Buyer beware on credit card processing

As a merchant you are also a consumer, and one service you buy is a merchant account for processing credit card transactions.

It is likely that salespeople approach you on a regular basis, attempting to
sell you this service or get you to switch processors. My advice: caveat emptor—buyer, beware.

As a
national leader in providing this service, we at the Michigan Retailers Association often hear reports about how others are selling merchant processing. We hear about the frustrations some merchants face when establishing an account or dealing with these other processors. With that in mind, here are some merchant account “landmines” so that you, too, can beware.

First, to establish a merchant account you will be asked to sign a contract. Read it carefully and understand it – all contracts are not alike.

Some contracts have a clause requiring a term of two to four years and have an early termination fee (ETF), sometimes called “liquidated damages.” This clause states the processor will calculate the estimated lost revenue that it would have made from the account and assesses all or some percentage of it as an ETF.

One of our regional marketing reps recently spoke to a small retailer who had an ETF from another processor of more than $15,000.

You should also understand the various fees that some processors assess.

• “Rates as low as X”
A number of credit card processors are selling their programs with a very good (sometimes too good) “base” rate. You should make sure that you are aware of the frequency that you get cards in your business that qualify for this base rate. We have seen merchants quoted a rate that, because of their type of business, they will never see.

• Monthly minimums

This requires that you pay a minimum amount (usually $25-$40) if you process few or no transactions in a given month.

• Supplies

Who provides the supplies that you need to process transactions – you or the processor? Consumables such as printer paper and ink cost between 2.5¢ and 3¢ per transaction. If your processor does not provide them for free, factor that cost into your cost of a transaction.

• New terminal “requirements”

We have seen a dramatic increase in reports of deceptive sales practices – merchants with perfectly good terminals are told they must replace them to be compliant with PCI (security) regulations. Sales agents from other processors have admitted to me that no matter the terminal model, their opening solution is “replace your terminal.”
     – If you decide to upgrade your terminal, do your research on the cost of the unit.
     – And beware of processors offering a “free terminal” – there is usually a catch.

Please note that MRA’s merchant processing has no early termination fees in its contract, offers free supplies and pledges not to use deceptive sales practices of any kind, including urging unnecessary hardware upgrades.

Remember, caveat emptor.

John Mayleben CCP is Michigan Retailers Association senior vice president, technology and product development, and a national expert on electronic payment processing. He is the first person in Michigan and among the first in the nation to receive the Certified Payments Professional designation from the Electronic Transactions Association.

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