The Payments Experts Podcast
Expert payments attorneys discuss the electronic payments industry from a legal perspective.
The Payments Experts Podcast
Two Giants Control Payments: The New Truth About Debit Routing and Hidden Processor Fees | PEP102
Use Left/Right to seek, Home/End to jump to start or end. Hold shift to jump forward or backward.
Outrage alert: a government ambulance merchant was charged 9.49% in fees. We unpack how hidden debit routing and “pass-throughs” spike your effective rate and what ISOs and merchants can do next.
Ever wonder why your “great” rate still turns into a painful effective rate on the statement? We dig into the machinery behind card acceptance and show how debit routing, pass-through fees, and quiet portfolio-wide hikes siphon margin from busy merchants and the ISOs who serve them. Along the way, we break down two sobering examples: a government ambulance provider billed at 9.49% and a small Midwest gas company pushed to 12% after years of ownership changes and portal-only notices.
We pull back the curtain on hidden processor fees, debit routing tactics, and how consolidation leaves merchants footing the bill. Real cases—a 9.49% ambulance account and a 12% gas station—show how small changes and vague notices drain margins fast.
• processor-owned debit networks driving costly routing
• pass-through fees and switch charges not shared with ISOs
• portfolio-wide price hikes and opaque statement messages
• outages, token loss, and settlement delays impacting cash flow
• state-level action versus Europe’s interchange caps
• limits of card labeling at the point of sale
• consolidation reducing real choice and leverage
• concrete steps to audit statements and lock contract rights
We also revisit the fragility behind the rails—multi-day settlement outages and bungled data migrations that break tokens and stall recurring payments. When billions sit unsettled over a long weekend, merchants juggle payroll and cash flow while someone else benefits from the float. These failures reveal a bigger truth: without visibility into network costs and routing choices, even small hiccups become expensive crises.
Zooming out, we explore why state-level intervention is accelerating in the U.S. while Europe’s interchange caps keep acceptance costs low and predictable. Card labeling ideas sound appealing but fall apart at a crowded bar or fast checkout. The more practical path is contract discipline and relentless measurement: define revenue share across all present and future fees, secure audit rights, and track effective rate monthly. For merchants, push for least-cost routing, map every line item to a source, and maintain a backup plan for tokenized subscriptions. For ISOs, negotiate transparency from processors and defend your merchants with data, not promises.
Two giants control your payments—and your costs. From outages to undisclosed network markups, we break down where the money really goes and how to fight back.
If this resonates, share the episode with a merchant or ISO who’s feeling the squeeze. Subscribe for more straight talk on payments, and leave a short review to help others find us. Your margin deserves a fair fight—let’s make it happen.
**Matters discussed are all opinions and do not constitute legal advice. All events or likeness to real people and events is a coincidence.**
PEP Links:
https://www.globallegallawfirm.com/podcasts/
https://www.buzzsprout.com/2176695
A payments podcast of Global Legal Law Firm
Processor Outages And Lost Data
SPEAKER_02Remember years ago, four or five s no, this is a bit longer than that. I mean eight years ago, Tisys went down over a three day weekend. Yeah, okay. And it wasn't settling merchants' funds. And I'm going to And they didn't know how to do it. What did they do with that? What billions? Maybe yeah, bil at least billions. I was gonna say it got up to trillion, but maybe not. What did they do with that money? You know, if you just even put it in a little pile over here that got interest all of a sudden over the weekend. And I'm going, well, you know, if I'm a merchant, I didn't get my settlement over the three-day weekend. Like, you know, I'm gonna be drinking Core's light instead of what uh what is what's better than Core's Light? Nothing, I guess. So I have to drink Natty Light now this weekend, this holiday weekend. That's pretty bad. Bushlight Draft.
SPEAKER_03Yeah, yeah.
SPEAKER_05I like pushlight draft. I like bushlight draft too, actually. The other one was when T Sys uh, this is uh over a decade ago, but they like actually built a new system and they migrated the data over, allegedly, and then they lost a bunch of the data. Yeah, they lost all the tokens and everything.
SPEAKER_02So yeah, yeah, so all your recurring payments and yeah, it all got shut off, and this this was over a decade ago.
