What to watch out for while shopping for a Merchant Account
While doing your research to set up a Merchant Account you are sure to hear all kinds of horror stories from Merchants who felt completely violated by their Credit Card Processing Company. While it is unfortunate it is also avoidable by doing your homework. Before considering a Provider always do a google search for the company's name plus "scam", "fraud", "rip-off" etc. (without quotes) to see what dirt comes up. If there is an overwhelming amount of unhappy customers then chances are you have a bad apple that you want to stay away from. Also check with ripoffreport.com and the BBB to make sure they are reputable companies. Keep in mind any large reputable company will still have a small percentage of unsatisfied customers, so don't always assume one person's bad experience the norm. Here are the 5 main things to watch out for when considering a Provider:
Hidden Fees
Every credit card processing company will have certain standard fees. "Hidden" fees are additional fees they fail to disclose upfront, but are instead hidden in the fee schedule. Many providers just fail to be upfront with you about all fees initially in hopes of getting your business. The new customer overlooks them and then is surprised when they see them show up on the monthly statements. Make sure to ask for a fee schedule and make sure every fee is explained to you. If they are not able to give you a good reason for each fee you may want to move on to another company. So before signing any contract be sure you are aware of all fees and you know what to expect. Here is a list of fees to you may want to question and understand what and how much they are: Retrieval fees, Termination fees, Gateway fees, Gateway Per Item fees, Hidden setup charges, Non-refundable setup charges, Batch fees, Cancellation fees, Minimum fees, Pass through fees, Over limit fees, Voice Authorization fees, Bank Setup fees, Daily Close-out fees, Software fees, Licensing Fees, Annual fees, Amex/Discover setup fees, Statement Fees, Customer Support fees, Technical Support fees. Any more than 4-5 fees associated with a Merchant Account is excessive and you should consider another provider.
False Advertising and Misleading Quotes
In the credit card industry the practice of false advertising and misleading quoting is rampant. This is the simple bait and hook method to entice potential customers. As a general rule if everything just sounds too good to be true then most likely it is. If a company is misleading in their advertising and quoting then chances are they won't care about you much later on. Ads like "free merchant account" and "99% approval rate" are just not possible and are misleading.
When shopping around for discount rate quotes you must first understand what 'discount rate' means. The discount rate associated with merchant accounts goes by how banks define a card type. From a swiped debit card, to keyed rewards cards, to swiped business cards; each card type and how it is accepted at the time of purchase is defined a specific way, thus has its specific rate associated with it. Since the banks define over 100 different card types, there are over 100 different rates!
Typically, a very low rate quote should not be trusted. The companies making such quotes are only quoting the lowest rate out of the hundreds that the banks have defined. The reality of it is that the card holder has to have a specific type of credit card and the merchant will need to accept the card a certain way in order to get that low rate. Clarify this when getting quotes.
The only way to guarantee that your quote will actually match the rate you will receive is to have it detailed in the contract before signing. Once again avoiding a term contract will allow you to move on to another credit card processing provider if their rates are not as promised and do end up going up.
Poor Service
With any merchant account it is important that you are provided good service before and after signing up with them. You want to have your own agent assigned to you who will answer any questions you have and resolve any issues that may come up, whenever they may come up. Down time with a merchant account can be disastrous for a business. If in issue ever comes up it is important to have immediate service to fix it. Unfortunately many providers provide horrible service. Many outsource their customer service abroad to incompetent customer service agents. It is important to make sure that you can receive "in-house" support at any time you may need it. This will save many headaches in the future when support is needed. You can get a general sense of how the company operates prior to signing up by the support you receive during the sign up process. If your sales person is pushy or not able to answer all your questions satisfactorily initially then chances are support will be worse after your sign up.
It is also important to make sure the provider you are considering is not a middle man or sales person selling merchant account services for some 3rd party bank. When it comes time for support they are at the bank's mercy and have no pull themselves. You need a company that has its data center "in house" and an agent that has control over your account not the bank. Unfortunately many of the Merchant Account websites/companies you see online are only "resellers" selling a 3rd party service, where the service they promise they is not realistic as they are not the ones pulling the strings. Make sure to check how long each provider has been in business. Watch out if they have only been in business a couple years. A company that has been in business 10 years or more says a lot about the company, the type of service they provide and proves that they are established in the industry.
Free and Low Cost Credit Card Terminal
Don't assume that low priced or free hardware (terminals, check readers) comes with the best processing service and price because it usually doesn't. It is nice to get a great deal on a terminal but lower processing rates are more important and will save you much more in the long run.
As a rule don't buy hardware that you can't take with you to another processor. If your relationship with one processor does not work out and you paid upfront for the processor and own it you should be able to transfer it to another processor. Some processors secretly lock their terminals with a code that only their system can unlock.
Always ask about the total startup cost, hardware pricing, software license fees, terminal transferability and be sure to shop around.
Watch out for lease terms (the free terminal offer) as these almost always require a term contract that has an costly termination fee. Understand that the terminal is not actually free, it is leased, as it must be returned if the contract is broke or ends.
When shopping for the right terminal, stick with the most common manufacturers. Find a company who sells and supports the most popular Credit Card Terminals for most types of businesses.
The most popular and reliable Terminal brands are Verifone, Hypercom, Ingenico and Nurit. Stick with these and you should have the least amount of hardware problems and the best support if anything does arise.
Contracts
Most all Merchant Account Providers will require some sort of contract, which is fine. A contract is simply an agreement between you the customer and them the provider. What you want to avoid is a term contract where you are required to use their service for a set amount. Term contracts will carry a cancellation penalty requiring a certain amount to be paid in order to be freed of the contract if you decide to cancel early. Term contracts may also auto renew after the original term is up. Always read and fully understand any contract. Never feel pressured into signing. The most risk free way to go is simply working with a company that allows you to cancel the service at any time with no cancellation/termination fee. This type of company is confident enough in their service that they do not need to require a term contract to retain their customers.
