Credit Card Processing Refunds: Is Your Processor Stealing Your Money?
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
- Bundled Pricing Allows Processors to Easily Intercept Refunds
- Pass Through Pricing: Patching the Leak
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 fees being returned 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.
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, and your statement probably looks something like the one below.
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.
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.
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 and determine if you're receiving the interchange credits owed to you and your business. 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, and we 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.