Sunday, April 14, 2024

Let’s Do the Math

It’s funny how sometimes several things seem to happen at once which will call our attention to a place where it’s needed. I’ve received correspondence – and read comments – recently that turned my attention to some of the online payment processing companies.

I decided to take a look at what’s going on here and couldn’t help but be appalled. I’m always appalled when I find unfair advantage being taken of those who are trying their darndest just to run their businesses in a professional manner.

Here’s the saddest part of all. Our colleagues from countries outside the USA and Canada are practically forced to use these services. They face special challenges in paying and charging their own fees through North American companies.

Let’s take a look at how some of these payment processing companies are operating. I don’t want to name names here (I’ll save that for the website) but we might as well go with the details of one of the best known ones. We’ll just call them “The Service.”

First of all, I was informed that The Service “only” charges 7.5% to process online payments. Now, this isn’t what it says at their web site – but it IS what people seem to see. The truth is that they charge 7.5% PLUS $1.00 per transaction!

In fact, everyone was excited when they reduced the percentage from 10% to 7.5% – but did anyone notice that they also raised the transaction fee from 50 cents to $1.00? Who do you think is making out on THAT deal? The customer? Not bloody likely! Let’s do the math! We’ll keep it simple and just work in round numbers of 10.

If your customer is paying you $10 for a service or product, you will pay The Service 75 cents (7.5%) PLUS $1.00. Total $1.75 – or 17.5%!!! And that’s UP from the price “reduction.” Before, it would have only cost you $1.50 (15%)! Well, PLUS the additional costs I’ll mention below.

If your service/product costs $20 – you’ll pay 12.5%. In fact, your product would have to sell for $1,000 before you would even come CLOSE to only paying 7.5%. My only point here is – pay attention to the full payment when calculating your cost!

Okay – now here’s where you start being taken advantage of. 10% of each check that should be paid to you by The Service will be deducted and held for 90 days before it’s ever paid to you! Their explanation is that it’s to cover any potential charge backs or returns.

Again – let’s do the math! And again, we’ll keep it simple. Let’s say that you had 20 sales of $30 apiece. Total sales – $600. All of your 7.5% ($45) PLUS your $20 in transaction fees have been deducted. Total deduction – $65. You are now owed $535 by The Service. But, WAIT!

First, they are going to deduct another $53.50 to put in the charge-back fund for 90 days. You will actually receive $481.50 – or less the amount of 18 of your actual 20 sales! You might think that’s okay. After all, you’ll get the money in 90 days. Before you think like that, let’s take a look at a couple more facts.

Remember, they took $53.50 to hold back for refunds and cancellations. That’s 9% of your actual $600 worth of sales. Almost 10% of your 20 sales. Do almost 10% of your customers ask for their money back? Are one out of every ten of your sales returned? I doubt it! This hold-back percentage is unrealistic – and unreasonable!

Of course, this wouldn’t be the case if you have one sale for $600. BUT – let’s BE realistic. How much ARE your single sales? And, how different are your sales from the majority of online businesses? What is the HUGE majority doing? Lots of small sales or a few big ones? Believe me, The Service knows!

And, why are they taking more than they need? Undoubtedly to cover their butts for those who quit on them – then have charge-backs later. The money must be on hand and they won’t hesitate to use yours in the interim. It isn’t the practice of lending institutions to use their own money.

PLUS! What’s happening to this (unrealistic) amount of YOUR money that they’re holding for 90 days? Do you think it’s just lying around in a checking account someplace, waiting to be returned to you? Guess again!

That money is being used to make additional income for The Service! Remember, you’re not their only customer. Your $53.50 is multiplied thousands of times by thousands of other customers – every month! More money is being earned on that money! And, not by you!

Which brings us to the next question. Where’s yours? Is The Service going to pay YOU to use YOUR money for 90 days? Are they going to share what they make on that money with you? Are they even going to pay you interest on that money? In your dreams!

Now, let’s add insult to injury! You are also going to pay The Service $2.50 for every payment The Service makes to you to pay you YOUR money! “Accounting fee,” they call it.

