The credit card industry has been plagued, for many years, with a reputation for greed, high interest rates and shady practices. This problem basically began in the late nineteen seventies, when many large Issuing Banks moved their credit card operations to Sioux Falls, South Dakota.
Why, you may be wondering, would these major banks move credit card operations to such a small, out-of-the-way location? It’s quite simple.
South Dakota, unlike most states in the country, had recently passed a law eliminating the typical limits on interest rates, and, it was also decided by the Supreme Court that interest rates could be charged according to where a bank’s credit card operations were located, even if the main operations of the bank were somewhere else.
This was the starting gun for Issuing Banks to charge high rates of interest. It was also the beginning of the widespread availability of credit cards, even to people who were not worthy of a line of credit, as well as the major effort by the Issuers to create a culture dominated by the use of credit cards. The results of that effort can now be seen everywhere.
Now, in our day and age, most businesses have no option other than to accept credit card payments. Refusal to do so is simply too costly.
Now, for matters of more immediate concern for today’s business man or woman.
For people on the inside of this industry, and even many on the outside, one of the most obvious realities is that the merchant, more than anyone else, takes on a rather large part of the risk involved with accepting credit card payments.
The merchant is at risk from three different directions:
1. The actual card holder, or the person pretending to be that person.
2. The Issuing Bank… The financial institution that offers the cards to individuals, businesses or organizations.
3. Their very own Acquirer, also known as the Processor; the company which should be looking out for the interests of the merchant.
As strange as it may sound, it is true that merchants often get hit by the very company that is processing their transactions for them. I will discuss just a few ways this may occur.
When new, or inexperienced merchants join up, they need to be trained on the ins and outs of processing and the potential risks and dangers. New-merchant training is often minimal and of low quality, and many a merchant has suffered as a result.
Confusing and/or unreasonable pricing structure and fees may also be a serious problem. You see, the Processor, as well as the Issuer, are mainly looking out for their own interests and bottom line. Your Processor may tell you they’re looking out for your interests, but, when push comes to shove, it’s really their own interests that are first and foremost, and they generally will try to get as much profit out of you, the merchant, as possible.
Another big problem is contracts with substantial termination fees. If you are locked into a contract with a hefty fee for cancellation, then you are much more likely to continue processing with that company, whether you are happy with their services, or not, and whether the pricing and fee structure is good, or not. This can get quite expensive over time.
There is also the matter of sub-standard or even flat-out wrong advice or service given by either the Customer Service or Technical Support departments. This problem is not uncommon, and it is the merchant who suffers the consequences.
As a final point, it does occur, although rarely, that the Processor, because of some problem within their own network and system, causes financial loss to merchants. Some merchants become aware of the matter; many never do, but, the Processor makes no effort to set things right and shoulder the burden or responsibility. They leave it on the merchants, and may even try to talk their way out of it with those merchants who do call in to complain.
This all begs the question, “With all this nonsense in Credit Card Processing and merchant accounts, even coming from my own Processor, how can I avoid the traps and pitfalls?”
With accepting credit card payments so necessary these days, there are two vital things to do. First, you must learn about the issues and the industry. Second, you need to connect with a Processor that provides the following:
* Low, guaranteed rates that are transparent… in other words, rates that are not exorbitant, and that you can understand. Also, full disclosure of any and all possible fees.
* Individual attention to you in the set-up process and making sure you get off to a good start. In addition, you will need to have technical support and customer service that is in-house, not farmed out to another organization.
* A partnership where you are not locked in under contract, and are not paying annual fees or fees for starting up or cancelling. This puts you in control to a much greater degree.
* An outstanding reputation within the industry, and this is not as easy to find as you may think.
Too many merchants, over too many years, have been burned, or have paid much more for their merchant services than necessary. It is vitally important that merchants understand the risks and dangers, as well as the benefits and rewards, of setting up a merchant account and accepting credit card payments.