by Matt Rej
Rate creep has become one of the biggest problems in the world of credit card processing. Your business accepts card payments every day, and the cost to accept credit cards keeps increasing.
Yet no single increase feels significant. There might be a 5 basis point increase here, new fees added there, or a “complimentary upgrade” that now carries a new annual fee.
So month over month, the cost increases seem marginal. It’s only when you zoom out that you realize your effective rate is now double or triple what you paid just a few years ago.
That’s rate creep. And it doesn’t happen by accident.
Let me show you how payment processors apply systematic billing tactics designed to increase your rates over time, without drawing any red flags.
Base Rate Increases
This one is the most obvious. You’ll either get an email or notice attached to your monthly statement 30-60 days ahead of an increase.
Despite being somewhat direct and telling you that your cost of processing is going up, processors still use a handful of tricks in these messages to keep you from questioning anything:
- Saying your rates “may” increase on a certain date (this always means they will).
- Not specifying the exact increase amount.
- Only saying the increase amount and not your new rate.
This is all intentional.
When they say your rates might go up next month for certain merchants, it’s natural to assume you could be excluded. If they don’t tell you how much the rates are going up, you might think it’s marginal or insignificant.
And we basically never see these notices include the old rate and the new rate.
So if you get a notice saying that your discount rate is increasing by 15 bps, then it may not seem like a big deal. But if you don’t know off hand that your current discount rate is just 10 bps, then your processor just more than doubled your cost, and they did it under the radar.
Compounded across annual rate increases, a merchant that was once getting a “good deal” on credit card processing can easily have their base rate triple or even quadruple in just 3-4 years.
New Fees
Over time, processors do whatever they can to increase the margin on your account. And beyond raising your rates, introducing new fees is typically the easiest way for them to do this.
These never seem like a big deal at first, particularly for high-volume merchants. But when you do the math on them, they add up quickly.
- Settlement Funding Fees — 0.05% to 0.40% of total volume
- Risk Assessment Fees — Up to 0.65% of total volume
- Analytics Fees — $45 per month
- Compliance Fees — $39 to $189 per month
- VPN Fees — $0.10 to $0.25 per transaction
- Network Access Fees — $0.10 to $0.20 per transaction
- Amex Sponsorship Fees — 0.60% of Amex volume
- Monthly Billing Fees — 0.05% of total volume
The list goes on and on. All these fees sound legit but they’re just processor markups.
And in isolation, none seem like a non-issue. An extra 0.05% for monthly account debits instead of daily? No big deal. But when each of these gets introduced to your business spread out over several years, your effective rate will skyrocket.
Your processor may even keep your base discount rate at what’s perceived to be pretty low, say around 10 bps. So you think it’s a good deal.
But once they add on a handful of these new charges, then your effective rate could climb above 100 bps. That’s how rate creep works.
“Upgrades”
This is essentially the same as a new fee. Except the processor frames the cost as a benefit to your business.
Infrastructure upgrade fees are a prime example of this tactic.
The notice says something vague about improvements being made to support your payment acceptance. But it’s just a way for your processor to charge you an extra $400+ per year (in addition to whatever other annual fees they’re charging you).
Despite this charge hitting your statement, you’re not going to have “faster” or “more secure” processing. It’s just a marketing tactic used to charge you more.
Sometimes these upgrades are even framed as “complimentary.” Like with a PCI Plus program, that you’ve been “automatically upgraded” to. Sounds like a good deal, until you realize this upgrade costs you an extra $199 per year plus $40 per month.
Hidden Rate Hikes
These rate increases aren’t obvious, and they’re even less direct than the ones we discussed earlier. Not only do they omit certain information, but they can also be misleading — if you can even find them on your notice.
So many processors today love to bury these rate increase notifications in huge blocks of paragraph text. Everything is in all caps, and there are no headers or logical breaks to the sentence structure, which makes everything incredibly difficult to read.
It’s also common for processors to hide rate increases behind interchange updates.
This typically happens around April and October. Your provider will send you a notice saying something along the lines of “Due to card brand changes…” and then start naming all of the different fees that will be impacted (sometimes including the rates) in these dense paragraphs.
And somewhere in there, they’ll include “discount rate” as a cost that’s going up.
But card networks don’t set your discount rates. Your processor does.
Assessment Padding
Padded assessments are probably the most difficult thing for any business to spot on their own. It typically requires a professional audit from a payment expert to uncover these, because it requires you to:
- Identify legitimate network fees
- Know the true cost that fee carries
- Compare the difference to the rate your processor is actually charging you
The thing about assessments is that they’re supposed to be passed through to merchants at cost.
How do you know if Visa’s ANI Fee is supposed to be $0.10 or $0.20 per authorization? It’s $0.10, but if your processor decides to start charging you $0.15, then they’re pocketing an extra $0.05 on every authorization while reporting it as though the funds are going to Visa.
This is a big deal. It’s unethical, and artificially inflates your rates in the wrong way.
By passing this hidden markup off as a network fee, businesses assume there’s nothing that can be done about the cost.
Transaction Downgrades
Downgraded transactions occur when something goes wrong during the transaction or settlement process.
For example, networks might downgrade transactions if you swipe or manually enter chip-enabled cards on card-present sales. This is legitimate because you’re not using the most secure method to process the card.
However, processors also have their own “downgrade” criteria that’s far more subjective.
You might be paying non-qualified volume fees for transactions that have no legitimate reason to be downgraded. It’s just your processor’s way of putting a certain portion of your sales into a non-qualified bucket that carries a higher markup.
It could be anywhere from an extra 0.40% to 0.60% for that portion of your volume, on top of your regular discount rate.
The True Cost of Rate Creep in Credit Card Processing
A merchant that does $2 million per year in card volume might start out with a 2.10% effective rate. That’s roughly $42k in annual processing costs, which is reasonable and fairly competitive.
Fast forward three years, and the discount rate quietly went up 5 bps last spring after a 8 bps hike the previous fall. A new 0.05% monthly billing fee got tacked on around the same time their PCI program got “upgraded.” Settlement funding fees and network access fees were added, too.
None of these set off any alarms when they hit your inbox because they almost look like a rounding error in isolation. But when you run the math today, their new effective rate is 2.85%, and that same $2 million now costs $57k to process.
$15,000 more for the exact same service. No changes in the way you operate and no changes in volume. And your processor never sent you a notice that said “your processing cost is going up by 35%.”
That’s the thing about rate creep. You don’t catch it month over month. You only catch it when you pull a statement from years ago and compare it side by side with last month’s statement. By then, the damage is already baked in and merchants just assume that’s what processing costs now.
It isn’t, though. MCC can audit your statements to identify rate creep and negotiate it out of your account. All without switching processors. No upfront costs, either. We just share a portion of whatever you save.