Four Fees, Four Names, One Invoice: $41,000 a Year

None of these four line items has a basis at any card network. All four appeared on one statement, every month, with names constructed to sound like pass through costs. Together they were taking $40,992 a year out of an $11.7 million contracting business.

Invented feesRisk feeRetained rebatesTrades and services

3.48% to 2.45%

Effective rate, before and after

$121,051

Annual savings identified

64 bp

Discount rate before the audit

Line items with no basis at the card networks

The business

A residential and commercial plumbing and heating contractor processing roughly $11.7 million a year with an average ticket of $806, running on a field service management platform.

The situation

The discount rate was 64 basis points, roughly seventeen times a competitive rate for a business of this size. That alone accounted for $70,525 a year. But the discount rate was the honest part of the statement, in the sense that it was at least what it claimed to be.

The four fees

Risk Fees: $14,988 a year

Billed at $1,249 a month. Ask which card network publishes a risk fee and at what rate, and there is no schedule to point to. Underwriting risk is what a discount rate compensates a processor for. Charging separately for it, in a line that sits among the pass through charges, is charging twice and naming the second one after somebody else’s job.

Network and Processor Access Fee: $12,852 a year

Just over $1,000 a month, for access. The merchant was already paying a discount rate and per transaction fees for exactly the access this fee purports to cover. The phrase network and processor is doing all the work: it borrows the credibility of the card networks for a charge the processor invented.

Monthly Discount Adjustment: $7,023 a year

Six basis points, presented as an adjustment. The disclosed discount rate was 64 basis points. The actual discount rate was 70, and the extra six were on a different line under a name that reads like a reconciliation entry.

Interchange rebates retained: $6,129 a year

The card networks return interchange in defined circumstances. Those rebates belong to the merchant. Here they were being kept, and the statement gave no indication that they had ever existed.

The pattern

Every one of the four borrows a real word: risk, network, discount, interchange. None of them corresponds to a charge any card network levies. The only way to know is to hold each line against the published schedules, which is the work almost nobody does, because the industry is unregulated and nobody has to make it easy.

The results

$70,525 a year recovered on the discount rate, 64 basis points to 3.75
$40,992 a year in invented fees and retained rebates removed
$4,833 a year in Level 2 and Level 3 interchange recovered
$3,657 a year in per transaction fees reduced
$1,044 a year in PCI and miscellaneous charges reduced
$121,051 total annual savings identified
Effective rate reduced from 3.48 percent to 2.45 percent

Industry context

Merchant card processing pricing is not rate regulated. A processor can create a line item, choose a name for it, place it among the genuine network pass through charges and bill it indefinitely. That is not a loophole, it is the ordinary operating condition of an unregulated industry.

The names follow a pattern, because the pattern works. They borrow a real word from payments, attach it to a generic noun, and produce something that reads like infrastructure: network access, settlement funding, risk, regulatory recovery, monthly discount adjustment. None of these corresponds to a published card network charge.

Trades and service businesses are especially exposed. Card processing is a small line in a company whose genuine complexity lies in scheduling, inventory, licensing and labour, and the statement is a document that gets filed rather than read.

Why this case matters

A merchant looking at this statement sees a 64 basis point discount rate and four other lines that appear to be costs of doing business. The true all in cost was 3.48 percent, and roughly a third of the recoverable money was in charges that do not exist anywhere outside this processor’s billing system.

A contractor looking at this statement has no reason to treat any of it as unusual, because payments are a small line in a company where the real complexity is scheduling, inventory and labour. The statement gets filed. Our processing glossary lists what each real fee is and what it should cost.

How to check this on your own statement

1. List every line item, including the small ones

Take one statement and write out every distinct charge, including the ten and twenty dollar monthly items. The list is usually longer than anyone expects, and length itself is a finding.

2. Ask which card network publishes each charge

Four sources of cost exist: interchange, dues and assessments, the processor’s markup, and invented fees. Assign every line to one of them. Anything you cannot assign to the first two, and which is not the disclosed markup, is the fourth category.

3. Add up the percentage based extras

Fees expressed in basis points on separate lines add directly to your real discount rate. A disclosed rate of 64 basis points plus a 6 basis point adjustment billed under another name is a 70 basis point rate wearing two labels.

4. Check whether interchange rebates reach you

Rebates credited by the card networks are the merchant’s money under most processing agreements. Ask in writing whether yours are returned or retained, and look for a corresponding credit on the statement.

Questions we get about this

Our processor says every one of these is standard.

Standard and legitimate are different claims. Many of these charges are indeed common across the industry, which is not the same as corresponding to a real cost. Ask for the published schedule that contains the fee. That request resolves the question faster than any argument.

Can we just ask for them to be removed?

You can, and sometimes it works. What tends not to work is accepting a verbal assurance and stopping there. Fees have a way of reappearing under new names, which is why the agreement matters more than the promise and why the following twelve statements matter more than either.

Is a low disclosed rate a good sign?

Not on its own. A processor can quote a very low discount rate and recover the margin through separately named percentage charges. The effective rate is the only figure that cannot be restructured away.