Information on Merchant Accounts,
Ecommerce and Credit Card Processing

December 6th, 2006 by Jamie Estep

Deceptive fees for a merchant account – Heartland wins

Filed in: Merchant Accounts | 15 comments

I rarely bring up specifics about another business on this blog, because I think it is unprofessional and simply irrelevant to focus on other business’s poor practices, but this warranted a break from my norm.

One of our agents was recently in the process of signing a customer up with a merchant account. The business they were talking to was already processing, but was somewhat unhappy with their current level of service and fees and was looking for someone better.

Another merchant account provider that was also trying to gain this business’s merchant account was Heartland Payment Systems. Heartland is one of the larger US based providers ranking at number six in overall volume in the US.

After a recent post on the merchant account services blog, I thought that this was a completely appropriate post about deceptive merchant account fees.

What happened:
Our agent quoted the business a rate of about 1.68% and $.19 per transaction for credit cards (For times sake, I’ll avoid the entire fee structure). Considering that the company was paying over 1.9% on their retail account, this was a significant decrease in price.

Now, while the rate that our agent quoted to this merchant was not the lowest that ever existed, it was a fair, and completely honest rate. What heartland quoted was not an honest rate, it was designed to deceive this business owner.

Heartland’s quote (exactly as written):

Visa / MasterCard 0.40%
Transaction Fee Cost 0.04 to 0.10
Mid Qualified Transactions 0.00% Surcharge
Non Qualified Transactions 0.00% Surcharge
Batch Header fee Free
Auto Close Free
Online Merchant Center Free
Debit Access Fee Free
Application Fee $0.00
Installation Fee $0.00
Dedicated Local Service Manager Free

Well, sign me up while you’re at it, Heartland!!!

Lets not consider that interchange for this business over 1.6%, and $.10 per transaction, and Heartland’s Dedicated Local Service Manager never even visited this business.

Why is this rate deceptive?

This is called a pass-through or interchange plus rate, and while it’s not an extremely bad pass-through rate, it was presented in a deceptive manner. Basically, heartland passes the interchange cost to the business, and then adds their own fees to the rate. If interchange was 1.65% and $.10 per transaction, they add their .4% and $.10, to make it 2.05% and $.20 per transaction. Not much of a deal anymore, especially since the business was currently paying 1.9%, and not one place on the proposal mentioned that interchange would be charged as well. Earlier on the application the words: Fully Disclosed, Competitive Pricing, are in bold with an excellent paragraph explaining how Heartland doesn’t increase fees, and only passes interchange fee changes to the customer. They make a special point to let the business know that if interchange goes down, they also lower the passed fees as well.

How many times has interchange gone down? – Never!!!

What is really upsetting, is that the majority of business owners, would actually think they are getting a merchant account at .4%. Compare that to a decent rate of 1.7% and lets see who they go with. Heartland makes a ton of claims about their honesty, full disclose, even has a website, but then sends this garbage to a potential customer, with no disclosure about interchange fees.

This is a completely deceptive proposal, and doesn’t even approach the concept of full disclosure. The app did have the interchange fees on it, but the proposal did not.

I wonder how many hundreds, or even thousands of businesses have been sold by this company based on this same deceptive fee structure.

15 Responses to “Deceptive fees for a merchant account – Heartland wins”

  1. ibs December 17, 2006 at 8:17 pm

    Heartland likes to hide an extra $.05 trans fee too.
    Check the last page of the statement- you will see it everytime.

    We are all in the biz to make $- BUT let’s be upfront people!

  2. WAC December 18, 2006 at 2:33 pm

    I would like to get the whole story here………. the $.04 – $.10 transaction fee is based on the equipment the merchant has and a direct pass through at cost. (processing platform cost ) By comparison, the $ .19 could be $ .15 per transaction higher with your agent.
    Let’s say this is a small merchant doing $5,000 per month in volume with an average ticket of $15.
    Approx 333 transactions per month.
    Your agent at $ .19 per trans = $63.27 in fees. (does not include mid qual and non qual card surcharges)
    Heartland at .40% and $ .04 per = $33.32 in fees per month
    Heartland at .40% and $ .10 per = $53.30 in fees per month


    Until you know the pricing structure and what you are really charging merchants, DO NOT bad mouth competition, as you say. Thanks for sharing your ignorance in your industry.

  3. jestep December 18, 2006 at 2:49 pm

    Heartland was quoting a passthrough rate. They are going to add .4% and ($.04 – $.10) on top of interchange. At a minimum they would pay a transaction fee of $.14, not $.04, so at best their transaction fee is $.05 lower.

    Visa interchange is 1.54% + $.10 per transaction. This means that Heartland is going to charge them 1.94% and ($.14 – $.20) per transaction, MasterCard: 2.04% and ($.14 – $.20).

    1.94% & $.20 across $5000 (333 transactions) = $97 + $67 = (~$164 Total in fees per month).

    Our agent would have been charging ~$147 (1.68% & $.20).

