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No Equity in Credit Card Processing

Members of the ISP-Webhosting list say it's tough to get a fair deal when asking credit card processors or local banks for a merchant account.

[April 24, 2003]

On the ISP-Webhosting list in April, MR asked:

"I know this has been hashed out before, but I'm looking for a new credit card processor and would like recommendations given that I do minimal credit card business right now."

There were many recommendations:

[ML advised] "Take a look at Quickbooks Pro. It works for us pretty well."

[GO suggested] "Check out National Transaction Corporation. We use them as a merchant provider and Verisign Payflow Link for card processing. We've searched and used many different systems and found this combination to be the best for recurring billing."

[BW noted] "You can navigate around http://www.ispcheck.com [ed. note: site no longer at this URL] to find a good merchant account. There are lots of companies who offer the merchant accounts there. I think the site is a great resource."

[KB recommended] "Look at www.Costco.com's merchant accounts through www.NovaInfo.com. They have the best rates and lowest costs of anyone going."

[MR added] "I would actually recommend a normal bank—the same bank you have your current business accounts with. The reason I say this is because your bank probably runs a processing gateway, and you can save on many of the silly fees. My discount rate is better with my bank (Fleet) and I pay about $30 per month less in fees compared to my previous merchant account (and $100 per month less than the account before that)."

Others discussed the potential pitfalls of working with credit card processors:

[JA warned] "Most merchant account providers (not sure all) have a monthly minimum fee, typically $15 to $25. This means you have to put enough transaction through to achieve this amount in *fees*—i.e., if they charged you 2.5 percent and .30 per trans then one sale of $50 through your account would mean $1.55 in fees (these fees have to reach your agreed minimum). Many people don't realize that's what they mean."

[BB warned] "Perhaps it's different in other areas of the country, but here, most banks aren't operating their own merchant services. They partner with third party processing companies. I currently use Cardservices International and have for the past decade. When we first started out in '93/'94 we had a very difficult time getting a card processing company that would allow online/phone only transactions (as opposed to having a store front, swipes and signatures)."

"The local banks would not take us on because we did not (at the time) have a storefront. Also, at the time, the more "national" ones were ripping off a lot of startup internet businesses by charging $250 or more in application fees, lying about taking on non-store front businesses. They would deny the application and pocket the application fee."

"Cardservices took the risk without being crooks about it. Over the years, I have contacted local banks with whom I have business accounts of various sorts to see if they could save me some fees, and every time the merchant card contact has been from a third party who has partnered with the bank."

[JH raged] "Credit cards are the largest drain on our economy. They provide very little value for the outlandish fees they charge. They saddle us and our customers with too much debt at unfair interest rates. I'm whipped by credit card merchant account providers daily."

[JM replied] "Getting whipped daily, are you? Maybe you should direct your anger at the guy who put the gun to your head forcing you to use those evil cards."

[JH agreed] "Nod. Probably should. But they've already got our entire country with free money and interest rate torture so that you cannot do business without a merchant account. What does a credit card merchant provider do for its 2.0 plus percent plus gateway fees plus stand-on-your-head-upside-down-fees plus legal extortion fees plus we-will-stick-it-to-you-again fees? And then they hold on to your money for another day or two and generate massive profits off the float. The value isn't there, folks.

The federal government should regulate the credit card companies. They should force the Visas and MasterCards of the world to charge only 5 percent interest and give massive tax breaks to people deep in credit card debt in return for paying off their balances."

[JH continued] "Oh, by the way, I truly believe that by going through your local bank, you at least have someone with local accountability you can go to as far as credit card merchant accounts go. Yeah, they might be brokering someone else, but at least there is someone there you can get into their face and tell them personally how they screwed up."

[JD countered] "I have no reason to complain about credit cards. Our customers use them to pay us, we lose a percentage, and then we get our money 3 days later (5 or even 7 days for AMEX). Other than that; it's no big deal. Until something else becomes standardized and starts wiping out credit card usage, I can't complain."

—End