For decades, merchants have signed agreements that force them to blindly trust their payment processors, to a degree they would tolerate in practically no other business relationship.
What kind of trust? Billing reports spell out how many customers of each kind were charged—at different rates—but there is an absence of verifiable data. If the processor reports that 4,867 transactions were of the highest charge kind of card, how do you know that's true? Did the processor share specific details that would allow you to spot-check them?
This trust opens up far too many opportunities for merchants to be ripped off. Consider a recent lawsuit accusing Mercury Payment Systems of just this kind of abuse.
"For years, Mercury has carried out a widespread and systematic fraud on its client base of small and medium-sized merchants. Without notice to merchants, Mercury has been surreptitiously and gradually inflating certain fees imposed by the Visa and Mastercard card associations, over which Mercury has no lawful control and which merchants expect to pay at cost, reaping tens or hundreds of millions of dollars in ill-gotten gains," the filing from merchant plaintiff Champs Sports Bar & Grill said. "A credit card has a slightly higher interchange rate than a debit card and a credit card with a rewards program has a slightly higher interchange rate than a credit card without such a program. However, all interchange rates are standardized, such that all merchant acquirers and processors, like Mercury, must collect these fees at the same rates. No merchant acquirer or processor has the authority to increase or decrease these rates. During the Class Period, Mercury has inflated both access fees and interchange fees without notifying Plaintiffs and the other Class members that it had done so. The amount of inflation added to access fees by Mercury ranged from 1 cent per transaction to as much as 4 cents per transaction. The amount of inflation added to interchange rates varies by card type but amounts to hundreds or thousands of dollars in overcharges, depending on card type."
But the lawsuit's accusations weren't limited to inflating access and interchange fees. "Mercury imposes unwarranted junk fees that no Plaintiff agreed to pay. Using deceptive language, Mercury describes these fees as having been required by third parties, when, in fact, Mercury alone is responsible for their existence and Mercury alone retains the revenues generated by them," the lawsuit said. "These fees include monthly maintenance fees, regulatory compliance fees, and PCI fees. These fees amount to at least $40 per month per merchant, resulting in massive windfall gains for Mercury."
There is no argument that payments pricing is complicated. But if that complexity creates opportunity for fraud or profiteering, then checks and balances must be put in place.
"Merchants big and small don't understand their pricing. There are so many things that can be added in via passthroughs from third parties," said payments attorney Theodore Monroe. "It's the way it's always been."
But even without verifiable data to spot-check, merchants can get wise to these unfortunate practices. For example, "when merchants switches from processor A to processor B with the same pricing and your pricing suddenly goes up — or down — 10%," Monroe said.
Retailers can try to change their processor contract — if they have sufficient negotiating clout to do so. And class-action litigation is also a possibility, if enough merchants in a similar situation will cooperate.
Monroe argues that not all hidden fees are malicious and it sometimes is simply the nature of payments. "You may see fees for things that you have no knowledge of. It might be a fee that has been imposed on your bank or a Visa fee relating to some processing fee you may be unaware of," he said. "This business is based on trust. Sometimes, processors abuse that trust."
It can also be a good idea to bring in a payments specialist — and, yes, Monroe's firm does this as a service — to examine several merchant statements and delve into fees as deeply as practical.