Paying with plastic is a convenience for consumers, but a cost for companies. So small businesses are always looking for a penny to pinch in what they pay to process credit and debit cards. Enter unscrupulous pitch people who resort to impersonation, erasures, fine print, half-truths, and flat-out lies to get a business owner’s signature on a contract. When you're pricing processing, the FTC has advice on protecting yourself from a B2B bamboozle.
These tips aren’t based on speculation or what-ifs. They reflect the experience of many small business owners who were targeted by an outfit called Merchant Services Direct, which just settled separate lawsuits filed by the FTC and the Washington Attorney General’s Office. The company – also known as Sphyra Inc. – was an independent sales organization (ISO) that sold businesses the services to accept credit and debit card payments. According to the FTC, Merchant Services Direct made a host of deceptive claims and misled merchants about the fees and costs for its services and equipment. As part of settlements with the FTC and AG, the defendants behind the operation will pay $175,000 and will have to change the way they operate in the future. For example, before a business signs a contract, the defendants will have to provide a separate document disclosing all fees, charges, and rates.
What tips can other merchants take when shopping for processing services?
1. Know who you’re dealing with. Some shady sales agents weasel their way in by falsely claiming to work for your current credit card processor. We’re just here to “update your paperwork,” they say. Others suggest it’s a routine account review “to make sure you’re getting the best rate.” One technique to stymie a scammer: Insist on ID and keep their contact information for your records. If the person claims to be with your current processor, call the company directly to verify, using a phone number you know to be legitimate. Sales people who are on the up and up will understand your vigilance.
2. Listen for code words that could be telltale signs of fraud. Some sales agents promise they can reduce your payment processing costs by “cutting out the middleman” and offering “direct” or “wholesale pricing,” often citing supposed changes in the law. That’s bunk. All agents selling processing services are middlemen and there are no wholesale prices. Interchange rates – the rates you pay for the payment network (e.g., Visa, MasterCard, or Discover) – are the same for most merchants and generally are non-negotiable.
3. Arm yourself for effective negotiation. Business owners can bargain from a stronger position if they’re savvy about what is negotiable. Differences in pricing stem from two variables: 1) the types of cards you accept (for example, debit cards or rewards cards); and 2) the fees that payment processors and others in the card payment processing sales chain charge for their services. The rates above interchange (called the “discount”) and many fees are negotiable or will vary from one payment processor to another.
4. Investigate what’s FEES-ible. As small business owners know, purchasing payment processing services isn’t like buying bananas by the pound. What you pay can be a complicated calculus of numerous variable fees. Common fees to look for include:
- statement fees
- authorization fees
- voice authorization fees
- address verification fees
- retrieval fees
- chargeback fees
- account on file fees
- batch/ACH fees
- online reporting fees
- annual fees
- semi-annual fees
- application fees
- PCI fees
- compliance fees
- early termination fees.
These fees are often negotiable. If a sales agent tells you he or she can waive a fee or that you won’t be charged for a certain fee, get that promise in writing. Keep a copy in case you’re charged later for something you were told was free.
6. Point of Sale (POS) equipment: To buy or to lease? Sales agents may try to lease you POS equipment to swipe cards or may offer you “free” equipment. Checks the contract terms carefully. Leases can be very pricey and you often end up paying thousands of dollars for equipment you can buy for much less. Many leasing contracts can’t be canceled – meaning you have to keep paying even if you switch payment processors or decide to close your business. Another tactic favored by fraudsters: offering “free” equipment but burying fine-print terms in the contract requiring you to cough up for monthly “insurance.” Others bill businesses for the full purchase price if they switch processors and don’t send the equipment back immediately. If sales agents say you have to buy POS equipment from them to use their services or get their rates – or demand an “unlocking” fee for using your own POS equipment – look elsewhere. Many payment processors will let you use the equipment you already have if you switch to their services.
7. Before the sales agent leaves, get copies of every document you sign. Some unscrupulous sales agents persuade business owners to sign documents that still have key terms left blank. Others have been known to use white-out to change terms after the fact. If a sales agent refuses to give you copies of all documents right then and there – or tries to put you off with a promise to send them later – trust your gut that fraud may be afoot. Your best protection against an erasure, alteration, or forgery is having your own copies in hand before the sales agent leaves.