1.      Early termination fees – No processor HAS to charge an early termination fee.  They do this to hold you hostage while they raise your rates every 6 months.  They know that if you have to pay a contract cancellation fee, then you will probably not look into switching.  Did I mention that almost all contracts in merchant processing are “green” contracts?  This means they auto-renew unless you cancel within a certain timeframe.

2.      Rate creep – Ever notice how your rates go up every 6 months?  As stated above, they have you locked in and they do this because they can and they are greedy.  If you are on “bundled” or “tiered” or “flat rate” pricing then you have or will experience rate increases regularly.  They will do this every April and October and blame it on “interchange adjustments” even if there was not an interchange adjustment that would have affected you.  You need to be on a real “interchange plus” pricing setup with a processing fee lock.

3.      Monthly minimums – This is a fee that a processing company will charge to make sure they are getting a good source of revenue from you, even if you have some slow months or are building your business.  This is a fluff fee.  Don’t do business with someone that charges a monthly minimum.

4.      Annual/Startup/Application fees – These are all fluff.  This is another way for processing companies to add margin to their deals to pad their pockets.  The only exception is if you choose to use a virtual terminal such as USA ePay (one of my favorites) and they charge you a one-time USA ePay setup fee of say $99.  This is how USA ePay makes its money.  Your processor may or may not get a portion of this $99 fee.

5.      Bundled, tiered or flat rate fee structures – This is the most common area for processing companies to hide fees.  While it may be much easier to understand than interchange (cost) plus pricing, it WILL cost you much more.  This is a fact.  These bundled rate programs are designed to keep you in the dark.  These programs hide your actual interchange cost so your processor can maximize their profits.  It also makes it very easy for them to raise your cost every April and October based on “interchange adjustments” when you don’t have a clue what interchange cost is and how it affects you.  See my article “Basics of interchange (cost) plus pricing.”  You ALWAYS want to be on interchange plus pricing (aka cost plus pricing).

6.      Padding of interchange cost – Some processors will place you on interchange plus pricing, but secretly pad the interchange cost.  This is very difficult to detect unless you really understand interchange pricing.  Your best defense here is to ask questions.  Ask lots of questions.  If your rep does not know the answer, you may be in trouble.  You can also compare their interchange cost to the actual interchange cost posted publicly on Visa and MasterCard's websites.

7.      Very attractive "Qualified Rate" promise – Many processors price based on bundled rates.  As stated previously, it is easier to understand, but it will cost you.  Most processors (their reps) will only show you the "Qualified Rate" up front.  This is the rate for credit cards that are swiped and includes check cards (pin-less debit) and regular credit cards, not rewards cards, key entered transactions, business cards or purchasing cards.  Where do all of these cards land in their "Bundle"...in the "Mid-qualified and Non-qualified" transaction tiers of course!  Why don't they tell you about these up front?  Because the rates are EXTREMELY HIGH!!!  Again, only accept a true interchange (cost) plus pricing setup.

8.      The vanishing rep – Have you ever bought a product or service and after being promised excellent ongoing service from your sales rep only to be abandoned after the sale?  I have and it is not acceptable.  To avoid this ask for references and call them.  Make sure the reference list includes long-term clients.  When I give a proposal I always include a reference list including clients that have been with me for over 8 years as well as newer clients so they can get a good feel for the service I provide.  If you get a good list including 10 references ranging from 6 months to 8 plus years and they all have great things to say, then you probably have found a good rep.

9.      Expensive equipment In most cases you only need simple equipment to process transactions.  Many reps out there use equipment as another revenue source.  In some cases the reps use it as a major revenue source.  For example, a rep offers you to lease equipment instead of purchasing it because "this equipment is expensive and you don't want to have to replace it if it breaks in 6 months to a year."  So they set you up with a 48 month (that's 4 years!) lease that costs say $45 per month.  That is a total cost of $2,160 over the course of 4 years (plus taxes) and at the end you don't even own the equipment!  Now here's the real kicker...  That equipment only costs $250 to purchase (maybe $340 with a pin pad).  You could have replaced that terminal about 9 times during that four year period for the same cost.  I have clients that have been using the same equipment for over 10 years!  Leasing and renting equipment is a rip off.

10.  Lies, lies and yes, more lies – My final point is something you have probably already figured out by now...that reps and the processing companies they represent will do or say anything to get you to sign with them.  It is a very sad fact and it makes my job very difficult because nobody trusts you as a merchant processing sales rep.  Some of you may say that not every rep is bad and I would agree, but the cold, hard truth is that most are bad...and some don't even know it.  Some just push the line of bull that their employer teaches them out of pure ignorance...they never take the time to learn this industry on their own to see if what they are being taught is the truth.  Your best defense here is references.  Good luck and as always contact me with any questions.

 


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