“Wholesale Credit Card Processing” 

This post will be short. The bottom line is when you hear this term, RUN as fast and far as you can.

There is no such thing as wholesale credit card processing. 

The best thing is to know who you are really dealing with. Ninety-nine percent of the time it will be an ISO – Independent Sales Organization. To be clear, I have no issue with that (unless you are a very large merchant, because more times than not, you will get a better deal/lower discount with an ISO than with an actual processor). The processors will oftentimes mark up their discount rate to encourage you to go through an ISO because they don’t want to deal with the selling of the account, they just want the processing part. 

This brings up another pet peeve… the term “Discount Rate.” Why not call it their markup? It is not a “discount,” they are not reducing the fee, they are adding to it. Oh, and then they like to say they have “Wholesale Credit Card Processing Rates.”  But I digress.

There are a handful of credit card processors. The two largest are Fiserv (formerly First Data), and WorldPay (which goes under quite a few names as they get bought and spun off again, which is another long story). But suffice to say, if you are with WorldPay Oor any of the other many names they go by), make sure to take advantage of our FREE AUDIT. I’m not saying you don’t need an audit with the other guys, but we do find WorldPay is the most creative biller.  (Now that was actually nice – I used the term “Creative Biller” – everyone tells me to be nicer so I am giving it a shot, and hopefully you can read between the lines.) 

You will find that even the largest credit card processors don’t advertise or try to say they offer “Wholesale Credit Card Processing.” No, what you’ll find is that it’s the little ISOs (many of them working in their mom’s basement) will try to convince you that they have “Wholesale Credit Card Processing.” 

To find out if you are dealing with an actual credit card processor or an ISO, just scroll down to the bottom of their website and you will see a fine print disclosure like the one below. The example is an ISO for Wells Fargo, Fifth Third Bank, U.S. Bank and Esquire Bank. In many other types of businesses, they would be considered a broker. They simply sell the contract and mark it up to get their cut which is called a “Discount Rate.” 

The names above are the sponsoring banks for the processors, for example, Wells Fargo is the sponsoring bank for Fiserv (fromery First Data), and Fifth Third Bank is the sponsoring bank for WorldPay. 

If you don’t see the disclaimer, then odds are you are dealing with a sales agent who are resells for the ISO, and yes, they too offer “Wholesale Credit Card Processing.” Or so they say. 

Lastly, you have the MSP – Merchant Service Providers. They are the same as an ISO, only they are banks that resell merchant services. 

For the person who skims articles:  There is no such thing as Wholesale Credit Card Processing (only people who say things that are not true!). 

Wholesale Credit Card Processing gets 4 Pinocchios!

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Is your credit card processor keeping your rebates? Most likely, yes. I would say 95% or more of you are not getting your rebates. Now, if you are Walmart or one of the other largest retailers, you are probably okay. But, for the rest of you, read on… 

If you have a low discount rate, let’s say .05% or less, you are at very high risk of your rebates being kept. With the lack of regulation in this industry, there are many ways to overbill a merchant. Think of it like going to the grocery store, and you tell the store manager you are not going to shop there anymore because the price of milk is too high. If the manager came out of the credit card processing business, he would say, “no problem” and mark that milk down to be the cheapest in town. However, everything else in the store would get a price increase. 

Merchants become obsessed with getting a low discount rate and never bother to learn about the other hundred ways a credit card processor can overbill them. To learn more about that, make sure you check out:  How Can I Have The Lowest Discount Rate and The Worst Deal?   

Let’s start with Interchange Rebates: 

When merchants post refunds, the processing networks (Visa, Mastercard, and Discover) return the Interchange to the processor.

The merchant below had $5,730.70 in returns, and the processor properly credits the merchant the 2.21% Interchange Rebate, also called a Credit Voucher in this example.

However, because processors know most merchants don’t know they are supposed to receive this rebate, they most often just keep it!

While this is not a major issue for companies with little to no returns, it can add up to tens of thousands of dollars for merchants that post a lot of credits or have high number of returns.                    

We can’t show you what a statement looks like that is missing returns/credit vouchers because, logically, they just aren’t there; however, this example shows you what you should see if you post credits and issue refunds. 

Keeping Your Debit Rebates 

The Durbin Swipe Fee Amendment requires* issuing banks** to reduce the Interchange fee to 0.05%*** to the processor. However, there’s nothing in the law that actually requires the lower fees get passed on to the merchant. I wrote an article on this for Credit Today titled, “Is This A Major Screw-up Or Cover-up?” Why pass a law to make the issuing bank lower their fees to the credit card processor, but not require the processor to pass those lower fees on to the merchant? 

