Archive for December, 2006

After seeing top lists elsewhere for a variety of other topics, we decided that one would be appropriate for our site. Below are the top five reasons to avoid a merchant account provider:

1. They do not publicly disclose their rates

   Although there are a variety of potential fees involved with credit card processing, there still is a core set of fees a merchant can expect to pay regardless of the specifics of their merchant account. These fees will be structured the same regardless of which processor the merchant chooses. As a result, there is no reason a merchant account provider should not disclose their rates and fees on their website or any other form of solicitation. When the merchant account provider uses terminology like, “call now for a free quote” or, “plans customized for your business” you know they are really just sizing you up to try to get every last penny out of your business.

2. They sell proprietary equipment/software

   A common problem merchants run into is there grow unhappy with their current processor and attempt to leave them for another processor. This is when they find out the credit card equipment or software they were sold by their current company won’t work with the new company. The real problem with this is that their current company knew this when they established their merchant account but did not tell the merchant. As a result the merchant has to make a decision: either stay with their current processor whom they are unhappy with or essentially throw away their old proprietary equipment and buy a new one.

   When shopping around for a merchant account provider ask them if the equipment or software they are selling you can be used with all processors. As them if it is proprietary to any processor or processing network. Common names that should immediately set off red flags is LinkPoint and Eclipse.

3. They obfuscate their fees

   The fees associated with merchant accounts, even though simplified several times over by the processing banks, can still be complex and more then most merchants can understand. Some merchant account providers take advantage of this by trying to position their fees in a way that is very misleading.

   An example is the AVS fee. AVS must always be performed, or more accurately, is always performed for all non-swiped transactions. Unfortunately some merchant account providers prey on their potential merchants by not telling them this. Then when they disclose their fees they separate their AVS fee from their transaction fee. This causes the merchant to think their rates are actually lower then they think they really are. Of course the merchant doesn’t realize their mistake until they get their first statement and at that point they are almost certainly locked into a long term contract. The merchant account provivder can always say they disclosed the fee. The fact that they did it in a potentially dishonest manner doesn’t matter to them.

4. They have a comparison chart on their website

   Ever see a comparison chart where the company being compared to the “industry standard” just looks like their offer is an amazing deal? Their rates are so much lower then the “industry standard” and must really be a good deal. Right? Not quite. For starters, there is no industry standard. Merchant account providers can charge whatever they want to charge. Each company has different fees that they can choose to charge apart from the typical processing fees. But no provider is required to charge these fees and thus there is no “standard”.

   Naturally, the rates and fees you see listed in the “industry standard” are not accurate. Although technically there can be an industry average for fees there is no way to accurately determine this. This information is not publish and would require hundreds of companies disclosing their rate structures. Needless to say this has not happened and is not likely to happen. And, of course, these numbers are guaranteed to be inflated above any true average or what a merchant can find if they spend more then 5 minutes comparing providers.

5. They charge you fees that only serve to make them rich

   There are a myriad of fees that a merchant may encounter while accepting credit cards. Most of these are normal and many of them a merchant will never encounter if they process their credit cards properly. Most of these fees are designed to encourage merchants to process their credit cards properly and to cover the costs of handling transactions that are not processed properly.

   However, there are some fees that exist solely for the purpose of the merchant account provider’s benefit. These fees are meant to penalize merchants, punish them, or take advantage of their lack of knowledge about merchant accounts. An example would be a set up fee. Establishing a merchant account is not difficult to do if a merchant account provider is even remotely organized and experienced. And since they stand to make a lot of money from establishing the account there is no need to make the merchant pay for the privilege of making the merchant account provider more money.

   A cancellation fee exists only to lock a merchant into an existing contract. This fee means once a merchant account provider has locked a merchant in, they don’t have to worry about losing the merchant as if the merchant leaves they get paid a hefty sum of money from this fees. It also means merchant account providers will do anything to land a merchant including using some of the tricks mentioned above. A cancellation fee combined with proprietary equipment usually means a merchant is stuck with their provider for years no matter how unhappy they are.

   Lastly is the monthly minimum fee. This fee exists for one reason only: to penalize small merchants. Although it is understandable that without this fee small merchants would be far less attractive to merchant account providers, for how little work is required to establish a merchant account, an efficient and organized merchant account provider can make it cost effective to sign up those merchants without penalizing them for being small.

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