ERR Pricing Format – what it is and why you don’t want it!

We’ve all heard the phrase ”if it sounds too good to be true, it probably is.” This as an apt descriptor of the ERR rate. ERR stands for “Enhanced Recover Reduced”, and was developed with two goals in mind:

1. to give one simple, low STATED rate to the merchant to gain their business
2. to thereafter extract as much possible profit through a confusing table of hidden surcharges

And it does just that; the ERR pricing system is the ultimate “bait and switch” in the credit card processing industry. Once you understand how an ERR rate works, you’ll understand why you want no part of it.

The ERR Rate

An ERR rate takes a flat discount off all transactions (this is what they will call a qualified rate or sometimes a target rate), and then tacks a surcharge on any card that does not meet a minimum profitability threshold for the processor at that stated qualified rate (explained further below).
The telltale sign that you are being quoted an ERR rate is the processor will tell you that “all of your transactions will be billed at ___%”. That is technically true…all transactions will all be billed at the quoted qualified rate. They just fail to mention that some or even all transactions may receive a surcharge on top of that qualified rate.

Therefore, you can state a qualified rate at or even below cost (and unscrupulous merchant account providers often will), and have it technically be true, as the term “qualified” is defined in this pricing scheme. Then come the surcharges.

How an ERR rate works

For both the below scenarios, lets say our merchant account provider quotes an ERR rate of 1.4%, with a minimum margin of 80 base points (.8%). For simplicity sake, we will ignore per transaction charges and just look at discount rates.

Example 1:

The merchant accepts a card for a transaction for $100, and the card clears as CPS/Rewards 1, with a 1.65% interchange rate. Here’s how that would appear on the merchants statement:
Visa Qualified: 1.4% x 100 = $1.40
Then later on in the statement, typically listed as “interchange charges”, the merchant would see:
VI Rewards 1: $1.05
How is this calculated? Here’s the math that goes on behind the scenes:
Interchange rate: 1.65%
Qualified rate: 1.4%
Margin: (-.25)%
Target Margin: .80%
Amount to be billed: 1.05% (or in this case, $1.05)

Example 2:

Lets say the same merchant then accepts a $100 transaction that clears as a CPS/Restaurant Debit, with an interchange rate of 1.19%. This would play out as follows:
Visa Qualified: 1.4% x 100 = $1.40
Then later on in the statement, typically listed as “interchange charges”, the merchant would see:
VI Restaurant Debit: $.59
And again, here’s the math that goes on behind the scenes:
Interchange rate: 1.19%
Qualified rate: 1.4%
Margin: .21%
Target Margin: .80%
Amount to be billed: $.59

Real world example – how it appears on a statement

Below is an excellent example of an ERR rate. This statement was a bit of a find as they are usually far less clear than this, but is perfect for demonstrating an ERR rate. Most statemetns are not nearly this explicit in showing thier percentage surcharges. This is an odd one as the standard “qualified rate” is a fairly high 1.8% to begin with. To keep this simple, we’ll just look at a few examples.


YELLOW: here you can see all Visa cards are coming through at either 1.5% if they are a check card, or 1.8% if they are a credit card.
Green: Visa Signature Preferred Electronic
Interchange Rate: 2.4%
Qualified rate: 1.8%
Surcharge 1.11%
Total Discount: 2.91%
Total Margin: .51%
Purple: Visa Corporate Electronic
Interchange Rate: 2.25%
Qualified rate: 1.8%
Surcharge: .96%
Total Discount: 2.76%
Total Margin: .51%
As we can see here, the minimum margin is .51%. Therefore, any card that clear that make .51% or greater at the qualified rate of 1.8% do not get a surcharge. Anything that makes less than .51% is hit with a surcharge in order to increase the profit for the credit card processor up to that amount.
Sneaky, isn’t it?

