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How To Avoid Merchant Account Scams

[ 2 ] Feb. 27, 2012 | SBO Editor

By Shannon Martin

Merchant account scams are a relatively new type of crime, but unfortunately for many businesses they are one that is quickly growing. This means that all businesses that accept their customer’s credit cards for transactions must take steps to avoid being a victim of these scams. Merchant account scams are designed to target businesses that use credit card processing companies to process their customers’ credit cards.

Merchant account scams can target both a business’ online merchant account and their physical store one. Often, these scams start by charging a business too much for their merchant service rates, that is, the fees that a business pays to have credit card transactions processed. Other scams, however, are designed to obtain the identity and credit information of a business and their clients.

Fortunately for businesses, in 2012 there are several ways to avoid being a victim of these scams. Businesses that have just an online merchant account and businesses that have multiple merchant accounts should follow these steps to protect their money, data, employees, and customers.

Typical merchant service rates charged by card processing companies will usually vary between one and five percent of the transaction’s total amount. In addition, many companies will also charge a base fee of a few cents to a little over a dollar. One of the fastest growing merchant account scams is to overcharge a new business on their merchant account fees. New businesses are the most common victims because they have not researched how much these fees should usually cost them. New business owners should do their research before signing a contract to avoid getting duped.

Next, when a business decides to begin a new account with a credit card processor, it should first check the service’s status and complaints’ record with government and consumer run report and watchdog groups. A business owner should realize, however, that while this is a good place to start, it will not fully protect a business from being the victim of a scam. In most industries, companies and individuals are usually advised that if a company has no complaints levied against it then it is probably safe to do business with that company.

Credit card processing is considered to be a relatively new industry, however. This means that most companies that offer this service haven’t been around long enough to collect complaints. This means that a business is on its own to determine its credit card processor’s legitimacy.

Businesses that are wary or suspicious of a new credit card processing service should test them out by making a few small transactions with a credit card that can be easily cancelled. Ideally, make only these test transactions for the first month it tries a new service. As soon as a business gets its first statement of charges from the processor, it should carefully review the list of charges. For a business owner to do this, he or she should start by comparing each transaction charge on the charge statement to the same transaction in his or her business financial records.

When doing this, a business owner should make sure that the time and charge amount of every transaction matches exactly with the time and charge amount of these transactions in the business’ records. Based on this data, make sure that the merchant service rates charged by the processor for each transaction match exactly with what was agreed upon by both parties in the original contract.

While a business owner is busy checking these records, he or she should also check the amount of all of the transaction fees that the business is being charged for. A business owner should also confirm that the number and type of so-called “return” and “charge back” transactions on the processor’s charge list. A business owner or its bookkeeping staff needs to ensure that its records of these types of transactions match up exactly with the number and type of these kind of transactions that the credit card processor has notated on the business account statement.

The most common scam that effects established businesses is to add extra charge back and return fees onto a merchant account statement. This particular scam can go uncaught by a bookkeeper or a business for years. Because these types of transactions don’t affect the bottom line of a business very few bookkeepers will keep any types of record of them. Each time money is refunded to a customer on his or her credit card, the credit card processing company will typically charge a fee based on the total amount of the transaction. By adding a few extra return charges to all of their customers’ merchant account statements, a scammer can rake in thousands of dollars a month with little risk of getting caught.

Shannon Martin is a Writer and Editorial Content Manager for
MerchantSeek.Com, a merchant referral service that has been offering
reviews and news on new merchant account processing news since August

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Category: Features

  • http://www.payscout.com/ merchantscout

    When selecting a credit processing company make sure that you are comfortable with the level of customer support provided by the processing company.

  • Kyle Fraser

    6+ Years Industry Experience: KyleFraserFinancial@gmail.com we are a brokerage firm that works with several of your most REPUTABLE processing companies. We are one of the only firms to offer a true written $1,000.00 lowest rate/pricing guarantee. If you feel you have gotten scammed, please contact me as I can help you get out of any current contracts you may have signed, and fix the problem.