Credit Card Processing Scams Targeting Small Businesses

  • Credit card processing is essential for any business that accepts credit or debit card payments.
  • Unfortunately, scams are common within the credit card processing industry, and many small business owners are victims.
  • When choosing a credit card processing service provider, check customer reviews and Better Business Bureau information to make sure it's legit.
  • This article is for business owners who want to know the common scams when considering a credit card processor.

If you want to stay ahead of the competition in any industry, you have to accept credit card payments. As many business owners know, card payments are so popular that cash-only businesses can be a deterrent for many consumers. This means you'll need to find a credit card processor, and the process can be a bit tricky.

Credit card processors are well aware of the freedom to charge businesses for their services; Unfortunately, few business owners take advantage. Here's a look at the most common credit card processing scams and what you can do to avoid them.

How to Choose a Credit Card Processor

Every credit card processor you come across will offer a variety of pricing plans and features you may not need. To make the process a little easier, here are three keys to look for when weighing your options.

  • Price determination: A good rule of thumb is to stay away from processors at rates that processors can change at their discretion.
  • Purchase: Stay away from processors who try to persuade you to lease a terminal, as this can add thousands to your bill.
  • Customer Support: Do your research to make sure your processor offers live support during your business hours.

While these factors are a good start, they do not cover tips that some credit card processors may try. Let's dive into the details of the most common scams you may come across during your search.

did you know?FYI: Before you start your search, it helps to have at least a little general knowledge about how credit card processing works.

hidden transaction fees

Some payment processors use the following quotes to attract business owners, and then add up costs based on the types of transactions. For this reason, it's a good idea to stay away from credit card processors that offer tiered pricing models.

Tiered pricing means that the processor divides your fees into three different categories based on the type of payment method used: qualified, mid-qualified and non-qualified. Debit card transactions usually fall under the low-cost eligible tier. On the other hand, if your business accepts cardless transactions such as Apple Pay, the processor may list it as a non-qualified transaction. Typically, mid-qualified and non-qualified transactions come with very high fees that add up over time.

How to avoid hidden transaction fees

The number one way to avoid hidden transaction fees is to choose a credit card processor that charges a flat rate. If you feel like trying out a tiered pricing processor, always be sure to read the fine print before compromising. If you want to learn more, review these tips to reduce your credit card processing fees.

equipment leasing

Do your best to avoid equipment lease agreements with credit card processors, even if you don't have the capital to purchase your equipment. If you find that the credit card processor you're considering is pushing you to lease equipment, your best bet is to keep shopping.

Leasing equipment means no cost, but over the course of a few years, you'll end up paying thousands of dollars. On the other hand, buying your credit card terminal will typically cost around $300. So equipment leasing comes down to this choice: Would you rather pay $300 or $4,000 for your credit card terminal?

How to Avoid Leasing Equipment

So what should you do if you don't have the capital to buy a terminal? A short-term terminal rental may be worth considering. A better option is to restart the devices you already have. If you have between $100 and $300, it's best to do your own research and find a credit card machine that best suits your business needs before talking to a processor about leasing options.

hidden overload

After gathering all the details about your rates per transaction, be sure to ask about surcharges. It is not uncommon for credit card processors to add fees that are not included when they disclose rates.

As you can imagine, surcharges can significantly increase the value of your bill each month, adding up to hundreds or even thousands more than you'd expect in the long run. When you review your contract, pay attention to the “surcharges” section to find out how much your processor charges extra.

how to avoid surcharge

Besides reading the fine print of your contract, there are other ways to avoid surcharges. Choose a credit card processor that will not charge cancellation fees. That way, if your first bill is higher than you expected, you're free to find a second processor to do the job for. Also, make sure you find a processor that you can pay for on a monthly basis so that you don't run into unexpected surprises. If you are a sole trader, you may want to consider a processor that does not have a contract, such as PayPal. You can learn more about its processing service in our PayPal review.

no customer support

Ask about customer support a few hours before you settle with your credit card processor. Some sales reps may be persistent until you sign the contract, but once you do, it becomes nearly impossible to reach someone for support.

This is especially the case when the credit card processor outsources it to sales representatives and customer service representatives. This is because the reps are focused only on the commission they get from the sale; Once they land for sale, they disappear.

How to avoid a lack of support

Do your research to avoid this scam. Get the opinions of other business owners who work with the credit card processor you are considering. It's also a good idea to read reviews online from reputable sites like the Better Business Bureau. Another good rule of thumb is to review their site for online resources, such as an FAQ or a section for blogs.

Speed ​​up the selection process

Don't let a potential credit card processor rush you into signing an agreement. If a sales rep you're working with tries to pressure you with offers of dates or limited times, take it as a big red flag.

This does not mean that credit card processors should not inform you about special offers. On the other hand, no company should use an offer deadline to force you to choose them. In choosing a credit card processor, you are essentially looking for a partner for your business, so always take your time.

How to avoid rushing into signing a contract

Stay away from this scam by taking your time to research more than one credit card processor. Even though one credit processor may initially seem like the best option, keep looking at at least two other processors. When you make a decision, base it on your own research, not pressure from a seller.

POS software

Another trick credit card processors can use is to try to sell you specific point-of-sale (POS) software. The fact that the software can handle all of your business tasks can be appealing. The problem comes when software drives prices through the roof because it's another expense your credit card processor can deal with on your bill.

Credit card processors know that if a business finds a better solution, it has the option of giving up. If you are using their POS software, this makes it harder for you to opt out. After all, would you really want to go through the trouble of starting from scratch when everything is already running?

How to Avoid POS Software Scams

If a credit card processor offers POS software, ask if the software is compatible with other payment processors. If the answer is no, that is a huge red flag. It might look attractive initially because of the convenience, but there is a chance that it will give you a big headache and will cost you big in the long run. It is also possible to find credit card processors that do not charge for POS software. Read our Square review for an example.

Finding Legitimate Credit Card Processors

In short, you will need to do your due diligence on the processor before entering into a contract. Are you considering the credit card processor a reputable company? If you need help figuring this out, take a look at this list of the best credit card processing companies.

Even with the best processors, service agreements can be lengthy and a bit confusing for a very established business owner. Resist the urge to leave out details. Before your search, know what to look for in your credit card processing service agreement. Choosing a processor is a big decision that can either speed up business operations or add an excessive amount of stress.

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