People who want to obtain merchant processing so that their businesses can take credit and debit cards and other forms of electronic payment are sometimes annoyed by all the information they must provide to the processing company. They aren’t applying for credit cards, they just want to accept payments, so why should the company need to run their credit records? It seems like an unnecessary intrusion to some merchants, and some will refuse to provide that information because they’re outraged. They shouldn’t. They should make the deal.
Processing Companies Extend Credit
There actually is a legitimate reason for the processing companies asking for this sort of information. Processing companies and the receiving banks (collectively here, “the credit card company” or “the company”) do, in fact, extend credit to merchants who process through them. How?
Remember the way taking a credit card (or debit card or other form of electronic payment, as in this example it doesn’t matter much which it is) works. The customer hands you, the merchant, a card, you “swipe” it through your reader with or without checking identification and the name on the card, and the reader “approves” or authorizes the transaction. You hand the customer the goods, and the next day the funds show up in your bank account.
There’s a lot of trust implied in that transaction – much more than meets the eye. First, you trust that the card bearer is the actual owner of the card, and even if you did check identity, in these days of identity theft, what are you going to do? At some level you trust. The customer trusts you or your product enough, at least on first blush, to part with the money. And you trust the credit card company to put the money in your account, since otherwise you wouldn’t part with the goods.
Chargebacks Are Sometimes Necessary
Suppose something goes wrong? Let’s say that the customer decides you misrepresented your services or overcharged him for the services. If you have taken credit payments before, you are probably aware of “charge-backs,” but in the final analysis the merchant gives the customer back his money. Or at least, supposedly. What actually happens, though, is that the credit card pays the customer back and then tries to get its money back from you. It will do that, in most cases, by taking money from your future receipts.
You probably know that customers can contest their credit card charges long after the transaction, and thus a chargeback can occur long after the money has come to you and gone away. Many chargebacks could. Every time a chargeback occurs, the company is actually extending you credit when it pays the customer. By extension, then, every time you accept a credit card payment the credit card company is potentially extending you credit.
They want to know they’ll get their money back if something goes wrong. That’s legitimate, and it’s why the processing companies need to know the information they’re asking. The bright side of that, if you are changing processing companies for better rates, you’ll be getting paid, time after time, month after month, for the time and trouble you put into the application. You should make that deal.
After practicing law in St. Louis for many years, I established Gibert and Associates – a firm that provides consultation regarding merchant processing and helps businesses accept credit, debit and other electronic forms of payment.
Have also operated several small businesses.
My experience as a lawyer, start-up entrepreneur, and business person give me great sympathy for people looking for merchant processing services, and I am dedicated to helping business people understand and find the best services available.