In our experience we’ve come across several companies and organizations that advertise a low, flat rate billing structure, making it an easy sell for these organizations to seem to beat the competition’s pricing. The difficulty is that what you see may not always be what you get.
In light of the recent revelations at one major bank of inappropriate practices and account fraud to boost sales numbers, it has opened the door for further scrutiny and investigation into some of their other practices. One of these relates to their use of what is termed in the merchant services industry as “billback”.
Billback occurs when your merchant services provider (MSP) charges a specific advertised rate up front, then charges the remainder of the fees at a later date.
To understand billback, we need to understand a little bit about how processing fees are charged. For every credit and debit card, there are fees associated with processing that are called “Interchange.” There are specific categories assigned based on the type of account (consumer versus business), merchant category ( for example, retail stores have different rates than hotels or e commerce), as well as how the card is processed (card present, online, etc.). Given the huge amount of variation, there are hundreds of categories for interchange each with a different rate, sometimes in excess of 3% of the sale volume. With billback, the processing fees are initially charged at the flat rate that is quoted, then for the following month, the difference of any transactions that had fees that exceeded the threshold the processor sets are charged to the merchant. Creating confusion about the true cost of processing, and misleading the merchant to think they’re on a level pay.
The better alternative is to go with a pricing structure called Interchange Plus. This pricing structure is the most transparent, as your billing will reflect the true cost of processing, as well as a clearly defined margin for the processor. This means that when you accept cards with lower interchange, you see the savings from that transaction.
For a free, no obligation review of your processing statements, contact us at [email protected] or by phone at (800) 644-3909.