This is in addition to what they’re earning on your percentage payment – your transaction fees – AND the use of your money FREE for 90 days to make themselves MORE money – which they are NOT sharing with you!

Surely, I don’t even need to say any more about that outrageous little practice! Not to mention that you can add that $2.50 to your costs which further raises the percentage you’re paying! Of course, you might rationalize that you’ll make all this back by joining their affiliate program. That’s what they WANT you to think – and this is one of the things that irks me more than any other. It’s used as justification for gouging people with ridiculously high costs.

RARELY does anyone ever make it all back! And, why should you have to MAKE your money back to balance out your costs? What kind of nonsense is that? Don’t you – first and foremost – have your own business to run?

Now, even after everything I’ve already shown you – they are still going to nail you ONE MORE TIME.

Remember that 90 day hold-back period for 10% of each payment they make to you? Well, guess what’s going to happen at the end of that 90 days? They are ALSO going to hold back ANOTHER 10% on the money they’ve been holding!!!

In the interests of brevity, I’ll simply show you portions of an email exchange between The Service and one of our MONDAY MEMO! subscribers. Brace yourself.

Hi,
At the end of the period ended 8/1/99 you released a reserve of $836.49 from period ended 5/1/99. However, you then held on to 10% of that reserve as a further reserve. Could you explain why this was done as I understood that the reserve for any period was repaid in full at the end of a 6 period [sic. 90 day] term. At this rate you will never pay all the money held on this account as you will always be deducting 10%.

Their reply:
If we were to do it the other way, then we’d need everyone to have two separate balances. One balance would be subject to the reserve (profit from sales), and the other would be money not subject to the reserve (released funds). We thought this would be way too confusing for most people to deal with. The way the math works out, the amount that is “re-reserved” is actually well under 1% of your sales volume from that prior sales period.

Thank you.
Oh! I get it! They don’t want to confuse us! “Thank you” is the LEAST they could say! How about, “May we kiss your feet for supplying us with never-ending portions of YOUR money so we can use it to make MORE money – which we are NEVER going to share with you?”

Please note that this customer’s question was never answered! The “Why?” question! All he got was a whiny response that it was ONLY 1% of his gross sales that they were planning to keep indefinitely.

If you can figure out what the rest of it means, please do let me know. The only thing that’s confusing here is the way they make SURE a customer will never know what the heck they’re doing with his money.

In this specific case it was another $83.65 they were refusing to return to him – even after holding $836.49 for 90 days! Multiply that out by their thousands of customers! Seems to me that a logo featuring an eye patch and a wooden leg would be appropriate for their homepage.

Do they have a right to do this? I went to their “Terms and Conditions” to find out. Being an old hand at reading legal documents, I suspected that I would find it buried somewhere in the fine print.

Wrong! The line that gives The Service the right to do this to you is right there in plain sight. I even missed it the first time. Please read it CAREFULLY!

“You understand that the Company reserves the right to delay, suspend, or refuse payment of any portion of your [xxxxxxxxx] account balance at any time.”

Yep – There it is folks! That sound you hear is the Click! of your teeth being placed in a cup at night before you are ever paid – all YOUR money!

Now, I realize that The Service is licensed to do all this. (Although, I haven’t figured out yet why their address should be in one State if they are licensed in another.) They have the full cooperation of one or more governments to take advantage of you like this.

These kinds of services are needed – especially by our colleagues outside the USA. And, my little article isn’t even going to slow the big guys down in their race to take outrageous advantage of the businesses who need them. But, they can only do it if you let them.

I simply offer this to you for your consideration. Before you hire an outsourcing company for your online payment acceptance – do the MATH!

By JL Scott, Ph.D., publisher of MONDAY MEMO! – the ezine dedicated to Professionalism on the Web.
For a FREE subscription subscribe@MondayMemo.org. Be sure to read JL’s new e-book, “Kickin Butt & Takin’ Names!” MondayMemo.org/e-book.htm.

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