The FTC has recently taken action against ISOs (independent sales organizations) that misled merchants. The federal Consumer Financial Protection Bureau has pursued an ISO and processor for allegedly assisting in dubious collections business.
The acquiring industry is on notice that it is not immune from being the target of investigations as to its own wrongdoing and the possible wrongdoing of its merchants.
In order to avoid the blunder of misleading merchants or assisting merchants who mislead consumers, participants in the payments industry should step back from their businesses to ask themselves if their practices are honest and if they believe that their merchants are operating legitimate businesses.
The flash in the pan of a large residual payout on a dubious account is not always worth the risk associated with either misleading the merchant or assisting a merchant who depends on misleading the public.
To be fair, pricing in the merchant acquiring industry seems extremely complicated, and many merchants are probably at a loss as to how to understand their merchant statements. That does not provide license, however, to push the limits on integrity.
It is important to know with whom you are doing business. Often the best way to ensure fair treatment is to deal with a local ISO that has a local office. Dealing with someone in the community provides much more accountability than someone in an out of town or out of state location.
Beware of the trick that an ISO can keep your effective rate at a solid low rate. The effective rate is calculated by dividing the amount funded to the bank into the total amount of fees.
Since the monthly fees are always going to be a variable due to the types of reward and non-reward cards transacted, the effective rate will never be the same month to month. The only charges the ISO can set in stone are the basis points and per transaction fee charged.
In conclusion, the key blunders listed herein arise when parties indulge in classic ethical wrongdoing such as lying, stealing and being greedy.
I don’t want to sound like a preacher, but a baseline of ethical standards and common sense can bring an ISO a long way toward avoiding serious blunders.
Michael Novitski is director of sales and marketing for Merchant Service Center of Hilton Head Island. www.mschhi.com