- In the beginning, the merchant didn't think they even had a problem; they felt like they were getting a good deal.
- The merchant was told by their association that the processor was vetted by them and came highly recommended.
- The statements were very easy to read and were not full of useless data they couldn't understand. They were short and sweet.
- The processor was bundling many of the fees, so while they have a very simple statement to read there was very little disclosure of fees and rates.
- The processor was not disclosing the Discount Rate.
- No Interchange Management - again due to lack of disclosure.
- The processor was endorsed by the merchants association.
- The endorsement did its job - it gave the merchant unchecked and un-validated trust.
- The processor was giving kickbacks; also known as revenue share to the association for the endorsement (splitting the plunder if you will).
The Processor Promises to Make Things Right
- The processor apologized and agreed with the audit findings and said they would make things right.
- The processor agreed to disclose all fees going forward.
- The processor agreed to disclose the discount rate.
- The processor agreed to 7 basis points to match the competitive bid acquired by weAudit.com.
- Even though the processor said they would make things right and agreed they should have had a lower rate, and everything disclosed - they did not offer to give any of that over-billing money back.
- Again, with the trust and deep apology of the processor, the merchant agreed to stay and let the processor make things right. However, with total trust and nothing vetted or validated by a third party expert or an attorney that specializes in merchant processing contracts, things didn't go as well as they were led to believe.
One Year Later
- A year later the merchant calls us and is not happy. They said the processor fixed everything we told them about.
- When they looked at the fees they paid over the past year, they paid over $7,000 more in fees and their processing volume was almost identical.
- The problem is weAudit.com never worked with the processor. Nothing was ever negotiated, validated, and no agreements/contracts were ever submitted to our legal department. The merchant told us they knew their processor very well, and they agreed to fix everything - even though the processor had taken advantage of them for years. They still trusted them and took them at their word. The processor told the merchant not to waste more money by bringing in a third party. Again, giving them total trust.
- The new agreement and statement shows a discount rate of 7 basis points as promised - so that looked good.
- All the fees are disclosed as promised - that's good.
- However, a new fee is now on the statement. The processor made up a fee and named it very close to a real fee. The processor added a fee called "Network Acquired Fee" (see image below). The real fee is called "Visa Fixed Network Acquirer Fee". Close, but they are not the same! The processor is charging a % amount. The actual fee from Visa is a $ amount. The processor is hiding this made-up fee under "Assessments". The Assessments section is where the processing networks (Visa, MC, Discover, and Amex) list their fees. This gives the illusion that the fee is coming from one of the processing networks. However, if you look at the image below you will see there is no Visa or MC etc. in front of the "Network Acquired Fee". So while the processor has lowered the merchants discount rate to 7 basis points, the processor is adding on 5 basis points and making it look like it is an assessment. Now the rate is actually 12 basis points. However, how would the merchant know? What's worse is, it gets worse!
- The processor also added "Enhanced Billing". Enhanced Billing is when the processor enhances the rate/fee. In other words, the processor was adding an extra surcharge to the actual interchange fee. It is very common because it is almost impossible to spot. In the image below you can see the merchant had 17 transactions that settled as "MC COML DATA RATE 1 BUS". When you do the math ($220 divided by $7,077) you will see the processor is charging the merchant 3.11% for those transactions. However, in the other image below is a snip-it of the interchange rate sheet that shows MasterCard only charges 2. 65% for a Data Rate I transaction. This means the processor is "Enhancing" (surcharging) the interchange fees 46 basis points.
- Again, the merchant has a statement showing a discount rate of 7 basis points - everything is disclosed. However, the actual discount is 58 basis points, (7 Discount Rate + 5 made up Network... + 46 Interchange Enhancement Fee). This is not even close to the 7 basis points the merchant thinks they are paying.
- Again, the merchant never caught this until the end of the year when they looked at the fees they paid that year compared to the past years. While their processing volumes were almost identical, it was at that point when they realized they paid over $7,000 more in processing fees. Had they processed way more, or way less, they most likely never would have known about this.
- The processor promised they would help them. However, they actually raised their rates.
- The processor convinced them to sign a new agreement in order to lower their rates. The processor used this to lock them into a new 3 year agreement with early termination fees, as well as the Liquidated Damages clause that will cost the merchant over $10,000 in fees should they try to leave.
How Could This Happen?
- It is estimated merchants are being over-billed over $100 billion a year in merchant fees. Those profits buy fame, brand recognition, endorsements, and trust! Even blind trust!
- There is no regulation or government oversight - thus letting processors make up fees, hide fees and inflate fees.
- The processor was able to convince the merchant they didn't need a third party to validate or audit the fees they were paying. They should just trust them and the association, in short, give them blind trust!
- The associations receive huge kick backs (revenue share) from processors, and the association never really thinks - "if the processor is giving our members the best deal, how can they also afford to give us so much money?" Also, even the best associations may be great at negotiating large purchases of ________, but how many of them are experts in merchant processing?
- The other major problem is thinking; "I might be paying a little more, but I'm helping/supporting my association".
- The largest revenue share deal we have seen is 50%. So for every $100 the merchant gets over-billed, $50 goes to support the association.
- Most are closer to 10% revenue share. This means only $10 of every $100 the merchant is over-billed is actually supporting the association.
- In the end - the processors are getting rich while the merchants, as well as the associations, are being taken advantage of.