Merchant Account Warning

Warning!  Read this before signing up for a merchant account.

Many payment processing companies make themselves look extremely large on the Internet, yet are really just big advertisers and high pressure sales people who are not really a payment processing company at all.  They sell processing for whoever pays them the most commission and it is always the merchant who ends up paying for it, usually in the first few months and in startup costs.

It is a known fact within the processing industry that more than 75% of new Internet businesses have a slow start or fail altogether.  Avoid companies who's high monthly fees will drain your resources.  Remember that many of them are depending on those monthly fees to compensate their sales and marketing efforts.

Since most sales people in the merchant account business are never going to tell you that there are better deals for you out there, we have compiled a list of things to watch out for.

Merchant Account Hidden Fees

Find out if there are any fees whatsoever that aren't disclosed.  Here is a list of some of the garbage fees that merchants pay because they are not aware of a better solution:

- Chargeback fees
- Retrieval fees
- Gateway fee
- Termination fee
- Hidden setup charges
- Non-refundable setup charges
- Cancellation fee
- Minimum fees
- Pass-through fees (these vary)
- Software fees
- Licensing fees
- Annual fee
- Amex/Discover setup fees
- Statement fees (more for more services)

Merchant Account Misleading Ads

Be wary about advertisements that are misleading or are flat out dishonest.  If they lie on their ads then most likely they will not care about you later on.  Watch out for blurbs like:

Instant Activation - These types of accounts are a gimmick and have severe limitations.

Instant Merchant Account - This is a gimmick; ask them when you can receive your funds.

No Merchant Account Needed - Do you really want someone else to handle your money for you and pay you when they want to?  Technically you are under their umbrella, even though they issue you a merchant ID number.  MasterCard and Visa do not allow multiple parties to share the same merchant account and will eventually shut these companies down.

99% of all Applications Approved - This one is probably untrue, any credit card processing company with a 99% approval ratio is going to be out of business with all the risk they assume.

24-Hour Customer Service - Are they really providing it or do they pay an outside answering service?  Try it out before you sign on the dotted line.  Most providers only offer 24 hour tech support and not customer service as customer service typically isn't needed 24 hours a day (but tech support is).

24/7 Technical Support - Are they really providing it because a reseller must depend on someone else.  Also, if you have multiple services, you may be calling many different support lines.

We Offer Credit Card Processing - Find out if they are really just an agent sales office with another provider and not an actual registered ISO/MSP of a bank.  If they are simply an agent, they're at the mercy of another provider that may not live up to the sales agent's promises.

We Offer International Merchant Accounts - This is sometimes a gimmick.  What some providers mean is that they process payments from anywhere.  Anyone who accepts Visa payments can accept them internationally.  There are providers who can refer you to an international processor however, check with the provider to be sure what they mean

No Business License or Tax Returns Required - If this is really happening then the bank providing the merchant account is in a lot of hot water.

Remember that Visa and MasterCard regulations require that a company disclose who their sponsoring bank is if they mention Visa and MasterCard anywhere on their website or advertisement.

Point-of-Sale (POS) Hardware Scams

Don't assume that low priced hardware comes with the best processing because it usually doesn't.

Don't buy hardware that you can't take with you to any other processor.

Watch out for lease terms, this can be like buying a car.  It is sometimes irrevocable and you have to pay a high percentage rate like 15-20% because it is not in-house.

Some processors secretly lock their terminals with a code that one their system can unlock.

Always ask about the total startup cost, hardware pricing, software license fess and be sure to shop around.

You Don't Have Full Use of Your Funds

If you are a non face-to-face business (non-retail) be careful because many processors will freeze your funds once you start to show any processing growth.  This has put many companies out of business because their case flow was frozen by their processor.  Some processors only want businesses that do less than $10,000/month and once a business passes that amount they become a high risk business.  Find out from your processor if there is an actual set term for this prior to signing up.

Lack of Integrity

Verify their integrity! Do a background check and see if the company is known for doing business with companies like yours.  Did they become successful by supporting online gambling casinos and adult porn sites?  These two industries bring in huge revenue:

"We felt the traffic on our site might be interested in the gaming world," said Gary Kremen, CEO of Sex.com.  "It seems that the value of gaming is higher than adult sites."

Partnering with gambling and porn companies will bring legal issues with your processing company, and possibly even you.  Lou Hirsh of E-Commerce Times in his article for NewsFactor called, Is Porn Still the Hidden King of E-commerce? said, "Experts noted that even as the porn industry as a whole rakes in dollars, it must also deal with legal limitations because of it taboo nature."

"Some companies, however, have decided that casino money isn't worth the risk given gambling's dubious legal status in the United States and the attempts by some state and federal officials to crack down.

Just this week, PayPal (Nasdaq: PYPL) of Mountain View was subpoenaed by the New York Attorney General's office, which is investigating online gambling." NewsFactor July 15, 2002

Chargeback Management Issues

Many processors assume that the merchant is wrong and don't process the chargeback in a timely fashion which robs the merchant of an opportunity to respond and avoid the chargeback.

Fees for chargebacks vary but most processors consider chargebacks to be a huge source of revenue and therefore have no desire to limit chargeback fees and help the merchant to minimize chargebacks to begin with.

Discount Rate Not Refunded

Most processors keep the discount rate whenever a credit is given.  What this means is that if your business gives a lot of credits to keep customers happy, you can make a lot more money by working with a processor who returns the discount rate originally charged with every credit you give.

Big Bank Outsourcing

Don't assume a big bank is either better, or more ethical or has less costs.  Most big banks outsource all of their services and leave the merchant paying the high fees.

Merchant Account Contracts

Be careful of signing a contract too hastily.  Read the application carefully because some contracts carry a non-cancellation clause or penalty.  If a company will not leave an application with you overnight, they are probably trying to use "high pressure" tactics so that you don't really know what your signing.

Good Advice

If you really want to get as close as possible to the truth about credit card processing companies visit the Google Groups and follow these instructions:

1.  Type in the name of the company that you are considering signing up with and add one of these keywords to it: "scam" "fraud" "lawsuit" "ripoff" "sucks" "dishonest" "illegal" without the quotes.

2.  Find out what people are saying and see who has the best reputation.  Be sure to check the dates.

3. You may also take a look at the MerchantSeek merchant account provider reviews section.

I was amazed to find out how many companies were either suing their own customers for an unpaid cancellation fee or would not issue a refund to an unhappy customer.  Remember that many companies try to cloak their dishonest practices by selling out to a bigger company when the going gets tough.  These problems will not just go away so do your homework and find out what the history of the company you are considering signing up with.

Article by:  Steven Santos of Infomerchant.net
No portion of this article may be reproduced without prior permission from the author.

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