Credit Card Processing Billing Scams--Are They Ripping You Off?
Your costs for accepting purchasing card payments probably aren't big enough to warrant much attention. But they are a bite out of profits. And you might find that your processor has inflated them by two or three times what they should be. That's worth a hard look and maybe switching to another processor. Metal Specialties Inc. processes an average of $150,000 a month on purchasing cards, with some invoices as high as $75,000. That volume and those amounts probably explain why Treasurer Betsy Rhodes didn't realize that the $4,000 monthly fee they were paying their card processor was twice as high as it should have been. Rhodes explains how the problem crept up on the company. Their card processor was selected 11 years ago on the recommendation of an industry credit group. At the time, card transactions were few and relatively small. So as the transactions grew in number and size, the increasing amount of the transaction fee didn't seem unreasonable.
 What Metal Specialties has suffered through is the now- widespread practice of card processors using deceptive billing practices more than ever before; as competition squeezes their traditional profits they have had to turn to deceptive billing to maintain their hefty margins. 
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The fee was high enough, however, to warrant some scrutiny. A few months ago she contacted MRC (Merchant Relief Council), a merchant processing auditing firm. When they alerted her to the overcharges, she immediately switched to another processor and emailed the original processor requesting their mailing address to send a formal letter notifying them of the change. Even Uglier
That's when things got even uglier. She was told she'd forfeited her company's cancellation rights some months before when she'd signed a two-year extension of the contract. "I'd never signed any such thing," she said. "I pulled up all the files, and the only contract I'd signed was the original one in 2000." When she demanded to see the supposed extension, they switched their story, claiming that three years before, she'd signed another contract obligating the company to a $250 cancellation fee.
"I hadn't signed that either," she says. "I sent another email demanding that they produce this document, and I haven't heard from then since." Nor is she likely to. What Metal Specialties has suffered through is the now- widespread practice of card processors using deceptive billing practices more than ever before; as competition squeezes their traditional profits they have had to turn to deceptive billing to maintain their hefty margins. Companies like Metal Specialties are helpless because they are unaware that their processor had set them up with the wrong interchange category, which in turn forced their transactions to downgrade to a more expensive category,
boosting the processor's profits while squeezing theirs. Fees on Top of Fees
And, unfortunately, that was not the worst part. The processor was then adding on another .65% on top of the fees being charged by Visa and MasterCard, hitting them twice for the same downgrade. You would think Metal Specialties would catch this, but according to Robert Day, an industry expert and Managing Partner at MRC, it's not that easy to spot since the processors bundle their surcharges together with the interchange fees, making it impossible to catch unless you have a strong working knowledge of interchange. Day went on to explain a few of the other deceptive billing practices being used by the processor to tack on extra hidden fees/expenses. The processors were bundling the Discount Rate (aka the processors' markup), which is a "negotiable fee" with the network's "fixed nonnegotiable fees," making it difficult to determine how much the processor was actually charging over and above the network fees.
In this case, Metal Specialties total rate was 2.23%. That's not a lot at a first glance. However, when you break it apart, you can see their Discount Rate was over .5%, which is over double what most companies that size would pay. And when you add back in the extra .65% surcharge, it goes to a 1.15% markup. "Even though a 1.15% profit margin was extremely excessive, the processor was still adding on even more hidden fees," Day says. "The processor was keeping their Interchange credits (the credits networks such as Visa and MasterCard give to merchants when items are returned), costing them an average of about 1.75% on these items. Metal Specialties never made a dime on these items, but they were actually taking a loss due to the processor pocketing the credits." Saving $20,000 a Year
"They were told they were being charged the discount rate on total net sales (i.e., total sales excluding returns), but, in fact, they were charged the discount rate on returns as well, adding roughly another .50% for a sale they never made," he continues. "When Metal Specialties contract and billing issues resolved, their overall costs were reduced by 48%, saving them over $20,000 a year. Day notes that there are many common deceptive billing practices used by processors, and that over 95% of processor clients have at least one, if not several, being used on them. When delving into the cause of the problem, he says, two factors stand out: 1. Service companies change, sometimes for the worse. The first card processor Metal Specialties engaged came highly recommended by their trade group and rightly so. But this company was bought out. The name remained the same, but the business strategy swung radically from protecting clients to exploiting them. 2. Credit card statements require continuous monitoring, but many credit professionals today just don't have the time. Staffing levels have dropped even as additional responsibilities have been piled on. Rhodes handles all financial management as well as credit, and even serves as office and HR manager. Day offers up five great questions you can ask your processor (see side-bar to the right). But he also cautions that calling your bank or processor "is like asking the other team for their playbook." If you don't have time to figure this all out yourself, he reccomends seeking out an auditing firm that specializes in interchange. "They will represent your interest and not that of the processor. Even with the audit fees, you should be able to cut most merchants fees in half, not only saving the company money, but giving you one less thing to manage." When choosing an auditing firm, make sure you don't get locked into a contract based on forecasted savings. It should be month-to-month, with a 100% unconditional money back guarantee. "You don't want to jump out of the frying pan into the fire. If they make false promises and can't deliver, you now just have two companies overcharging you." You can find a white paper prepared by Day entitled "The Top 6 Ways Credit Card Processers Are Stealing from You" in the Outside the Box section of our website. Contact information
Betsy Rhodes CCE
Phone: 432-332-8762
Email: MetalSpecialties@cableone.net Robert Day
Phone: 800-672-1292
Email: Robert@mrcworldwide.org
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