Information on Merchant Accounts,
Ecommerce and Credit Card Processing

 

March 18th, 2008 by Jamie Estep

Merchant account theft (pt 1 of 2) – Don’t get slammed!

Filed in: Fraud, Merchant Accounts, My Favorite Posts |

Slamming is a situation in the credit card processing industry where a sales agent or an ISO will steal a merchant account from another processor.

Terminal SlammingThis deceitful tactic has been observed in every area of credit card processing, from the retail to ecommerce. It is most common with smaller retail shops and restaurants, and seems to be especially prevalent in rural areas where business owners often have a first name relationship with their merchant account rep. Slamming has a negative impact of both the business that switched, the company whom they switched from, and the processing industry in general.

How slamming happens:
Picture this scenario. You own a clothing shop in a small town in Colorado. One day a person calls or walks into your business claiming he is with your credit card processing company and needs to update your terminal because of new security regulations. He tells you he works with your rep, Sam, who set up your merchant account initially. You know Sam and assume that he must have sent this person to correct your terminal. He has you sign some paperwork, he makes a few phone calls, messes around with your credit card terminal, thanks you and leaves… You’ve just been slammed!

At the end of the month, you get two bills for your credit card processing. One from the company you originally signed up with which is basically blank, and the other that has all of your transactions on it, but you don’t quite recognize the name on it.

What you didn’t realize when that person was reprogramming your terminal was that he worked for a different company, and he just switched you to his service. He knew your sales rep Sam’s name because most of the businesses in the area process through the same company and Sam is their rep. You may not have even signed an actual contract with him, but he got your signature and your terminal is programmed with his company. Although what he did was illegal, you now have two merchant accounts, and the second one is a complete mystery as to what you are actually paying, or who you are processing with. Unlike switching providers on your own, you didn’t need or want to switch, and you don’t know anything at all about the new company or what you’re going to get with them. Hopefully, they actually did setup you up with a real merchant account, but for all you know, this may have been some criminal that installed something to skim all of the credit card numbers that go through your terminal. Some ex-bankcard technician may be routing your money into their bank through a stolen merchant account. Just about anything is possible.

How slamming can hurt your business:

  • You are now processing through a deceptive company!
  • You almost always have extra fees, due to two accounts being open!
  • You will most certainly have a termination fee!
  • You can possibly be put on the TMF / Match file if you end your relationship with either company in a bad manner!
  • There is a now huge potential for fraud and credit card theft through your business!

Simply put, any company that would con a business into using their service is not someone you want to be doing business with. This company just doubled any fixed fees you had because you have two accounts open now, and you most certainly have has an early termination fee that you will be required to pay when you realize you just got scammed. They have a termination fee, because there is a good chance your going to dump them once you realize what just happened. Apart from that, who knows what your fees are, what this company’s reputation is, if they are even a legal business, if you are going to get all of your money, etc. This is just a bad position to be in for a business.

Of course this is illegal and you can take recourse against this deceptive company, but lawyers are expensive, and this could become an enormous burden to fight. Additionally, it may be hard to track down who is actually responsible for doing this to you. Many businesses do fight and they usually win, but it takes time and money, which is why slammed businesses often stay with the new company.

How this hurts the merchant services industry:
Reputable service providers spend a lot of money to gain your business, and they spend a lot of money on staff, training, and equipment to support your business. It takes months and sometimes years for a processor to regain the cost of establishing a single customer. When merchants are stolen, it has the same affect on a processor that shoplifting has on a retail businesses. Profit margin’s sink, and it becomes harder to keep prices and fees where they are. On an industry wide level, it ends up costing all businesses more, because the lost revenue has to be accounted for somewhere.

Companies that slam are scum!
Slamming exists because some providers and reps find it easier to steal hard earned customers from honest companies than to provide a service worthy of gaining their own customers. The people doing the slamming are criminals and should not be trusted on any level. Businesses have gone bankrupt, been put on the TMF, have been locked into horrible contracts and paid thousands of dollars because of thieves that do this. There is so much risk to a business that gets slammed, only a true criminal would put an honest business into a risky situation that could cost them their business.