The ERR Rate Game

So as you can see, when you are dealing with an ERR rate, you really don’t know what your effective rate will be unless you know the target margin and the actual interchange rate. And count on these same merchant account providers to stick a hefty early termination fee in their contracts, so that once you realize what’s going on its already too late.
Call it an ERR rate, a blended rate, a bill back rate or whatever they will to keep up the confusion, it’s nothing more than a legal, contractually binding lie. There is no reason you cannot get a qualified rate of 0% on this system and still pay an astronomically high effective rate.

The Merchant Solutions Difference

Here at Merchant Solutions, we do not, unless specifically requested by the merchant, provide ERR rates. We don’t want your business for the next few years; we want your business for the life of your company. And we want your friends and collogues business, and theirs as well. And we earn this by providing clear pricing, full explanations of our rates, and back it up with exception service and seamless processing.
Contact us today at (866) 326-3480 or by emailing contact@merchantsolutionsllc.com

“Junk Fees” To Watch Out For On Your Merchant Account

Fees.
Admit it, you clamed up a little bit when you just read that. The word itself conjures up images of fat cat bankers rolling around in piles of your hard earned money, and dubious lawyers that bury clauses in fine print. A fee implies a penalty…money taken from you for no particular service rendered.
In merchant account services, just like any other businesses, there are of course costs involved. The vendor that provides such services has to cover their expenses and can be expected to make some small margin off the service they provide. Fees, however, are a different animal altogether.
At Merchant Solutions, we waive a variety of “fees” imposed by certain merchant account providers. These fees include but are not limited to:

• Application fee: would you believe some merchant account providers charge you to process the paperwork to even see if your eligible to work with them? This is common of setting up your processing account via a bank.

At Merchant Solutions, we don’t charge application fees.

• Set up or activation fees (or terminal download fee): another fee we’ll see from time to time some merchant account providers impose (again, often banks), are set up or activation fees. The only time such a fee makes sense is if you are using a third party service which imposes the fee – gateway set ups or wireless terminal files, for example. Otherwise, this is just another way for the processor to pad their pockets.

At Merchant Solutions, unless third party services are ordered (like a gateway or internet shopping cart, etc) there is $0 set up fee.

• Monthly minimum fees: Monthly minimum fees are often times the last thing on a merchants mind when they are establishing a processing account, but can come back to bite you in many ways. A monthly minimum fee is a surcharge imposed basically for not processing enough volume in a given month. This fee is imposed on top of any other fixed costs, such as a statement charge. Therefore, if a merchant has a $10 statement charge and a $25 monthly minimum and took 0 transactions in a given month, they’d be billed $35. First this is of course a major consideration for seasonal merchants or merchants that only run sporadic transactions. But even for regular processing merchants with a stable business, this could come back to bite you when you’re ready to reevaluate accounts in the future. In the previous example of a $10 statement fee and $25 monthly minimum, if you were to try to switch processors for lower rates or better service, you’re still on the hook for $35 per month to the old provider for the duration of your contract if they impose a minimum.

At Merchant Solutions, we provide a $0 monthly minimum.

• Annual Fees: an annual fee is there to put money in the processors pockets, period. At merchant solutions, we offer no annual fees for all merchants. The only exception would be when working with certain “high risk” business types for which we need to work with outside vendors as the only means to get the account approved (in which case the merchant will be notified prior to submission).

At Merchant Solutions, we provide a $0 annual fee.

• Early Termination Fees: its been said “if you love it, let it go”. And while that may be good poetry, we find it good business practice as well. If you’re in talks with a merchant account provider that needs to impose a significant cancelation fee in order to retain your business, you may want to consider the legitimacy of such a vendor.

At Merchant Solutions, we retain our clients business through excellent rates and unbeatable service, not fees or penalties. Therefore, we offer a $0 early termination fee.

