The Great American Heist

How Can I Have the Lowest Discount Rate but the Worst Deal?
Credit card processors know that merchants look at two things: (1) discount rate 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’s looking or even cares about what’s going on. I define “unregulated” as giving someone free reign.

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. His speech was excellent! I thought, “Wow! This is going to change everything. This is way overdue.”

You need to understand that merchant fees are the tail that wags the dog. Merchants say the fees are the third largest expense they have. These costs get passed on to consumers along with all the other costs that businesses are forced to pay.
In America, we find the average credit card fee to be close to 3 percent for many merchants in the business-to-business segment. On a $1,000 transaction, the merchant pays around three dollars compared to fifty cents like in other countries where merchant processing is highly regulated.
Below you will find a few samples of their gameplay.
Inflated Interchange Fees
Recently, two of the world’s largest credit card processors 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.
Figure 1 below is a case where the processor charged the merchant 1.41 percent (divide $31,528.06 by $444.55, and you get $31). Visa is adding .76% because the merchant did not enter the zip code on a keyed transaction. Why not just say, “missing zip code?” Better yet, why charge a fee for a missing zip code? Visa claims it is due to the transaction being a high risk because of the missing zip code. That’s true; however, the merchant suffers the loss should this be a fraudulent card.
The more significant issue is that the processor tacked on an additional 0.65 percent. Why? The processor offered a lower discount rate to look competitive and then add back in the 0.65 % to the interchange, making their profit up and then some. This merchant may think they have a 0.05 percent discount rate. In reality, they now have a “discount” rate of 0.70 percent.

This type of overbilling is very hard to spot. It’s so hard, in fact, that most sales reps for processors wouldn't catch this. Processors widely used 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 doing the math to see whether the billing has been inflated.
Inflated Dues and Assessment Fees
Dues and assessments are paid on every transaction. They go to Visa, MasterCard, Discover, and American Express. As of the writing of this book, the average dues and assessments range from 0.13 percent to 0.165% percent.

Below is a case of the inflated American Express dues and assessment fees. The dues and assessments on this transaction should be 0.30 percent. However, the credit card processor is charging the merchant 1.13 percent, adding on an extra 0.83 percent.
0.30% + 0.83%=1.13%
Again, if the merchant had a 0.05 percent discount rate, their actual discount rate would be 0.88 percent.
0.05% + 0.83% = 0.88%
Unless they were overinflating the interchange 0.65 percent (as above) and the 0.83 percent overinflated on the dues and assessment. If so, then the merchant’s true discount rate would be 1.53 percent.
And yes, they combine multiple overbilling tactics all the time.

Hidden Fees
“Network Processor and Access Fees” are an example of what Senator Durbin calls “hidden and non-negotiable.”
“Network Access” fee is real - this is a legitimate fee. However, Network & Processor Access Fee” is not real, as in, the processor is adding extra profit here. The good part is that they disclose it. They add the word “Processor” in with the Network Access Fee. This is their way of being transparent while robbing you blind!

The processor charged the merchant $426.44; however, the actual fees should have only been $228.03.
● fixed network acquirer fee (Visa) $160.00
● acquirer fee (MasterCard) $68.00
● data usage fee (Discover) $0.03
● access fee (American Express Optblue) Does not apply to this client.
Please note this is…