No matter how you slice it, if you own a business, you’re going to need a payment processor.
But trying to decide which processor to choose can be incredibly confusing, not least because of how difficult it is to decipher their pricing.
The reality is, this stuff is often so convoluted, and processors can be so underhanded, that many business owners won’t know what fees they’re paying until after they get their first statement.
And even then, with all the hidden payment processing fees that tend to get tacked onto your bill, it can be tough to understand what you’re paying for.
It’s not uncommon for business owners to have no idea what they’re even looking at when reviewing all the fees on their bills, and their providers certainly aren’t doing much to make anything easier to understand.
We’ve seen this sort of thing happen far too many times, and had countless business owners come to us asking for help to understand what’s on their statements.
And this really is nothing new.
According to a Toronto Star article, back in 2019, the Canadian Federation of Independent Business (CFIB) surveyed about 12,000 of its members, asking them about their experiences with payment processors.
Unsurprisingly, 18% of respondents said these companies have misrepresented themselves, and 16% of them said they’ve used “deceptive sales practices”.
With that in mind, and in keeping with our commitment to providing absolute clarity, we want to explain what you can do to spot hidden payment processing fees that you might not know about.
So, if you want to avoid hidden fees in payment processing, or you just want to understand what you’re looking at on your statement, then this article is for you.
A Perfect Example of Hidden Payment Processing Fees
Before we go any further, let’s look at an example of a statement that contains these hidden payment processing fees.
For legal purposes, we’ll refrain from naming the processor or the client in question, but what you’ll see below is a real statement, brought to us by a business owner who was fed up with this sort of thing and looking to switch processors.
So, let’s break down this bill and look at what kinds of fees are hidden within.
Below is page three of this statement, which shows the total volume of sales for the month, and what cards this client’s customers were using.
If you look under the “Discount” heading, most of the cards on this list have a discounted rate of 1.36%, which is already suspicious, as that is a very low rate, and one which does not correspond to the non-qualified cards on the list, which we know tend to have a rate of 1.50% to 2% or more.
So, if this processor is only charging 1.36% on most of these cards, and taking a loss on the interchange fees, then how is it making its money?
Clearly, it’s not by marking up the interchange rates, but they’ve got to make their money somehow, so let’s dig a bit deeper.
If you take a look at page four of this statement, it’s obvious what this processor is doing.
When this business owner signed up with this processor, they probably sold them on their discounted interchange rate of 1.36% on most cards, but what they likely didn’t discuss was the litany of miscellaneous fees that would be on their bill.
Many of these fees are standard, but several of them stand out as fees that honest processors wouldn’t charge their customers.
For instance, the “DATASECFEE” is $447, and “SYSTEM MAINTENANCE” is another $65, not to mention the “PCI ADMIN” fee at $187 and $560 for a risk assessment.
Also, keep in mind that this isn’t some sort of annual thing – these are monthly fees!
What’s more, very few people know what these fees are for, so what’s on the statement is essentially meaningless, and a processor could put pretty much anything on there, as the majority of business owners wouldn’t know the difference.
But unfortunately, the hidden payment processing fees don’t stop here.
If you look at page five of this statement, which you’ll find below, there are two more lists of miscellaneous fees.
Some of them, like the risk assessment, were already tied to hundreds of dollars in other fees on page four, so why they’re here as well is anybody’s guess.
Another interesting thing to point out about this page is that it lists all the non-qualified cards that were processed, but there aren’t any rates listed for these cards, just more miscellaneous fees.
So, in order to see the real rates that you’re paying, you’d have to add up all the other charges on each individual card, which nobody would know to do anyway.
And here on page six is where the effective rates, or true rates, for each card are listed.
As you can see, all but one of these cards has a considerably higher rate than 1.36%, and some of them have a rate that’s more than twice that high.
Even a standard qualified Visa has an effective rate of 1.84%, so the question is, why are they offering a “discounted” rate of 1.36%?
Well, clearly this processor sells their pricing based on a discounted rate, and takes a loss on the interchange, but then adds hundreds of dollars of miscellaneous fees to clients’ bills to make up for it, and then some.
Finally, if you look at this client’s billing summary, which you’ll find below, the total cost for one month was nearly $1,700, which is insane for this amount of volume!
By our estimate, a business with this volume of credit and debit card sales should be paying less than a quarter of that amount.
But when your statements are this convoluted, and you use this kind of deceptive pricing, it’s easy to see why so many business owners get bamboozled by this sort of thing.
How to Spot Hidden Payment Processing Fees
The main problem with pricing in this industry is that it seems to all be based on interchange rates, and whether processors will discount those rates, or add a markup to them.
But with everyone being so focused on these rates, many business owners are forgetting that what matters is the overall cost of your bill.
Because if you’re getting discounted rates on every card that’s processed, but then paying hundreds of dollars in miscellaneous fees to make up for it, then you’re not saving anything.
Having said that, in addition to everything we’ve already covered here, if you want to spot hidden payment processing fees, you should stop focusing on the interchange rates and start scrutinizing the “other charges” and/or “other fees” sections on your bill.
If you see anything more than a $5-$10 statement fee, a fee for PCI, which should be $11 per month or less, or some equipment fees in these sections, then the truth is, you’re paying way more than you should.
Anything else is basically a hidden tacked-on charge, unless you’re subscribed to a point-of-sale system or something like that.
What’s more, the only time you should see a fee tied to a card is when there’s a rate included with that fee.
If you see fees being charged for cards with no corresponding rate, then they’re just tacking miscellaneous fees onto your bill because they can.
Now, to be fair, a lot of these fees aren’t technically hidden, and if anything, they’re more hidden in plain sight than anything.
But even though they’re listed on your bill, without the knowledge we’ve provided in this article, chances are you wouldn’t know what most of them are for, and that is essentially the same thing as them being concealed.
At any rate, hopefully this article has given you greater clarity on how to understand everything on your statement, including how to spot hidden payment processing fees.
And we encourage you to share this information with fellow business owners, as the more merchants know about this, the less payment processors will be able to get away with it.
Are you sick of paying so much for payment processing? Schedule a Rate Reduction Review to see how much you can save with Lucid Payments, or contact us today to learn more.
