Questions From a Reader:

QUESTION: Why is there so much data needed from me? They are going to be processing my money, shouldn't I be getting 30 pages of data on them?

This is a great question that is so often echoed in the frustration of people and businesses while setting up a merchant account. Yes, there is a lot of information required of you. Be happy of that. Why? Let me give you a scenario...

I am a crook and I want money. How do I get it? Well, I have a computer, an internet connection, a camera, and a merchant account. I go trolling for old cars. I find a 1968 Dodge Charger with a Straight Six in triple black sitting in someone's driveway. I get a good picture of it. I then go home to my den of crime and upload my new photo on my computer and post it in eBay. I say that it's my recently deceased grandfather's; and though I love it, I cannot bear to have it around now that he is gone and I put a price of $5,000 on the car. As that is a fraction of the car's worth, it is snapped up immediately, they pay via credit card, I get my money in 48 hours and the buyer wonders where the car he just bought is. Why? I am gone. Long Gone. I am a crook after all.

Now it is not as easy as that for one important reason: it isn't that easy to get a merchant account. That is because one doesn't need a mask, a horse, a six-gun, and an empty sack with a dollar symbol on it to be a crook anymore. You just need a computer, an internet connection, and a way to process money (hint: insert the term merchant account here). Merchant accounts deal with money; and that's the one thing everyone wants. More importantly, it deals with the way money is passed from Person A to Person B. My father is an attorney and he has always said that, "99% of all laws are about money, and 99.99% of those laws are about Person A passing money to Person B. Because THAT is a taxable event."

Not to mention, there is substantial underwriting and risk involved in merchant accounts due to possible fraud. Although the world will tell you that credit cards aren't real money, they are magical gift making machines that taste like happy; in fact someone does have to foot the bill. If a credit card transaction goes bad, either the issuing bank (the company that created and sent out the credit card), MC, Visa, Discover, American Express, the business where the bad transaction happened, the Fed, or the card holder is going to foot the bill. Somebody, and I do mean somebody is absolutely going to have to pay it. Whether it's for $1.35 or $50,000, somebody must pay the bill and generally that someone is the business involved and their merchant account.

In fact, we normally think of the majority of all credit card law protecting the card holder. That though is patently un-true. They protect in this order: the Fed, MC/Visa, the card issuing bank, the card holder, the processor, and finally the business. Unfortunately part of this is simply because a business can be run so poorly as to violate the system and run costs up, while the card holders are voters and their senators want sound-bites saying that they should be protected, even if they buy $100k more than they make in two years.

Finally, let it be said that the processors which are getting all of this sensitive data on you are to be trusted. They have to go through extreme measures to make sure they are protected in ways that most people could never dream of. Secondly, they have their hands all over not just the money, but the most sensitive of all: card holder data. That is to say the name, card number, and expiration date on the credit cards themselves. If they were to ever get hacked (and there have been some extreme cases), they are very liable for all of it and can be sued by each and every card holder, as well as getting delisted by MC/Visa.

In short, all that data is to make sure you are a real person and you have a real business. They are weeding out people signing up their deceased relatives with fake addresses at the mall or post office. You are real. Your business is real. You have a real address.

Welcome to the world of business.

It's Not Finding a Leak and Plugging It...

It's Finding A Problem And Getting Rid Of It.

All too often something happens.

A company is having their rates reviewed. They are high, sometimes really, really high. The would be new merchant services provider quotes the company that is paying too much a number that is not just lower, it's a good rate. The company that has been paying way too much reviews it, but never signs with the new firm. Instead, they go back to their existing provider, tell them the quote, and when they say, "We can match that," they stay with them.

Did you see what just happened?

The company was paying too much. They were paying too much because their current provider was rooking them on fees, or didn't monitor their account, or any number of reasons; but when the rubber meets the road, they were being overcharged. A new, prospective firm quotes them and saves them mucho dinero. Is the new firm rewarded as they should be by giving them the account and switching? No. They are used. Please understand what I am saying when I use the word 'use'. I mean it in the sense of something dirty. Like someone who had been lied to just so the user could get what they were really after. The new firm was used, because the company didn't really have an intention of switching. It's too much hassle. They just want to make sure they aren't paying too much. To them, it's like they found a leak in the roof and they plugged it.

