The Great Credit Card Scam…

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

14 Responses to “The Great Credit Card Scam…”

  1. temhawk says:

    Hi Matt,

    I just found out about your blog here, read it, and I think you’re a cool guy! :D

    Bluehost rocks by the way, congratulations on everything!

    temhawk

  2. Angel says:

    In Mexico it´s a serious problem, only 1 Bank give this service and it´s a limited service, and if we use an international service is more expensive.

    By the way we have to continue with the business.

  3. Wes says:

    I guess a lot of people are not big enough to complain and so they just accept if everyone else is accepting it. But I think once your business grows big you are also able to query some things and then you get some concessions.

  4. Larry1981 says:

    “I checked many providers myself and only found one that didn’t do it.”

    My question is: Who is that provider ?

  5. Dave says:

    I definitely agree with out on the interchange fees being crazy the way they are currently set up. Its not fair to either merchant or consumer – but Congress is actually stating to take a look at it though – there’s been some news lately about the Credit Card Fair Fee Act which would deal directly with interchange fees and help to fix what is definitely an unfair fee. I’ve done some work on it with unfaircreditcardfees.com, and the way that the credit card industry can charge whatever it wants forcing merchants to pass the cost off onto consumers really hurts all of us.

  6. [...] with the higher folks up the food chain. He has some great insights to offer about his business. This recent post about identity theft is very good. There is no incentive to fix security problems. In fact, there [...]

  7. Marisa says:

    Just another hidden fee that we didn’t know about, huh? That’s shameful.

    On a similar note, the hosting company I used before Bluehost had a policy that if you were unhappy with their (awful) service and attempted a chargeback for your remaining time, they would turn you in to a Credit reporting company and put a “bad mark” on your credit history. I don’t know if that’s legal or not but I do know that the company changed ownership and no longer has that policy.

  8. freeadlists says:

    I have also had a negative experience with chargeback fees. I had accepted the services of a “major payment processor.” I had a chargeback on one of my transactions. After a lengthy “investigation” duration, they reversed the charge and then added a $10 service fee. I was pissed. I wrote them a letter inquiring about the assessed fee. They responded, even though they found no fault of mine, the fee was standard for chargebacks. Who is protecting their customers? Needless to say, I’ve limited my business with this “major payment processor.”

  9. Hi,

    I have read your thread about credit cards and also paypal.

    First of all, I think it is a wrong way that a lot of “merchants” and credit card organizations does not respect the rules.

    A) the customer do not have to give his card details to the merchant, only to the credit card processing provider … this avoid a lot of betray by merchants. And a merchant has not to “store” the card datas … this is a very crazy and criminal act: do you remember .. the time where you had used your credit card in a restaurant and you have given the card to the restaurant people …. if they have made a copy of your card or “embossed” 2 debit notes (one for now, and one for lather) this is condsidered as a very big crime … a e-commerce merchand who made a copy of the card datas to use these datas lather … is in the same situation.

    B) the credit card organization has to cover the transaction: they have to control the card (and the validity of the card, this is NOT the dutty of the merchant). The risk of the transaction is the risk of the card provider and his customer. Not the risk of the merchant.

    C) Payment by Credit Card is a “one time operation” … it does not be possible to charge a credit card for “abonnements” or “renevals”.

    D) in the case of Pay-Pal they must also respect the fact that the related credit card does only be charged when the customer has logged in to his account. NEVER it does be possible that some merchants use the fact that a customer has paid one time by paypal to get more money from paypal.

    PayPal has still begun to accept my way to proceed: it is now possible to cancel periodical payments by paypal.

    I do not understand that a lot of persons do not accept that Internet Credit Card Processing is more reliable as the procedure in the next store …. but we must respect the rules.

    My company has affair to a lot of credit card swindlers, they use cards to order goods, and the credit card organisations do nothing to control correctely the cards and to avoid fake “stolen card” issues. The complete risk is on the side of the merchant, never on the side of the card issuer.

    Best regards,
    Joachim Schelb

    J. Schelb

  10. Andrew says:

    It’s great you are able to expose alot of this information. Keep up the good work!

    Business Credit

  11. sikis izle says:

    guess a lot of people are not big enough to complain and so they just accept if everyone else is accepting it. But I think once your business grows big you are also able to query some things and then you get some concessions.
    PayPal has still begun to accept my way to proceed: it is now possible to cancel periodical payments by paypal.

    I do not understand that a lot of persons do not accept that Internet Credit Card Processing is more reliable as the procedure in the next store …. but we must respect the rules.

  12. Estate Taxes says:

    Great post! And very informative. After reading your post it makes me think that really us consumers always pays higher prices. Kinda not fair for us towards merchants. Thanks for sharing!

  13. listdummy says:

    You are correct on the hidden chargeback fees, some I was not aware of until I read this. I guess it pays to read the fine print.

  14. [...] with the higher folks up the food chain. He has some great insights to offer about his business. This recent post about identity theft is very good. There is no incentive to fix security problems. In fact, there [...]

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