Credit Card Processing – the Fraud Fallacy

One way that credit card processors justify their markup over interchange (which is commonly more than 0.50% – 50 basis points) is that they require the markup to cover the cost of fraud and returns, which sounds reasonable.

In reality, the merchant bears the first responsibility for fraud and returns and the only time the processor gets stuck holding the bag is if the merchant themselves were running a scam or they went out of business before they could fulfill customers’ orders. That doesn’t happen very often. Heartland Payment Systems, a large publicly traded credit card processor, reported in their latest financial statements that their losses were about 0.0045% or 0.45 basis points.

In other words, losses are < 1/100 (0.45 / 50.00) of the cost structure of credit card processors.