Beware of hidden merchant processing feesSecond in an occasional series on the increasingly complex world of merchant processing. Mark Pentecost, new owner of Track ’n Trail Marine in Cadillac, decided to switch credit card processors after numerous problems with the processor he inherited. As he read through his contract, however, he couldn’t find any mention of the length of the term or the conditions for early termination. “Finally, someone at the card processor’s office
helped me locate the information—buried on page 21 of a long legal
document,” he recalls. He was unpleasantly surprised to discover
the penalty for early termination was $500.
When Russo’s three-year contract (which included a heavy penalty for early termination) was up, he switched to Michigan Retailers, the merchant processor his business had used for years with no problems. “My rates are low, I understand my statement and I’m much happier with the customer service,” said Russo. Total package The moral of these stories and hundreds more like them is that merchant processors do vary in rates, fees and service, as well as how they represent what they offer. MRA, the largest and most experienced independent processor in Michigan, advises retail and other businesses to look at the total package when evaluating merchant processing offers. Extremely low transaction rates—the typical lure used by merchant processors to attract attention—do not provide the true picture of processing expenses. “When an offer sounds too good to be true, it usually is,” said MRA’s John Mayleben, a national expert on merchant processing and an active participant in the Electronic Transactions Association. According to Mayleben, some card processors disguise the total cost to the retailer by offering below-cost rates, then tacking on fees for services that other processors offer at no charge. These fees may be hidden or well-disguised in long contracts until the switch is made. Examples include fees for chargebacks, software upgrades,
terminal supplies, address verification or after-hours customer support.
“It may not be ‘wrong’ to charge a $10 or $15 statement fee as a tradeoff for lower rates,” said Mayleben. “But if a retailer isn’t being told what it will cost him to get those lower rates, he’s not in a position of making an informed decision.” Fierce competition Competition in the merchant processing market—just
as in retail—has never been more fierce, leading to aggressive efforts
by sales representatives trying to sign up merchants or persuade them
to switch from another processor. “It’s hard to know, for example, whether a sales rep even has the authority to offer a lower cancellation fee, or no monthly minimum, or whatever you’re requesting. Don’t trust oral promises—get it in writing,” advises Mayleben. “If you have doubts or questions, check with the sales rep’s manager to be sure what you heard is accurate.” “I can say this because I am confident that MRA’s sales reps do a great job of explaining to clients how our merchant processing accounts work. And we don’t hide our fees or nickel-and-dime the merchant with extra charges,” he added. Sign here Merchant processors nearly always require a contract or signed agreement with the business—it protects both parties. However, not all contracts are equally protective or clear. A good contract, Mayleben says, will have a reasonable term length (not more than one year) and clearly spell out the process for ending it. It should not impose an expensive early-termination (cancellation) fee or make the merchant jump through hoops to exit when the term is up. Jeff Wier, owner of Lakeshore Transmissions in Holland, agrees. Wier says he had great difficulty getting out of a contract with a processor who had caused him problems with electronic check clearing, batch processing and accepting certain cards. Resolving them required time, energy and many headaches. “Getting out of the contract was even more of a headache than the other problems,” Wier explained. “Shortly before my term was up, I called to inform them I would be canceling soon. “I was told I had to submit a letter in writing—fine. But it had to be received after my contract was up but within 30 days, otherwise the contract would be automatically extended,” Wier recalls. “Why make it so hard, unless you’re trying to trap people into staying ?” MRA’s contract has no term or cancellation fee. Do homework How do you sort out the hype from the reality when looking at processors? How can you know you’re choosing the processor that best fits your needs and is better overall than your current processor? Discount rates are determined by many variables—mostly set by Visa/MasterCard—so rate charts tend not to give the whole picture of what your particular mix of transactions might cost you. Rates “as low as…” is often a teaser that pulls you into a deal that may be more expensive than what you’re currently paying, especially if many of your transactions are not qualified for that best rate. As you consider a processor, the sales representative may ask you to provide a typical past month’s statement from your current processor. That statement is used to prepare a sample statement for comparison. This process is a good way to get a picture of what your total cost would be and to identify fees other than discount rates, to allow a fair comparison of those fees and rates. For the best comparison, select a past statement that has a wide range of transaction types (both swiped and hand-keyed transactions, PIN-based debits if you accept them, Internet-based or wireless-authorized transactions, telephone orders). If possible, choose a past statement that also shows other occasional charges, such as fees for supplies or chargebacks, so you can get the most realistic comparison. Consider carefully the sample statement provided and compare it with your old statement. The bottom line is a good indicator, but also look at the details, even if you don’t pore over such details normally. Some statements provide more detail than others. Be wary of statements that are confusing or that lump transactions or charges together. These statements don’t allow you to analyze why some charges are higher than what you expected. A confusing statement was a major reason Pentecost says he looked for a better processor. “The statement was so difficult to read that you couldn’t tell anything about a given transaction,” said Pentecost. “It was too time-consuming. Every month my wife would say, ‘I can’t tell what’s what on this!’” Thorough job The next time you are tempted to check out the competition in card processors, go ahead—if you have the time to do a thorough job. Be prepared, though, to ask the questions necessary for accurate comparisons. MRA, which helped pioneer merchant processing in Michigan and currently provides processing services to more than 5,000 businesses—with an annual volume of more than a half-billion dollars—also stands ready to help businesses evaluate processing offers. The experiences recounted by the retailers above show the importance of working with a credit card processor you trust and can build a relationship with. If you’re already in that situation, evaluate carefully before leaving. If you’re not happy with your processor, there are plenty of card processors who want your business. Why do business with one who doesn’t offer the best in service and cost? This article was written by Amy Buttery, Michigan Retailer staff writer. |
Questions to ask a card processor’s sales rep• How long is the contract? Is there an early termination fee? • What is the monthly statement fee? • What types
of services are included in your customer support? • Do I have to lease equipment from you or may I use equipment I already have? • What kind of other expenses might show up on my statement besides those you’ve already mentioned? • What causes a transaction to be downgraded? How do you show downgrades on the statement? In addition, when reviewing a sample statement provided by a processor for comparison, ask yourself the following questions: • Do I understand what each charge or fee is for
and approximately how • Can I find the kind of information I typically need from this statement? • Can I tell which or how many transactions were “downgraded” (charged a less favorable rate) and why? |
Shortly after he switched, he was plagued by “lots
of red tape and hidden costs. In addition, equipment constantly broke
down and they weren’t very competent or quick about fixing it.”