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5 Common Techniques Card Processing Companies Use to Mislead Small Businesses

October 23, 2018

As a small business owner, you can’t do without credit card processing services – after all, it’s difficult to imagine a world without credit card payments. However, as you shop around for these services, you’ll find that choosing an appropriate credit card processor for your company is no piece of cake. You’ll encounter several problems while selecting a credit card processor – for example, you may find that the rate structure is too complex, or maybe it lacks clarity. Nevertheless, there are certain unscrupulous credit card processing companies who purposefully mislead small business owners, and by the time they realize this, it’s often too late. To avoid being deceived, read through the list given below – these will alert you about the things you should watch out for while looking for a credit card processing company for your small business:

  1. Qualified/ Non-Qualified Rates: You may have seen flights being advertised for $99 each way; however, it’s unlikely that you’ve ever paid that low an amount for the ticket. Similarly, many credit card processors advertise rates as low as 1%. Unfortunately, what they don’t disclose is that these rates do not include various fees such as mid-qualified and non-qualified charges. The most common reasons why you may end up paying significantly higher rates is the existence of qualified/non-qualified rates.  In fact, the non-qualified surcharge can cost a merchant an average of 1.5% - 2.5% over the base rate. “Non-Qualified” is commonly found in three-tier merchant account pricing schemes, with the other two tiers being referred to as “Qualified” and “Mid-Qualified.” Credit card processors may apply “Non-Qualified” fees for various reasons, for example, the customer used a corporate card, foreign credit card or a certain rewards card. The surcharge may also be applied as a “catch-all” tier for card types that cannot be identified correctly during the transaction processing or to retail merchants that type in a transaction instead of swiping it.
  1. PCI Compliance Fees: Many processors these days do not include PCI compliance fees in their advertised rates, but charge businesses the same on a monthly, quarterly or annual basis. (The PCI Security Standards are a set of standards that tell you how to accept, transmit, and store cardholder data securely.) These fees may also be called "Breach Coverage" or "Security" fees, so find out whether the processor has included these in the quoted rate or not.
  1. Annual fees: The card processing service provided to you usually has a monthly cost, however, many companies bury some of these through annual fees. These costs can range between $50 - $200 — and because they are typically run past you once a year, disguised as an "IRS Reconciliation" or an "Annual Membership" fee, they could be hard to spot. Until you factor these in, you won’t get an accurate picture of your card processing costs.
  1. Monthly minimums: Some processing agreements have volume commitments that a merchant must meet. In other words, a merchant must process a predetermined amount of dollars per month, otherwise, his rates may be increased or other financial penalties may be applied. For example — certain processors place "monthly minimums" on the total fees generated from Visa/MasterCard transactions, meaning that if you don't process enough payments, you are paying for them anyways. Outrageously, these fees are often called “low achiever” fees.
  1. Contract cancellation fees: Finally, processors often charge cancelation fees or early termination fees, which can lock businesses into a long-term contract and deter them from switching to a more affordable provider.

The best way to avoid being misled by card processing companies via the above five techniques is to read the terms and conditions of your agreement carefully, and quickly address any red flags you may come across. Otherwise, you’ll find that you’re stuck with an inefficient processor, or a company that charges you unfairly high rates.

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Ari Page Ari Page is the CEO of Fund&Grow. He resides in Spring Hill, Florida with his wife and two children.

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