Frequently asked questions and merchant bill of rights

No doubt about it, payment processing is complex. A single swipe, dip or tap sends a payment on a journey that isn’t always clear to consumers or entrepreneurs. As a business owner, you deserve to know exactly what you’re being charged for — and where that money goes — when you accept credit card payments. At Heartland, we pride ourselves on giving you the transparency you deserve. We’re the only processor to establish a Merchant Bill of Rights (MBOR) that promotes fair credit, debit and prepaid card processing practices.

We believe in making it easy for merchants to understand processing and know where every hard-earned cent they pay goes. We’re here to answer frequently asked payment processing questions related to the MBOR and re-affirm your rights to transparency, competitive pricing and the best possible value for payment processing.

Credit card transaction fees

What are Heartland’s processing fees?

Heartland charges fees for:

  • Interchange processing costs as they move through the credit card authorization network. These fees will show up on your statement as:

    • Discount fee: This fee is what Heartland charges to a merchant for passthrough payment processing services to debit and credit card companies.

    • Transaction fee: This fee is for the attempt at running a transaction for passthrough payment processing services to debit and credit card companies.

  • Monthly vs. daily discount cost: Card brands bill and settle payment processors daily — this can be a big task for some small businesses. Heartland charges a minimal fee to settle monthly instead.

  • Service and regulatory mandate: This is the monthly fee to maintain all of the great services you can expect from Heartland, including:

    • 24/7/365 US-based customer support

    • Access to Sysnet, our trusted partner for validating your PCI compliance. Many payment processors expect you to find a vendor on your own, which can be expensive.

    • Enrollment in the Merchant Protection Plan covers you up to $100,000 in the event of a data breach.

    • Access to InfoCentral: an online portal through which you can easily access your account data, including batch information and state-of-the-art security features to keep your and your customers’ data safe.

  • Value-added services: Heartland offers many services to help maintain and grow your business: from gift card, instant deposit, and surcharge programs to the many add-ons to our Retail and Restaurant POS systems that harness your data to work smarter, not harder. Should you opt-in to subscriptions, you’ll see fees for those services in their own section, Value Added Services Fee Summary.

It’s important to note Heartland doesn’t receive any portion of interchange fees — which include dues and assessments, discount per item (DPI), and discount % rate fee. Unlike other payment processors, we pass through the true wholesale cost to merchants without inflated costs, markup or hidden fees.

What’s included in processing fees?

Your total processing costs will vary based on many factors unique to your business. But at Heartland — and in general — you can expect your processing fees to include:

  • Interchange fees (that go to the credit card brands and card issuers — usually the bulk of what you pay)

  • Merchant service fees (for the ability to access the authorization network necessary for processing transactions and for value-added services like PCI compliance assistance, EMV capabilities, etc.)

Can I calculate estimated payment processing fees?

Technically, yes — but it’s not easy. Credit card brands usually include their interchange rates on their websites, but you’d have to really dig into your merchant statements to know what card types you’re accepting most and try to forecast what you’re likely to accept. It’s a lot of work that may or may not yield the results you’re looking for.

Effective rate is a calculation that a lot of merchants use to keep an eye on their costs without having to get so deep into the weeds. Your effective rate is your total processing fees divided by your total deposits (your sales volume during the month). The effective rate is the best way to see the overall percentage you pay for processing. Calculating your effective rate can give you a gut check each month on your processing spend.

If you process with Heartland, you can calculate your Heartland effective rate to see how much goes to the card brands and issuers and how much actually goes to Heartland. Have a concern about your effective rate? Call the dedicated Client Management team to get a better understanding of what’s going on.

Are you worried your current processor is overcharging you? Contact Heartland to get a prompt, accurate rate review. We’ll use your current merchant statement to create a quote so you can compare apples to apples.

Which credit card brands are accepted by Heartland?

Heartland accepts Visa, Mastercard, American Express (AMEX) and Discover. We also accept many other payment methods, including digital wallet options like Apple Pay®, Google Pay™ and Samsung Pay®. Other payment methods, such as Automated Clearing House (ACH) — customer payments directly from their bank account to another bank or credit union, bill pay options, such as automated phone payments, live agent and online payments, are available.

How can I get lower merchant service fees?

Strong data security practices can help lower fees. Validating and maintaining your PCI DSS compliance, accepting EMV chip cards with the right technology whenever possible and using payment processing best practices can all help avoid transaction downgrades that end up costing you more. You can also prioritize accepting debit cards when possible and limit card not present transactions in a physical location as well.

