Merchant Service Scams, Gimmicks & Misconceptions

Merchant Service Scams

For those of you that know us, we are huge advocates of educating merchants and giving them the power to make informed business decisions when it comes to credit card processing for their businesses. We have heard all the merchant service scams, misconceptions, and the horror stories.  We’re here to debunk some of the confusion and the gimmicks and hopefully share some insight.

Let me start with those pesky telemarketers.  Agents hire them to set appointments.  If you own a business your probably on the “list”!  Telemarketers typically read from scripts, promising you low rates or even the best rates ever.  I especially enjoy the ones that tell you that they are offering you “wholesale” rates or since you have not had any chargebacks they can lower your rates.  First of all, there isn’t such a thing as “wholesale” rates.

Credit card companies like Visa and Mastercard Interchange (cost) rates are published on their websites which can be accessed by a simple Google search.  Everyone in the credit card processing arena pays the same Interchange cost no matter if it’s Chase Bank, Wells Fargo, or Digital Financial Group.  Let me also add that there is not a national database that all providers share.  One company can not see another company’s information on any merchant account.  So if you are talking to someone that claims you’ve had low chargebacks or great history, I say hang up the phone!!

The rates a provider charges you can get confusing. Merchant services company that sold you your merchant account aren’t necessarily lying to you they just might not be DISCLOSING all required processing fees and the fine print.  Or even worse, they haven’t been fully trained on what all the fees are.  So READ the fine print!!  All contracts by law have to have all costs disclosed but whether or not you know what you’re reading and looking for is the problem.  (For more information on this topic read my previous topic “Merchant Service Pricing Explained”.  One, of the top tricks, is to offer a low rate.  It looks really great and when you get your statement, there is your great rate on the first page.  However, be cautious enough to look at the other pages to see if there are any surcharges or other line item fees.

Credit and Debit cards swipe at the same rate.

Wrong! Swiped debit transactions cost less than a swiped credit transaction.  This is where agents can be deceptive.  They will advertise or “sell” a low swiped debit rate but sadly to say you probably won’t see that rate.  In order to get debit pricing, your account has to be set up for it or you have to be on an Interchange pricing plan. The only exception to this is if the agent is pricing the merchant below cost.  However, this typically means the agent has increased the downgrades fees or is charging you other fees to make up for the loss.  I don’t know too many people that will give away something for nothing!

Rates and fees disclosed in my contract are locked.

Wrong! Interchange costs increase and the providers have to adjust to those rising costs. Within the contracts, it gives them the ability to increase your rates and fees to adjust for those increases. Providers can pass on other fees that increase as well, such as statement fees, PCI compliance fees, etc.  They pass on the cost of doing business just like any other business will do.  Interchange rates generally change in the spring and fall.  Your credit card provider should notify you in your statement prior to an increase.  So read your statements!!

My contract turns into a month to month after my contract term is over.

Wrong!  Some contracts will renew automatically for another term.  Typically, if you are on a contract you will have to give 30 days’ written notice that you are opting out of the service at the end of your contract date.

My bank offers me better rates and services.

Wrong!  Don’t assume a big bank is either better or more ethical or has fewer costs.  Most big banks outsource all their services which can result in higher fees.  Also, bank representatives are trained on checking accounts and banking, not on merchant services so for the support you’re directed back to an 800 number.

After my lease contract is fulfilled, I will own my machine.

Wrong! First, unless you are extremely tight on initial start-up money don’t sign a lease!  A lease agreement locks you into a term of payments, typically 3 to 5 years, and when the term is fulfilled you have to pay a buyout or give the machine back.  The buy out is almost what the machine cost in the first place.  You can end up paying thousands of dollars for a machine that probably cost a few hundred in the first place.  You can not get out of a lease after it is confirmed!!  This is the number one horror story I hear about when it comes to leases!! They will lead you to believe it is a rental or they tell you after the contract is finished you own it.  Not true!!

Here are some miscellaneous fees you may see on your statements are shown below.  Sometimes these fees are legitimate costs and sometimes they aren’t.  To find out whether they are bogus or not is to ask questions and go with your gut.

  • Authorization fees (or transaction fees) are typically from $.19 to .30.  These are typical costs associated with any merchant account.
  • Batch fees are costs that associated with closing the terminal out.  These days most providers have batch fees, however, it should be a very minimal fee.
  • AVS is an address verification system fee.  Your account has to be set up to run AVS.  If you aren’t inputting the address into your terminal but getting charged this fee you should check with your provider.  Again, AVS fees aren’t typically charged anymore but in some cases they still make sense.
  • Decline fees. There are providers out there that will charge you for a transaction getting declined.  Decline fees can be costly for online merchants because they tend to have more declined transactions due to fraudulent attempts.  This is an additional source of revenue for the provider but the cost to them is minimal.
  • Voice authorization fees.  Providers will charge for a voice authorization or an automated authorization because your terminal is down or the card won’t go through.  Again, another source of revenue to the provider but the cost to them is minimal.

Monthly minimum fees are based on gross processing volume.

Wrong! This fee refers to the fees paid by the merchant to the provider. They don’t refer to the volume on the account.  For example, if a merchant has a monthly minimum fee of $20, the merchant must accrue at least $20 in fees or they will be charged the difference between their actual fees and the $20 minimum fee.

Like everything else, merchant services can be made to look confusing and the best advice I can give you is to just be informed!  Do your homework and ask a lot of questions.  When you first open your account you typically aren’t paying attention because you just need credit card processing.  However, at some point, you need to become educated enough to understand you’re not being taken advantage of.  Buyer beware! Don’t be one to get caught up in the gimmicks and scams!

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