All credit card processors are not created equal. Unfortunately, there are entities in the industry that are less than credible. While we all think of credit card fraud on the user side, sometimes we forget that credit card processing scams can occur as well. Some credit card processing companies that are not committing outright fraud per se. Rather, they are engaging in other shady practices like hiding or disguising fees, resulting in higher fees than necessary that the processor profits from. There are three red flags that should alert your fraud or hidden-cost radar when evaluating a credit card processor.
Rate hooks are designed to entice you with low introductory rates that soar after a calculated amount of time – just when you are likely to stop watching after a few months rates start to creep up. Often times you are asked to sign an agreement that refers to a complete Terms & Conditions packet – which is often never presented to you. Read it. And look for provisions that allow the processor to change the fees with obscure statement or letter notifications. They know that less than 2% of recipients read these.
The short-term savings on these introductory rates often don’t make up for the significant rate bump you’ll get after the grace period. They are designed to reel you in, but reputable credit card processors don’t need to use this gimmick. Be cautious of companies that are offering these rate hooks — it could mean a more expensive rate down the line. The old adage, “there is no such thing as a free lunch,” definitely applies here. Don’t fall for this credit card processing scam. You are going to pay one way or another. It’s just a matter of when.
No Interchange Costs
All credit card processors pay the exact same bank rate and fees — the interchange rate. It’s set by credit card issuers, which processors then pass on to you, the merchant. This is the bulk of the processing fees you pay for the ability to accept credit card payments in your restaurant. When a processor is offering “no interchange costs,” they are hiding the fees elsewhere. The most transparent credit card processors fully disclose and show you the exact interchange rate.
When the interchange rate is bundled with other services, you lose the ability to see exactly what you are paying for when it comes to your processing fees. This makes it hard to determine exactly how much you are being charged. Hidden interchange rates or claims of no interchange costs are a red flag you seriously need to investigate and thoroughly understand to avoid falling victim to this credit card processing scam.
Rates as Low As…
A rock-bottom rate isn’t really a credit card processing scam. Often, you can get these rates, but if you read the fine print, you will see that it only applies to rarely used types of credit cards. Major cards, like ones that offer rewards, have much higher rates and those are the rates you will mostly end up paying.
How to Protect Yourself
First, use a trusted and experienced credit card processor that can provide real, local references. Make sure they are experienced in card processing. I’ve seen Point of Sale companies try to pick up credit card processing and they fail to deliver the service and expertise offered by a real payment professional.
Second, as painful as it is, read the terms of your contract carefully to protect yourself before you sign anything or agree to any services with a credit card processor. Once you read the terms, make sure you ask questions about each and every facet of the contract and the related fees.
Third, watch out for the three red flags we mentioned above when you are shopping for processor for your bar, nightclub or restaurant. If you encounter a payment processor using rate hooks, offers of no interchange costs, and unbelievably low rates to attract business, investigate further to see whether it’s a deal too good to be true.