Merchant Account Confusion & Abusive Practices (part 2 of 6)
The traditional three tier Merchant Account is more prone to confusion and abuse than that of the Interchange solutions. This is largely because of the processor has the freedom to divide those hundreds of Interchange Fees into the three “buckets”, e.g. qualified, mid qualified, and non-qualified as they deem appropriate.
What a good processor tries to do is to take the processing costs and separate those variations into the three buckets based on the risk associated with each. A less than reputable processor might manipulate these buckets so that it appears as though you’ll be getting stellar qualified rates when in fact your transactions may never qualify for this rate tier.
Look at the example below . One is a viable merchant account structure that you might expect. The other is not. In this case a large portion of your potential charges have been moved down a rate tier. If you just compared one processors rates with another, you’d never know that in reality, you’d be paying much more.
It’s worth noting that there is nothing wrong with the idea that one tier structure is different than another. What makes a processor great vs. good is their ability to juggle all these scenarios, mitigates risk, and passes the value on to the merchant. The key is to make sure that you are getting exactly what it is you think you are getting. This is why full-disclosure has always been our mantra.
For reference, one clue that perhaps you aren’t getting what you believe is by inclusion of the following text on your Merchant Account Contract:
Client certifies that all information set forth in this completed application is true and that he has received a copy of the Tiered Grid ID Numbers, Program Guide…
What this is basically telling you is that the rate grid you think you are getting is probably not what was advertised. At least, not the value you have anticipated. Another additional trigger for concern is if they never provided such a program guide.
In the end, you’ll need to be thorough regarding your review of your Merchant Account Contract. If you’d like, you can always send us the contract you have for evaluation. We’d be happy to review and let you know if there is anything of concern.
Retail vs. MOTO
You may have noticed that the above graphic denotes a “Retail Merchant Account.” There are actually many types of Merchants accounts but all of them have one of two that provides the foundation.
Retail Merchant Accounts: Swiped transactions. When the customer is present at the time of the transaction with their card in hand. Specifically when they “swipe” their card. This type of transaction demonstrates a lower risk of fraud and as such, the rates are lower.
MOTO Merchant Account: Non-swiped transactions. This might be the case with Processing orders via the mail, phone, or a website shopping cart. Without the card present, these rates are higher than “retail” rates.