Is Your Credit Card Processor Keeping Your Rebates?

Is your credit card processor keeping your rebates? Most likely, yes. I would say 95% or more of you are not getting your rebates. Now, if you are Walmart or one of the other largest retailers, you are probably okay. But, for the rest of you, read on… 

If you have a low discount rate, let’s say .05% or less, you are at very high risk of your rebates being kept. With the lack of regulation in this industry, there are many ways to overbill a merchant. Think of it like going to the grocery store, and you tell the store manager you are not going to shop there anymore because the price of milk is too high. If the manager came out of the credit card processing business, he would say, “no problem” and mark that milk down to be the cheapest in town. However, everything else in the store would get a price increase. 

Merchants become obsessed with getting a low discount rate and never bother to learn about the other hundred ways a credit card processor can overbill them. To learn more about that, make sure you check out:  How Can I Have The Lowest Discount Rate and The Worst Deal?   

Let’s start with Interchange Rebates: 

When merchants post refunds, the processing networks (Visa, Mastercard, and Discover) return the Interchange to the processor.

The merchant below had $5,730.70 in returns, and the processor properly credits the merchant the 2.21% Interchange Rebate, also called a Credit Voucher in this example.

However, because processors know most merchants don’t know they are supposed to receive this rebate, they most often just keep it!

While this is not a major issue for companies with little to no returns, it can add up to tens of thousands of dollars for merchants that post a lot of credits or have high number of returns.                    

We can’t show you what a statement looks like that is missing returns/credit vouchers because, logically, they just aren’t there; however, this example shows you what you should see if you post credits and issue refunds. 

Keeping Your Debit Rebates 

The Durbin Swipe Fee Amendment requires* issuing banks** to reduce the Interchange fee to 0.05%*** to the processor. However, there’s nothing in the law that actually requires the lower fees get passed on to the merchant. I wrote an article on this for Credit Today titled, “Is This A Major Screw-up Or Cover-up?” Why pass a law to make the issuing bank lower their fees to the credit card processor, but not require the processor to pass those lower fees on to the merchant? 

Let me break this down a little plainer. I’m not specifically picking on Chase Bank, but I will use them in this example. Chase Bank (who is the card issuer and receives the interchange fees) has to lower their interchange fees to Chase Paymentech (their credit card processing division) – aka “the processor.” However, Chase Paymentech is not required to pass the lower interchange fee onto the merchant. 

Therefore, what really changed? Well, the issuer (Chase Bank) makes less, but Chase Paymentech (the processor) makes more! That is, unless they decide out of the goodness of their heart, to pass the lower interchange fees to the merchant. Again, if they want to, not because they are required.

At this point, most merchants are at least somewhat aware of this law; however, it can be time consuming to go through every line item on your statement and if the processor does not want to pass the lower interchange fees on, they won’t provide enough detail to the merchant so the merchant won’t know if it was a regulated debit or not. Worse yet, many credit card processors will not break debit transactions out, and charge the merchant the same rate as a credit card. If a business does a lot of debit transactions this can be a real profit center for the credit card processor. 

It is impossible to show all the different ways credit card processors hide debit fees, but the image below shows what you should see.  

* Signed into law 07/21/10 and effective 10/01/11 amended the Dodd-Frank Wall Street Reform and Consumer Protection Act.

** Debit Cards issued by banks with less than $10 billion in assets are excluded (e.g. many credit unions and small local banks). These cards make up a very small percentage of all debit transactions, and while the Interchange is not 0.05%, it is still much less depending on how the card is processed, swiped, keyed, etc.

*** Visa Credit Interchange has a $0.10 fee, and the Visa Debit Interchange is $0.21, or $0.22 if it has fraud protection. For the sake of simplicity, those differences are not included in the above example. For merchants with a $500 average transaction, the above example would be off by 0.01%.

The easiest way to find out if your credit card processor is keeping your rebates is to take advantage of our Free Audit.

Also, you can find more information on how to protect yourself and your hard-earned profits in my newest book, “The Great American Heist – How Credit Card Processors Steal Businesses’ Profits.”

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