An excerpt from The Great American Heist: How Credit Card Processors Steal Businesses’ Profits, by Robert Day, Managing Partner at weAudit.
The Great American Heist! I am sure many will say, wow, that might just be a little overkill, don’t you think? Do you really think this is the biggest scam America has ever seen? Don’t you think you’re being a little dramatic?
Actually, I don’t think I am. Since I left the “dark side” (aka, the bank), I have had two very strong groups of followers. Those who hate me, and I do mean hate me, and those who love me, and they too are very passionate. After all, many of them have saved millions a year.
I know that I am a lone fish swimming upstream. I have been asked to speak at some trade shows and conferences only to find out, days before my flight, that the processors and banks who happened to be large sponsors of the event said they would pull their sponsorship if I was allowed to speak.
I’ve also been interviewed more times than I can remember by reporters asking my thoughts on merchant processing. More specifically, around the practice of business loans backed by merchant processing, which I am not going to get into in this book. Suffice it to say, I would prefer to do business with a loan shark, who is way more ethical, in my opinion.
I would tell the reporter there is a much bigger story that needs to get out.
End of excerpt.
The bigger story is not that a few processors behave badly. It is that the entire pricing structure of merchant processing was built so that a business owner cannot tell what they are being charged, and so that the ones who look hardest are often charged the most.
Merchant processing is not a regulated industry in the way banking or insurance are. There is no requirement to present fees in a standard format, no requirement to disclose the markup on top of interchange, and no requirement to tell you when a rate changes. The merchant agreement generally allows a processor to raise fees and add new ones, and treats your continued use of the account as acceptance.
None of that is hidden in the sense of being secret. It is hidden in the sense that it is spread across a fifteen page statement in language designed not to be read.
Our own estimate, extrapolated from what we find in the audits we run, is that US businesses are overbilled somewhere between $100 billion and $200 billion a year. That figure is weAudit’s, not a published third party statistic, and it is worth being precise about what it counts. It includes avoidable interchange losses, such as transactions that downgrade when they did not need to, as well as processor markup and invented fees. It is not a claim that processors pocket that entire amount.
For an individual business the number that matters is smaller and far more concrete: what is on your statement this month, and how much of it you would not be paying if somebody had been checking.
A scheme this large does not survive because it is clever. It survives because of three ordinary things.
Complexity does most of the work. A statement that takes an expert twenty minutes to read will not get read by an owner with a business to run. Inertia does the rest: switching processors is disruptive, so most merchants tolerate a bad deal rather than face a changeover. And the amounts are calibrated. A fee sized at a few hundred dollars a month is beneath the threshold at which anyone picks up the phone, but across thousands of merchants it is enormous.
That is why the work is auditing rather than arguing. You do not win this by having an opinion about processors. You win it by reading the statement line by line and making them justify every charge on it.
If you want to check your own position before speaking to anybody, two pages here do most of the work. Credit card processing fees explained covers how the pricing is assembled and where the markup hides, and the statement decoder tells you what the individual line items on your bill actually are.
More about the author is on Robert Day’s page, including the years at the processor that led to the book.
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“Trust me,” I would say, “This is nothing compared to the story you should be telling.” I would share with them all the many billing games used to overbill merchants. They would listen intently and get very excited, taking notes and hanging on every word.
Some of my firm’s largest clients save several million dollars a year. Even small businesses have saved twenty to fifty thousand a year.
“To submit a bill of charges to someone for an amount in excess of what is due: to bill for an excessive amount.”
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