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Evaluating Your Merchant Account

Ross Federgreen Comments

August, Wells Fargo settled a $34 million lawsuit in which the company was accused of billing service-merchant clients without proper notice. When it comes to your merchant credit-card account, any number of complications can arise. However, you might not know there’s a problem if you don’t understand the information in your monthly statement.

In the July issue, I addressed the basic components of your statement: the plan summary, transaction activity, downgrades, fees and the net settlement. This month, I’ll discuss 10 critical questions to ask when reviewing your credit-card report.

1. Is it the right statement?

Every time you receive a statement, verify the merchant identification number (MID) as well as the physical address. In an operation like self-storage in which a company can have several sites, it’s important to ensure you tie the correct statement to each facility and specific function. For example, you might have two MIDs at a single site—one for over-the-counter traffic and a second for Internet or MOTO (mail order/telephone order) use.

2. Does the number of transactions look correct?

It’s important to have a sense of the transaction volume you process in a given reporting period. A change in the expected number can often indicate a problem. For instance, if there’s a significant increase or sudden change in pattern, it could point to fraud. If there’s a decrease, it could represent an error in crediting the account. There are a host of possibilities, but the key is to know what the transaction count should be from month to month, season to season.

3. Does the qualified rate on the statement match the one in your contract?

When you enter a merchant-service agreement, you are given a qualified (also known as “best”) rate under the terms of the contract. This is the rate the merchant will charge for processing a transaction if all appropriate conditions are met. In many cases, the contract refers to several rates that apply under different circumstances. It’s important to be aware of these charges and confirm the rate being billed matches the one in your contract. If it doesn’t, the statement should identify a specific reason for the inconsistency.

4. Does the statement contain notification of a price increase?

Check your statement to see if it contains any notification regarding price increases. An increase can occur for several reasons, such as a change in risk category or transaction volume. But it’s customary for a service provider to announce an increase at least one billing cycle before it takes effect. Keep watch for this and address any questions or issues immediately.

5. Do you understand what each charge represents?

Question every charge you don’t understand. There are hundreds of possible charge categories and terms, and you can’t possibly know them all. So when you enter a merchant-service agreement, demand a written list of fees. If your agent will not or cannot provide one, find another provider. If you find a charge on your statement that isn’t in your contract, request a full explanation of its purpose and a refund. A failure to properly notify clients of changes in terms is what got Wells Fargo into hot water.

6. Are the charges correct?

Once you have determined that each charge type is valid, you must determine if the pricing is correct. Does the number of items charged to each category agree with the total number of transactions processed? Has a single transaction been charged in multiple categories? Do downgraded or nonqualified items add up? Mistakes do occur, so you must know what you’re looking for. Check each charge for accuracy.

7. Does your statement show unusual patterns?

When it comes to your merchant statement, knowledge is power and consistency is key. You must know your charge patterns, including the percentage of downgrades, credits or charge-backs, and the types and amounts of fees and charges. You should be able to create a reasonable model based on the operational specifics of your company (taking into account seasonal variation). If you notice a distinct change in pattern, it should send up a red flag. Identify the cause, whether it is fraud, error or an anomaly

8. Have you been billed for leased or rented equipment?

As a merchant, you might rent or lease equipment necessary for the acceptance of credit cards, such as terminals, leased lines, software and other extraneous items. First, know if you’re renting or leasing. If you’re leasing, be familiar with the terms and when they end. Make sure you aren’t paying on the lease beyond the expiration date.

9. Did you verify random batches against your reports?

Always compare several of the daily batches listed on the statement against your own records and make sure they match. If they don’t, first check to see if batches were rolled over due to a holiday or weekend when the processor was not in service—this is valid. Otherwise, a discrepancy can indicate a problem. Demand a full, written explanation.

10. Do you know what other self-storage businesses are paying as a benchmark?

If possible, find out what similar businesses are paying for their merchant services. You can look at companies in the same Merchant Category Code or those in your geographic region.

This is a lot of information to monitor, but it’s the only way to gain an understanding of your merchant-service relationship. If you don’t feel comfortable interpreting the data yourself, consider using a credit-card analysis system, a service designed to assist merchants with these important issues.

Ross Federgreen is a co-founder of CSRSI, which provides an integrated approach to the analysis, design, implementation, deployment and management of electronic transaction services and systems. Since 1999, the company has helped more than 350 public and private institutions reduce the cost of acquiring money and minimize the liability exposure related to payment transactions and customer data. For more information, e-mail; call 866.462.7774, ext. 1; visit

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