Sam’s Club Merchant Account Services – Buyer Beware!
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 uses the same bait-and-switch tactics and opaque pricing as its rival Costco.
Sam's Club has partnered with First Data 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 First Data's 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 small business credit card processing service is that it uses tiered pricing. Below is a screen shot taken from the Sam's Club Web site, where the company claims to offer "an exclusive low rate" to its members.
There are three problems with this offer: the rate isn't exclusive, the rate isn't fully-disclosed, and the rate is too good to be true.
Tiered pricing allows processors to circumvent interchange fees to offer whatever rates they choose. For example Costco, the closest competitor of Sam's Club, is offering its members a slightly lower rate of 1.48%, but both of these rates are misleading.
Bait-and-Switch: Rates Too Good to Be True
Sam's Club is luring customers to its merchant services by offering a 1.49% processing rate that is too good to be true. As we can see from the following screen shot taken from a Sam's Club Merchant Payment Processing flyer, the 1.49% rate only applies to certain transactions. We must contact a representative to learn about additional undisclosed rates.
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 veiw 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%
To be continued in a moment...
According to the Sam's Club representative, the surcharge for non-qualified transactions is 1.49%. That means that any credit card transaction that Sam's Club considers non-qualified will be charged 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 advertises, and the 2.98% rate that they actually charge on many transactions.
The absolute lowest traditional interchange rate that Visa currently charges is 1.51% for basic consumer credit card transactions. Sam's Club 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.
Sam's Club and First Data 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 are required to 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 First Data's network. Any business that leases equipment from Sam's Club will be stuck processing with First Data 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 First Data 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.