Merchant Services Scams and How to Avoid Them

It’s a labor-intensive process trying to figure out the difference between tiered pricing and interchange-plus, deciding which payment gateway is best, or learning the vagaries of cash discounting vs. surcharging. Add to that an industry fraught with unethical behaviors such as completely disregarding sufficient and appropriate disclosures of costs or coercing unsuspecting merchants into expensive contracts.

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Needless to say, it is hard to find a good merchant account provider. However, the task becomes much more complicated when merchants learn the industry can also be a minefield of scams that merchants need to navigate.

Below is a list of common scams merchants face regarding payment processors and to educate yourself on how to prevent them from avoiding getting conned.

Hidden fees

It is vital and in their best interest for merchants to carefully review the overall costs that they pay to any payment processor. Many merchants may understand that they should be mindful of the type and rate of interchange fees they will be charged and the typical costs associated with POS systems. Unfortunately, that is not all there is to look out for. Another common complaint against merchant account providers is the hidden and undisclosed charges that suddenly sprout up on merchants’ monthly billing.

Some fees to be mindful of that many payment processors try to get away with not disclosing are:

  • Separate rates for E-commerce, subscription pricing, or card not present (CNP)
  • PCI Compliance fees
  • Charges for payment gateways and Virtual Terminals – these are usually dependent on the gateway or virtual terminal that the merchant chooses and is usually a pass-through cost.
  • Batch fees – nominal fees charged according to the frequency with which merchants process daily transactions.
  • Chargeback costs – assessed based on the occurrence of chargebacks.
  • Network fees – these are directly passed on from payment networks, such as Merchant Location Fee from MasterCard and Fixed Acquirer Network Fee (FANF) of Visa.
  • Annual fees – often to account for yearly tax reporting paperwork that needs to be mailed to merchants.
  • Early termination fee – some companies have long-term contracts and charge a fee to let them go. Early termination fees should be carefully reviewed and ought to be avoided.
  • Equipment leases – one of the worst financial decisions as a merchant. Covered as a separate scam below.

“Proprietary” POS software

A proprietary POS solution is often presented as a one-stop-shop for all a merchant’s POS needs. However, this proprietary technology may only work with a specific payment processor or is available on particular POS hardware.

Merchants should specifically ask if the POS software can integrate with other POS hardware and payment processors or is restricted to particular merchant account providers or hardware vendors.

The software may truly be offering some intuitive and sleek reporting and designs, the latest cloud-based functionality, and other great bells and whistles. However, they will hardly be the only game in town. Superior functionality tailored to specific niche industries is abundant in the market today.

POS Equipment Leasing

Point of sale equipment leasing is one of the decisions merchants make when accepting credit card payments. These leases are often costly and lock in merchants into long-term contracts that carry hefty early termination. Even worse, some agreements may be non-cancelable. The merchant will not be able to cancel the contract and is liable to pay the remaining duration of the contract amount in full if they decide to terminate the agreement.

Another scenario is the payment processor gives “free” POS terminals, but the cost is tied to higher payment processing fees. Such contracts include long-term non-cancelable clauses into their interchange rates. Of course, the merchant with a relatively new startup does not have to pay an upfront cost, but the expenses incurred on a long-term agreement are multiple of the equipment’s total price.

Merchants must review their terms and conditions very carefully and be conscious of the scenarios outlined above. Even better is to buy the POS equipment upfront. If budgetary constraints don’t allow for that, rent the equipment.

Shady support

Customer service can make or break a merchant-processor relationship. There’s no point in stating you offer 24/7/365 customer support if the payment processor is simply a hiring mill, taking on independent contractors or part-time employees and none as full-time permanent employees. Such staff that are inexperienced with no long-term career path goals with the company and seldom resources invested into them, such as training, appropriately aligned incentives, or any benefits.

To offer quality customer support, a payment processor has to devout time and money to build a cadre of product experts who have psychological safety at the company to master the minutia of various products that merchants often confront and temporary staff seldom understand.

One point to research is how often the merchant processor hires for support roles and if those roles are full-time or temporary. Another safeguard is to look at how employees, particularly support and sales staff, rate the company on various online forums. Finally, look for merchant complaints related to support on multiple processor review sites and the Better Business Bureau (BBB).

Merchants need to be aware of a lot more than interchange fees as they sift through a bevy of merchant processor options. As consumer behavior shifts towards eCommerce and cashless transactions, choosing a sustainable merchant account partner is not only labor-intensive and confusing but downright imperative.

However, choosing a payment processor is a lot more than comparing rates and grasping the terms and conditions. There are many ways unwary merchants are susceptible to numerous scams involving their choice of point of sale terminals or all the various fees that can crop up on monthly statements.

Merchants must stay vigilant and be ready to spot any of the numerous scams that persist in the industry.

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