What to do if you’re slammed:
First off, do some research to find out who did it to you and when it was done. Usually someone showed up and either switched out your terminal, or reprogrammed your terminal claiming to be with your processor. More than likely an outside agent slammed you and not the company they work for. Luckily, this is the best case scenario for your business, because you can easily bypass the agent and deal directly with the company you are now processing through. Additionally, a sales agent that is out slamming businesses is a huge liability for a processor so they will be more likely to sympathize with your situation. You need to make sure that if you close this new account, you will not be charged a termination fee, and you will not be put on any sort of TMF/Match list. Depending on what you actually signed, it’s possible that it was a complete application. Whatever the case, you are the victim of fraud, and you shouldn’t have to compromise, even a penny! You also need to figure out what you want the outcome of this to be. You can go back to your original company, you can find a new company, or you can stay with the current one. Based on how your relationship got started with this new company, it’s probably a good idea to go somewhere else out of principal. If you do decide to leave your original provider, make sure you know if you are required to pay any sort of termination fee. Most likely your account with them is still open, so going back to them should be simple and painless, maybe taking only a few minutes to get your terminal reprogrammed.

If a provider slammed you themselves, you are in a stickier situation. Going straight to the bank they are registered to, or to Visa and MasterCard may be the best resolution. If you find that the cost is significantly higher, you may need to consult a lawyer or file a report with your police department. If you do decide to call them, go up the chain of command as high as you can. Even if the company is responsible, it was still most likely a rogue sales person that carried out the slam. Filling reports with the BBB can go a long way to getting their attention and getting out of their grip. Ripoff Report is another company you can file a complaint with.

(My Ripoff Report Advice: Only file a Ripoff Report after all other options have been exhausted! You should be 100% certain that you are filing against the correct organization, there is no chance of an amicable resolution, and you do not expect anything positive to further come from the company. Unlike a BBB report, a Ripoff Report cannot be undone, even by you, and they can be so damaging that there is little chance the company will deal with you any more at all. If you commit libel or slander, you should be prepared for for the full legal wrath of the company you reported. Enough said!)

Prevent it!
Don’t let anyone reprogram your terminal unless you are certain that they are supposed to and that they work with your current processor. Whether it is over the phone or face-to-face, make sure you know who is changing your terminal, because you just can’t know what they may be changing on it. Your money and your business’s very existence could be at stake.

March 17th, 2008 by Jamie Estep

Visa IPO Tomorrow? Or maybe not…

Filed in: Industry News |

Visa’s IPO which was predicted to be going off tomorrow (Tuesday, March 18th), may be pushed back because of the Bear Stearns casualty.

According to The Disciplined Investor “Unless the lead underwriters – JP Morgan and Goldman Sachs – are completely deranged and masochistic, Tuesday is not going to be the best day to attempt to bring history’s largest IPO to market.”

Banks, especially JP Morgan have a lot riding on the success of this IPO, so it would be reasonable to assume that they will indeed push it back to a day that will be much less volatile than tomorrow is predicted to be.

February 29th, 2008 by Jamie Estep

Paypal buyers no longer need a Paypal account

Filed in: 3rd Party Processors, Industry News | 4 comments

Paypal issued a news release today stating that buyers no longer need to sign up for a paypal account in order to purchase from a Paypal accepting seller.

From a usability perspective this makes perfect sense, and has been one of the biggest hurdles for Paypal to overcome as a 3rd part processor.

However, I can foresee some major customer issues in regards to seller protection.

Right now, Paypal effectively removes traditional buyer and seller protection for credit card transactions by resolving disputes within the Paypalsystem instead of through the credit card chargeback system. This works explicitly because both the buyer and the seller are registered users of Paypal. Paypal has control over the entire transaction process, and has absolute power over both user’s accounts. Sellers currently have some piece of mind that their buyers have gone through a registration and verification process, albeit very limited. When the buyer is no longer required to maintain a Paypal account, a huge avenue for fraud opens up. The seller remains bound to Paypal’s dispute process, but the buyer is not. In this case the card issuing bank would take full control over the dispute, and unlike a traditional merchant account, the seller does not have a relationship with Visa or MasterCard. Paypal will become a liaison between the card issuing bank and the seller in the event of a chargeback, wherein the problem lies. Anyone who has tried to work with Paypal during an account hold or a dispute knows that yelling at a wall is more effective than trying to communicate with Paypal. Judging by Paypal’s already horrible customer service reputation, they are potentially adding an enormous workload on their plate in the form of chargeback handling. This could very well be a disaster in the making.

This is obviously an attempt to compete with more traditional Payment Gateways that have seamless API integration with websites (Authorize.net, Paypal’s Verisign, etc.). While this has the potential to improve Paypal conversions, I would be hesitant in enabling this feature in a Paypal account until more is disclosed about how non-account holder chargebacks will be handled.

