Square charges merchants a flat 2.75% for credit card processing. This rate is much higher than what larger restaurants should pay, since interchange is around 1.8%. Yet we find larger merchants increasingly considering Square’s POS, even though feature parity is nonexistent.

Why would any sane person do this?

Because their current processor adds so many fees that the merchant’s effective rate is above the outrageous 2.75%.

For a business that does $1MM a year in card volume, processing costs are material. A 1% increase is a $10,000 hit to your profits. How is it that merchants with interchange rates of 1.8% end up with 2.5%, 3.0%, and even higher effective rates?

Greed.

The merchant acquiring industry has a less than stellar reputation. Many view their services as a necessary evil and not all that valuable, especially in comparison with the amount of money they rake in. Some processors are better than others, but when processors present monthly statements with fees that nobody can reconcile, its no wonder the industry has earned such a bad rap.

One has to wonder if every payments provider is truly worthy of this reputation, or if it’s the case of a few bad apples ruining it for everyone. Those bad apples would have to be really bad to cast such a pall over the entire industry if so. Is such a thing even possible?

Below are some such processing statements we’ve gotten directly from merchants. These statements happen to belong to Vantiv, now Wordlpay. We asked Worldpay for help in understanding both the line item fees and the general practices we’ll discuss below. Not only did Worldpay refuse to comment – though they disputed the article – they told us that if we publish these statements and the content does damage to Vantiv or its shareholders they will “not hesitate to take action and in that regard reserve all their legal rights.” Ironically this is the same behavior shown in the below statements and why we sought Vantiv’s input in the first place!

This statement contains fees that neither we nor other payments professionals understand. We provided Vantiv with an opportunity to help clarify these comments but they refused.

  1. FEE #1: Chargeback Service Fee T2. This $10.00 fee is technically impossible because the merchant never processed that month. How does Vantiv get this?
  2. FEE #2: Discount Adjustment. It looks like this fee is intended to penalize the merchant for not being on daily discount. A daily discount is when a merchant’s funds are withdrawn by the processor on a daily basis. Few people do it daily because of the accounting headache, and this merchant is a restaurant, which obviates the need for daily pay outs to the processor since their risk is lower.
  3. FEE #3: Monthly Maintenance Fee. We don’t know what this is but it is very high at $199 per month.
  4. FEE #4 : Omnishield Assure. This appears to be a markup of Trustwave’s PCI program that is being private labeled by Vantiv. First Data charges $24 per year for, presumably, the same PCI service. Is there something else Vantiv is including to justify this price increase?
  5. FEE #5: PCI Non-Validation. If you buy Vantiv’s Omnishield Assue, shouldn’t you be covered for PCI validation? Vantiv even says this on their website: “Vantiv OmniShield Assure is your credit card payment security SWAT team offering EMV assurance, PCI compliance and breach assistance and point-to-point encryption.” This makes no sense to us.

The below fees are considered normal industry practice, though processors often pass these along to the merchant with a markup.

  1. Signature Merchant Location Fee. Mastercard assesses this fee. Vantiv is passing along the fee without markup.
  2. Statement Fee. There’s no markup on this fee.
  3. Vantiv Bizshield – This allows a merchant to monitor the reputation of their business and is a real product. This is the solution Womply is providing in a white label. The merchant doesn’t recall turning this service on, however.
  4. Visa FANF Fee. Visa assesses this fee based on SIC code, number of locations, and processing volume. Vantiv is not adding a markup.
  5. Minimum Billing Adjustment. Technically this fee doesn’t exist but it’s like the minimum fee a merchant acquirer adds for the cost of doing business. Typical fees are around $25 a month. If the merchant account activity does not generate the monthly minimum the account holder is automatically charged the difference.

If a merchant gets tired of paying these fees they look for the door. Vantiv’s agreements stipulate a hefty early termination fee (ETF) as merchants usually sign 3-year contracts. That language is below:

Merchants either pay the greater of $495 or the number of months remaining on 3-year agreement multiplied by Vantiv’s average monthly fee (which strongly appears is being padded heavily with questionable items).

Vantiv also gives themselves another out: “You are responsible for any collection fees, legal fees, and other expenses we incur in recovering your delinquent amounts.” Other merchant acquirers shared that turning off their processing services was a very easy task, and certainly not something that merits additional fees.

So how are these fees calculated and are they reasonable? Just ask a merchant who does $600K in annual processing who got this below collection notice asking for $26,000!

We wanted to learn just how widespread these sorts of actions were. So we sought out legal experts who have been dealing with these issues for years. What we heard was nothing short of astounding.

“What Vantiv is doing is clearly and legally extortion. These punitive measures are in violation of many states’ laws on the matter. Despite hundreds of merchants experiencing collections notices of this type, Vantiv routinely plays dumb and refuses to acknowledge simple inquiries regarding how they compute their fees or how they may have been overcharging merchants certain processing fees,” shares one of the sources.

Another source said, “It’s not just Vantiv. WorldPay was also a huge believer of these aggressive cancellation practices. The merger was frankly a marriage made in heaven – you couldn’t get closer cultural alignment if you tried! These two were the worst offenders we have ever seen.”

Why would Vantiv take this approach when other processors seemed to disavow the position? “Coercing merchants into staying with you can be big business. The Vantiv investor presentation from 2015 [copied below] brags about high retention rates and long term contracts. As if the strong-armed merchants actually appreciate Vantiv’s value proposition. To date I don’t think anyone has bothered to legally push back and challenge how Vantiv categorizes merchants that no longer process payments, but are subject to liquidated damage calculations on phantom volume/charges, either ongoing monthly charges or accelerated charges (the last 14 months of K all added up). My belief is that Vantiv knows it is stretching legal and common sense boundaries here – and that is one main reason they rarely file suit to ‘collect’ on these penalties.”

That’s a serious allegation.

“A better slide would be: ‘We have great retention by gunpoint and in the event merchants leave we still label them alive and well because we hammer them with arbitrary processing fees.’ Because the reality is many merchants will stay with Vanvit out of fear of these arbitrary damages presented to them on a law firm’s header. I’ve seen some merchants ‘settle’ with Vantiv for amounts that are eye-wateringly large.”

What did these sources recommend merchants do?

“In time these tactics should be legally challenged and our industry experts tell us some lawyers are exploring this challenge. For now, merchants shouldn’t be afraid to push back and dispute arbitrary fees that were not disclosed. It’s possible a group of merchants can even push back in a mass action, like recent actions against other high profile processors.”

Perhaps there are some great explanations for Vantiv’s policies, even if other processors and our confidential sources disagree. But it sure makes you wonder when Vantiv refuses to defend these matters publicly. And it’s a shame because there are some great efforts under Vantiv’s umbrella – like Jim Roddy’s work with the channel which is nothing short of altruistic – that are quickly forgotten when you see things like this.

As Warren Buffett famously said, “It takes 20 years to build a reputation and five minutes to ruin it.”