If you process with Heartland, consult a Client Manager with any questions you may have about your fees.

What are merchant interchange fees?

Interchange fees are the base cost of accepting credit card transactions. Interchange fees are set by the credit card brands who determine the fee amount merchants pay to cover the cost of moving a payment transaction through various stages of the authorization network and from one account to another. There are other costs associated with payment processing that can vary by provider. But interchange is a set rate that varies by card type and acceptance method, but does not vary by provider.

How do you avoid interchange fees?

You can’t avoid interchange fees; they’re a part of accepting debit and credit cards. But, there are actions you can take to lower how much you pay in interchange fees:

How often do interchange rates change?

Generally, interchange rate categories and fees are updated twice a year, in April and October.

Who sets merchant interchange fees?

Credit card brands set interchange fees. They are public knowledge, as many credit card companies publish interchange rates on their websites.

Are interchange fees negotiable?

Unfortunately, interchange fees are non-negotiable for merchants or processors. Your merchant category code (MCC) determines your interchange rate. Your credit card processor assigns your business an MCC code when you set up a credit card payment system. If you believe your business has an MCC code that doesn’t reflect the bulk of your business, you can reach out to your processor.

Credit card fee increases

How often do markup fees change?

Credit card processors can add fees to the base cost of interchange at their discretion and can change their markup fees at any time. But typically, you may see increases or changes when the banks and card brands adjust their rates one to two times per year.

Heartland values transparency — that’s why our billing statements clearly show what you’re paying to Heartland and what goes to credit card brands. Our customer care team is available 24/7/365 to answer any questions you may have about your statement or Heartland fees.

How can you reduce your processing costs from markup fees?

Keep in mind that every processor will charge fees for the services they provide — and some will charge markups, even if they use a flat-rate pricing model.

That said, one of the biggest ways to limit processing costs is to do your homework when selecting a payment processor. Asking “Do you have hidden fees?” or “Do you pad interchange?” are some of the most important questions to ask credit card processing companies when you’re evaluating whether they’re right for you. Remember, payment processing is likely one of your biggest expenses aside from labor, product costs and rent. Just like taking on a building lease or a business loan to build your business credit, choosing a processor is a big deal. It’s OK to shop around and routinely evaluate your payment processor — and potentially negotiate with them, if possible.

If you already have a processor, evaluate the value of the services you’re getting. Do the company’s fees include services you’re not using or that aren’t valuable to your business? Checking to make sure you’re not automatically opted into services that you don’t want can help save money.

Also, if you’re getting hit with fees for PCI non-compliance or EMV non-acceptance fees, it may be time to update your POS equipment. Investing or renting a secure, EMV-enabled POS or getting EMV hardware add-ons may seem like a hit to the budget, but will pay for itself over time with the fees you won’t pay and the fraud liability you’ll avoid.

How to lower processing fees

How can I lower my payment processing fee?

You can lower your payment processing fees by following processing best practices to lower your interchange. These can include:

Are merchant fees negotiable?

Merchant fees may be negotiable depending on your payment processor and your business needs. You’ll want to speak with your processor for details about your unique situation. But, following best practices for accepting cards is the best way to bring down how much you pay for merchant services and payment processing fees.

Why are merchant fees so high?

There are expenses that business owners can’t control because of what’s going on in economy, supply chain, and many other factors. Everything from gas prices, minimum wage, cost of goods, and more have gradually increased over time.

In payment processing, there are market forces, regulations and business needs that can cause prices to rise. These include everything from increasing security measures to prevent data breaches, technological advances like EMV, and staffing needs to stay competitive. Processors will collect the appropriate revenue to make these investments to stay ahead of the curve in the industry.

That said, you should know where your money is going and feel like you’re getting your money’s worth. When comparing processors, ask yourself:

  • Is your merchant statement transparent, showing where every penny goes?

  • Do you feel supported by your processor’s customer support — can you get an answer to your questions quickly when you need them?

  • Are you validating your PCI DSS compliance with your processor? Many payment processors expect you to find a vendor on your own, which can be expensive.

Is it legal to pass credit card fees to customers?

Surcharges are legal unless restricted by state law, but must follow strict guidelines set forth by the card brands. Following the card brands’ surcharging rules can be complicated and failure to do so properly can leave you subject to large fines.