    The point of the post was not ever to make a price to price comparison, even though our agent would have been cheaper, (especially after MasterCard is thrown in). It was to point out a deceptive business practice, which is exactly what it is.

  4. Justice December 23, 2006 at 9:56 am

    Let’s start at square one.

    Heartland made a full disclosure to the merchant, and I can prove it. Most any store with more than 50 locations has graduated from a bundled billing structure which lists fee categories called “Mids and Nons.” Mids and Nons are the true mystery categories, not comprehended fully by the merchant. For any merchant who does fully comprehend the meaning of “Mid” or “Non” would want a better payment structure on the offer table.

    The further down the rabbit hole one travels in the payment processing industry, the better grasp one gets on how exactly all parties to a transaction get paid. Let me explain that statement. Diamond Management & Technology Consultants posted a report in pie-graph format in the November 06 edition of Digital Transactions magazine. The graph was called “What Interchange Pays For.” Quite interesting. Before we cover one of details from this graph, it is illuminating to hear how field reps “fully disclose” what Interchange is, and what Interchange does. Reps tend to toss the word “Interchange” around as though it were some mystical code that only the elect have passage to understand.

    Next point: The Bankers who make up the Board of the Visa / MasterCard Association are responsible for structuring Interchange … which they do to their benefit.

    So, the core of the conversation in the posts above mine needs to be directed back to the foundational question of “who gets paid what?”

    The first party to be paid is the Card Holder, believe it or not. The Card Holder gets paid a hefty portion of the Interchange pie. The American consumer currently takes home …. [pause for effect] 44% of “Interchange.” That statement there should cause several people to go back to the books and do some more research to re-establish some of their fundamental understandings of this industry. We’ll leave the rest of the pie for you to discover in your research.

    Last point before the conclusion: Let’s get personal. Check your own personal mail box at your own house. I am willing to guess the only card offers that stay in your hand any longer than the 5 seconds it takes to put them in the shredder are the ones that say real bold on the envelope “Earn 5% Cash Back” or “Get Free Gas” or “Earn Points, Trips, Tickets, Trucks, all kinds of Toys.” You still laugh and shred the offer. But consider this statistic; 53% of all Visa cards issued in the year 2005 were tied back to some sort of Rewards Program.

    Now, when deciding which rep provided “merchant A” with the most accurate information about the reality of how the card payment industry is going to effect that merchant’s bottom line … ask yourself these questions:

    1. According to your understanding of the payment industry, what % of an average Sit Down Restaurant’s total sales volume will fit nicely into the Interchange categories of: Rewards 1&2, Standard, Corporate, Commercial, Signature, Small Ticket, World, Merit 1, Elite, Travel, or the other Interchange categories besides “Retail?”

    2. Look at your own paycheck and residual spreadsheet to answer this one. What percent of your personal take home pay is derived from the categories called “Mids and Nons?” Better yet, does your Processor disclose to you how many basis points of margin both you and they making in these mystery categories?

    Last sentence: Armed with the right answers to these two key questions, you will have a new perspective on which of the sales reps made the best offer to this specific merchant.

  5. jestep December 27, 2006 at 4:25 pm

    Heartland made a full disclosure to the merchant, and I can prove it.

    Whether or not heartland made a full disclosure is irrelevant. The simple fact that the merchant thought they were going to pay .4% for their credit card transactions undermines any claim to full disclosure in my book.

    Now, who’s responsibility is it to ensure that the fees are understood? Obviously it is the business owner’s. But, it is assumable that a business claiming full disclosure is going to adequately explain to a business owner what they will be paying, especially in an instance like this where a non-standard pricing structure is used.

    Next point: The Bankers who make up the Board of the Visa / MasterCard Association are responsible for structuring Interchange … which they do to their benefit.

    So, the core of the conversation in the posts above mine needs to be directed back to the foundational question of “who gets paid what?”

    The first party to be paid is the Card Holder, believe it or not. The Card Holder gets paid a hefty portion of the Interchange pie. The American consumer currently takes home …. [pause for effect] 44% of “Interchange.”

    Yes, the bankers and card issuing banks that control Visa / MC structure interchange in their favor. It doesn’t add to their credibility that those same banks collect interest on their customer’s credit cards, which provides far more revenue than credit card processing. With that in mind, the reward / cash back / airline card programs that contribute to consumers accounting for 44% of interchange are essentially marketing so that card issuers can get more cards to consumer. It’s hard to say that consumers are responsible for this either. They never really requested it, they were just offered it. In the end, the businesses that accept cards are the ones who ultimately suffer from interchange prices wherever they are derived from.

    Last sentence: Armed with the right answers to these two key questions, you will have a new perspective on which of the sales reps made the best offer to this specific merchant.

    Again, ideally this would work perfectly, but this can only be accurate assuming that the person signing up for the account has the knowledge to understand what they are getting into. Ask the majority of business owners new or not, if they know what interchange category their transactions falls into. Ask them if they know what a pass through rate is. Even simpler, ask them to explain where they fit in looking at Visa or MasterCard’s interchange tables. I’ll bet that most cant do it, even with the information sitting right there.