Let me break this down a little plainer. I’m not specifically picking on Chase Bank, but I will use them in this example. Chase Bank (who is the card issuer and receives the interchange fees) has to lower their interchange fees to Chase Paymentech (their credit card processing division) – aka “the processor.” However, Chase Paymentech is not required to pass the lower interchange fee onto the merchant. 

Therefore, what really changed? Well, the issuer (Chase Bank) makes less, but Chase Paymentech (the processor) makes more! That is, unless they decide out of the goodness of their heart, to pass the lower interchange fees to the merchant. Again, if they want to, not because they are required.

At this point, most merchants are at least somewhat aware of this law; however, it can be time consuming to go through every line item on your statement and if the processor does not want to pass the lower interchange fees on, they won’t provide enough detail to the merchant so the merchant won’t know if it was a regulated debit or not. Worse yet, many credit card processors will not break debit transactions out, and charge the merchant the same rate as a credit card. If a business does a lot of debit transactions this can be a real profit center for the credit card processor. 

It is impossible to show all the different ways credit card processors hide debit fees, but the image below shows what you should see.  

* Signed into law 07/21/10 and effective 10/01/11 amended the Dodd-Frank Wall Street Reform and Consumer Protection Act.

** Debit Cards issued by banks with less than $10 billion in assets are excluded (e.g. many credit unions and small local banks). These cards make up a very small percentage of all debit transactions, and while the Interchange is not 0.05%, it is still much less depending on how the card is processed, swiped, keyed, etc.

*** Visa Credit Interchange has a $0.10 fee, and the Visa Debit Interchange is $0.21, or $0.22 if it has fraud protection. For the sake of simplicity, those differences are not included in the above example. For merchants with a $500 average transaction, the above example would be off by 0.01%.

The easiest way to find out if your credit card processor is keeping your rebates is to take advantage of our Free Audit.

Also, you can find more information on how to protect yourself and your hard-earned profits in my newest book, “The Great American Heist – How Credit Card Processors Steal Businesses’ Profits.”

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Credit card processors know that merchants look at two things: (1) discount rates and (2) transaction fees.

An average merchant statement that runs from four to ten pages per location contains tons of fees—more importantly, tons of unregulated fees. These unregulated fees mean everything in the merchant processing world.

The Oxford English Dictionary defines “unregulated” as follows: “Not controlled or supervised by regulations or laws, as in ‘an unregulated free-market economy.’”

If something’s uncontrolled or not supervised, then no one is looking or even cares about what’s going on. I define “unregulated” as giving someone free rein.

To quote Senator Dick Durbin, “We also know the current interchange system is unregulated and uncompetitive.” He goes on to say, “Small businesses and large businesses alike are being overcharged across America by credit card companies and banks, without restraint.” Senator Durbin made these statements on the Senate floor back in 2011.

Two of the world’s largest credit card processors recently reached a $52 million out-of-court settlement over allegations of over-inflating interchange. One may ask why they would settle if no rules were broken. You can read more about this in The Capital Forum. So, what’s “inflating interchange” (a.k.a. “enhanced billing”)? It’s when a transaction has an interchange rate of say, two percent, and the credit card processor charges the merchant anything over two percent. We find the average rate the processor over-inflates is around .65%. So, if your disclosed discount rate is .05%, your actual discount rate is .70%.

This type of overbilling is very hard to spot. It’s so hard that most sales reps for processors would miss this.

Processors widely use this billing method due to its intense labor and complexity. Even the smallest merchant can require hours to do the research, trying to match charges to the published interchange charts line by line and then do the math to determine whether the billing has been inflated.

Processors often over-inflate American Express dues and assessment fees as they know it is much harder to validate those fees with the extra layer of complexity of American Express programs. We have seen processors inflate these fees by as much as 0.83 percent.

Again, if the merchant had a 0.05 percent discount rate, their actual American Express discount rate would be 0.88 percent. I say discount rate because the discount rate is the processor’s profit, whether it is disclosed or hidden within an inflated American Express dues and assessment rate.

They changed the name to “Network & Processor Access Fee”. It is super easy to overlook that the name has been slightly altered, adding in one little word, “Processor”. They feel like this is their way of being transparent. After all, they did kinda did tell you. We find they almost double the fee, anywhere from a few hundred to a few thousand dollars a month to the small merchant.

The above is just a small sample of hidden or inflated fees. This blog post would have to be quite a few pages longer to list them all, and even then, it wouldn’t truly cover them all because we find new ones all the time. I think they spend more time trying to figure out how to hide fees than they do on how to help merchants stop fraud.

