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Get Significant Relief on Operational Costs
"Buyer Beware" When Choosing a Merchant Processor
By Todd S. Whiton

This past year has been a difficult time for many businesses trying to navigate the turbulent waters of today's economy. Being proactive in reducing operational costs to dramatically increase cash flow has been a key initiative to survive. Simply stated, more cash flow translates into more time to concentrate on one's core business, more time to focus on marketing, strategic planning and client needs; all to help a business thrive in any economic climate.

It is absolutely critical to maintain a healthy cash flow by securing revenue as efficiently and quickly as possible. By now, most businesses realize electronic payment acceptance is a major component of good cash management in today's economic environment. However, it's also important to realize that not all merchant services providers are created equal. "Caveat emptor" can easily be applied to the merchant services business. The elements of 1) deliberate obfuscation, 2) a 'hit and run' sales mentality and 3) fine print terms and conditions can separate one merchant processor from another.

1. Deliberate obfuscation Because interchange has become a complex and confusing pricing system, the industry has fully leveraged this and created numerous pricing schemes which make it nearly impossible for a merchant to truly understand what they are paying. For example, when the bankcard associations introduced a new interchange category for Reward Cards, this category was integrated into common multi-tiered pricing plans used in the merchant processing industry. The industry knows and expects that the average merchant usually focuses on the "qualified" rate, which is the rate a merchant pays when a customer hands them a credit card and it is swiped. It is the lowest rate or first tier in a pricing plan. Because a merchant focuses on this rate, it gives the sales organization an opportunity to build margin into the other tiers. What happens then is this: when a new category like Rewards Card is introduced, it is placed in a mid or non-qualified tier. This creates greater margin for the sales organization. Additionally, as any merchant that has accepted credit cards for any period of time can tell you, every April and October Visa and MasterCard adjust interchange (which is usually code for a rate increase). In the small print on merchant agreements most acquirers have the right to pass on additional rates and fees along with the increases in interchange. The letter that a merchant receives alerting them of this increase is always cleverly written so that it appears that the increase is only based on the changes in interchange. It is a typical "bait and switch" tactic that the industry has mastered. Additionally, as it relates to deliberate obfuscation, how many merchants do you know who can actually reconcile their merchant statements?

2. Hit and run sales mentality People will generally do what they receive incentives to do. Therefore when you understand how sales distribution happens in the merchant services industry, it becomes clear that the sales person is generally compensated the most for signing up a merchant for bankcard processing. Because of this, there is little incentive for them to advise the merchant of other services, technology, or compliance matters. With major advances in payment technologies such as IP connectivity, contactless and wireless payments, stored value, electronic check solutions, and electronic reporting, merchants are not being served well when they are not advised of all the solutions that will most benefit their business.

3. Terms and conditions If you're a business who just signed up with one of these sales organizations, you probably feel like you just got a great deal and that you are going to save money. Maybe you will, even if for only a brief while. Did you read the fine print though? It is likely that the sales person who just signed you up received a signing bonus and maybe a free terminal that they sold or leased to you. Maybe they even gave it to you if they thought they had to. But wait - the merchant services organization that paid this sales person for signing you up has to have some assurance that they are going to get a return on their investment, right? The way they regulate this is by their termination fee and/or their liquidated damages clauses in their merchant agreements. If a merchant wants to leave, they are often subject to what can be a very expensive penalty for doing so (termination fees can range from a few hundred to thousands of dollars).

Electronic payment acceptance has added much value and growth for many business segments over the last two decades. Small businesses consistently continue to be the driver for new job creation and GNP growth for the US economy. It is Capital Payments' deeply held belief that small and mid-size businesses deserve better than what they've gotten from the merchant service providers that have sold them this service in the past. Providing merchants with competitive and transparent pricing and fair terms is the cornerstone of Capital Payments' service philosophy. We truly look at each partner and business relationship as a "client for life."

There's no denying that in today's economy, it's prudent for businesses to re-evaluate their payment card processor - to take a closer look at what they are gaining, and potentially losing, with the status quo. Securing the right merchant processor will save you money now, and in the long-term.

If you'd like to more information on National Mail Order Associations preferred member cost structure or if you would like a no-cost/no obligation analysis on a payment acceptance program at 800.675.6573 or

About the Author:
The above article was based on excerpts from the whitepaper, "The Dirty Little Secrets of Merchant Services", January 2008, Todd S. Whiton, President and CEO, Capital Payments, LLC.
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