In fact, it's more like they found a thief in their midst. Think about it. If you caught someone with their hand in the till, you don't tussle their hair and say, "OK now, I caught you. Quit stealing you little scamp...". No, you fire them. I was once in a man's office giving him his quote which apparently was much lower than what he was paying now. He asked me to wait a moment, put his phone on speaker phone, dialed a number and waited while it rang. When Bobby (the names have been changed here to protect the guilty) answered, he said who he was, and stated that he had a competitive quote on his desk from a competing firm. He gave Bobby the numbers from the quote and Bobby quickly replied in a very sunny voice, "We can match that for you", as if he was doing this man a great service for his years of loyalty. He asked Bobby, apparently just to make sure, "OK, so you can match this for me?" "Yes, of course," answered Bobby.

I couldn't believe it. I knew this scenario. This man was actually going to cut me out of the deal even though I was saving him thousands of dollars a year. His old company would have kept charging him the exorbitant fees unless I had given him a good rate to compare to. That's when it got really interesting...

"You're fired!"

""Sir?!"

"You are fired. Unless you can answer three questions to my absolute satisfaction."

(dead silence... on the other side)

"One: Why is my business only important to you now that I'm leaving you?

"Two: Why didn't you give me this rate to begin with? And

"Three: Are you going to retroactively pay me back all of this money that you have overcharged me since I opened my account with you and issue a formal apology?"

I have never been so proud of an individual that wasn't in a cowboy movie.

Your Merchant Account: Beware Any Sign Up Fee

"This is great. How much is it going to cost me?" This is a question I get asked over and over. Bear in mind that the business owner/ manager already knows all the processing fees. What they are asking is in fact: "How much do I have to give you to enact all of this?"

Zip. Zero. Zilch. Nada... Sorry, but there were no more 'z' words.

They don't understand. It can't cost nothing, so they re-ask. "I know, but how much is it going to cost me to get started?" Nothing. "OK, but if I were to say right now, 'Let's sign the papers', How much would I have to write the check for?" The only check you should give your merchant provider is a VOID-ed check so that they can send the money to your bank account. "Yes, yes, but how much do I write the check for to you?"

Here's the issue: These poor souls have been rooked for years by salesmen that charged them a fee to get signed up. A fee that does not exist. On many of my competitors' contracts though it has areas for sign up fees. They will be called anything from contract fee, paperwork fee, assessment fee, debit network sign up fee, installation fee, or just about anything else. They are not real. Back in the 80's there were fees when quite simply the infrastructure was not really in place, and even into the 90's, but now they do not exist. There are only two reasons the fees are still in certain contracts. The first is so that a salesman can look you right in the eye and say something like, "You know what? Just because you are the handsomest devil (or prettiest/ sweetest business owner) I have ever seen, and just because I like you and we went to different high schools together, I am going to waive this fee." Then they strike through it, or write in zeros. This is to make you feel very good that due to your size and importance (which mean very little to MC/Visa), and because of your business knowledge and influence ...and let's face it: sheer, magnetic power, they gave you the inside deal. Everyone loves the good old boys network who's in it, and now you are.

The second is the real culprit. This salesperson has been chatting you up with more enthusiasm than a kid trying to explain to his mom that he really, really needs a chainsaw and a motorbike, and he senses that he's got a whale on the hook. Not a small fish that you would have to tape several together just to get a fish stick, but a whale. All he has to do now is real you in. That's when he explains that there are some fees to get you setup, but the savings he is going to give you will more than offset that, and you'll be richer than Midas in no time. After all, if you balk at the numbers, he can always go back, and if you are willing to sign today, probably get his boss to waive those (nonexistent) fees. Problem is, most people don't balk. They don't jump the hook. They pay it. I have seen businesses pay anywhere from $200 to $900 in these bogus fees and it stinks.

