Have you ever wondered why most provider of real merchant account go through verification and checks in not only your business but also in your individual processing history as an owner (unless you are a 501c3 Non-Profit)? And why approvals can take from 1-5 days for merchant accounts?
You probably ask “Why are they treating this as if I’m applying for a loan? This should be as easy as visiting my favorite 3rd party processing service’s website and entering my checking account information”.
Merchants need to understand that there are very legitimate reasons for merchant providers being just a little more cautious than third party payment processing providers.
A) Merchant account providers have to abide by very different rules than other payment service providers. Visa/MC sets forth rules that are to be honored by not only merchant account providers but their sponsoring bank. And in the case of Visa/MC’s rules for merchant account providers, most of them have been put in place by Visa/MC after most years of being in the branded credit card business so they’ve drafted most of their current contracts in effort to prevent past operational mistakes from reoccurring – just as any business person drafts a contract, to prevent the worst and protect their interests
B) Most merchants do not understand that the government does have some sort of say so in what’s going in the merchant industry. It’s called Homeland Security, and though they’re not yet working as closely as they want to with merchant providers their Homeland Security rules to have parameters set in place where banks can be held responsible for clients that use their services to break Homeland Security laws. (Note: there have been reports that they are fighting hard to have all of merchant’s processing data turned over to them – and processors are fighting back, so it’s not 100% complete yet).
C) At least 95% of merchant account providers ask for voided check copies or bank letters for verification when a merchant applies for an account. Merchants sometimes wonder why the processor cannot simply “call my bank to verify the information and go in and approve the account”. Well in that method there’s no paper trail or proof in writing that the provider actually verified the checking account information. And in both the legal world and in Visa/MC’s rules this carries no weight in the case of a merchant signing in and causing a fraudulent catastrophe.
D) Merchants should also understand that with a real merchant account they are their processing their own sales either by allowing their customer to enter card data or by the merchant manually entering card data. They are entrusted with very sensitive credit card data. Have you ever noticed that with most 3rd party payments processing providers that are not real accounts often charge much more for allowing merchant’s access to their Virtual Terminal, which allows the merchant to enter their own sales as needed? Well this are because when the merchant can just take a card number and enter it themselves the risk of fraud does increase, as if the merchant isn’t the most honest business person they have the opportunity to steal card numbers and enter the numbers into the Virtual Terminal themselves at will.
This are why most third party providers often offer their “cheap” options as the option that only allows customers to enter their own data and charge much more for the Virtual Terminal, but as most merchants know this isn’t always the most feasible or professional way to do business, as sometimes your customers won’t want to have to “visit your website” just to pay for a product or service, they may want to pay for it via mail, phone, or even in person. This are where being entrusted to use the Virtual Terminal ethically comes in handy, and if the merchant are not ethical it’s ultimately the processor that’s responsible for resolving the fraudulent activity (explained more below).
E) Contrary to popular belief the merchant account provider and bank are taking in much more risk than most merchants believe. Here’s an example scenario where the merchant should be held responsible for fraud but a processing bank may be:
A merchant applies for an account, without the best intentions, they are approved by the bank’s underwriting.
The merchant gets access to stolen card information and manually enters that info themselves via either their Virtual Terminal or Web Interface. Let’s say $500.
The real customer, having no knowledge of where this charge originated sees that their card was used fraudulently.
The customer disputes that transaction with their credit card company considering it fraud because they did not authorize it.
The merchant provider/processor attempts to contact the merchant to inform them that they have a chargeback and will have to refund this customer because the customer charged this transaction back with their credit card company and the merchant has no proof of customer authorization (so the customer wins the Chargeback dispute).
The problem are that the merchant had bad intentions to begin with and they’re long gone.
In this case who has to refund the customer that money because the merchant are nowhere to be found? The merchant processor and processing bank does! Though the merchant are responsible for the fraud they cannot be tracked down in this instance but the customer must still be refunded. So the role of the provider in this case are to take care of reimbursing the customer – of course this would make any provider a little cautious about whom they sign on.
Operating a business that accepts credit cards is, at the end of the day, a responsibility that should not be taken lightly. Think about it, if it were your credit card being used by a business wouldn’t you want the bank that’s trusting and processing for that merchant has done due diligence to verify that the merchant has good intentions? Sometimes merchants are frustrated that providers turn them away as if only they should be the ones choosing in the process, but when there’s so much at stake providers have to ask just as most questions before boarding a merchant as a merchant has to ask before choosing a provider.
Joe Thompson
Thompson Merchant Services
