As a merchant, you always look for ways to save money and increase profits. But with a recession approaching, payment processing companies are increasingly turning to hidden fees to raise additional revenue.
Hidden fees can be a silent thief of your hard-earned cash. Payment processing companies often charge extra fees that are not immediately visible in their pricing or contract—but they add up quickly!
Hidden fees come in many shapes and sizes, from monthly minimums to statement fees, early termination penalties, and more. It can be challenging to anticipate these costs when making a decision between payment processors.
That’s why it’s important to know what types of hidden fees exist to protect yourself when making the switch or signing a new contract. Let’s explore what hidden fees are, types of hidden fees to be aware of, and how to protect yourself from them as a merchant.
What Are Hidden Fees?
Hidden fees are costs that are either unexplained or buried within a company’s pricing and contract terms. They come in many forms, from one-time costs to ongoing fees that are automatically charged monthly.
How Some Payment Processing Companies Hide Hidden Fees to Deceive You
Even the most minuscule hidden fees can add up to large amounts of money over time. Although payment processing companies disclose the different price points they charge, they often leave out the details on extra costs that can be tacked onto your total bill.
You can find these details buried in the small print, but they can be challenging to spot. That’s why it’s so critical to be aware of the types of hidden fees that exist.
Keep an eye out for these tricks some payment processing companies use to charge hidden fees:
Complex Pricing Structures
Some companies offer multiple pricing plans that differ in rate and cost structure. Even though the rates may be lower, the total cost of service could be higher due to the added fees associated with each plan. That way, the company can charge more without raising its rates. These rates are called tiered structures or ERR pricing. Always ask before signing.
Discounts and Bonuses
Many companies offer discounts and bonuses on their services to entice customers. However, these come with strings attached and may include fees that are not immediately obvious.
For example, a company may offer you a bonus if you sign up for a particular plan. But in the fine print, you might find a fee associated with this bonus or that it only applies for a certain period, after which you will be charged regular rates. We call this a Bait and Switch tactic.
Payment processing companies sometimes bundle their services with other products, like point-of-sale systems or software. This may make the cost of service seem lower upfront, but you could be paying more in the long run. Remember, if it seems too good to be true, it probably is!
Some payment processing companies offer additional features or services that may seem like a good deal but come with hefty fees. Always read the agreement to understand any added costs associated with these extras.
For example, a company may offer a loyalty program that seems like a great value, but there could be hidden costs associated with setting up and maintaining the program. You won’t know about the fees unless you read the fine print.
Types of Hidden Fees
There are several types of hidden fees that payment processing companies may charge. The most common ones are:
Monthly Minimum Fees
Merchants charge a minimum fee if the total amount of credit card transactions processed in one month falls below a specific dollar amount. For example, if your processor requires a $25,000 processing volume to avoid the fee and you only processed $15,000 in sales, you will still be stuck paying the monthly minimum, which can be between $25-250 depending on your services.
Monthly minimum fees are common in the payment processing industry, but not all companies charge them. Make sure to read the fine print of any contract before signing up, so you know what to expect.
Interchange Plus Rate (IPR)
An IPR is a percentage-based markup on charges set by credit card companies such as Visa, Mastercard, Discover, or American Express. This is the most cost effective structure to be on, but make sure to understand the IPR associated with your payment processor before signing a contract.
Statement fees are charges payment processing companies assess each month, usually to provide you with a statement of all the transactions you processed. This fee is typically $5 to 10 per month, but some processors may charge more depending on the type of transactions you process.
In the worst-case scenario, they may slip this fee in as part of the overall cost of your processing. Be sure to ask about statement fees when reviewing different processors.
Early Termination Fees
Some processors also have hidden fees related to terminal leases or early termination penalties. If your processor charges a monthly fee for the use of their terminals, then you may be paying more than expected in rental costs if your contract isn’t clear about what is included in the rate. Similarly, some contracts include an early-termination penalty that can cost hundreds or even thousands of dollars in unexpected fees. These will eat up your profits if you’re not careful.
How to Protect Yourself from Hidden Fees
We don’t want you to fall victim to any of the pesky hidden fees we just mentioned. So, here are some tips to help you protect yourself.
1. Conduct Thorough Research and Read the Fine Print
Most payment processing companies will include information about all their fees in the contract they provide. Read through the entire contract carefully and ask questions if anything is unclear. You can even consult a lawyer to make sure that you’re not getting locked into any hidden fees.
2. Ask the Right Questions
When you’re researching potential payment processors, make sure to ask about any hidden fees that may be included in the contract. Get specific!
