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Merchant Accounts - My Experiences With Several by Yisroel Goodman
by Izzy Goodman

About ten years ago, shortly after I opened a $195 account with Charge.com, I came across a "no application fee" account with Aaacess.com, also called First Alliance. After speaking with Aaaccess at length both on the phone and via email, I was led to believe that they did offer such an account. Charge.com has a price guarantee in which they claim they will refund the difference if you find a cheaper account. I contacted them about Aaacess. Charge.com refused to believe that such an account was possible and would not refund my application fee unless I closed the account. So I closed my Charge.com account, received a full refund, and opened one with aaacess.com. I should have suspected something when there was a $49 gateway fee that had never been mentioned. Still, $49 was better than $195, so I opened the account.

The account was opened within a week and functioned exactly as I expected it to - with one exception. Providers of merchant accounts always tell their account holders to have a liberal return policy. What they don't tell them is that the providers keep the fees, even on immediate refunds. When someone ordered a $200 item and then changed their mind, the $6 I was charged to put through the transaction was not refunded. This is fairly standard in the industry. Most merchant accounts will not refund charges. (Score one point for Paypal and Google checkout.)

I have been offering my customers discounts for using payment methods which don't cost me money. Six months after opening my merchant account, I found that most of my customers were using other means in order to save money. A traditional merchant account charges a monthly minimum of $25. This means that you will pay a minimum of $25 a month in fees even if you never process a transaction. This is in addition to any gateway fee and statement fee, which at the time were $10 a month for each. I was not processing enough credit card transactions to warrant paying $45 a month. Then I found two companies offering no-minimum merchant accounts. I decided that I would rather pay 3.5% with no minimums, gateway, or statement fees. That's when Aaacess hit me with a $250 cancelation charge. This charge had never been mentioned in all of our conversations nor was it in any of their documents. I called them, emailed them, and faxed them to send me a copy of any document I had signed mentioning this charge. They never responded, other than to withdraw this amount from my bank account. When I finally got them on the phone, they referred me to another number which had been disconnected. They did not answer subsequent calls. I was able to get my $250 back by going to my bank and reversing the charge.

When you open a merchant account, you get the ability to charge Visa, Mastercard and Discover. You have to apply for American Express separately. A lot of business people use American Express. However their rates are higher - over 4%. We no longer accept it except through Paypal. (According to some financial mavens, if Amex doesn't wake up and become more competitive they may be headed for the same fate as Bear-Stearns.)

I opened an account with United Bankcard because they offered me a flat rate with no additional fees. Every month they tacked on extra charges. When I called them to question these, they would apologize and issue a credit only to do it again the following month. After several months they told me they could no longer offer this account and forced me to close it.

Safepay and Federated Payments

Some months ago (mid 2009) I was contacted by a merchant account provider called Safepay who represented a processor called Federated Payments. They promised a deal that seemed too good to be true. An account rep came to my office. He filled out a form which detailed all the charges associated with this account. There was a hundred dollar annual fee which he made a big point of crossing out. The rate would be 1.99% plus 30 cents a transaction. The monthly fee would be $10. He crossed out all other fees. We had a pleasant chat, exchanged jokes, and then I did something very foolish. I signed the contract. I failed to notice that the back contained many paragraphs in a miniscule font.

At the end of the first month I was charged the equivalent of 5.5%. When I called to question it I was informed that the 1.99% only applied to what was called "qualified transactions." If a corporate card was used, I would be charged double and if a Canadian card was used, I would be charged even more. There were also additional fees for validating the address and CVV number and a 35-cent per batch fee. Each evening all charges made that day are transmitted to the processor in a batch, so I would be paying an extra 35 cents per day, which added another $10 a month. All of this was explained in paragraph 9 of the small print. There was also a second $79 annual fee which my friendly rep had failed to cross out. Even though the contract clearly stated a $10 per month gateway fee, I was charged $23.90. I was told that this was the quarterly charge of $30 which had been reduced since the account was opened in middle of the month.

I called my rep to express my dissatisfaction. He assured me that this was all a mistake and he would see to it that all these extra charges were removed or reduced. Every week I would call or e-mail him and each time he assured me he was working on it. The next month I was charged the same rates and the same fees. On top of that, there was another 23.90 gateway fee. I was now locked in with them for three years unless I paid a $295 cancellation fee.