At Heartland, we offer a card-brand-approved surcharging program that can save you money in transaction costs and keep you safe from surcharge violation fines.

What is the average merchant fee for credit cards?

Like trying to estimate payment processing fees, there’s no cut and dry answer for what an “average merchant fee” might be. Merchant fees include interchange and processing fees from your payment processor. Your average merchant fee could widely differ from another business owner’s. This is because:

  • While interchange rates are fixed, what your business pays in interchange overall is based on many factors, including:

    • Number of card-present transactions

    • Type of credit card used (card brand, rewards cards, debit, etc.)

    • Number of chargebacks

    • Number of interchange downgrades

    • The level of credit card data included in individual transactions

    • Number of qualified, mid-qualified and non-qualified transactions

  • Your processing fees will be unique to the processor you choose. Fees can include monthly statement fees for services provided and any additional fees based on your processing habits, such as PCI compliance program fees or non-compliance penalties, the number of providers in the authorization network, etc.

Understanding payment processing and ‘middlemen’

How does credit card processing work?

Credit card processing is a complex process that moves transaction data through the various stages of the credit card authorization network. Distilled down to its core components, credit card processing has three parts:

  • Authorization: The credit card payment is processed through a series of approval requests from acquiring bank to the card association to the card issuer.

  • Authentication: The card issuer runs the payment information to verify available funds and, using fraud protection tools, verifies that the card is valid and not being used fraudulently.

  • Settlement/funding: Settlement takes place when funds are finally transferred to the merchant’s acquiring bank with an interchange fee. Funding occurs when the funds eventually land in the merchant’s bank account.

What is a middleman in a transaction?

A middleman, sometimes referred to as a gateway provider, is considered a third-party intermediary in payment processing, such as:

Middlemen may add their own fees, making money off of each transaction, which can be a drain on your revenue. However, in some cases, they provide a necessary service for your business. Getting rid of middlemen may require changing other vendors in your technology stack, so it’s important to understand the cost/benefit equation when evaluating your service providers.

What are the chain of events that occur when I swipe a customer’s card?

The lifecycle of a credit card payment will differ slightly for in-store vs. card-not-present transactions. The steps for an in-store, card-present payment transaction will go like this:

  • The customer inserts their card into the card reader, POS, or terminal to pay for a purchase.

  • The merchant’s POS electronically sends the cardholder’s information and transaction details to the payment processor.

  • The processor sends the authorization request to the acquirer.

  • The acquirer routes the transaction request through the issuer for approval.

  • The issuer receives the validation request. They verify that the transaction is valid, whether the cardholder account has sufficient funds and if the merchant’s account is in good standing.

  • The issuer sends an “Approved” or “Declined” code, which the acquirer or processor relays to the merchant. If the transaction is denied, the purchase ends here.

  • If the transaction is approved, the merchant receives authorization and the issuer places a hold for the amount of the purchase on the customer’s account.

  • The merchant sends a batch of approved credit card transactions to their acquirer. This is generally done at the end of each business day.

  • The acquirer receives a batch of transactions, collects appropriate funds from the issuers and credits the merchant account.

  • The acquirer deposits merchant earnings in their business bank account and generally bills merchants for all interchange and related fees in a monthly credit card statement.

  • The cardholder eventually pays the issuer for the purchase, including any accrued interest and fees associated with their card agreement.

Who makes money off of single transactions?

For a single credit card transaction, money will go to:

  • Credit card issuer (banks)

  • Credit card brands

  • Payment processor

  • Any third-party service or payment gateway you may use (middlemen)

Understanding surcharge and billbacks

What are merchant processing fees?

Processing fees are the fees that go to the payment processor for services that can include:

  • Running transactions through the authorization network

  • Moving your money into your bank account

  • Settling with credit card brands monthly

  • Any additional value-added services related to security, compliance, equipment and software

What are surcharges fees?

A surcharge fee is a small fee that certain merchants can add to a customer’s total to offset the cost of a credit card transaction. A surcharge is also called a checkout fee. Businesses will add surcharge as a way to accept payments from customers who want to use a credit card and pass the costs of doing so onto them.

How are surcharge fees calculated?

Credit card brands have their own rules dictating surcharges. In general, surcharge fees are a fixed percentage of each credit card transaction. Businesses cannot try to make money off of surcharging — the fee can only be up to the percentage of the transaction a business pays in fees. Example: If your business has an effective rate of 2.3%, you can’t charge customers above the 2.3%.

Are surcharges illegal?

