Credit Card Processing

Credit Card Processing Refunds: Is Your Processor Stealing Your Money?

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If your business has bundled credit card processing fees your processor is pocketing your fee credits every time you issue a debit or credit card refund. If you’re in an industry that regularly accepts returns and issues refunds (like clothing and shoe stores, general merchandise retailers, electronics stores, and more) this affects you.

Luckily, plugging the cash flow leak is possible by getting interchange pass through pricing instead of bundled and knowing what to look for.

You don’t have to worry about losing money on credit card refunds if you found your processor here at CardFellow. We don’t allow processors to structure pricing in such a way that allows for this hidden charge, and we require your refunds to be passed on to you. If you aren’t a current CardFellow client and want to know if your processor is pocketing your credits, sign up for a free account and contact us for assistance.


Interchange Charges & Credits

Visa and MasterCard use interchange fees to determine how much you pay an issuing bank each time you accept a credit or debit card transaction. Interchange is also used to determine how much money you get back on your processing fees when a customer returns the product she purchased.

You should be able see the evidence of returned fees  in the form of interchange credits on your monthly credit card processing statement. Interchange credits will look similar to the way they’re shown on this sample taken from a business we recently helped here at CardFellow.

Interchange Credits

In this snippet, the client is receiving credit for the fees they paid on transactions that they refund. By receiving interchange credits, this one section shows a savings of $27.39 for the business. For clothing and shoe stores, processing refunds regularly, the numbers could be much higher. If you don’t you see any credits on your statement, and you know you issued refunds during the month; your processor is pocketing your fee credits and you’re losing money.

Note that not all statements label interchange credits the same way. Be sure to look for abbreviations and variations of the words.

Related Article: How to Read a Credit Card Processing Statement.


Bundled Pricing Allows Processors to Easily Intercept Refunds

If you’re not receiving credits, your processor may be using a bundled pricing scheme. If so, your statement probably looks something like the one below.

Bundled Pricing

This is a sample statement from another business that we helped. Before finding CardFellow, this business’s processor was using bundled pricing, and as you can see, there’s very little detail on the statement.

On a bundled pricing model the processor essentially pays interchange fees on behalf of the business. However, they then charge the ambiguous qualified, mid-qualified, and non-qualified rates. In effect, bundled pricing positions the processor between interchange and the businesses they serve, giving them power over your money.

Interestingly, this position also makes it possible for a processor to intercept interchange credits rather than passing them along to you. The illustration below shows you the flow of interchange charges and credits.

interchange credits flowchart
In this illustration, we see that the processor (in the middle) pays interchange to the banks/card brands on behalf of the business, and charges the business arbitrary rates and fees. (The red lines.) When a refund occurs, the processor receives interchange credits. However, the processor isn’t obligated to pass those credits to the business, and pockets your money.

Related Article: Top 3 Hidden Fees of Credit Card Processing.


Pass Through Pricing: Patching the Refund Leak

It’s much easier to see if you’re receiving interchange credits on refunds if you work with a processor that offers interchange pass through pricing. Unlike bundled pricing, pass-through pricing allows interchange charges and refunds to flow directly to your business.

The processor sits on the sidelines and makes money by charging a low, fixed percentage and transaction fee instead of general qualified, mid-qualified and non-qualified rates which bundle everything together.

The following illustration shows you how interchange pass-through functions. As you can see, the processor isn’t sitting in the middle of everything manipulating fees and intercepting credits.

credit card processing fee refunds chart

In this example, the interchange credits can return to the business when processing refunds. If you process a lot of returns at your store, making sure you’re recouping the costs you paid on the transaction is crucial for your bottom line. Take a close look at your processing statement. Are you receiving the interchange credits owed to you? If you’re not, consider switching processors to one that will pass along your rightful refund money.

If you’re in the market for a new credit card processor, sign up for free here at CardFellow and receive multiple interchange pass through quotes instantly. We’ll also help you choose the best processor from the offers that you receive. Best of all, we require (through a legal agreement) that processors in our marketplace pass along your interchange credits. We even monitor your statements to make sure they do. You’ll never have to worry that your processor is pocketing money that rightfully belongs to you.

 

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Ben Dwyer

BY Ben Dwyer

Ben Dwyer began his career in the processing industry in 2003 on the sales floor for a Connecticut‐based processor. As he learned more about the inner‐workings of the industry, rampant unethical practices, and lack of assistance available to businesses, he cut ties with his employer and started a blog where he could post accurate information about credit card processing.As the blog gained in popularity, Ben began directly assisting merchants in their search for a processor. Ben believes in empowering businesses by providing access to fair, competitive pricing, accurate information, and continued support. His dedication to transparency and education has made CardFellow a staunch small business advocate in the credit card processing industry.

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4 COMMENTS

  1. from J. Sullivan, on April 20, 2018 15:32:51

    I have a property that I advertise on the Homeaway site; they now charge me a credit card fee on the funds charged to the guest, and when I refund the deposit they charge me a fee to refund the money. Is this legal? I am in San Diego California. BTW I hate this site, but it is one of only two that are in existence.

    • from Ellen Cunningham, on April 23, 2018 09:37:59

      California is a bit up in the air right now on surcharging and convenience fees. I’d suggest contacting your state attorney general for the most up to date info.

  2. from Enablepay Direct, on September 19, 2011 17:04:07

    CardFellow has accurately described how the typical card processor keeps the interchange refund, but there is an even more insidious charge … the processor usually hits the merchant for a similar “rate” on the return!

    So, they actually double-dip on your return … they keep the interchange that comes back (plus their original surcharge over the actual interchange rate!), and then also charge something similar for the return.

    So, imagine you mistakenly run a $10,000 transaction that should have been $100. When you do the return, they keep the interchange AND the non-qualified surcharge on the original $10,000 mistake (that could be as much as 4% of $10k, or $400), and then they charge you the non-qualified surcharge (maybe even more!) on the amount of the return (let’s say 2% of $10k, or $200). That’s a $600 windfall to the processor, when it should have been a non-event (other than the front-end authorization fees, which would be around 8 cents for the original transaction + 8 cents for the return).

    • from Ben, on September 19, 2011 17:57:00

      This is a good/accurate point. Unfortunately, another downside of tiered pricing opposed to interchange plus is that processors often apply a discount on returns. The result, as noted above, is that businesses are charged for the original transaction and then again when it’s returned. Such poor pricing virtually guarantees a (potentially large) loss on any returns.

      I should note that Enablepay Direct participates in CardFellow’s marketplace, and they have a proven outstanding track record. Comments with plugs are normally edited prior to approval or posting.