Staying Alive

The struggles of a business trying to survive.

My search for a credit card processor started last April and dragged on through the end of January. Like many small-business owners, I have plenty of things to keep me busy, so my search was an on again/off again thing. As it progressed, I found that the more carefully I looked at the terms I was agreeing to, the less I liked them.

It took a lot of hours to do the legwork necessary to understand how the industry works, how the deals are structured, and what would be my best way forward. Then I put a lot more time into writing this series of posts. If you have followed the series from the beginning, I suspect you may have come to the same conclusion that I arrived at: this market is stacked against the little guy.

Here are a number of things that nobody told me and that it would have been helpful to know from the beginning:

• Processing credit card transactions is expensive — I spent more than $27,000 on it last year, on $600,000 in transactions — and the discount rate can vary widely. The lowest rate I was offered was a whole lot lower than the rate I had been paying. It’s worth looking around.

• But looking around isn’t easy. Comparison shopping, by which I mean following the sales process to the point where the final pricing and terms are revealed, is almost impossible. I ended up violating three agreements in order to get the real rates. I don’t think anything bad is about to happen to me — I’m too small to bother with, I suspect — but unspecified fees and penalties are now hanging over my head.

• It’s worth taking the time to read the agreement. You may well find surprises that you don’t like. When I read through the Square agreement, for instance, I found limits to transaction size and frequency that would not work for me and that were not featured prominently on the Web site.

• If your experience is like mine, you will find that the sales representative from merchant services is the smiley front end of a deal that is really controlled by the company’s underwriters. The sales representatives I met were all pleasant, intelligent people. And they all omitted, or could not confirm, important information about the pricing and the structure of the contract. I was only able to determine the real terms after I had accepted them.

• Even so, the sales representative from merchant services is your best advocate when dealing with the underwriters. In the deals I investigated, I had no other way to communicate with the people who made the ultimate decisions about my reserve accounts. All three of the representatives that I worked with tried hard to come up with a way to make the relationship work. And if I had simply signed on the dotted line, and not asked questions, it would have been very smooth and easy.

• It is essential to understand that when you take a credit card payment, you are borrowing money — at least as far as the merchant service providers and their underwriters are concerned. The industry you are in, the type of business you do and your personal financial situation will be relevant to their perception of the risk involved. But I found, to my surprise, that the companies I dealt with were unimpressed by my perfect, multiyear record as a merchant with no chargebacks. I can only imagine what happens to start-ups or applicants with tarnished histories.

• Speaking of credit histories, my credit score dropped by more than 100 points while all of this was going on, from more than 800 to less than 700. My wife and I recently applied to refinance our mortgage, so that might have had something to do with it, but her score didn’t drop at all. While I can’t prove that the credit card applications caused the drop, it’s something to keep in mind if you apply for merchant services at the same time you apply for other credit.

So which company did I go with? Emerald World. Even though I didn’t like the company’s reserve account terms and even though it offered higher prices, I felt that Emerald World’s sales representative, Kelly Nelson, had been extremely helpful from the outset. He had opened my eyes to the true cost of the fees I was paying PNC. And he had offered, in writing, the ability to cancel the deal on 30 days’ notice. (WorldPay and Wells Fargo offered fixed, three-year terms.)

We started using Emerald World to run transactions last week. And you know what? It didn’t go all that smoothly. Underwriting was displeased when the first transaction I ran was much higher than the average number we had put on our application. Sigh. You would think that underwriters, of all people, would understand how averages work. But Kelly helped me through that mess, and we are now up and running.

As for my business banking, I am moving that to Citizens Bank. I like the guy I deal with there, the A.T.M.’s are right on my way home from work, and the Web site has been rock solid even when PNC’s has been shut down by hackers (which has happened frequently since September).

I hope that you find all of this helpful. I didn’t write this to discourage anyone from accepting cards but rather to clarify the nature of transaction processing. Credit cards definitely provide benefits to buyers, and merchants who don’t accept them are putting up a barrier to potential sales. If you are in retail or e-commerce, you really don’t have a choice. I could probably refuse to take them, but it would cost me a lot of business.

The story presented here reflects my understanding of a complex industry, based solely on what I learned when I started putting hours into researching it. If you think I have made any errors, please correct me in the comments. And please let us know if you can shine additional light on the industry’s practices.

Paul Downs founded Paul Downs Cabinetmakers in 1986. It is based outside Philadelphia.

Article source: http://boss.blogs.nytimes.com/2013/03/29/my-search-for-a-credit-card-processor-part-4/?partner=rss&emc=rss