February 27th, 2008 by Jamie Estep

Visa’s IPO could change everything

Filed in: Industry News | 1 comment

Visa has an upcoming IPO planned for this year. They still haven’t released a formal date but it looks like it is going to be mid to late march as predicted.

This IPO may have a far greater affect on the US economy than anyone originally imagined. Because of the current credit and mortgage crisis, banks don’t have a good financial outlook for the coming year, or any year in the near future. Fraudulent mortgages and foreclosures are going to continue taking their toll on the banking systems, and the huge rate of inflation isn’t going to help any. Visa’s IPO could really change all of this.

Visa is composed and run by member banks with a board of directors consisting of members from JP Morgan Chase, BOFA, Wachovia, US Bancorp, Wells Fargo, Providian, First National of Nebraska, Texas First Bank, NationalCity, and SunTrust. While Visa itself remains non-profit, the banks that issue Visa cards and run Visa are certainly for-profit companies. When Visa goes public, the member banks are going to get a lot of pre-IPO stock. If we base Visa’s potential success from MasterCard’s IPO last year, Visa’s stock value could go up by four times, soon after their initial offering. Even though the economy isn’t in the same shape as it was last year, Visa is a far stronger company than MasterCard was, and there is little doubt to Visa’s strength even in a poor market. Visa is more than double the size of MasterCard by transaction volume, and this IPO should prove to be the second largest in world history, largest in US history.

If Visa’s stock sells for the median predicted price of about $40 per share, the primary member banks are going to get some major relief. The pre-IPO value that member banks are expected to receive is: JPMorgan Chase about $1.1B, BOFA $545M, National City $380M, Citigroup US Bancorp and Wells Fargo about $240M each. This should immediately go up after the IPO, and like MasterCard could be four times higher in a few months.

This huge increase in capital for these banks will have a cascading effect on their own stock, which should dramatically increase. Banks are having a hard time maintaining their current value and Visa could create a surge of investment that could turn things around. There’s probably not anything that’s going to turn around the mortgage and credit crunch, but a $17 – $50 billion bump in bank stock should really help investors regain some trust.

Related Posts:
Where Visa is headed…
Visa is going public

February 21st, 2008 by Jamie Estep

When you ask your provider to change something, document it and follow up!

Filed in: Merchant Accounts | 1 comment

I come across horror stories all the time about people not getting money from their credit card transactions, or that they are being overcharged for long periods of time after something was supposed to have been canceled.

It’s a certainty that at some point most companies are going to need something changed with their merchant account. This could be a change of address, change of service, new equipment, and almost inevitably a bank account change. For some reason, bank account changes cause business owners more problems than any other action that affects their credit card processing. I recently heard a story from a business that had not been receiving their transaction deposits for nine months. Even more disturbing, that it isn’t the first time I have heard of this happening to a business. Personally, I don’t know how you could not notice your money was missing for nine months, but obviously this does happen.

As a business owner, if you change your bank account, or anything else that may affect your business’s ability to receive money, make sure you get your merchant account updated, and check to make sure it got updated. Additionally, every time that you call your provider, write down and archive exactly what the expected outcome is supposed to be and how long it’s supposed to take (Even if it’s just on a sticky note). Whether it’s your provider’s fault or not that something got messed up is irrelevant, it’s your money that is not getting to where it should be. Call them every day to check up on it if you have to, but don’t be that person who finds out six months later that you haven’t received a single deposit since you made the bank change request. Don’t be that person who finds out you were being charged $10 per month for something you canceled four years ago. Your provider needs to follow through with the changes, and it is irresponsible when they neglect to or just mess something up, but again it’s your money, make sure that it is going where it should be going.

February 11th, 2008 by Jamie Estep

Hypercom + Ingenico

Filed in: Credit Card Equipment, Industry News | 4 comments

Ingenico made an offer to purchase Hypercom corporation.

Ingenico and Hypercom are two of the largest credit card terminal manufacturers after Verifone. Verifone made a purchase of the Lipman corporation about a year and a half ago, which set their market share far ahead of any competitor.

The combination of Ingenico and Hypercom would create a company with an annual revenue of around 800M. Verifone is currently at about 2B so there is still a sizable gap, but this could create some real competition for Verifone.

Ingenico is less popular in the US than in other countries, but they make some very interesting products, and was one of the first to offer a reliable pay at the table solution. Hypercom is the number two terminal manufacturer in the US. Hypercom would be an excellent medium for Ingenico to grow their US presence.

