Merchant Card Services Secrets - Top 10 Hidden Fees and Traps

Small businesses can increase revenue potential and reduce bad check losses by accepting charge cards. However, merchant card services pricing isn't straight-forward and many traps and hidden fees are poised to squeeze extra money from you. These are the top 10 traps and hidden fees and what to ask a merchant card services company to avoid them.

Merchant Card Services Trap #1 - "Our unbelievably low quoted rate is for debit cards, not credit cards."

A rate under 1.50% is almost certainly for debit card credit transactions (without a PIN). The credit card rate may be 40% higher. Ask the merchant card services company what their "credit card rate" is.

Merchant Card Services Trap #2 - "Our quoted credit card rate is not the rate you'll actually pay for most cards."

Not all credit cards are created equal. As a consumer, if you aren't already using a reward card you should be. Most of your customers probably are. Merchant card services companies charge you more to cover those customers' rewards. If you've been quoted a too-good-to-be-true rate below 1.60%, expect to pay up to double for most transactions to cover your customers' perks. Ask the merchant card services company about "mid-qualified" and "non-qualified" rates. Check their Discover and AmEx rates too, as these are higher than Visa and Mastercard rates.

Merchant Card Services Trap #3 - "Our quoted rates default to the highest, non-qualified rates each time you key in rather than swipe a card."

When you swipe a card, the physical presence of the card reduces the risk of fraud. That's why merchant card services companies charge their highest, non-qualified rates for keyed transactions. Ask about keyed transactions rates.

Merchant Card Services Trap #4 - "Authorization fees are not the only way we nickel-and-dime you"

Merchant card services companies charge authorization fees ($0.15 - $0.45/transaction). Especially if your quote is under $0.25/transaction, ask the merchant card services company about "address verification fees" ($0.05 - $0.10/transaction), fees for debit card credit transactions (possibly another $0.05 - $0.10/transaction), and batch fees (perhaps $0.10 or more) charged when you transmit "end-of-batch" at the end of the day.

Merchant Card Services Trap #5 - "Debit cards used with a PIN will really prick you."

Some merchant card services companies charge $0.55 or more per PIN transaction. Others charge a flat fee of $10 or more any month in which you had even a single PIN transaction. Choose the per-transaction plan if you don't expect many debit card PIN transactions. Ask the merchant card services company if they charge a debit card rate on top of their PIN fee.

Merchant Card Services Trap #6 - "Did we say no annual fees? Sorry, that doesn't mean we won't pass through annual fees from Visa or Mastercard."

Be prepared to pay fees of $70/year or more your merchant card services company passes through from Visa, Mastercard, American Express and/or Discover.

Merchant Card Services Trap #7 - "Did we mention the 36-month contract and early termination fee?"

Many merchant card services companies lock you into a 36-month contract and charge an early termination fee of $350 or more. Ask the merchant card services company about these.

Merchant Card Services Trap #8 - "Would you rather lease a terminal or buy one outright? If you don't catch us at it we'll overcharge you either way for both terminal and shipping."

Many merchant card services companies offer their basic card-swipe terminal at no cost or for a shipping fee only. But if you want a sleek, quiet, and possibly wireless terminal, be prepared to pay $40/month or more on a 36-month lease. Prefer to buy the terminal outright? How about $400 for a terminal you can find online for $80? The merchant card services rep may offer you a special deal of "only" $150, but shipping may be inflated to 250% of UPS-Ground rates. Search the web for the best deal on the terminal and ask your merchant card services company to match it.

Merchant Card Services Trap #9 - "If you're just starting out, expect to pay more than you'd expect."

Merchant card services companies charge a variety of monthly fees including statement fees ($10/month or more) and "low activity" fees. By any other name, this last makes sure you pay the merchant card services company at least $25/month. If you only had one transaction which should have cost you $2, your merchant card services company adds a $23 fee. When your monthly transactions reach thousands of dollars these fees disappear or become negligible, but they can hurt when you just start out.

Merchant Card Services Trap #10 - "Can you prove we promised you a lower rate?"

Sales people at merchant card services companies really want your business so they may under-emphasize the less palatable parts of their plan. Some even cross the line and promise things they can't and won't deliver on.

Before your sign up with a merchant card services company, get all the details in writing including a blanket statement that the details you received are complete, with no hidden terms, rates, or fees. Then, check your monthly merchant card services statements to verify you understand everything you're charged. If you don't, at least you'll have a written record on which to base a complaint.

Bottom Line of Merchant Card Services Company Traps

You may be considering accepting charge cards at your small business as a convenience for your clients, to increase revenue and to decrease bad check losses. You may already accept charge cards but would like a new merchant card services company. Either way, check carefully whatever new plan you're being offered. If a merchant card services company lowers one fee, they may just jack up a different fee and you'll end up paying even more. If you ask all the above questions however you may just get a much better plan.