SPEAKER_04Somebody fell asleep on the delete button and slipped a finger. Maybe who knows.
SPEAKER_00Welcome to the Payments Experts Podcast, a podcast of Global Legal Law Firm. We hope you enjoyed this episode.
Hidden Fees And Debit Routing Abuse
SPEAKER_05Yeah, like it's it's kind of like this crazy resetting. And like, look, I know that in certain respects, like some processors who own debit networks, when interchange would be altered, they didn't necessarily build the grids to do a feed through of all network fees that were literally debit debit interchange through. So they would just do this here. We'll pop all these in, and then there'll be a line item fee which would tie back to these, maybe, right? Right? Or they just wouldn't pass them through, or whatever they're doing. I don't really know. But then all of a sudden, when you have an issue, it comes up that, oh yeah, we haven't been passing through. We haven't been passing through.
SPEAKER_02I mean, the debit routing is a humongous issue that needs to stop. So there's a processor that owns debit networks, and they are the two most expensive debit networks, and they push all the transactions through their networks, and they go, oh, pass-through fees. And so the merchant gets charged it. The ISOs don't share in it because they don't have an agreement, um, and the agents don't share in it, and they're pocketing it. And we'll see it a lot of times is you know, you'll refer it over to the processor and they'll agree to pricing, and they'll even be like, oh, the merchant complained. They'll drop the pricing to zero or razor thin margin so that the ISO is getting something, but they're pocketing it over here on the debit network.
How Processors Pocket Network Profits
SPEAKER_05So or they've got undisclosed arrangements with the card brand networks where there's switch fees across, where there's profit there that doesn't get shared. That doesn't get shared with the ISO, and then it's totally passed through.
SPEAKER_02Yeah, I mean, we've seen it for years, and then you know, the the bigger ISOs, the super ISOs, have copied that model where they go, here's your fee schedule. You only share in these fees. And then the years go by and they're like, Well, we added all these other fees, but you don't share in them. Yeah. And then the ISO's going, well, my merchant's gonna cancel because their effective rate is at like seven now. And they're going, well, you better lower your fees. And they do it. And they do it, and they, you know, it's it's a practice that bleeds through.
SPEAKER_05That's it, that's an interesting one. So I had a client hit us up last week. They don't use this very often, known them for over a decade. And they deal primarily with government agencies and you know, like uh ambulance service or like fish and game, you know, like they're they're in states with like smaller county agencies, municipalities, like they're doing government, government processing for the most part. And he's with a legacy processor, and they've been gobbled up by global, and he sends me this merchant statement for an ambulance service. It's an ambulance service. The effective rate across effective discount rate on average was like 9.49%. Nice. And they just spiked it. And basically, they just see if anybody actually like complains. Well, isn't it?
SPEAKER_02It's mostly insurance companies. And if they don't have customers, so they're probably not complaining. Yeah, I well, I don't know. Well, these no the merchants. The dealance is getting charged it, but the you know, they're probably dealing with insurance companies.
Case Study: Ambulance Merchant At 9.49 Percent
SPEAKER_05Well, I the the the the rate that I saw, the the merchant account statement that I saw was$110,000 in processing for a month, and it had something like$20,000 in fees. It was like$11,000. Yeah. Yeah. And and I'm sitting there going, wow, that's a huge chunk of change. James, because when when um you know I can't remember who said it on here, but when you look at a profit margin of 20%, well, that three percent of the profit margin, right? Like it's three percent of the sale, right? But when you look at the three percent against a 20% profit margin, now look at 10% against whatever profit margin.
SPEAKER_00That was Victoria Soltez. That's right, it was Victoria.
SPEAKER_05So it was really interesting to me that um you're seeing this kind of stuff. And you know, the first question I asked was, was there a statement message? And he was like, even if there wasn't a statement message, it doesn't matter. He's like, This is just like highway robbery, you know.
