Are your customers overpaying for treatments because of hidden credit card processing fees? Credit card companies can be deceptive with complex fee structures that are ever-changing. Often, fees are hidden intentionally, and new fees are invented on a regular basis.
Hidden fees can anger customers and when price hikes occur, the blame can be projected upon your company. Being aware of credit card processing gimmicks can help your business save face.
According to the 2019 Federal Reserve Payments Study, consumers spent $3.98 trillion on credit cards in 2018. A big fraction of the money spent on credit cards goes straight to processors through the use of hidden fees — which are being added to all the time.
While some fees are unavoidable, others are completely non-compulsory such as annual fees and a handful of hidden fees that are difficult to detect. According to Statista, over a quarter of credit card companies charge an annual fee.
Pricing models govern how fees are set up. Four common types of pricing models payment processors use include interchange-plus, flat rate, subscription, and tiered.
Understanding the most common types of hidden fees can prepare you for what lies ahead. Here are the four payment processing points where hidden fees are imposed:
Interchange FeesAn interchange fee is an amount that is collected by the banking institution that issued the credit card to your customer. The problem with interchange fees is that in the event that you refund a transaction, the bank refunds a portion of the interchange fee back to the processor, and the processor is supposed to give it back to you. But, sometimes the processor keeps it instead.
Furthermore, information on a credit card company’s interchange fees are difficult to obtain — unless you have access to highly detailed credit card statements.
Non-qualified Transaction SurchargesThe problem with impressive-looking low rates is that often, you can’t get qualified for those rates due to a long list of restrictions. Under tiered pricing schemes, transactions can be categorized as qualified, mid-qualified, or non-qualified. Often, however, few services fall under the qualified category. Practically anything can be labeled as a non-qualified transaction, meaning you won’t qualify for the lower rates.
Non-qualified rates are not imposed by card brands such as Visa or Mastercard; in reality, it’s essentially an avoidable, hidden expense invented by credit card processors.
Assessment FeesTypically, assessment fees are considered to be non-negotiable. Assessment fees are set by and paid to the credit card brands, such as Visa or MasterCard. Under an interchange-plus pricing model though, assessment fees can be inflated.
Credit card processors can charge more, using a common practice called “padding” the assessment fees. Credit card processors simply tack on a few cents to every non-negotiable assessment fee. This practice occasionally ends up in a lawsuit, but is common in the business world.
Rate HikesWhile a credit card processing standard contract is a three-year term — credit card companies legally retain the right to increase the rate, as long as the business doesn’t respond to the rate increase within 30 days.
For this reason, it’s imperative that you read the fine print in your credit card processing statements each month. Read the fine print and look for any indication of rate hikes after 30 days or 60 days.
Few individuals read the fine print and only respond after hidden fees have already been applied to the accounts.
How to Avoid Hidden Fees
Work only with processors that pass on fees and charge you the actual cost of interchange and assessments. Ask your processor if they pass on interchange refunds and oversee the situation yourself.
Always read the fine print, and spend your business’s money wisely as credit card processors are always coming up with new ways to charge fees.
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