Payment Technology Blog

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Monday, July 27, 2009

Merchant Account Cancellation Fees

It is a standard practice in the industry to charge an early termination fee. This is understandable - considerable time and effort goes into underwriting and boarding a new account, time is spent on customer service, etc. An early termination fee is a way for a merchant account provider to make sure they will recoup their initial investment into a new merchant account. These fees are usually range from $200 - $500 depending on the provider.

However, some entities enact extremely unethical early termination fees.

For example, some merchant account providers will charge a mutliple on the earnings from the largest volume month over the past 12 months. Some providers will go so far as charge a multiple on their profit + interchange + dues and assessments!

Two examples that I have encountered:

1) Big Bank - I had a merchant processing with this bank. They wanted to cancel, and were prepared to pay what they thought was a $295 early termination fee. They receive a communication from the bank telling them their early termination fee was $60,000+!!! WOW! This was their highest month from the past 12 months, including interchange + dues + assessments + the bank's profits.

2) Merchant Account Provider - Similar scenario - very small merchant, tried to cancel and the provider threatened to assess an $18,000+ cancellation fee. WOW!

In both cases, these organizations were assessing against future earnings (i.e. no loss was represented to these organizations) and future earnings they never would have earned (i.e. interchange + dues + assessments)

This practice is BAD!! Obviously. Here's why:
1) It is, in my opinion, an extremely unethical practice. It is unfair to the merchant, and it's this type of action that makes merchants at large hate merchant account providers. It is bad for the industry as a whole.
2) Similar scenarios caused legislation in Arizona to be passed putting a $50 cap on early termination fees. This type of action will invite government regulation.
3) This type of action does not help the provider in the long run - it ends up causing attrition, instead of preventing it, and ends up with a customer who will never come back.

So, my message to all you merchant account providers out there who adopt this practice - STOP IT!

My message to merchants - read your early termination penalties VERY CAREFULLY before signing. If you do get into a situation where your provider is trying to hit you with extreme and unreasonable penalties, those contracts are unenforcable in court. You can fight it, and you'll win.

Thursday, July 23, 2009

MWAA Annual Meeting

I spent the last couple days attending the MWAA (Midwest Acquirers Association) annual conference in Lombard, IL. As always, the show was very productive. There is always great educational opportunities and networking opportunities at these trade shows. I learned a lot, and made many new valuable connections.

One thing that was very apparent, the show was very "retail" oriented. Most of the discussions, panels, questions, etc revolved around serving the retail merchants of America. It's great that the retail segment is given a lot of attention, as they are deserving of it. They are a large segment, and they are and have always been a staple of the American economy.

However, a specific segment was sorely overlooked. The Internet segment. There were no sessions, panels, discussions, questions about Internet merchants at all. To me, that is mind boggling. Internet merchants are a major segment of U.S. commerce, and will continue to grow and grow quickly. Before long, every merchant will be online in one form or another.

Sure, there were a dozen gateway companies represented, and other software based vendors in the exhibit hall, but none of the show content was geared towards this segment. Why was this segment overlooked?

It's simple, the industry as a whole does not understand this segment. Retail is obvious - retailers all behave the same way. They either swipe credit cards through a terminal, or through a swipe reader attached to a point of sale system. The POS system may grow in scale or scope, but it's always the same. Reprogram a terminal or POS OR sell the merchant a new one, and you're good to go.

With Internet merchants, there is no cookie cutter format. Every Internet merchant has unique needs. Every Internet merchant will process in a different way, and respond to the results in a different way. For a traditional merchant account sales person, who used to sell terminals and is now faced with selling gateway accounts, it is a very complex process.

I belong to a discussion group for 4D, a database technology. I recently saw a post from a member of the group that was faced with integrating payment processing into their application. They selected a payment gateway to integrate, and went on to describe what a painful process the integration was. So painful, in fact, that they almost gave up. Through perseverance, they made it through, and it's been mostly smooth since then, but the initial integration was much more difficult than it should have been.

Even gateway companies, which grew out of a need for a "virtual terminal" don't understand what merchant facing developers need. The development community, who has ultimate influence on a merchants payment processing decisions, is largely neglected by the merchant account industry.

We are a unique merchant account provider. We do not have any "old school" merchant account sales people on staff. We come form the software development and consulting community. We look to form partners with developers in order to help them make the process easy, and provide the tool set they really need. We provide solutions.

Anyway, I can go on and on about this all day.

For more information on what we provide, visit the NELiX TransaX Developers Site.

Saturday, July 11, 2009

Credit Card and ACH Processing in FoxPro

Yeah, you heard me. FoxPro! FoxPro is a database platform that has been around for an extremely long time and at one time was widely considered the fastest database platform available.

I remember seeing an Apple demonstration in the early 90's, running on the hotest Mac of the time, and using the Fox platform. The demo ran searches against the U.S. postal database in milliseconds. Very impressive.

Much like other database technologies - such as Microsoft Access, FileMaker or 4th Dimension (4D) - most FoxPro users and developers never consider the possibility of running credit card and ACH (E-check) transactions, in real time, through their FoxPro databases.

When you realize that this type of automation can be done, the possibilities are endless. For example:

- Eliminate exporting and importing to/from third party applications to run transactions.
- Automate the payment process - auto charge customers.
- Create cascading systems - i.e. if a credit card payment fails, run an E-check transaction
- Create systems to "initiate" customers and bill them later
- Create ad hoc rebills

NELiX TransaX recently added a FoxPro payment processing integration example to the FleXport suite of libraries. Download and take a look!

Download FleXport integration libraries here.
More information on NELiX TransaX
Developers can partner with NELiX TransaX. Find out how!

The biggest advantage of our gateway comes from power that it puts in the hands of your developers. Easily integrate with your application and take advantage of features to enhance your system.

We invite you to a live demo and the opportunity to build a partnership. Our promise to partners is, through innovation, today's products will be relentlessly enhanced into tomorrow's solutions.

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