Not too long ago, CardFellow posted an evaluation of Costco merchant accounts that found Costco’s service to be very disappointing. Undeterred, I decided to take a look at the merchant services offered by Sam’s Club to see if Costco’s big-box competitor fares any better. As it turns out, Sam’s Club Merchant Services uses the same bait-and-switch tactics and opaque pricing as its rival Costco.
Sam’s Club partnered with First Data (now Fiserv) to offer credit card processing services. There is nothing wrong with that, especially since First Data is the largest processor in the United States, and many companies resell their services. As I’ve outlined below, the problem is with virtually every other aspect of Sam’s Club merchant services.
The first downfall of Sam’s Club Merchant Services is that it uses tiered pricing. In the past, the company posted pricing on its website, boasting an “exclusive low rate” below the cost of interchange. It’s worth looking closer when any processing company promises rates that are less than wholesale – that means they would lose money every time they processed a transaction!
Bait-and-Switch: Rates Too Good to Be True
Sam’s Club attempts to lure customers to sign up for merchant services by offering low rates that seem too good to be true. In the past, the company prominently displayed rates of 1.49% – lower than the cost of most interchange categories. Fine print explained that the rate would only apply to certain transactions.
Typically, that means processors will choose only the lowest cost transactions to “qualify” for that rate. All other transactions will be charged according to higher rates at the processor’s discretion.
As directed by the fine print, I contacted Sam’s Club via live chat to inquire about additional rates and fees. A transcript of the conversation is below. The content of the conversation has not been edited, and only the representative’s name has been changed.
Where can I find information regarding non-qualified rates?
qualified and unqualified on specifics factors
please tell me about your business
and I can provide that info
there is no specific place you can view rates and fees aside from here on on an application
I manage an auto parts store.
…generally used parts.
ok so you will be doing face to face processing w/ avg ticket below $340 correct?
ok just a sec for the pricing info
By the way, my name is (snip). You may want to jot down my contact info for future reference. I will be your Account Executive going forward: (snip).
I will be your Account Executive (responsible for saving our conversation and future questions and setup needs). Please provide your business name and a contact number so that I can save a record of your discussion for your reference so that you don’t have to start over with a new rep. (and your sams club membership# if handy)
I’d rather just learn about your rates.
no prob, in order to create a record and obtain those rates, I have to save our conversation for future reference. can you atleast provide a business name to save things under?
RETAIL CARD SWIPE SETUP:
Visa/MC/Discover Credit Rate & Transaction Fee: 1.49% + $0.20
American Express (Amex) Rate & Transaction Fee: 2.89% + $0.15 (Optional)
PIN Based Debit & Signature Debit: 1.29% + $0.20
Batch Settlement Fee: $0.00 per batch (regular price $.39)
Yearly PCI compliance Fee: $39.95 (regular price $94.75)
Monthly Service Fee: Waived (regular price $7.95)
Statement Fee: Waived (regular price $5.95)
Application Fee: Waived (regular price $99)
Plus Membership Fee: Waived (regular price $100 + free annual renewals)
non qual (rewards, corporate, keyed) surcharge 1.49%
According to the Sam’s Club representative, the surcharge for non-qualified transactions costs 1.49%. That means that Sam’s Club will charge any credit card transaction that it considers “non-qualified” at a rate of 2.98%. (1.49% qualified + 1.49% non-qualified).
There is a big difference between the 1.49% rate that Sam’s Club Merchant Services advertises, and the 2.98% rate that they actually charge on many transactions.
While the rates change over time, this clearly indicates that there are more charges than mentioned upfront.
The absolute lowest traditional interchange rate that Visa currently charges is 1.51% for basic consumer credit card transactions. Sam’s Club Merchant Services has no choice but to consider the majority of transactions non-qualified or the company stands to lose money on every merchant account it issues. That means that you’ll pay more and Sam’s Club will make more.
Sam’s Club Merchant Services Equipment Leasing
Both Sam’s Club and Fiserv make quite a bit of money at the expense of small businesses by leasing credit card processing equipment.
Leases are frowned upon here at CardFellow because they are expensive and offer little benefit to businesses. In fact, processors in our marketplace sign a legal agreement that specifically bans the practice of leasing equipment.
My conversation with the Sam’s Club sales representative proves that leasing is not in a business’s best interest. Sam’s Club would be providing a much better service for its members by advising them to purchase equipment rather than leasing.
My live chat with the Sam’s Club representative picks back up with equipment information.
The machine and pin pad can be leased for $33.79/month. When leasing, the equipment is under full warranty for 48 months and tax deductible annually.
The package includes:
FD-100 Terminal with 4 year warranty
FD-30 Debit PIN Pad (with stand) with counter stand and contactless payment ability with 4 year warranty
Priority Customer Service Line for Payment Essential Customers including a Personal Chargeback Concierge
Online reporting for credit/debit and gift cards
Access to Merchantinsider.com online community
Free Overnight shipping.
There are two very big problems with Sam’s Club pushing equipment leases. The first and most obvious issue is cost. The representative said the cost to lease a machine and PIN pad is $33.79 a month for 48-months. That’s a total cost $1,621.92 for equipment that processors regularly offer in CardFellow’s marketplace for just $195 (terminal & PIN pad). That’s a difference of $1,426.92!
The second problem with Sam’s Club lease is that the company is offering proprietary equipment that only operates on Fiserv’s network. Any business that leases equipment from Sam’s Club will be stuck processing with them for the duration of the four-year lease term. The only other option is to buy new equipment that is compatible with another processor while still paying Sam’s Club and Fiserv a monthly lease payment of $33.79 for equipment that is not being used.
The final pitfall of Sam’s Club merchant services is the three-year contract term and $90 cancellation. Sam’s Club does not disclose the cancellation fee on its Web site. It wasn’t until I specifically asked about a merchant account cancellation fee in the following conversation via live chat that I was told about the $90 penalty.
What is the contract term and early termination penalty?
The agreement 36 months, $90 cancellation fee. The trail (supposed to read: trial) lets you cancel under 90 days without the cancellation fee. I didn’t get a chance to ask, how soon are you looking to be up and running?
Sam’s Club is a great place to buy bulk groceries, but the company offers poor credit card processing services. You will be much better off using a service like CardFellow to get instant, competitive quotes that are based on interchange plus pricing, and that don’t have cancellation fees or equipment leases.