Legacy Contracts And 12 Percent Gas Station
SPEAKER_02Well, I've got one that's even worse is that gas company, he signed up with somebody like 15 years ago. They got bought and sold a million times, and it was weird because it was and it ended up with thesis, but it was a first data agreement. I don't know how that works. I don't know if they re-apped him or whatever, but he somehow got a portal at one point, and they're sending the statement messages to his portal, and he's at like 12%. Yeah. And he's a gas company and he's he's processing like 80, 90k, just a small gas company in the Midwest, um, you know, private. And he's get he's going, well, they're like, Well, we gave statement messages, and I'm going, well, hold on. I'd never even logged into the portal. You know that I'm not getting these. The problem that we have, of course, is the agreements, these, you know, but the the Phi Serve program guide is a very draconian agreement. It says, basically, we get to do whatever we want.
SPEAKER_05Yeah, but that's the crazy thing to me, is they do all of these things, and a lot of time it's portfolio-wide. I don't know how they select what how they're doing it or if it's incremental and it's just on a schedule. But I look at it and go, you guys just don't really care about whether or not these people remain customers at all. It's just money today. No, it's only money today.
Draconian Guides And Portfolio Hikes
SPEAKER_02They get together in their dungeon and they plan out like Star Chamber gas company. Yeah. Let's get him. Yeah. And I'm looking at it and I'm like, in the Midwest, like this guy is a vital service, you know, this time of year. That's true. That's true. I didn't think about that. And they're going too. He's they're going, like, you know, you can say, like, well, why didn't you notice? And he's like, I'm running my business. Well, here's another thing. I shouldn't have to be checking on my providers that they're not ripping me off all the fucking time.
SPEAKER_05And how and how does that really make sense with the idea of surcharging? Right? Like, oh, I can cut into a part of the exorbitant cost? Like, great. Like, and there are like I don't know, that guy should go to his legislature personally. Like, yeah. I mean, like, that's one of those things where it's like, well, I'm allowed to surcharge, but you know, can I surcharge my actual cost? And what would that do to my customer base, right? I mean, it's it's it's this revolving cycle. I guess probably the message of what we're talking about is anybody who is involved in this, review your contracts, review your statements. I mean, like, and and I review your merchant statement.
Consolidation Down To Two Giants
SPEAKER_02That's what I'm saying. Review your merchant statement. Your merchants, like if you're the ISO, you should be looking at the state. Oh, yeah, I would be willing to do that. You're not you're not necessarily gonna know what these guys have told on them.
State Action, Europe’s Caps, And Card Labels
SPEAKER_05That's the problem, is that most ISOs and agents are not parties to the agreements that they're brokering. They don't have any rights except to get a piece of the profit. And generally when they make an objection, it's well, you're getting a uh Rev share on the increase. Right. Yeah, but for two months, like, and then they're like, I work to like close these people, and yeah, you know, and the crazy part is is that there's so few places for merchants to get processing outside the card brand networks or the or the large processor networks. I mean, there's so much consolidation that goes on, right? I mean, we really only have three processors at this point. No, less than that. Like two. Two. Yeah, we're down to two. And at a certain point in time, like, yeah, there's different brands out there, but you lead up the chain, and really we're at global and five serve at this point. I mean, yeah, there's not much outside of that. So, you know, it's you look at it and it it they're just they're just really we've got this idea of, oh, okay, well, we'll just gouge the merchant and then they'll just go over to our competitor or maybe to us again through one of our other trade. They're gonna get it.
SPEAKER_02There's no, there's only there's only a couple shops in town. I remember years ago, four or five no, this is a bit longer than that. I mean, eight years ago, T Sys went down over a three-day weekend. Yeah, okay. And it wasn't settling merchants' funds. And I'm going, And they didn't know how to do it. What did they what did they do with that? What billions? Maybe, yeah, billion, at least billions. I was gonna say it got up to trillion, but maybe not. What did they do with that money? You know, if you just even put it in a little pile over here that got interest all of a sudden over the weekend. And I'm going, well, you know, if I'm a merchant, I didn't get my settlement over the three-day weekend. Like, you know, I'm gonna be drinking Core's light instead of what uh what is what's better than Core's light? Nothing, I guess. So I'm drinking Natty Light now this weekend, this holiday weekend. That's pretty bad.
SPEAKER_03Bushlight Draft. Yeah, yeah.
