Credit card processing is big business on the internet. Every serious business has to accept credit cards. Its great that other payment options are available like Paypal to try and keep some of these big merchant providers honest, but its still a business that is riddled with dishonest practices in my opinion. There are major issues with Visa/MC/Discover and Amex and then there are problems with the merchant providers themselves that link into the systems that we use. Lets talk about a few of them.
Security Problems – There is no incentive to fix security problems. In fact, there is TONS of money being made by these companies on all that fraud that is happening out there. Chargeback fees to companies doing the billing are getting higher and higher. As the fraud increases Visa and others simply increase the discount rate that merchants like us pay to interchange for processing to compensate. No problem right? Wrong, guess who pays? The consumer always pays in the higher prices that merchants are forced to pass on in ever increasing credit card fees.
Reverse Charges (Issuing Credits) – This is the biggest scam of all. Lets say someone buys hosting for $100. We pay a small transaction fee (These usually range from 10 cents to 25 cents) to our merchant services provider. Often there is a gateway fee – many providers offer this free or charge, but most companies pay another 2-10 cents per transaction. Next you have to pay the interchange fee (This varies by card type – there are more than 50 different interchange rates) which for most online businesses varies between 2-3%. Now, lets get back to our example. Someone pays $100 for hosting – So our costs are approximately ($.10+$.02+$2.25) $2.37 to bill and accept that transaction. If later I have to issue a credit for the $100 most companies make you pay the same transaction costs (10 cents and 2 cents) AND you don’t get back the $2.25!! You don’t get back the interchange fee! We DO get back the interchange fee now. We have negotiated that, but 99% of the companies in the world don’t. Who keeps the interchange fee? Visa/MC? They keep a little, but the vast majority is going back to your merchant provider who pockets it and never tells you they got it back.
When I confronted my merchant provider I was given the response that EVERYONE does it and is an accepted practice in the industry. Everyone else getting screwed doesn’t make me feel any better about it. We got it “fixed” on our end, but only because we are a big enough fish that they wanted to keep our business. There are HUGE companies that are paying literally millions of dollars a year in these charges that don’t have to. I encourage all companies big and small to call their merchant providers and find out if you are paying this. Be warned that most sales people in the industry tell you it doesn’t happen or don’t know. I checked many providers myself and only found one that didn’t do it. Chances are that if you have significant credits in your business you are giving away a lot of money that you don’t have to.
Matt Heaton / President Bluehost.com