Exposing Shysters: Credit Card Processing Bait-and-Switch

Credit card processing rates too good to be true

Knowing how to spot bait-and-switch pricing will save time and money.

Some credit card processors play the old bait-and-switch game of advertising rates that seem too good to be true. Spotting these shysters is easier said than done because they will in fact honor the low rates they advertise. Processors that use bait-and-switch aren't blatantly lying; instead, they're tactfully omitting some important details.

Exposing rates that are too good to be true starts with an understanding of interchange. Interchange is a system of guidelines, rates and fees used equally by all credit card processors to determine the cost of a transaction. Since it's consistent among all processors, it's helpful to think of interchange fees as the credit card processing industry's equivalent to wholesale prices.

Interchange fees are the bottom line in credit card processing, and no processor that wishes to remain profitable can offer a lower rate than what is listed on Visa and MasterCard's interchange fee schedules.

Find the bottom, and go from there

Visa and MasterCard publish a portion of their interchange fees online, making it pretty easy to see what the lowest rates really are. Here are two screenshots taken from Visa and MasterCard's interchange fee schedules. Each image shows the rate that applies to a transaction involving a swiped consumer credit card. These two rates represent the lowest attainable credit card processing rates for the vast majority of businesses.

Visa Credit Interchange

MasterCard Credit Interchange

As you can see, the lowest Visa credit card rate is 1.51% plus a $0.10 credit card transaction fee, and the lowest MasterCard rate is 1.58% plus a $0.10 transaction fee.

What's being advertised?

I typed the term "credit card processing" into Google's search bar, and then took screenshots of a few ads that appeared in the search results.

Example of bait-and-switch #2

Example of bait-and-switch #3

We're not too fond of bait-and-switch advertising here at CardFellow, so I blurred the names of these companies to protect the guilty.

How could processors realistically advertise rates of 1.03% and 1.05% when we've established that the lowest credit card rates charged by Visa and MasterCard are 1.51% and 1.58%, respectively? What these ads fail to mention is that the low advertised rate will only apply to debit card transactions that have a lower interchange fee. The advertised rate will not apply to credit card transactions.

The credit / debit switch

Visa and MasterCard have lower interchange fees for debit cards than they do for credit cards. As you can see from the following screenshots, Visa charges 0.05% plus $0.21 for Durbin regulated debit card transactions, and 0.95% plus $0.20 for unregulated transactions. MasterCard charges the same 0.05% plus $0.21 for regulated transactions, and 1.05% plus %0.15 for unregulated transactions.

Visa debit interchange

MasterCard debit interchange

How processors do it

Tiered pricing is a credit card processing pricing model that allows processors to set their own rates, and then route interchange categories however they choose. Tiered pricing is what makes it possible for processors to advertise a rate that is too good to be true.

Tiered pricing makes it possible for processors to manipulate interchange fees behind the scenes. Instead of passing interchange fees to merchants, processors create their own set of tiered rates called qualified, mid-qualified and non-qualified. They then pick and choose which interchange fees to place in each tier.

For example, this table shows what a typical bait-and-switch tiered pricing quote may look:

Pricing Tier Rate Transaction Fee Interchange Category
Qualified 1.05% $0.25 Swiped debit cards only
Mid-Qualified 1.95% $0.25 Keyed debit, consumer credit, reward credit, etc.
Non-Qualified 2.95% $0.25 Keyed credit, business credit, high value credit, etc.

By bundling interchange fees into generic pricing tiers, processor get can route transaction however they choose. They are able to advertise rates lower than what it actually costs to process a credit card transaction because the advertised rate will only apply to less expensive debit card transactions.

How to avoid being had

Tiered pricing is what makes bait-and-switch rates possible. Eliminating tiered pricing stops the problem at its source. Whether your business is currently accepting credit cards, or you're shopping for credit card processing services, be sure to consider only those processors that offer interchange plus pricing.

Interchange plus is the only type of pricing that we allow processors to quote here at CardFellow because it has the potential to be relatively inexpensive, and is far more transparent than tiered pricing.

Bait-and-switch is everywhere

While I was looking around for examples of bait-and-switch rates, I took note of a few popular Web sites that allow processors to advertise in the manner. These examples serve as a reminder that you need to be wary of any advertised rates, even if they're published on a Web site that you trust.

Merchant Account Guide
MerchantAccountGuide [dot] com is a Web site that posts a general table that arbitrarily lists credit card processors they are affiliate with. As you can see from this screenshot, they have no safeguards in place to guard against bait-and-switch pricing.

The asterisk after every rate and fee is small print that simply says:

"See Retail Merchant Accounts Applications for details about terms and conditions of offers. Reasonable efforts are made to maintain accurate information. However all credit card information is presented without warranty. When you click on the "Apply Here" button you can review the credit card terms and conditions on the credit card issuer's web site."


TopTenREVIEWS is another Web site that posts a static "comparison" table of vague rates and fees from various processors they're affiliated with. I'm not quite sure what to make of the rates they advertise. It almost looks like a weird combination of interchange plus and tiered rates.


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2 Responses to Exposing Shysters: Credit Card Processing Bait-and-Switch

  1. Richard says:

    A couple things should be made clear; processors see none of the interchange that all goes to the banks. The processors/ISOs get only what is above that. Additionally the average ISO makes about 25 basis points (0.25%) above interchange with interchange plus. On an account processing $10,000/month, the processor makes only $25.00! Don’t expect wonderful service, etc. when margins are that slim. Don’t deal with “1.05%” scam artists, but don’t nickel and dime your processor. Expect to get good service for a decent profit margin, like with any business.

    • Ben says:

      Hi Richard,

      You’re absolutely correct that merchant services providers do not see income from interchange fees (paid to issuing banks), or from assessments paid to the card brands (Visa, MasterCard, Discover).

      CardFellow requires processors to quote exclusively interchange plus pricing, and our platform operates in such a way that processors offer the best rates first. Even new low volume businesses can expect quotes that are more competitive than the 25 basis points you’ve indicated.

      Not only do we expect the processors in our marketplace to provide exceptional ongoing service along with competitive pricing – CardFellow guarantees it. CardFellow provides free statement monitoring and audits for life.

      Regarding the profit margin – CardFellow does not charge processors upfront costs to join our marketplace or to place quotes, and the commission processors pay CardFellow is a fraction of the industry standard. The result is that our processing partners are able to offer far more competitive rates and fees through CardFellow than anywhere else.

      CardFellow’s goal is to ensure businesses receive only the most competitive, honest pricing matched with unparallel service.

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