Merchant Solutions

Becoming an online merchant is an exciting proposition. And when that new merchant account is approved, many breathe a sigh of relief — after all, they’ve made it. But then there are the horror stories. What if that merchant account solution turns into a nightmare? This article will discuss some unique and not so unique problems faced by merchants along with how to avoid them or handle them if they occur.

Merchants Accounts Gone Bad

Many of the tales start when the relationship is supposed to end. After finding a new credit card gateway for card acceptance, the old provider refuses to go away. Some complaints are about money withdrawn without permission from their accounts and bills for things like IRS filings (form 6050W) that may be required, but shouldn’t be billed for an exorbitant fee to merchants.

Suddenly, the fine print kicks in. A termination fee may be mentioned or charges you didn’t know about start bleeding your account dry. Merchants who’ve had this experience talk about mystery fees that come months or even years after they thought they were done with their previous credit card processing service.

At a minimum, understand exactly how to cancel your relationship with your merchant processing provider – before you commit.

Online Processing Problems

PayPal and other online third party processors may freeze an entire account based on one fraudulent transaction. Merchants that fall victim to this don’t even know what happened in many cases. They accept what they think is valid information on their website, run the transaction through PayPal, and the next thing they know, they are accused of fraud.

Because the norm is to link merchants accounts with business credit and checking accounts, when a big reversal hits, you can have an account drained before you even know about it. If you are deemed at fault, there may be associated penalties to pay as well. The first word to the wise is to always, always expect to keep a buffer between you and your Internet credit card processing service. This means a buffer of money – ideally enough to handle any problems.

And that brings up another problem, with both credit and debit card processing – the chargeback. When customers dispute a charge, they may or may not be justified in doing so. Maybe buyer’s remorse kicked in, or they just want to dodge paying a bill.

The most common reason codes for chargebacks are:

• Clerical: A software error results in multiple charges for the same transaction, duplicate billing, or incorrect amounts billed.

• Technical: NSF, bank errors, time delays causing an expired authorization.

• Fraud: Identity theft or claim of false authorization.

• Dispute: Customer claims some problem with the goods or services purchased.

Because online transactions do not obtain a signature, the number of chargebacks can be excessive. This can lead to fines or even cancellation of a merchant account.

Electronic Contracts

Most online merchant processing services only give you an electronic contract. One of the stipulations in that agreement will be that changes automatically go into effect upon notification. In practice, this means they can change the rules by sending you an updated contract. Many merchants either do not read these updates or they feel they are “too deep” already with one service provider and won’t cancel, even when something is added that changes the relationship dramatically.

Be prepared to drop a provider if they add clauses that you don’t like. Even the best merchant accounts can turn to bad with enough alterations. So called, total merchant solutions that up-sell a package containing services you don’t need or want are notorious for this. Who wants to pay for something they aren’t using?

Product Code Restrictions

Some merchants process credit cards with an account that has a product code restriction. For example, if you are in the restaurant business, you sell food and all your transactions fall under this sales category. But online retailers who get restricted for Internet processing (or even offline retailers) who diversify into new products may run afoul of the following:

Your merchant processing solutions provider tells you that you can’t submit transactions for new products because they are in a new category and use a different product code than you already have. In fact, they will say you need multiple merchant accounts, one for each type of item.

Not Enough Sales or Too Many Sales

Merchants solutions often come bundled with a minimum sales volume attached. These monthly minimums are built into the contract. Entrepreneurs who do not meet this sales goal still have to pay this minimum amount. That means if you set your sales figure too high, you will pay every month to keep your merchant account.

Strangely, having too many sales can also be a problem. This happens on the Internet when a new product takes off, or a new marketing strategy suddenly boosts sales – often overnight. Since processing solutions on the Internet are “hands off,” this bump in sales may go unnoticed. On the surface, this seems like an ideal situation: sales take off and exceed all your expectations.

But from the point of view of the credit card issuing bank, this uptick is caught by software as a possible fraud in progress. When this happens your account can be shut down entirely, leading to lost sales, misunderstandings and time wasted trying to fix the mess.

Avoiding Problems

The best way to avoid as many problems as possible is to learn how to set up a merchant account correctly. All merchant service providers are not the same and it would certainly be beneficial to do some research before you open an account. It may also be unrealistic to think that no problems will ever arise, but to limit the issues above, you only have to pay close attention to any contract you sign (and any updates) and know your business well enough to match your credit and debit card services to what you actually need.  Doing this, and keeping up with your sales (to request modifications as needed) will keep most businesses out of trouble.

Limiting chargebacks isn’t hard either – as long as you provide a good product and solid customer service.