  6. PSI January 25, 2007 at 12:45 pm

    I have competed with heartland for years and I can say one thing, when it comes to effective rate, try to compete. They are always close to the lowest and hardest to compete with. They may use a little smoke and mirrors, but who doesn’t in this industry? Truth is they do a great job with pricing structure for the merchants benifit. Don’t give them a hard time for trying to charge a merchant a different way than the rest of the 3 tier agents out there!

  7. Earl Jamison February 7, 2007 at 4:00 pm

    I used to own a little steak house down in Kansas City. I used to do all my processing with Heartland, that company screwed me over with that exact same thing. I can’t even believe those bastards, ran me out of business and money, my credit is screwed, and my business is closed. I am greatfull you are letting people know not only about Heartland, but about everything to look for when you find a merhcant account. Thank you Earl

  8. Jams Johnson April 27, 2007 at 1:31 am

    My son has a small detail biz and he showed me his Hartland statement and asked me if he could get better rates.

    The statement showed:

    1.64% = $.10
    .09% + $.10
    $5.00 statement fee

    I told him to keep this deal because it was just above cost.

    A few months later he comes to me with another statement from heartland
    and it has a quarterly billing fee of $40.00 added to it.

    He called heartland and they told him it’s their profit !

  9. Robb Lejuwaan July 29, 2008 at 11:59 pm

    I have always been impressed with your blog. I really think it is the best merchant account blog out there.

    Having said that, I think you are really off on this post. It sounds like Heartland quoted them an “interchange plus” rate which will end up saving the merchant considerable money. Most merchant accounts come with a very low “qualified rate” but really hit the merchant hard on the “mid-qual” and “non-qual” fees. Heartland may have had a higher “base” or “qualified” rate than your guy, but when it came to rewards, corporate and business cards there rate was probably much lower than yours.

    I say this because when I review a merchant account with rate tiers 95% of the time I can save that merchant considerable money by proving them a “straight pass through” or “interchange plus” price model.

    So you have forced me to side with Heartland on this one. However, please keep up the great content on your blog; you are doing a great job.

  10. jestep July 30, 2008 at 8:32 am


    I completely understand what you are saying. The main problem with this situation was not that Heartland was quoting a passthrough rate. There’s no debate that passthrough will beat the majority of 3 tier, ERR or other rate structure accounts. The problem was that the merchant legitimately thought he was getting .4% for his processing.

    This may or may not have been a problem with the specific rep and the merchant may just have heard what he wanted to, but nowhere on the proposal did it actually state that this was in addition to interchange, or there were any additional charges.

    I think I probably could have chose my own wording more carefully here, but based only on the information on the proposal, I still stand by what I said in this post.

  11. Robb Lejuwaan July 30, 2008 at 9:09 am

    That makes sense to me, thanks for clarifying.

    I think in general Heartland is a decent company but the bar or who they hire does not seem to be too high. Therefore, they sometimes have real inconstancy between their corporate voice/message and how their reps do business.

  12. giulio September 8, 2008 at 12:50 pm

    I just signed up with Heartland because i was dissatisfied with my current provider (Avant Garde Marketing) and i was promise a good deal on debit cards 0.35 per charge plus a network fee of max 10c each transaction. That would have been better than the fix 0.65 per transaction with the old provider. I just received the statement and yes the 35c are correct but the network fee is around 1% OF THE TRANSATION FOR AN AVERAGE OF 60c per ticket. I’m so mad…

  13. charles November 4, 2009 at 12:13 am

    Heartland reps in my area are running around telling merchants that they will not have to pay an early termination fee to their existing processor if they switch to Heartland. I notified the Heartland Execs of what their field sales reps were doing which is totally false and totally dishonest and their response to me was for me to throw out their number and never call them again. When the merchants received their final statements, they were really upset as the early termination fee was fully assessed against them. Heartland is not an honest company.

  14. Kaya Singer February 7, 2010 at 11:21 pm

    I googled for help and ended up on this blog. I am a very small business and need to get a merchant account for the first time. I am anxious about it and don’t know who or how to choose. I want someone honest, with 24/t tech support in English, low fees, and nothing hidden. I am a very uninformed entrepreneur. I don’t trust the people I talk to who are reps for a certain company because of course they are biased and want to make a sale. Does anyone here have a suggestion for what I should do. I need online and local and something that has a shopping cart that interfaces with Aweber. Thanks for any help.

  15. Merchant man February 17, 2010 at 10:25 pm

    It’s nice to see people in our industry and merchants themselves calling situation for what it truly is…. misleading and dishonest. I’ve never a known a company to be so full of themselves as Heartland is and more brainwashed people in my life except for Heartland Reps. There ought to be a club called the “he-man Heartland haters club”. I don’t think you could handle all the people who would sign up…. industry and merchants alike. I could give you dozens of former reps and dozens of unhappy and merchants from lies and lies and lies. Beware and be-warned.