5 Common Merchant Services Scams and Frauds You Should Know About

cards payments

The processing of credit/debit cards is critical for today’s small companies. Partnering with a credit/debit card issuer enables you to process credit and debit cards payments both in-store and online. Credit/debit card processing is becoming more necessary as more people go cashless; it is no longer possible for most companies, but more a requirement.

However, there is much to consider than costs and T&Cs when selecting a payment processing firm to deal with. It would be best if you proactively lookout for all the other scams and unethical activities that afflict the merchant services industry.

Along with merchant account scams, merchants should also be aware of customer scams. Many cybercriminals use credit/debit cards to process illegal payments without the consent of the credit cardholder. If you don’t look out for these scams, you could end up on the losing side. That’s why it is essential to take the necessary steps to validate the legitimacy of credit/debit card transactions.

Keep reading this article to get some valuable information about credit/debit card payment scams. Also, this post reflects on ways that can help you avoid being a victim of these scams.

Most Common Scams Related to Credit/Debit Card Processing

There are a lot of things to consider while extracting information about credit/debit card processors. Choosing a suitable payment processor is a complex and time-consuming procedure. This procedure necessitates the analysis of various price packages and a thorough understanding of the future T&Cs of the processor.

1. Company Scams

Encountering unethical scams or practices intended to fraud your business and your clients make the process more difficult. However, knowing the common varieties of these frauds and scams will save you from getting into trouble.

2. Low-Risk Processing with Wholesale Rates

Wholesale processing is the most common merchant services scam. This scam is usually followed by a letter claiming that the company has been classified as “low-risk.”

A credit/debit card processing sales manager can send you a message like, “MasterCard and Visa have classified your business as low risk. You are now eligible for bulk payment processing.” However, statements like these have several flaws.

First and foremost, MasterCard and Visa are not present in the merchant services business to identify low-risk companies. Credit card associations such as Visa and MasterCard decide if a particular company, sector or commodity is high risk or not. Stripe, for example, has recently started providing credit card payment services to the legal industry of cannabis. However, Stripe still deems this industry as high risk. That’s why they charge a higher processing fee to the cannabis industry as compared to other sectors.

Most payment aggregators and credit card providers keep a record of forbidden businesses. They don’t work with these kinds of companies. However, they do not maintain any form of “low-risk firms”. Neither Visa nor Mastercard lists any business under low-risk businesses.

Furthermore, the word “wholesale processing” is ambiguous, which raises a new set of concerns. Is this referring to interchange fees? A price standard that all major credit card processing companies provide their customers. Or is it a subscription price scheme, similar to the ones offered by payment processors? Or wholesale processing implies that the processor would charge an interchange fee with markups?

3. Negotiated Lower Prices

A similar fraud involves receiving a text from a credit/debit card processor claiming that they have negotiated lower prices with the card company and are providing the discount. The message may look like this – “We have secured lower prices with Visa and MasterCard and are ready to provide you your desired interchange rates,” the message might say.

A very few scenarios in which a credit/debit card processor may negotiate lower prices with the credit card associations. However, a message like the above can be a red flag. Lower interchange prices are not available until the company handles more than 82 million transactions per year. Also, the revenue of the company must be more than $5 billion a year.

There’s only one way to get lower interchange prices. And, that way is to win a class-action lawsuit against the credit card associations.

4. Authorization Scams

If a customer’s card is rejected, a forced authorization feature permits merchants to complete the transaction. Force authorization allows a merchant to call the customer’s bank and request an authorization code, allowing the sale to proceed after the rejection.

However, specific consumers use a fictitious authorization code to turn the transaction risk onto the merchant. The customer would say that the decline has happened before and will give the merchant a string to enter the override. Merchants are not eligible to contest rejected purchases after the input of a fraudulent code. They could face chargebacks and penalties as a result of their actions.

5. Other Credit/Debit Card Processing Scams

Many card companies ask businesses to fill out an application form before working to process credit and debit card transfers. Since this application is part of the deal, if the bank’s underwriters accept the submission, you will be immediately paired with a credit/debit card processor.

Some reps will pressurize you and say they can’t offer you a price quote unless filling out the questionnaire. Others would not complete the pricing section of the document until handing it over to you. You won’t get an opportunity to analyze the whole deal if you use the application approach. A reliable credit card processing agreement must include the paperwork, full terms and conditions, and the plan guide. Also, you must be able to check before everything before agreeing with a partner.

It’s pretty simple to avoid falling into this pit. Say no to sign any agreement until you select a processor. You can also wait until you make a purchase decision before handing out information.

Choosing A Trusted Credit Card Processing Partner

The easiest way to stop falling victim to credit card payment frauds and shady practices is to work with a reputable processor and study the contract thoroughly before signing it. If at all possible, hire an attorney to review your agreement as well. They can spot terms you weren’t even aware of and help you find a reliable merchant service provider.


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