Surcharges are legal, except in states and jurisdictions that don’t allow or limit surcharging, including Connecticut, Massachusetts and Puerto Rico. Surcharging became federally legal in 2013 after a settlement between retailers and Visa and Mastercard.

What are billback fees?

A billback fee is an additional processing charge made on a prior card transaction. Billback fees may go by different names, including enhanced reduced recovery, blended rate or mixed rate. Billback fees are often used to adjust for interchange underpayment in the previous month.

For example, say you process on a flat rate model at 1.9% for all of your transactions in a month. Each individual transaction will have a different interchange rate based on the card brand, the type of card, rewards program, etc. Some transactions will be higher and some lower than 1.9%. Regardless of what interchange rate a transaction has, you’ll be charged 1.9%. That said, the next month, your processor will look back to the prior month for transactions lower than 1.9% — and charge you the difference between — a bill back. An enhanced billback fee is the same as a billback — except a processor adds some margin for themselves for the billback. If you experience these fees, they’ll show up on your merchant statement as “BB” for billback, “EBB” for enhanced billback, and “ERR” for enhanced reduced recovery.

If you’re being hit with a lot of billback fees, you may want to contact your processor about the fees. You may want to renegotiate rates or change to a pricing model that better fits your business’ transaction types and volume.

What’s the difference between a dispute and a refund?

A refund is a transaction where a business agrees to return the total purchase amount back to a customer’s credit card. Reasons for this can include a customer returning the goods or the business providing a partial refund due to the customer’s unhappiness with the product or service.

A dispute is when a cardholder contacts their card issuer directly to contest a charge on their statement. Disputes can result from:

  • The card was used without the cardholder’s authority (payment fraud)

  • The customer reached out for a refund and didn’t receive an answer from the business

  • The product or service was not as described, or was not delivered

Disputes can lead to chargebacks. The card issuer will start a retrieval request against you, and the disputed amount is withdrawn from your account until the matter is settled. You are given 10 days to defend against the chargeback with proof of purchase or delivery. The merchant account provider imposes a chargeback fee as part of the process.

What is a dispute fee or dispute settlement fee?

A disputed charge is a credit card charge that the customer has a question, claim or complaint about. Dispute types can include billing error claims or concerns about the quality of the goods or services the customer paid for. Filing a dispute might result in the charge getting reversed. This fee covers some of the cost of processing the dispute.

Why is my chargeback amount different from the transaction amount?

Card brands agree that chargebacks should not be more than the original transaction amount. However, chargebacks can be issued for partial or lesser amounts. Customers may ask for partial chargebacks from their card issuer due to delivery errors, billing errors or other mistakes. Business owners also can adjust the amount downward when submitting a chargeback defense.

If a partial chargeback is rewarded, you will keep some revenue but you’ll still receive the negative effects of getting a chargeback. This includes the associated processing and chargeback fees, your chargeback ratio will go up and you’ll be out the time and labor you spent on your chargeback rebuttal.

Does Heartland have dispute fees?

Yes. However, the first three disputes are free — then it’s $25 per dispute thereafter.

Understanding secure transactions

What is PCI compliance?

The Payment Card Industry (PCI) Security Standards Council, which includes Visa, Mastercard, American Express, Discover and JCB, created the PCI Data Security Standards (PCI DSS). PCI DSS are the security standards that businesses must follow to reasonably care for and safeguard cardholder data.

If you accept debit or credit cards, you’ve agreed to consistently maintain PCI compliance to protect cardholder data.

Why is PCI DSS important?

Cyberattacks happen every 11 seconds — with that frequency, it’s a matter of when, not if, a business experiences a data breach. Plus, 71% of hackers attack businesses with 100 employees or fewer. Having sensitive data leaked can have serious consequences for your customers, including stolen identities and drained bank accounts. Consistently maintaining PCI compliance ensures that you’re doing everything you can to protect your customers’ data and your business.

Is PCI DSS compliance mandatory?

By accepting credit or debit cards, you entered into a merchant agreement with the major card brands. If you use a POS system and partner with a fintech company to process payments, your POS provider, payment processor and you are all subject to PCI compliance.

Beyond peace of mind and doing the right thing, maintaining PCI compliance may reduce your processing costs by up to $1,500 per year.

What happens if you don’t have PCI compliance?

