I rarely make it a point to “slam” a company, but I recently had a terrible experience with a merchant account and I wanted to share it with you, so you can avoid this.
I’ll also give you some background information about merchant accounts, in general, so you’re better equipped to find one, the next time you need one.
OK, so here’s the deal.
There are a handful moving parts to your merchant account. And these are the things you want to be aware of, and the things you want to focus on when setting one up:
1. The bank
Merchant accounts are all funded by banks.
In other words, a bank “loans” the customer money to buy from you… but in a sense, the bank is advancing you the money as well.
And here’s why: the bank is allowing you to get money, relying solely on your promise to make Mr. Customer happy. They are relying on your promise to deliver what you said you were going to deliver… to deliver it in a reasonable time frame… and to deliver it without any hassles or headaches for the customer or client.
This is true whether you’re selling goods or services.
So you want to deal with a bank that has a good track record of handling both merchants (you) and customers, because there will be times when a customer challenges you and you want to make sure the bank doesn’t automatically side with the customer by default.
For the most part, you can’t go to a bank directly – you need to go through a Merchant account provider who is essentially a 3rd party administrator of the bank’s merchant account.
2. Your processor
The companies who do this are usually “invisible” to you, and to the transaction – but rest assured, you will be paying them a small slice of every single transaction you process.
There are two types of processors – a “front end” processor and a “back end” processor.
The front end processor interfaces with you and their job is to authorize the transaction on the front end (when the transaction is made) and make sure the transaction settles with the merchant bank.
You get to choose who you want as your front-end processor, and you’ll typically have to integrate your front end processor with your shopping cart.
They will also typically have some anti-fraud procedures in place for you to comply with and for your customers to meet, in order to process transactions. And these procedures are usually good for you and for your business.
Processors are basically liaisons between the bank and the merchant, and the bank and the customer (on the other side of the transaction).
“Back-end” processors accept settlements from the front-end processors and, move the money from the issuing bank (the bank who issued your customer’s credit card), to the merchant bank (the bank YOUR merchant account is with, #1 above).
You don’t get to choose who your back-end processor is – the merchant bank picks them.
3. Monthly Limit
This is the amount of money your bank is willing to advance you, every month.
If you anticipate doing, say… $100,000 in sales, but you can only get $40,000 in monthly limit, then you either need to get another merchant account that’s willing to give you at least 100K per month. Or… you can get 2 or 3 merchant accounts who’s combined monthly limit will allow you to transact the amount of business you want.
It’s been my experience that as long as you have a good track record – meaning no customer complaints, timely refunds, and low (or below-industry levels) chargebacks… most banks are willing to raise your limit within 3-6 months. Especially if you’ve been proactive with them during your relationship, and especially if your sales are steadily increasing.
Sometimes your monthly limit will be a “hard cap,” meaning once you hit it, that’s it.
Other times, it will be a “soft cap” which means they will allow you to go a certain percentage over, based on what’s going on.
4. Reserve
Depending on the kind of business you have, you may be required to set up a “reserve.”
Reserves usually represent 5 or 10% of your sales that the merchant bank holds back. Their rationale for this is that you’re getting paid every month, and if, for some reason you’re not making refunds timely, or if you have a lot of customer complaints down the line and you have no cash to take care of them… then the bank is basically stuck with the bill.
First, they paid you, and then if you do have problems, they may potentially have to pay back the customer, if you have no funds in place.
So the reserve fund is their “insurance” they won’t get stuck with problems you might potentially create.
Banks hold reserves anywhere from 6 months, up to 2 years… and some hold them forever. As long as you are doing business.
Again, you want to do your due diligence here, when you’re setting up your merchant account. Ideally, you want to work with those banks who will hold as little of your money as possible, for as short a time as possible.
Your mileage will vary with this, as with all of these variables.
5. Payments
Most merchant banks pay you within 3-4 days at most.
American Express pays you much quicker, but they also charge you a little more for their services. I like Amex – they typically have the best customers… the best customer service… and they pay you fast, as well.
To me, Amex is a classic example of “you get what you pay for.”
To get an American Express merchant account, you go to them directly – not through a 3rd party merchant account servicer.
