First Person: How I Negotiated My Credit Card Processing Fees

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When I opened my store, I knew I would have to pay credit card processing fees. However I had no idea that dealing with the processor would be an ongoing nightmare of hidden charges and financial shenanigans, resulting in an expense that far exceeded not only my naive expectations but all reason, to boot.

These days it's really impossible to have a retail establishment that doesn't accept credit and debit cards. It's big business, with enormous profits for providers who have little to do once the machine is up and running, except rake in the fees.

This story begins long before I ever saw a contract. In fact it started as soon as the phone line was installed, and was time wasting source of frustration every working day thereafter.

The service providers called all day long. Some were up front about their intentions - i.e. to sell me credit card processing services - but many were not. This was something I hadn't encountered before in "legitimate" sales. I thought only scam artists lied to get you to listen to their spiel, but I've had representatives from companies with A ratings from the Better Business Bureau tell me whoppers like: "this is not a sales call" and "your current provider asked us to call you to offer you more direct rates because of your solid performance."

The number one thing that virtually all credit card processing representatives will tell you that's a complete and total lie is that they represent one of the three companies that process directly, and so can give you better rates than anyone else who's calling you. This is a myth invented by some creative sales rep and adopted by all the rest. I've done a lot of research, and have found no evidence that the fabled direct processors even exist. They all plug into the same bank card system and have to pay roughly the same amount to the credit card issuer. The difference is what they charge you.

Here are a few of the unpleasant surprises I encountered along the way. Knowing about these charges in advance can help you ask the right questions, so you can compare offers from various companies, and negotiate better terms for yourself.

Up charge or Downgrade? The business of credit card process is full of confusing and contradictory terminology. Take for instance, the "discount." Sounds wonderful, doesn't it? Who wouldn't be thrilled by the possibility of getting a discount? Unfortunately, you will be paying the discount, not getting one. It's an extra fee charged when the customer's credit card is a rewards card or business card.

Loves those air miles on your American Airlines VISA? The vendors you present that card to are paying for them.

Other "downgrades" may also be included in the discount fee. For instance, if you key the credit card number into your terminal instead of swiping the card, or you take a phone order. So a "downgrade" or "discount" is actually an up charge for transactions that are more risky (a phone order) or where the credit card issuer is charging more to offset extra cardholder benefits.

The credit card processor will normally offer you two fees: a per swipe fee and a percentage fee (and yes, you have to pay both of them, it's not a choice of one). Then, when you get the actual contract, it will include a multi page section detailing all the various "discounts," or fees for different kinds of cards. These are important because these days everyone uses rewards cards, so your base percentage fee is not what you will be charged most of the time.

PCI Compliance (PCI DSS - Payment Card Industry Data Security Standard) - this is a fancy excuse to charge you more money! The credit card companies invented it, and the processors use it to wrangle an additional annual fee out of business owners. I have been quoted fees ranging from $50 -$90 per year, as a small vendor. Before you sign a contract, be sure you know what you will be charged for this.

I have never seen this listed on a contract. You have to ask about it.

Batch Fees and Statement Fees - Does your bank charge you a fee to mail you a monthly statement? Does the phone company, electric company, water company or anyone else charge you a statement fee?

Welcome to the wonderful world of credit card processing! Many processors charge a fee of $6-$10 per month to send you a statement. The last processor I used would waive the fee if you got an on line statement instead.

Some also charge a batch fee, which is basically a fee for accepting your sales transmission. If you like to batch out your charges several times a day, this one can really add up.

Cancellation Fee - here's a little gem that's almost always hidden in the fine print. The sales rep won't tell you about it, but rest assured it's there. The surprising part is not so much that they charge a fee of $250-$500 if you cancel your contract early, it's that most vendors automatically renew your contract without a whisper that the renewal has come due. This means you can't really ever walk away from them without paying this fee.

The kicker is that the "renewal" is not always identical to the original contract. I had a vendor who automatically renewed my contract and charged me a fee when I left. However they had raised my rates at the time of the "renewal."

I was able to successfully argue that it wasn't a valid renewal because it was had different terms than the contract I had agreed to, and was able to get the fee refunded.

Refunds - it will cost you money to accept a payment by credit card, and it will cost you money again to issue a refund - really. The flat fee for swiping the card is charged when you swipe for a refund, as well. Incidentally, this fee will also be charged when a credit card is declined. You can expect to pay this fee more times than you have completed credit card sales.

However the percentage fee is not charged on a refund, and, in fact, should be returned to you. The fee will be returned to your processor. Make sure they are forwarding it on to you, and not just keeping it for themselves.

Ultimately, when selecting a credit card processor, it comes down to paying attention, making sure you thoroughly understand the terms of the contract, and fighting back if the processor tries to cheat you.

*Note: This was written by a Yahoo! contributor. Do you have a personal finance story that you'd like to share? Sign up with the Yahoo! Contributor Network to start publishing your own finance articles.

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