Let's put this in perspective. If I am selling you a car for $22,000 and I look at you and say, "OK, now before you give me the $22k, I am going to need you to give me $400 so that you have the honor of paying me $22,000 in order for me to sell you this car." Would you laugh at me? Would you get angry and explain that one of us is waisting the other time? Would you look for something to throw? All of these answers would fit someone. The truth here is that you wouldn't accept it. However, you might when it comes to your merchant account. After all, only nuclear physicists with advanced math degrees really understand the numbers involved in the world of accepting plastic. Easier just to pay the bill and make it go away.

Wrong. Dan't pay it. Throw them out and never let them back in your doors again. I believe this is such an unforgivable sin that my company will write no contracts for any processors that have a section where a fee could be written in. As well, if an agent ever tries to add a fee to ours for any reason they are terminated and they lose their residuals stream. Why so fierce? The money goes to one person and one person only: the salesman; and it is something that when the customer finds out will create a lot of bad blood and probably make the customer leave. Any salesman who is willing to jeopardize my company, our integrity, and our income for a couple of hundred bucks has no place working for me.

Don't let them work for you either.

Your Merchant Account: Greater Risk Means Greater Costs

Time and again when I am reviewing with potential clients about their businesses, they tell me they don't understand where the money is going, they ask why certain transactions cost more, and how to possibly track them. This is understandable. After all, the industry secretly prides itself on its ability to seemingly report everything to its customers all the while making them more confused than ever. To put this in perspective, 84% of businesses do not read their monthly merchant statement. Seriously, ...84%! People read their electric, gas, water, and phone bills, but not their bill for accepting credit cards.

Let's make it easy shall we? The riskier the transaction, the more expensive. Think of it in terms of underwriting. It costs a lot more to insure a Corvette than a Chevette. The same goes with a business's merchant account. The bigger the risk, the bigger the cost to cover it. If a customer comes in with a credit card, it swipes as it should, the planets align, God is in His Heaven, then boom: you get a better rate. If the customer's card won't swipe, then greater risks have entered in while your employee is hand-keying the card in. Congratulations, your rate just went up. It will go even higher at this point if they don't capture secondary data like billing zip codes and CV numbers (the 3 digits on the back unless it's an Amex who has four on the front). Your costs however, have not hit their ceiling. If the customer is using a Rewards card [see: Rewards Cards] such as a card that gives them sky miles, bonus points, or cash back; your rate will shoot straight into the stratosphere.

It's not all bad though. Your rates can also go down. If a customer comes in with a debit card, your rate drops. If they put in their PIN (personal identification number: in truth merely an electronic signature which is verifiable by the Issuing Bank), then the highest your company can pay is going to be about $0.87 and PIN-based debit is good up to a $500 purchase. Isn't that nice? This though is merely the other side of the coin: the safer the transaction, the less expensive.

These standards also apply not just to transaction type, but business type. In the credit card world, there are only three types of businesses: Retail, Hand-Keyed, and eCommerce. The way to determine what makes a business what is to look at how the customer pays the business. If they are face-to-face, it's Retail, over the phone it's Hand-Keyed, and online it's eCommerce. Businesses can be a combination of the three. Nowadays, many businesses do at least two if not all three options. However, I must be very clear here. In nine out of ten cases a business must have a separate merchant account for each way they accept credit cards or they are inviting trouble. This doesn't mean simply from fraud, but by possibly getting delisted by their merchant service provider. When in doubt ask your professional.

Most of my industry (which I apologize for, a lot) is kind of like speaking with a doctor, or your average computer geek (I use the term lovingly...). There is a lot of jargon that if you boil it down is mostly common sense. You, yes you, can understand it; if you make them take the time and avoid 'industry only' words when everyday language will more than suffice. Here is a good trick to know: Go to your merchant statement and look for the numbers of transactions by card type. An example of this would be: Visa Card Merit II ................236. This means that for that type of card, your business had 236 transactions. Once you have found that area, look for the card type with the single largest number of transactions. Ask your merchant professional if that is the safest card type, and what you can do to have lower cost cards make up the majority of your statement.