They are also the easiest to work with. But since most consumers don’t use Amex, you still need to get your conventional Visa/MC merchant accounts.
6. Fees
There are generally two primary fees: transaction fees, and Discount Rates.
Your Discount Rate (I don’t know why it’s called a “discount rate” – you’re not really getting any kind of a discount off of anything) is basically the percentage rate you’ll be charged, every time you accept a credit card transaction.
There are different rates for different kinds of transactions – in person versus online… branded or loyalty card versus generic bank card… debit card versus credit card… and so on.
The “general” range of these rates go from 2.75% through 4.95%. This is the primary source of income for all the banks that have merchant accounts and issue credit cards.
Then there are transaction fees:
There’s a merchant account fee for each transaction… a processing fee for each transaction (your processor gets this one)… a batch fee for processing bunches of transactions together… monthly fees (to get your statement, lol)… chargeback fees… and so on.
There’s actually a very good description of how Merchant Accounts work, on Wikipedia. And I’d encourage you to look at it, if you want to know more.
Now that you have a lot more information about merchant accounts, let me tell you one merchant account to avoid, like the plague.
I had a project that ran for about 16 months.
Once we wrapped it up, we cancelled all 6 of our merchant accounts, no problem.
But on one account, we started seeing incredible fees being pulled out – $60 bucks a month for processing, and $495 for a “closing fee.”
The Merchant was called Meritus.
Prior to this we had no problems with the account, at all. In fact, the ISO (independent sales office) contact who set up my account was great! Good follow up and attentive to details all the time.
On our end, we had no customer issues, less than industry standard chargebacks… reasonable sales and cash flow, and so on.
When I called to inquire about these fees – especially the two $495 fees… I was told this was “standard” for them.
I told them none of the other 4 accounts we had, charged us AND kind of fees like this, at all. I asked if they would be able to work with me on this – and even if they couldn’t reverse both fees, perhaps they can just take one.
This isn’t something I would have even thought to do, other than the fact that these guys provided the same exact service, and they were the only ones who took these large cancellation fees.
Once I asked this… all of a sudden, customer service slowed down to a crawl… for the first time ever.
And finally after 3 or 4 phone calls and e-mails, this is the lame effort I get back from Meritus:
“Accounting has responded that per the terms of the contract these fees are standard and justified and they are refusing to waive them. The best I could get for you was a promise to refund some or all of these cancellation fees when you open a new account with us. Is that a possibility?”
Can you imagine that?
Can you imagine ever telling one of your customers, “Hey, we’re going to put the screws to you now… but come and do some more business with us, and next time around, we’ll treat you better.”
And look, I’m not claiming to be a victim here. I have no doubt these fees were fully disclosed in the terms of their agreement (You’ll find the terms of agreement for merchant accounts are about the length of the Declaration of Independence – only the Declaration of Independence is actually legible. Most merchant account agreements are written in 8 point fonts.)
What I was hoping for, is for that they’d just treat us like the other merchants were. $1,000 in closing fees is excessive, that’s all, and I was hoping for them to at least meet us in the middle.
So, my response was this:
I recently wrote a lead generation direct mail piece that got a 32.85% response within the first 8 days. If you want to routinely get results like this, go here or here
“That’s an absolutely hilarious conventional corporate response:
“We’re f-ing you (twice!) this time… but next time we promise not to”
Regarding opening another account with Meritus: Ummm…. No.
Not a chance. Never ever ever.
And I will tell everyone I know who wants a merchant account to stay away from Meritus because of their outrageous closing fees that no one else charges.
Sorry buddy, just keeping it real.”
So today’s e-mail and blog post, is just me keeping my promise to Meritus.
My promise to tell everyone I know to stay away from them… and my promise to keep it real.
There are loads of really good Merchant accounts out there. And like everything else in life, usually it’s not what you KNOW that gets you… but what you DON’T know.
Hopefully now, your knowledge just increased a little bit, and you’ll be able to minimize your downside exposure next time you need a new merchant account.
Now go sell something, Craig Garber
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listening to:
The Matador – The White Buffalo (2005)