Interchange-plus savings could be undermined by excessive fees

Interchange-plus savings could be undermined by excessive fees

Just because you've opted for interchange-plus pricing, don't stop monitoring your merchant statements for excessive markups and fees, says Phil Hinke, founder and president of MerchantFeeSavers, a company that helps small business owners understand processing fees.   

Some merchant account providers are offering rates that appear attractive at first glance, but are inflated with monthly and annual fees that "more than offset any rate savings," argued Hinke in a recent article on practicalecommerce.com.

How it works
Merchant account providers charge merchants who opt for interchange-plus pricing a flat fee for their services, plus the interchange fee charged by card networks, such as Visa or MasterCard. The flat fee generally ranges from 0.05 to 1.00 percent, plus two to 20 cents per transaction, according to FeeFighters.com.

However, according to Hinke, these fees are often compounded by additional fees, causing merchants to significantly overpay for services.

Some providers are even raising fees or adding new ones to debit card transactions, said Hinke, despite the lower interchange fees being charged as a result of the Durbin Amendment, which went into effect in October.

"Do not focus on the processing rate alone," wrote Hinke in the article. "You must understand how all card types are affected by the rate. You must also understand all the fees charged, the account funding process and the terms and conditions."

Hinke's consulting service requires merchant account providers to fill out a three-page form detailing how each provider's rate affects all card types and what the potential fees, terms and conditions are. This helps merchants make knowledgeable decisions based on how much they will have to pay overall to their merchant account provider.

Hinke also recommends that merchants take an active approach when evaluating a merchant account provider and do their own analysis of how much they will pay in fees if they choose that provider. Also make sure that you double-check the provider's own savings analysis, recommended Hinke, and enlist a third party for help.

Published: November 14,2023