I think that this would be a very smart acquisition for both Hypecom and Ingenico.

January 21st, 2008 by Jamie Estep

The myth of next day deposits

Filed in: Merchant Accounts | 1 comment

Next day deposits are something that many processors claim to have, but few if any actually do.

Hangup #1.) When a business processes transactions on any given day, those transactions must be reviewed before they are authorized to go to a bank account. This process, called risk management, is the final check to stop potential fraud before the money is deposited into a business’s bank account. While there is some automation to this, generally a human must look at the day’s settlement, and decide whether to let the transactions through, or to put a hold on that day’s funds. Processors are normally allowed 48 hours from the settlement date to analyze that days transactions and release them. The earliest that those transactions are available for review is the morning following the day the transactions were settled.

Next day depositing would typically require the removal of the risk management step from the process of a credit card transaction. Most processors are not going to relinquish this necessary step in the transaction process. Since the processor is liable for all of a business’s transactions in the event that the business commits fraud, it would take a great degree of trust and a long and positive processing history for a processor to do this.

Next day deposits are typically seen and work when a business processes directly through a bank, and also maintains a bank account with them. Because the bank has complete control over their account, they can front the money before formal risk management takes place, and go back into the bank account in the case that something is wrong. There are only a few banks that can actually deliver on this but in reality a bank’s endless spool of red tape often offsets the benefit of next day deposits. There are also some processor / bank account combinations that allow next day deposits, but again, this isn’t a service that every business can qualify for because there is too much risk in many situations.

Hangup #2.) Banks have a tendency of holding funds before allowing them to clear, and this can delay transactions from being deposited into a business’s bank account.

Depending on the amount and the situation, banks can hold funds for several weeks before allowing them to be deposited into an account. While it is much more uncommon for this to happen with a business account, some banks still hold funds for transaction deposits. If you find yourself in this situation, you should see if you bank will immediately clear transaction deposits of just find a new bank. For most small businesses, it’s not worth the hassle waiting for deposits because your bank is being picky. The bank is taking no risk on these deposits if you have a legally setup merchant account, so there is no reason they should be holding them for more than a day.

A few tips:

Sometimes something as simple as changing your daily batch time can reduce the time for your deposits by a day or more.

A charge card can be a great tool for small businesses with inconsistent cash-flow because it allows purchasing as needed, but does not carry a month-to-month balance like a credit card. American Express and MasterCard both offer some good charge card programs designed specifically for small and medium businesses.

January 16th, 2008 by Jamie Estep

Why are there early termination fees?

Filed in: Merchant Accounts | 3 comments

Let me start off by saying that I am not a fan of early termination fees. I believe that if service providers were are as good as they claim, then there would be absolutely no need to lock someone into a two or three year contract with a several hundred dollar termination fee. Early termination fees make the processing industry look like the cellular industry, which I can honestly say is a bad thing.

If every provider is as good as they claim, then why three year contracts?

There are a few reasons why service providers have early termination fees.

First there is fraud prevention. When a business has to sign a three year contract, there is a much lower chance that they will commit fraud and run. Services like Paypal are plagued by fraud, in part because anyone can sign up and instantly activate an account. Your provider is also taking on a lot of liability to accept your business (They are liable for every penny that you process!) and a termination fee is a way they can protect themselves a little.

Secondly, it actually takes a lot of work to setup a business for credit card processing. There are multiple steps that take place behind the scenes, involving multiple people and departments. It normally takes several hours of work just to process an application. Whether the business ever processes or not, the provider has spent several hours of manpower before anything is even finalized. Add another hour or more for programming a terminal, and then a few more for training and deployment, and the time really adds up just to get someone setup.

Up until about six years ago in the US, and still in some other countries, it was common if not standard for business owners to pay several hundred dollars just to apply for a merchant account. At the time it was seemingly a good idea, and it reduced the number if frivolous account requests and price shopping. That money was normally set to cover the cost of manpower to get a business approved, programmed, deployed and fully processing. Since it is rare to ever see an application fee anymore, that money is often made up with a termination fee.

Lastly, providers just want to keep their customers. Whether a termination fee is the right way to do it is debatable, but as a provider, when you see a customer switch to another company because they offered a much lower rate, which in reality saves them about two cents per month, it’s more than frustrating. Often a new provider comes along with creative rates, and the customer ends up paying more.

Many service providers simply don’t have a choice:

Many of the back-end companies that underwrite merchant accounts require minimum contract terms. There are a lot of providers that have no choice but to require a contract with their customers. It doesn’t make them a bad company as long as they are providing a service worth the contract.