SPEAKER_05I like bushlight draft. I like bushlight draft too, actually. The other one was when TSIS uh this is uh over a decade ago, but they like actually built a new system and they migrated the data over, allegedly, and then they lost a bunch of the data.
SPEAKER_02Yeah, they lost all the tokens and everything. Yeah, so all your recurring payments and yeah, it all got shut off, and it this this was over a decade ago.
SPEAKER_04Somebody fell asleep on the delete button and slipped a finger. Maybe, who knows?
SPEAKER_05Yeah. But but kind of to the point of you know, you've got this regulation like with the states, it's these business practices that are making the states come in.
Practical Limits Of Card Differentiation
SPEAKER_02It's making the states come in, and yeah, when you get the big consolidation, you know, when we've been going at Visa and you get a little in there, it's like, well, how hard are you really gonna go at these guys? Because they've got their tentacles and everything. Yeah. And they're not, you know, they're not gonna move unless they're forced to. Like they, you know, in Europe they got it done where interchange is 0.4. Oh, yeah, it's like nothing.
SPEAKER_052.4. Yeah, it's like 50 basis points. It's crazy. Like it that's on but it that's the thing, it's so much more competitive there. And I think part of the reason that Europe has the system it does is because really, like, we're one country here. The states this is maybe why the states are are are are moving on these issues, is because the federal government isn't gonna do anything as it's proven. Like they've got some watchdog groups, but they unraveled the CFPB. So and the states are really the only government actors in Europe. You've got independent nations, but they act as one. Right. But they're they're looking to protect everybody and not really screw people.
Credit Limits, Rewards, And Wrap Up
SPEAKER_02So I think that pushes the actual cost of acceptance down. I wonder, because the you know, the the issuing bank gets most of the interchange, and they're going, yeah, we need that because we're giving you guys rewards cards. Do they have as good as rewards cards as we do here in Europe? Probably.
SPEAKER_05Did we talk to Victoria about that?
SPEAKER_00Do they have rewards cards? You know, we this topic did not come up.
SPEAKER_02I would think that they, you know, they would.
SPEAKER_05Well, we th we Jessica and I were talking about the like a new proposal in the interchange settlement that would talk about cards and labeling cards, and you know, that way merchants could see which cards and they didn't have to do honor all cards. But like the it that I actually thought the subject matter of that was really interesting, but when I started speculating on what does this really look like in practice, it's a mess. It's a mess. Yeah, and it's impractical.
SPEAKER_02Right. It's not totally impractical though, because Visa and MasterCard are doing it at their level, assigning different interchange rates.
SPEAKER_05Yeah, but I'm a bartender and I got 30 people in front of me, and all I care about are my tips. Yeah. Am I really gonna be able, as an employer of the bar, to be looking at the car and go, you're cute, those can't take that one, right? Like is that really gonna go to that?
SPEAKER_02Yeah, and it's gonna be you know, a rewards card. You have to have some, you know, credit worthiness. And your ballers like Chris with his Amex black and everything. You know, then he's those are the cards that those are the cards that you're gonna be turning down because they're the more expensive ones to get.
SPEAKER_05It's interesting. I have a I have a Wells Fargo credit card that I got in 1996 that I still have. Wow. And my credit limit on that is uh$7,200, and they've never offered to raise it. Which I think is very fascinating. I don't know. They must not think much of me, but let's face it, they're asleep at the wheel.
SPEAKER_02But my first credit card I had to I had to pay to get it. To build it. It was like the speaks to your character. It wasn't great.
SPEAKER_04Well, when you have no credit, your only credit mark is one.
SPEAKER_05Put in$500 and then we'll give you a credit card. Yeah.
SPEAKER_02It was like that because I had no credit ever, and my only negative credit was a landlord coming after us for a security deposit. Or no, he got the security deposit. He wanted more. Yeah.
SPEAKER_00Thank you for being a Payments Experts Podcast listener. We hope to see you on the next one. We wish you a great 2026. For James Huber and Christopher Dryden, thank you, and bye-bye. Thank you for listening to this episode of the Payments Experts Podcast, a podcast of Global Legal Law Firm. Visit us online today at Global Legal Law Firm.com. Matters discussed are all opinions that do not constitute legal advice. All events or likeness to real people and events is a coincidence.