Billback & Enhanced Billback…Buyer Beware

One of the most confusing billing methods in the credit card processing industry today is the billback (BB) method. Chances are, you don’t even know what it is. What’s worse is that billback spawned itself an offspring called enhanced billback (EBB), which is even more complex than the original. To add even more confusion, the names for these types of billing methods change regularly. It’s almost like the processors do it on purpose in order to keep you in the dark. For example, here are some other names for Billback:

• Enhanced Reduced Recovery (ERR)
• Blended Rate
• Mixed Rate

If you don’t read any further, my only suggestion would be for you to avoid billback and enhanced billback. However, some of you may already be under billback and not even know it. If that’s the case, then I suggest you keep reading…or send me your statements and I’ll let you know.

First things first, let’s define billback and enhanced billback.

Billback Definition

To understand the definition of billback, just take a closer look at the name….billback. That means that you will be billed back for some stuff that you weren’t billed for in the first place.

Here’s how it works…

The processor quotes you a flat rate of say 1.79% for ALL of your transactions for the month. But, if you know anything about interchange, then you know that not all transactions are created equal. Some transactions will have higher rates than others, even higher than 1.79%. That’s just the way VISA and Mastercard made the system. There are no exceptions! A rewards card will have a different interchange rate than a debit card.

So, if the processor is charging you 1.79% for every transaction, but not all of those transactions end up qualifying for that rate, then how does the processor recoup the difference?

The processor ends up charging you 1.79% for every transaction for that month regardless of what interchange category the transaction qualifies for. Then, in the following month, they look back at those transactions to see what rates they actually did qualify to and charge you for the difference on your next statement.

So, in effect, you end up needing two months worth of statements to figure out what the hell the processor has charged you in total for that specific month. Think that’s bad? Let’s define Enhanced Billback aka Enhanced Reduced Recovery.

Enhanced Billback Definition

Think billback, but just think of the “enhanced” part as enhanced margin. As in, more profit for the processor.

The only difference between billback and enhanced billback is that the processor “enhances” the billback part with their own little margin. I’m not even making this stuff up. The word enhanced literally means that they enhance the billback with more margin. Wow!

How to Identify Billback

I’m sure by now you’re thoroughly confused, and your eyes have probably glazed over. Trust me, even I had a rough time understanding this, but I suggest that you don’t over-analyze it, and don’t freak out. Here’s a visual to help you identify if you’re under billback or enhanced billback:

(Click to Enlarge)

Notice the “BB” in red? That stands for billback. Notice the Statement Period in green? It’s for May 2011, but notice the billback charges in blue? They’re for the previous month (April 2011).

You’ll have a similar statement if you’re under enhanced billback, expect instead of “BB” it will have the acronym “EBB.” Same with Enhanced Reduced Recovery (ERR).

So, all you have to do is search for those terms on your statement and you’ll be able to quickly find out if you’re on billback or enhanced billback. If so, I highly recommend that you contact your processor and have them change it, or use a processor that doesn’t use billback (like CDGcommerce).