Just because there is a contract, doesn’t mean the company is bad:

As a business owner, you can still get a great service from a company with a termination fee. But, you should do extra research to ensure that the company you are going to be processing with now, is the one you want to be with in a few years. Having a contract does not necessarily mean you are dealing with a bad company, but it does mean that you need to make a commitment, so make an educated commitment to avoid any surprises.

If you are in the market to start accepting credit cards, I recommend reading these before you start shopping:

The processing fee is the least important one on your application!
Avoiding a Bad Merchant Service Provider

January 15th, 2008 by Jamie Estep

Revisiting Google Checkout

Filed in: 3rd Party Processors |

Google Checkout is about to end their free processing, and switch to a traditional 2% + $.20 / transaction structure. Businesses who advertise on Google’s Adwords platform can still get major discounts on GCO processing.

I have blogged about GCO in the past, on more than one occasion, and I have held mixed feelings about it in several areas. We’ve now been using it for about a year and a half, and it is now becoming clear where Google Checkout it headed, nowhere.

Initially, Google gave coupons and incentives to consumers and business owners. These helped push GCO usage past Paypal for a short period of time, but now that the incentives are gone, GCO is going with them. For us GCO topped at about 10% of all online purchases, but has since dropped to about 1.2 – 1.5% (“Generous estimate!”). Paypal has slowly, but steadily increased all the while.

Despite the difficulty in integrating GCO with a website, I still think that it is an excellent alternative payment method, assuming that there are still going to be people who want to use it. From a shoppers perspective, one you have a GCO account, it is much faster than paying with a credit card or paypal, but there has never been a solid reason to use it. As we all know, it is consumers that drive services, and not businesses. I think that unless Google finds a way to make many more shoppers want to pay with GCO, there is never going to be a wide adoption of it. Paypal was driven by eBay until it was big enough to stand on it’s own. Google needs it’s own eBay to really make GCO popular.

January 10th, 2008 by Jamie Estep

Cool credit card terminals

Filed in: Credit Card Equipment |

Credit card terminals have a history of being about twenty years behind any current technology, and have always been designed for function only.

Here’s a few newer terminals that are finally catching up with technology, and style! My personal favorite is the Hypercom M4100, but several of these terminals are amazing.

Verifone VX 670
Verifone VX 670

This the same terminal that Verifone uses for their pay at the table processing. This is a super fast battery operated WiFi terminal that is going to start getting very popular for high-end restaurants.

Verifone VX 810
Verifone VX 810

The VX 810 is a high-end PINpad that is made in a hand-over design. Because of its high price for a PINpad, it’s unlikely that the 810 will ever become a mainstream PINpad.

Hypercom M4100
Hypercom M4100

The M4100 is Hypercom’s answer to all other wireless terminals. It is made to compete with the ultra-compact terminals from Way Systems, Comstar and Apriva, but is rock solid and ready to use for any size merchant. It’s GPRS and WiFi enabled, includes an internal PINpad, and fits in a pocket.

Thales Artema Mobile
Thales Artema Mobile

Thales terminals are not common in the US, but they are fairly popular in some other countries. The Artema Mobile is a GPRS wireless terminal with a printer and PINpad. It is one of the smallest wireless terminals available that has a printer attached.

Ingenico i7300 – i7910+
Ingenico i7910

Ingenico has been making some very interesting terminals for several years, but most US processors do not support them. The i7*** series terminals come in just about any configuration a business would want, GPRS, WiFi, multi-terminal server, etc. These terminals are very small and have attached printers.

Exadigm XD2000
Exadigm Xd 2000

Exadigm is another brand that is rarely seen in the US. The XD2000 comes with an internal PINpad, smart card reader, and full size printer. It can be configured for dial, Ethernet, WiFi, Bluetooth, GPRS, CDMA, and runs on a very basic Linux operating system. It’s slightly larger than some other wireless terminals, but has more features available than any other terminal.

Blue Bamboo H50
Blue Bamboo H50

The Blue Bamboo H50 is a compact terminal, that is full featured and is relatively inexpensive. This is a newcomer to the processing industry but the price, size and features, make it likely to gain popularity with some mobile businesses.

Way Systems 1581
MTT 1581

This is the newest terminal from Way Systems and is scheduled to be in operation in the next few months. This appears to be a vast improvement over the functional, but ugly MTT 1551 and 1556, and is still based on a Siemens mobile phone.

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