Choosing a Merchant
How to choose a merchant service provider
Posted on 9 April, 2007 under Credit Card Processing, Featured by Bryan Johnson
I can always tell when someone is new to the payment processing space because their decision making process is being driven almost entirely by price. They’ve usually created some sort of spreadsheet and are comparing rates, transaction fees, monthly costs, etc. I not suggesting the getting competitive rates is not important. I am suggesting that this approach may lead to larger problems. First, rates and fees ares so complicated and providers can pull so many tricks that it’s unlikely the objective will be achieved. Secondly, there are other factors to consider that will have greater impact on your business than a few basis points difference in price.
More experienced merchants usually want to better understand technical capabilities, underwriting and risk management, products and solutions, customer support, and rate disclosure practices. (I thought this was funny and noteworthy. In the middle of writing this post I got a call from a large merchant that was looking for a different provider. He recounted his very unpleasant first, second, and third experience choosing a provider and then walked me though what he was looking for in a company - noting many of the items above). Before I make some suggestions about what you may want to consider when choosing a provider, let me quickly provide some context about the different types of providers.
There are two types of providers: processors and ISO’s
In Merchant Account Basics I outlined that there are basically two types of providers, processors and ISO’s (resellers for processors). One of the takeaways of that post was that ISO’s can be just as good if not better than processors in providing high value processing solutions. I mention this because this is counter intuitive to some who run with ‘cut out the middleman’ thought process. I of course fully disclose my personal bias in the matter but will also call out that I worked for a large processor for several years prior to starting my own ISO.
First, don’t let price be your primary decision making factor
It’s understandable, watching your costs is the one of the most important parts of your business, but don’t let it be the primary driver when choosing a merchant service provider. Providers know this and so to appeal to your needs they advertise rates and fees that are not all inclusive. This industry is so competitive and the margins that merchant processors make are so small, get a competitive rate, but focus your energy on larger and more important issues.
If you’re not convinced and still want to pursue price as your sole decision making factor, just know that the ‘creative’ selling strategies being used by some are really just part of a larger, and accepted culture in the industry. Here is an example.
Not all providers are made equal
Not all merchant service providers are made equal. Some only focus on specific business types while others are generalists. Some are upfront and straightforward while others are not. Some have best in class solutions while others have standard services. It will be helpful to ask the sales person your dealing with about their current customer portfolio to get an idea of the types of specializations they’ve developed.
Try not to piecemeal solutions together - find one provider that can meet all your needs
For example, if your business is selling goods and services online you’ll need a number of services such as a shopping cart solution, payment gateway, virtual terminal, risk and fraud management, maybe an echeck solution, potentially PayPal and Google integration, etc. This example would similarly apply to business to business, Mail/Telephone, and restaurant and retail merchants. Make sure you’re provider can not only do all of those things - but do them well. Ask to look at their solutions before committing.
Do enough research about prospective providers to gain a level of trust
This industry is fundamentally very complex. As a business owner, you won’t have time to learn or keep up to date on everything going on in the payment processing industry. You will need to work with a company that won’t take advantage of your limited understanding. One of the best indicators is to evaluate whether or not they are upfront with their prices and capabilities. For example, if they list their fees on their website, do they disclose all fees or is it bait and switch. You can also read Some advice to help you avoid common mistakes.
Other Suggestions
Ask good and through questions in the beginning of a relationship to find out what your providers capabilities are. Ask them to throughly explain all fees, rates, and conditions. Ask them if they have experience with different products and services and then ask for examples of when and where they previously implemented it. Try to avoid getting into a relationship where your vendor runs out of steam right after the most basic service is in place. Also remember that the things I generally discuss in these blog posts are just the most basic topics in merchant processing. There is a whole additional layer of value added services that you’re business can benefit from in partnering with a more sophisticated provider.