For example, you could ask:
- Are there any monthly minimums I should be aware of?
- What are the annual fees on this account?
- Are there any early-termination penalties or statement fees?
By asking the right questions and doing your research, you can save yourself from getting taken advantage of by hidden fees.
3. Compare Rates and Terms Across Different Providers
Once you understand what kind of hidden fees you should look out for, compare rates across different providers. Different payment processing companies have unique fee structures, so take the time to ensure you get the best deal.
4. Negotiate Terms with Your Processor
If you already have a processor, you can always try to negotiate better terms or fees. Many processors are open to negotiation, so don’t be afraid to ask for a better rate or to have fees waived. Especially if you process large numbers of transactions or have a long-term relationship with them, you may be able to score lower fees.
5. Use Software to Monitor Fees
There are also software tools that can help you monitor your payment processing fees. These tools can provide insights into how much you’re paying in hidden fees, which can help you better manage your costs and negotiate better terms with your processor.
6. Take Time to Read Your Merchant Processing Statement
We know you’re busy, but this step is paramount. Even though your processor may advertise a specific rate, that rate can change based on the number of transactions you process or other hidden fees like statement fees.
By knowing how to read your merchant processing statement, you’ll be able to spot any hidden fees that could be eating away at your profits.
How to Read Your Merchant Processing Statement
Your merchant processing statement will list all your fees and other information related to payments. It can be confusing to understand, so here are some tips for reading it:
1. Calculate Your Effective Rate
Your effective rate is the total fees divided by the total volume of transactions processed. To calculate this rate, add all the fees on your statement and divide that number by the total amount of sales (volume) processed. Then, multiply that number by 100. That will give you the percentage of overall fees for each transaction.
2. Look at Your Per Transaction Rate
Your per transaction rate is the total transaction fees divided by the total number of transactions. This will show you how much each transaction costs. By looking at this rate, you can see if your processor is charging too much.
3. Review Your Processor’s Pricing Model
Your payment processor’s pricing model will tell you how much you pay in hidden fees like interchange and assessments. There are three primary models for payment processing fees:
- Tiered: This model charges different rates for different types of transactions.
- Interchange plus: This model charges a flat fee plus an additional charge for each transaction.
- Flat rate or ERR: This model charges the same rate across all transactions.
So, which one gives you the most visibility? Interchange plus is usually the most transparent model since you know exactly how much you’ll pay for each transaction. Tiered and flat rate models can be more opaque since the fees are based on various factors that may not be immediately apparent.
However, each model has its pros and cons. Take the time to compare them before signing up with a processor. The most important thing is to choose a payment processor that meets the unique needs of your business.
By understanding your pricing model, you can better understand where your fees come from and how to lower them.
4. Review Your Statement for Other Fees
Finally, take the time to review your statement for any other fees. Look for monthly minimums, setup fees, and early-termination penalties.
Additionally, you’ll want to determine whether your processor follows the monthly or daily discount model.
The monthly discount model charges a flat fee for each month regardless of how many transactions you process.
The daily discount model, on the other hand, charges a discounted rate based on the total amount of money processed that day.
It’s critical to be able to distinguish the two because they will show up in different places on your statement. You can’t account for them if you don’t know where to look for them, so make sure you understand them and keep an eye out for these fees.
Now that you know how to read your merchant processing statement and understand hidden fees, you’re better equipped to protect yourself against them.
Negotiate better terms with your processor and use tools to monitor your payment processing fees. Doing so will help ensure that you’re paying the right amount for the payment processing services you receive.
Why Choose Vector Payments as Your Payment Processor?
Vector Payments was founded upon the mission of demystifying the payment processing industry and providing a transparent, user-friendly solution. We strive to be the most reliable and secure payment processing company, empowering businesses with the tools they need to succeed without ANY confusing structures.
Whether you operate a high-risk or low-risk business, we offer crystal clear rates and no hidden fees. Our payment processing solutions include:
- Retail/POS payments: Accept card payments in-store or online with affordable integrated solutions to help streamline your payments process.
- EMV terminals: Get access to the latest EMV terminals and payment gateways for secure payments.
- Wireless/mobile terminals: Accept card and contactless payments on the go with our wireless/mobile terminals.
- Virtual terminal: Allow customers to pay securely online with a virtual terminal.
- eCommerce: Integrate our payment gateway to most web platforms across the world!
Vector Payments is here to get the job done if you’re looking for a reliable payment processor. Contact us today to request your free quote.