Whether a merchant is struggling financially or not, the cost of transaction fees on credit card services may not be as big of an issue as the difficulty understanding the monthly merchant-account statement, an executive with the Michigan Retailers Association believes.
“In our experience with merchants, when they see what the statement looks like, they tell us they don’t care what it costs and what they have to pay. They just want to understand it,” John Mayleben, the association’s senior vice president for technology and product development, tells PaymentsSource.
The Michigan Retailers Association provides merchant-processing services for its members and other clients. As such, it spends much of its time educating merchants about the various aspects of accepting credit cards for payment, Mayleben says.
Mayleben says the issue about merchants not understanding their monthly statements became cemented in his mind at a retail merchant conference presentation during which the speaker showed a slide of a monthly statement.
“He was pointing out a problem on the statement on page 992,” Mayleben says. “This was the statement of a national retailer, but it didn’t matter. The point was that if anything questionable appeared on, say, page 872 or page 992, the merchant would never notice it. That’s a lot of pages.”
The retail sector has long called for merchant processors to present the statement in a different manner, but processors have been reluctant to embrace a change and have no incentive to resolve the problem, Mayleben says.
A smaller merchant may become easily confused when statements list various transaction fees pertaining to two different months or when trying to understand different transaction interchange levels for different types of cards, Mayleben says.
Failure to understand the statement puts a merchant at risk of making poor business decisions regarding whether to stop or continue a rewards program or to make a switch in processors that may end up being more expensive, Mayleben reasons.
Chris Kille, owner of Commersense LLC, a Tampa, Fla.-based merchant-processing company, has seen how much money a merchant can lose when the monthly statement is confusing.
“I was working with a not-for-profit organization, and we were going through their monthly statement,” Kille tells PaymentsSource. “I could tell they weren’t paying attention to what they were paying for and I ended up saving them about $800 a month, and that’s a lot for an organization like that.”
Paying more than necessary over a long period of time puts many merchants unwittingly into a high-risk category because operating funds dwindle, Mayleben says.
“Processors decide where their comfort level is on risk, and risk tolerance is different for everyone,” he says. “Individual merchant credit history is important, but so is the ability to cover a loss. So those companies are likely to get charged extra or be required to make a ‘reserve’ payment.”
The Frontier Airlines Holdings Inc. bankruptcy of 2008 provides a good example of a company that was pushed into an even more serious cash squeeze when a credit card processor sought more money from ticket sales to establish a reserve, Mayleben says (
Kille claims his company is accepting more high-risk merchant accounts because of relationships he has been able to establish with banks through his smaller ISO.
“Typically, these are small businesses using a virtual terminal generated by a website to sell goods or with call centers taking orders,” Kille says. “We try to find the best rates we can for processing payment transactions, and we want long-term relationships; no one likes to set up an account to have it shut down and have to do it all over again later.”
One industry analyst agrees merchant knowledge is the best defense against poor business decisions.
“High and unnecessary fees are nothing new,” Mary Winingham of Oshkosh, Wis.-based Mirror Consulting, tells PaymentsSource. “It is a commonly held belief that not only do merchants not understand the agreements they sign, but they don’t read or review their statements.”
As with any other service provider, merchants can contact the processor with questions about their monthly bill, and they likely would address, remove, refund or resolve conflicts in a manner that would keep the relationship strong, Winingham says.
“The industry as a whole doesn’t always come down on the side of fewer fees, but the merchant should become a wise consumer,” Winingham says.
Groups such as the National Retail Foundation and National Federation of Independent Business talk a great deal about credit card pricing focusing on interchange, but the bigger culprit may be fees, Winingham says.
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