In addiont to upfront fees to look out for, in our statement analysis we often find a number of what we refer to as “junk charges”. These are fees that merchant account providers will slide in over time in order to up their margins on your account. These include:

• Debit Access Fee: here is one I’ll regularly see in statements sent in for analysis. Typically this is a $5 or $10 surcharge to accept PIN debit. On the merchant account provider side, there is no such fee. Basically, they impose this to try to recoup some of the money they are losing by providing PIN debit, as the merchant account provider makes more on credit than debit transactions.

Merchant Solutions debit access fee is $0 – always has and always will be.

• IRS Reporting Fee: Here’s a new one I see popping up. I’ve see fees as high as $25 monthly. What is an “IRS Reporting Fee?” Another junk charge is all. A merchant account provider is required to keep a W9 for your business on file and electronically submit your processing volume to the IRS in Jan.

Merchant Solution’s IRS Reporting Fee – $0.

• Unnecessary Gateway fees: I’ve seen a number of merchants, particularly through one specific provider whom I will not here name, get charged a “Gateway Access Fee”. This is a monthly fee that can range from $10 to $150. And while a gateway fee can apply for merchants that actually need a gateway to process (to facilitate integrations such as with an Ecommerce shopping cart, point of sale or order management system), it is NEVER needed by a merchant with a standalone terminal. If you have a standalone terminal and there is even a penny of “gateway fees” on your statement, that’s simply a bogus charge.

• “Additional Charges”: this is another one I see from one specific processor all the time. At the end of the statement, there will be a “Summary of Misc fees” which include statement fees, batch fees, and other legitimate charges. Then the last line item will say “**Additional Fees” and have a flat amount next to it, and a number to call if you would like an explanation of these fees. The only thing I can think when I see that is “seriously?”

At Merchant Solutions, there are no non-enumerated fees; our “additional fees” = $0

• PCI non-compliance fee: This one is a bit tricky…not sure I want to call this a “junk fee” but do want to address it as I see way too many merchants paying this. As well, this is not to be confused with a “PCI Maintenance fee” or “Regulator Compliance fee”, which are both legitimate charges as long as they are nominal (basically, if they aren’t charging it separate, they are making up for it somewhere else on the statement). A PCI non-compliance fee is different, and there are several reasons you can receive such a fee. This could be that you are using a non-PCI compliant terminal, a non-supported integration into a payment system, or that you have not completed the self assessment questionnaire (PCI SAQ). The reason I list this as a “junk fee” is it is completely unnecessary – at Merchant Solutions, we only work with PCI compliant equipment and systems, and can ensure you maintain PCI compliance, and will continually monitor and automatically notify any merchant that falls out of compliance, not just stick a surcharge on their statement.

• Duplicate transaction charges: This one often takes a trained eye to spot, and is a particularly dubious trick. In this set up, a merchant is charged multiple times for the same thing, thus rendering one of the two a “junk charge”. Here’s how it works. A merchant account provider quotes a merchant a per transaction charge lets say, for arguments sake, of $.10. The statement, however, will show a $.10 per transaction charge, then later down the statement, a duplicate $.10 per authorization charge. This has become increasingly common. Sometimes this duplicate authorization charge is hidden in a line item that says “Assessments / Network Trans Fee”. Unless you knew to net off volume x .11% and then divide the remaining amount by the number of transactions ran, you’d never know that fee was hidden in there.

At Merchant Solutions, we charge a simple flat, clearly stated per transaction fee, with no separate hidden per authorization fees.

If you’re interested in learning more about processing your transactions via Merchant Solutions, or if you are currently processing and would like a review of your statement or contract for “junk fees” that can readily be eliminated, don’t hesitate to reach out to us. Our contact information is below, and our knowledgeable staff will be more than happy to provide a fair, honest, and thorough analysis of your processing situation.
Request a return call or email: http://www.merchantsolutionsllc.com/contact/
Merchant Solutions, LLC
12 North Main St
Suite 44
West Hartford, CT 06107
Phone: 866.326.3480
Email: contact@merchantsolutionsllc.com

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