AllState Merchant Services

I was considering this when another processor called AllState Merchant Services called and claimed to have the lowest rates. I explained that I had already signed with another company. They promised to pay the cancellation fee if I switched to them. I told them that having been burned already, I would insist on getting everything in writing. They faxed me their contract and I was pleased to see there was very little small print. I read it carefully and questioned every fee their rep had neglected to mention. He kept assuring me they didn't apply to me, so I crossed them out. He also said I had two months during which I could cancel with no penalty.

When I was finished reviewing the terms, I typed out an email detailing all the fees. There were transaction fees of 1.79% plus 15 cents, and a monthly minimum of $25. I added at the bottom, "There are no additional fees other than the ones listed on this page above. There are no annual fees, monthly, gateway fees, statement fees, batch fees or any other charges. XYZ processor will pay the $295 cancelation fee CCS will incur upon terminating their already existing contract. CCS can cancel the contract with XYZ within 60 days with no penalties." I sent this to my rep and told him I would sign his contract if he pasted my email on to his letterhead and returned it to me signed. He did so. I then canceled my contract with Federated/Safepay and signed on with him.

Trouble began within a few days. My contract was activated on September 30. I was immediately charged the $25 minimum for the month of September. On top of that, I was charged a $15.70 monthly gateway fee. I emailed my rep several times complaining that no company charges the full monthly fee for an account which has only been open one day. If I was to open a Netflix account for 9.95 a month on September 30, they would not charge me 9.95 for that one day. And my contract specifically stated no gateway fees. He assured me I would be getting a refund of the $25 and the gateway fee. The next month there was no refund and a gateway fee of over $20. Another series of e-mails were exchanged with more promises. Then they sent me a letter saying I would also be charged $120 for a security check. As for the 1.79% rate I was promised, the fee charged to my bank account is about 4% of my charges. They have now explained to me that cards which give the customer any sort of reward such as points or airlines miles are considered mid-qualified at the 3.69% rate. I cancelled my account with them and only after cancelation did they call to apologize and offer to refund the overcharges but only if I signed on with them again. They also tried to claim that I would have to pay the $495 cancelation fee. When I pointed out that I had a promise from them in writing on their letterhead that I had 60 days to cancel, they tried to claim it would take a week to cancel the account and that would put me beyond the 60 days. I told them if it took them a week, that was their problem. I had canceled within the trial period and any attempt to extort money from me would be met with a chargeback and complaints to the authorities. Then - ten days after the account was cancelled - they charged me the $120 security check fee though no check had ever been done and I had never agreed to this. In all I was overcharged $188 in a 2-month period.

Recently one of their account managers called and promised to refund the overcharges. The $25 fee charged in September has already been returned. He explained that there was a communication failure between my account rep and the accounting department but I would be getting everything back. I don't understand why it took canceling my account to get their attention, but if they are willing to correct their mistakes they are already a step ahead of the previous company. On December 21st, the balance was credited to my account.

Don't fall victim to sleazy marketing tactics and hidden charges!

Make sure you ask the right questions:

What does it cost to open the account?
What are the monthly fees, statement fees, gateway fees, annual fees, per transaction fees, and batch fees?
Don't let them tell you the lowest rate for "qualified" cards. Ask about non-qualified cards, corporate cards and foreign cards.
Is there any long-term commitment? Are there any closing/cancelation fees?

The cheapest account may turn out to be the most expensive.

My Recommendation

Having investigated numerous merchant accounts, the best one I found came recommended by a good friend who has been with them for many years. I spoke at length with a representative and feel comfortable recommending him. Since the fees vary according to the type of business being conducted, I can only give you the general information.

He promised that for those I recommend there would be NO application fee, annual fee, monthly fee, batch fee, avs/cvv fee, cancelation fee or PCI DSS fee. The people who signed up at my recommendation told me David is a man of his word and there were no unexpected charges. There would be a statement fee of $10 a month and a gateway fee to authorize.net of $15 for 250 transactions. There may be a one time fee of $89 to authorize.net. Instead of quoting a qualified, mid-qualified and non-qualified rate, they use the interchange rate table with about 80 rates in it and said the average rate would be about 2.3% plus 20 cents a transaction. Based on my experience, this is the best deal available. (If you know of a better one, I'd love to hear about it.) If you want to know more, email sales@ccs-digital.com and I will provide the contact information so you can talk to David directly and decide for yourself.