The bait and switch tactic is a classic scheme where a product is advertised at a low price but is substituted with a lesser one before delivery. This tactic is prevalent in the credit card processing industry as well, often leaving small business owners to deal with unexpected costs.
How the Bait and Switch Works in Credit Card Processing
A common scenario involves a merchant being offered a deceptively low flat rate for credit card processing, only to be hit with hidden fees later. All credit card processors are subject to the Visa/MasterCard interchange rates, so when a processor offers a flat rate, they absorb the interchange rate and keep the difference. The result? You end up paying more than you initially bargained for.
These hidden charges often arise when transactions are categorized as “mid-qualified” or “non-qualified,” meaning they don’t qualify for the lowest rates due to factors like rewards cards or manual entry of card numbers. This practice can significantly inflate your processing costs.
How to Protect Your Business from Hidden Fees
To avoid falling victim to these tactics, avoid “Tiered Pricing” plans and instead opt for processors that offer transparent pricing models like interchange-plus pricing or dual price processing. This way, you know exactly what to expect when processing different types of credit cards.
Avoidable Credit Card Fees: What to Look Out For
Credit card processing can be complex, but knowing which fees are avoidable can save your business a lot of money. Here’s a list of negotiable fees you should watch out for:
Terminal Lease Fee
IRS Reporting Fee
PCI Compliance Fee
Statement Fee
Minimum Monthly Processing Fee
Contract Cancellation Fees
Payment Gateway Fees
By keeping track of your sales data and transaction volumes, you can use this information to negotiate with your processor and reduce or eliminate these fees. It’s also wise to research other credit card processors to ensure you’re getting the best deal possible.
Understanding Non-Negotiable Fees
Certain fees, like interchange fees and assessment fees, are non-negotiable as they come directly from the card brands (Visa, MasterCard, Discover, Amex). These fees are the wholesale cost of processing credit cards and are consistent across all processors.
Protecting Your Business from Scams
In addition to hidden fees, scammers can target your business with various tactics, costing you both time and money. These include:
Untraceable payment methods like reloadable cards or wire transfers.
Phishing attacks to gain access to sensitive business information.
Fear and intimidation tactics to rush you into making a quick payment.
Fake invoices or product deliveries to trick you into paying for something you never ordered.
To protect your business, invest in robust security software, train your employees to spot scams, and always verify the legitimacy of any new business contacts or transactions.
Common Scams Targeting Small Businesses
Small businesses are often targeted by scams like fake directory listings, utility scams, government impostor scams, and tech support scams. Being aware of these scams and how they operate can help you avoid becoming a victim.
Alternative Options to Consider
For years, surcharge and cash discount processing have been common in the payments industry, often creating opportunities for fraud to take root. However, a more transparent option has recently emerged: dual-price processing. This innovative model eliminates most, if not all, processing fees and often includes free equipment, offering businesses a straightforward and cost-effective alternative. Its simplicity and transparency are driving its growing popularity among merchants.
Conclusion: Protecting Your Business from Unnecessary Costs
The credit card processing industry can be confusing, but understanding how to avoid unnecessary fees and scams can save your business thousands of dollars. By choosing a processor with transparent pricing and staying vigilant against scammers, you can protect your business’s bottom line.
For more information on dual-price processing, contact SignaPay Direct today.
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