You can get a free audit to see if you are getting overbilled and if your statement is full of hidden or inflated fees, as well as made-up fees.

Go to weAudit.com and simply upload your statements, and in a few days you will get your findings. No risk or obligation with no strings attached and no credit card. It’s our free gift, much like the big box grocers that give you the free cookie in hopes you will want to buy the whole bag once you see how good it is.

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The Hidden Dangers of Dealing with Credit Card Processing Auditing Companies.

You might find this to be an interesting topic coming from me. After all, I run an auditing firm that specializes in all aspects of credit card processing fees.

The only thing worse than getting overbilled by your credit card processor is to get duped by someone claiming to be experts in this industry, and then get sued by them for non-payment after you stop paying them once you realize you have actually been duped. 

If you need help with your credit card processing fees, you should make sure the company you are hiring employs experts in this field and you need to know what qualifies them as a “experts.” LinkedIn is a great tool to validate their work experience; however, some don’t even show who their owners are. At that point,  you have to ask, “Why HIDE that information?” Truth is, credit card processors are notorious for hiding information. Is it because the company you are looking at is owned by one of the credit card processors?  I’m sure if you asked them, they would say, no – but then why not make their ownership public information that can be validated?

Like an iceberg, which seems harmless at first glance, can rip a big hole in a boat, and what appears to be a harmless audit agreement can rip an even bigger hole in your business. When things are hidden, there’s a reason, and it is not to surprise you in a good way like a birthday present.

Before you think I am being too hard on these guys, remember, YOU (the merchant) will pay the price for their lack of experience and deception. They’ll make you sign an agreement before you even know if you have an issue, locking you into a three-year contract and giving them as much as 50% of whatever they forecast in their assessment.

Here is a real-life example of how that can turn out… I was hired as an expert witness to help a merchant that was being sued by one of these types of companies. The merchant was not happy with the savings this company had forecasted and promised. So, they decided to outsource their credit card processing to a third party so that the merchant now had no merchant fees. Because of this, the company sued this merchant for 50% of what their total bill used to be. Now, this was a very large merchant, so the liability was in the millions. The good news is that we beat that company in court, due in large part because they duped the merchant into signing with them by claiming to be experts, and it turned out they had zero experience in merchant processing. To put “experience” into the proper perspective, it takes a minimum of two years to get just the basics down and ten years to have a decent comprehension.

Due to these companies’ lack of experience and understanding of this industry, they will typically only focus on getting your discount rate lowered; however, you can do that yourself. Just call your processor and complain, and 90% of the time, they’re going to reduce your rates just because you asked. But when you hire a company like this to do this for you, things will get worse, not better. Remember, you will have to pay that company 50% of your savings because you allowed them to make that phone call. But here is the worst part – merchant processing is unregulated. Why does that matter? First, let me validate what I just said:

So, again, why does the lack of regulation matter? Because it gives credit card processors the ability to charge merchants anything they want. They simply raise merchants’ fees, hide fees by inflating interchange or other standard fees, or even make-up new fees, etc. For example, this type of company may get your discount rate lowered by ten basis points, but the processor will simply make that money back by doing one of these deceptive billing tricks. Or even worse, they may also raise your fees more than the ten basis points they previously lowered.

What does this mean for you?…

Let’s assume you were paying twenty basis points for your discount rate. This company you hired got it down to ten basis points and takes five basis points (50% of your savings), so your net savings is only five basis points. Your processor, in return, inflates your interchange and/or adds a new fee. And even if we assume they only want to get their profits back and not go even higher (which we see all the time), this will now put you paying five basis points more, and potentially even MORE! Once you realize this and stop paying, that company will sue you. What was once a great idea has now turned into a nightmare.

If you are going to hire a company to negotiate and help manage your credit card processing fees, you need to make sure:

• • Who are their key people?
  • What is their experience?  (And validate them on LinkedIn as well as Google.)
  • Will they take a percentage of your savings?
  • Will they lock you into a contract?
  • Does that contract allow them to sue you for non-payment?
  • Do they have their own proprietary auditing software or do they use a third party?
  • Do they have a money back guarantee?
  • Do they have any financial connections to any processor, ISO, MSP, or sales agents?
  • Do they pay revenue share to anyone or any company, etc.?

You will want them to answer the above questions on company letterhead and have it signed by an officer. Phone calls and emails are not binding, and anything in writing is not binding if not signed by an officer. This is VERY IMPORTANT!

You can find more information on how to protect yourself and your hard-earned profits in my newest book, “The Great American Heist – How Credit Card Processors Steal Businesses’ Profits.”

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