It happens every day. Someone calls your business and explains in seemingly logical terms that your merchant account provider is gouging you and there is no reason why you shouldn’t pay just one low flat rate for all your transactions – say 1.75%. Of course that sounds pretty good to you and before you know it there is a shiny new terminal on your counter and you can’t wait to tell your current merchant services provider to shove it. Sure enough your first month’s statement shows up and waaa laa you are billed 1.75% of your sales – happy happy, joy joy! However now that a month has gone by the honeymoon is over and your contract is not cancel-able. The second month’s bill comes in and suddenly not only do you have no idea how to read it but the one thing you do know is that your effective rate is suddenly 5% or more!!!!!
Welcome to the billback, enhanced recovery reduced, blended, or enhanced billback pricing scheme – designed to do one thing and one thing only – lock you into a contract and “enhance” your payment processor’s bottom line!
You have fallen for one of the most deceptive merchant services pricing schemes out there. So, you pick up the phone and try to call your sales rep but only get stuck in a relentless phone tree with terrible hold music and your sales rep is nowhere to be found. Finally, you get a hold of “customer service” for an explanation and to cancel your service but soon learn that the cancellation fee for early termination is 3% of your “projected” sales volume for 3 years! How is this possible?
Well if tiered pricing is evil then any version of the bill back method is just plain criminal! Here is how it works. As I mentioned you are promised a nice low flat rate for all your transactions, however, if you have read our blogs on interchange you know that many card types have a hard cost that is much higher than that. Your merchant account provider is not going to lose money, right? Let’s break it down:
Step 1. You are billed your flat rate for the current month’s sales volume
Step 2. The following month your transactions are analyzed
Step 3. You are billed for “downgraded” transactions for the previous month
This is why your first month’s bill seems great but the following month your effective rate (total cost/sales volume X 100) skyrockets. How are your “downgraded” transactions calculated? Well, just like with Tiered Pricing the payment processor clumps the various card types into “buckets” and assigns a rate to those buckets and bills for those card types the following months calling them assessments, downgrades, or some other creative crooked word. So now that corporate rewards card that you accepted and happily paid 1.75% for the month before is assessed an additional fee say 3.49%. That means that the 1.75% has now become 5.24%!!!! Outrageous right? Beyond that even when you take 2 months of statements and try and figure out this mess the statement is so purposely vague that you (or anyone else) can’t figure out what or why you are being billed for the downgrades.
This and many other billing methods are designed as “door openers”. This is an effective sales tactic used because being able to perk your interest with a flat rate and good explanation seems to make sense. This allows the salesman to open a conversation or open the door where others may have failed. Bottom line do not fall for sales tactics instead focus on transparency and service.
How do you protect your business from unethical merchant services billing practices?
Simple, first seek a reputable merchant services provider like Bankcard Brokers, with a good BBB rating, and independent reviews (not “Top 10” sites). Second, ask for their complete Interchange Plus pricing schedule. Third ask how they handle their customer service and where their service centers are located. With good reviews, transparent pricing, and good customer service you’ve found your new service provider!
Are you stuck in a contract with your current merchant account provider? What can you do?
First thing is first – demand that you be provided interchange plus pricing with fixed rates. Should they refuse this could be a time consuming but worthwhile task but escalate your complaint to senior management. If the senior manager at the does not provide you with assistance it is time to call the actual processing bank (located on your merchant statement). You will need to register a complaint for deceitful sales, request that your account be taken from the ISO (independent sales office), and that your rates are amended with NO early termination penalty. In many cases, sadly, this may not even be enough and it is time to bite the bullet by shopping for a more ethical merchant services provider. Be straight with them and explain your dilemma while having them help you calculate the true cost of your early termination fee versus what you would be saving with a better rate structure. It may turn out to be a great idea to just bite the bullet and make the switch.
Do you need help understanding the cost of your merchant services?
Give Bankcard Brokers a call and one of our ETA Certified Payment Professionals will be happy to assist you with your business’s best interest in mind.
