are often confusing and hard to understand. Look for these common deceptions that can increase your per-sale cost with no added value to you:
  1. Non-specified card type — Many processors list Visa or MasterCard in the card type column — designating the card company — but not the card type. By not identifying the card type, many processors charge you more for lower-cost transactions. Debit card transactions, for example, usually cost less than credit card transactions. Without the identification of card type, it’s hard to ensure you are being charged less.
  2. Not all card transactions are created equal — The card companies charge more than 250 interchange rates depending on the type of business, card and transaction. To make it even more confusing, many processors create their own categories — like "qualified," "non-qualified" and "mid-qualified" — as a way to mark up the rate card companies charge without full disclosure.
  3. "Total card fees" don’t represent the real total — Don’t rely only on the "total card fees" line item. If your statement lists this amount, you’ll have to do a little math to find out the total you’re really paying. Add the "less discount paid" (the fee you pay your processor) to the "total card fees" (the interchange you pay) to arrive at your real bottom-line.
  4. "Discount rates" are misleading — "Discount rate" is an industry-accepted term for the fee your processor charges. However, many processors quote you a low in-the-door discount rate without disclosing that most of your transactions won’t qualify for it. Look at your statement carefully, and you’ll likely see many transactions charged at much higher rates.
  5. Beware of bill-backs and other surcharges — Many processors hide arbitrary fees — often classified as "bill-backs" and "surcharges" — without disclosing them to you. They charge a low discount rate on all your transactions, then add extra surcharges to them. Some are billed the month the transaction occurs and others the following month — making reconciling charges and figuring out your total monthly costs even more difficult.
  6. Take note of additional fees — Additional fees may include per-transaction, batching, authorization, annual charges and more. Understand what they are and why you’re paying them. It’s possible some are just randomly included.
  7. Address verification should lower costs — The Address Verification Service (AVS) compares a customer’s address with the billing address linked to the credit card. When you use AVS, transactions qualify for a lower rate because you’re reducing the risk of fraud. Some processors don’t pass this savings on to you. In fact, some actually charge you more.
It pays to understand your statements. Understanding them can help you slice hidden fees from your card processing costs ... and reduce your out-of-pocket expense on every sale.

For more information, visit CostOfABurger.com.

*American Express®, Discover® and PIN-based card transactions are not included in these calculations as they may be billed separately.


Dennis Carpenter is the director of association alliances at Heartland Payment Systems. Heartland, a NYSE company trading under the symbol HPY, delivers credit/debit/prepaid card processing, payroll, check management and payment solutions to more than 250,000 businesses nationwide.

Heartland is the founding supporter of The Merchant Bill of Rights, a public advocacy initiative that educates merchants about fair credit and debit card processing practices. For more information, contact Heartland Payment Systems at 866.941.1HPS (1477), Extension 100, or visit HeartlandPaymentSystems.com and MerchantBillOfRights.com.



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