Confusing pricing structures. Complicated merchant statements. Misleading promotional rates. Extensive fine print. Card networks and credit card processing companies have a deep bag of tricks to keep merchants from understanding their true payment acceptance costs. These tactics are designed to create confusion and add to your payment acceptance costs without drawing attention, so you’ll need to be vigilant.
Look out for these four common hidden payment processing costs:
1. Padded assessment fees
Every type of card transaction has a wholesale processing cost made up of two legitimate, non-negotiable fees: interchange fees (paid to card networks) and assessment fees (paid to card brands like Visa, Mastercard, and Discover).
Interchange rates are easy to check — and steadily increasing. Not only do Visa and Mastercard adjust rates twice a year, but they’re also planning the biggest fee hikes in a decade.
By contrast, most card brands don’t publish their assessment fees.This lack of transparency makes assessments a prime target for price gouging. To make matters worse, each card brand has a wide array of additional fees with different naming conventions and structures, which makes them hard to pinpoint and consolidate.
Although assessment fees should range from 0.13% to 0.15% per transaction, some processors will pad them by a few basis points which can easily go unnoticed. For instance, on a $100 transaction, the difference between 0.13% and 0.135% is only half a cent. But if a business had $10 million in monthly card sales volume, its processor would pocket $6,000 a year in hidden fees masked under the guise of assessment fees.
2. New hold on merchant funds threatens your cash flow
According to PYMNTS, large processors like Square, PayPal, Stripe, and Worldpay have begun placing holds on merchant funds to protect themselves from chargebacks and “unexpected losses.” In one case, the amount was as high as 30% of every transaction. Furthermore, merchants may have to wait as long as four months to access their funds.
This practice has large-scale implications for a merchant’s ability to meet their working capital needs. The negative impact is twofold: Not only do merchants have to deal with the increased cost of returns and chargebacks, but now their processors are actively withholding funds and diminishing their cash position.
Luckily, there are alternative payment methods that don’t target your revenue. Trustly’s Online Banking Payments guarantee payments and absorb all chargeback risk. Merchant funds are seamlessly routed through the ACH network in near-real-time, so your money is available the next business day.
3. Lost PINless debit transactions
U.S. merchants are missing out on $2 billion a year in debit processing savings because of the card industry’s alleged pushback against PINless debit transactions.
A growing number of PIN-debit networks, which often have lower interchange rates than the Visa and Mastercard networks, are offering PINless debit transactions. This new capability enables merchants to route card-present and card-not-present debits through more cost-effective global networks.
The Durbin Amendment requires card issuers to provide merchants with multiple unaffiliated debit network options. But issuers have financial incentives to continue steering transactions toward lucrative options like Visa and Mastercard. And neither card network has implemented PINless capabilities, which could significantly lower merchants’ processing costs, prompting a federal investigation.
4. Tiered transaction downgrades
A processor that uses the tiered pricing structure will categorize your card transactions into buckets with different rates. Typically, the tiers are “qualified,” “mid-qualified,” and “non-qualified,” ranging from the lowest to the highest fees.
The problem is that these are not formal classifications set by card networks. Tiered-pricing processors create and define these categories themselves. They can downgrade transactions to less “qualified,” more expensive tiers — and make a higher profit — at any time.
This leaves merchants with unpredictable, unnecessarily high processing costs. Some companies even pull a rate bait-and-switch: They’ll advertise their lowest qualified rate so merchants will sign up, then raise costs later.
How to save money on payment processing
Payment processing doesn’t have to be a constant battle to protect your bottom line. Let us evaluate your merchant statement and help you find cost-effective ways to accept payments. Schedule a free consultation with a Trustly payment specialist here.