By not maintaining PCI compliance, you’re at risk for:

  • Financial problems: You’ll be at risk for ongoing fees from your payment processor until you’re compliant. No matter who your payment processor is, PCI compliance is a requirement. Plus, the financial devastation that comes with a data breach could put you at risk of going out of business (see below).

  • Repeal of credit card acceptance eligibility: The PCI Security Council has the authority to ban a merchant from being able to accept credit cards as a method of payment.

  • Legal liability: You may become at risk for lawsuits from customers whose data have been exposed. Plus, you’ll be subject to any state and federal data security laws you may be in violation of — which may have even larger consequences than those levied by banks, card brands or your payment processor.

  • Losing customer trust: You may lose customers — both current and potential — for experiencing a data breach. The effect on your brand can extend far and fast thanks to social media.

What are the costs for non-compliance?

The costs associated with PCI non-compliance can be devastating: 60% of small businesses will go under within six months of a data breach. The average cost to a business after a data breach is $200,000. This number includes the costs for:

  • Forensic investigation into the data breach.

  • Fines and penalties from the payment processor and financial institution, which can vary depending on the business’ size and the scope and duration of the non-compliance. (Fines can vary from $5,000 to $100,00 per month.)

Understanding fraud and transaction monitoring

How does transaction monitoring impact merchants and acquirers?

As fraud becomes more sophisticated, the need to detect and prevent it from happening are imperative. Transaction monitoring is key for both merchants and acquirers because they are both liable for transaction-level fraud.

Transaction monitoring analyzes patterns and transaction types in real-time, identifies suspicious activity and takes action to counter it. Many payment processors do not offer transaction monitoring, leaving business owners to find their own vendor. Heartland provides our processing merchants with Control Scan, our trusted partner for validating PCI compliance and Merchant Protection Plan, which covers you up to $100,000 in the event of a data breach.

How does online fraud work?

Just one in 10 Americans have not been a victim of online fraud, scams, data breaches, identity theft or social media hacking. This may be because committing online fraud is easier for thieves and scammers that steal and use information. Online fraud consists of a few different types:

  • Identity theft/stolen credit card numbers

  • Account takeover (ATO)

  • Phishing

  • Pagejacking

  • ACH and wire fraud

When it comes to the hardware and software you need to mitigate all types of fraud, Heartland Secure™ delivers EMV, encryption and tokenization, and comes standard for payment acceptance devices. Our POS and payment processing solutions make it easy to comply with PCI and practically eliminate the risk for fraudulent in-person transactions. Heartland’s secure payment processing helps keep you, your business and your customers safe from online fraudsters and thieves. And our robust reporting capabilities make it easy to monitor transaction activity and spot suspicious entries.

How much money is lost to credit card fraud each year?

As of 2022, businesses worldwide stand to lose $34 billion to credit card payment fraud.

If nothing changes, US businesses alone will shoulder roughly a third of that burden ($11.3 billion), making America the most fraud-prone country in the world. By understanding what scammers do and how they do it can give you options to protect your business. The right technology can help you fight back and thwart would-be thieves and protect what you’ve built.

Who pays when merchants are victims of credit card fraud?

Payment fraud is a big issue for consumers and businesses alike, but businesses shoulder more of the risk. Short answer: it’s typically the business that accepted the payment or card issuer.

Credit card brands and banks have “zero-liability” policies in place to protect consumers from payments caused by credit card fraud. Plus, the Fair Credit Billing Act limits consumer liability for unauthorized credit card use to $50.

Whether the card issuer or the business pays for a fraudulent transaction depends on the type of transaction. Businesses are more likely to eat the cost of card not present fraud, fraud committed with just the card number. Additionally, business owners that use older payment terminals without EMV technology will have more liability for card-present fraudulent transactions involving chipped cards.

Understanding equipment costs

How does multi-year equipment leasing work?

Leasing is an option for businesses that need new fintech equipment like a POS system but can’t afford an upfront purchase. Leasing, or renting a POS system, allows you to make lower monthly payments over a multi-year period and avoid a big lump sum payment. Equipment leasing is different from equipment financing, however. With financing, you take out a business loan to purchase the equipment with the equipment as collateral. After completing all loan payments, you’ll own the equipment outright.

With leasing, you do not own the equipment when the lease ends. However, buying the equipment may be an option at the end of the lease. The purchase cost may factor in the equipment’s appreciation and the amount paid during the lease.

Both a business loan and leasing will likely include interest and fees that are lumped into the monthly payment. Extra fees for insurance, maintenance and repairs may be included in the lease.