Bundled vs. Pass-Through Merchant Account Arrangements

 

Understanding a merchant statement or payment processing report can be challenging.  Unfortunately, there is no common standard for presenting the myriad of potential fees applicable to merchants.  In an effort to simplify fee structures, many processors advertise a “bundled rate,” whereby all of the applicable fees are rolled-up into a single, simple percentage rate euphemistically called a “discount.”  Regrettably, there are many disadvantages to this type of fee arrangement.

 

In many cases, these arrangements simply fail to meet the promise of simplicity.  What’s more, bundled rates tend to obfuscate fee details which may be important to merchants.  In the worst case, bundled agreements include additional fees, which are completely invisible to the merchant.  The purpose of this document is point out the potential pitfalls associated with such billing arrangements.  In particular, we will examine some common billing practices related to the processing of the two most common credit and debit card brands, Visa^® and MasterCard^®.

 

 

TABLE OF CONTENTS

 

1.     Agreeing to a Bundled Discount Rate

 

2.     Agreeing to Tiered Discount Rates and Downgrades

 

3. Tacking-on Fixed Transaction Fees

 

4.     The Natural Trend Toward Higher Average Ticket Values

 

5.     Agreeing to Forego Returned Interchange on Refunds

 

6.     Missing-out on Lower Debit Card Rates

 

7.     Fee Increases & Ancillary Charges

 

8.      Missing Interchange Savings Opportunities

 

9.      The Virtues of the Pass-Through Fee Arrangement