Interview with Merchant Account Consultant Mike Shatz

Mike Shatz is the owner of TheMerchantsGuide.com. His website offers both content and services for those that are interested in learning more about merchant account fees. He has a book called "Understanding Merchant Account Fees in Card Not Present Environments" which I'll be reviewing soon.

I invited him over to give us a rundown of what he offers. Mainly because I think it's a service that could be very important to some of my readers.

I've talked about you in a previous article, but if you don’t mind, can you remind us of who you are, and what it is that you do?

By way of introduction, I have spent the last 20 years working in the Internet, e-commerce and payments industries. Of course, these days, they are all interrelated. I have been very focused on payments for the past 10 years, mostly on the acquiring side. I have therefore had an opportunity to work with over a thousand merchants, large and small. Generally my goals are to lower costs and/or increase the merchants processing efficiencies. These often go hand-in-hand.

Your focus is on card-not-present (CNP) merchants, is that correct? Do you work with card-present (CP) merchants at all?

I would say that virtually all of the merchants I have helped are primarily CNP. I really cut my teeth at Litle & Co., which is a mega-boutique payment processor for CNP merchants. These days, however, most merchants are multichannel, and have some brick-and-mortar (read: credit card terminal) locations. I would not claim to be an expert on terminals, however, the principals for lowering costs are the same though – they are driven by Interchange rates. With terminals, this has a lot to do with programming and set-up.

You've also written a book on the subject of "understanding merchant account fees" for card-not-present merchants. Can you tell us a little bit about what readers can expect from it?

Well, there are two audiences for this guide. The first, for which I had originally intended the guide, is merchants. The book really explains how the credit card systems work in terms of fees, and lays down a detailed mathematical roadmap that allows these merchants to do a lot of their own analysis. The guide includes many formulas and examples and even includes a sample spreadsheet. An unintended audience for the guide is payment professionals themselves. In fact, I sell more guides to processors and ISOs than I do merchants – even employees of the credit card associations.

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Thanks Mike! To learn more about Mike's services, go to TheMerchantsGuide.com. You can purchase his book here.

Interview w/ Bridge Pointe Group’s Robert Alandt on Fraud and Chargeback Management

Recently, I've been doing a ton of research on the subject of payment card security and everything that falls under that umbrella. As much as I know about the basic process of merchant accounts, payment security is still a new subject for me.

The more I learn, the more I realize that fraud and chargebacks are a very costly part of accepting credit cards. A cost that can be reduced if we take the time to address them. I plan on writing more extensively about all of this in the very near future, but to kick things off for now, I decided to bring Robert Alandt from the Bridge Pointe Group to talk to us about fraud and chargeback management. Robert has spent 23 years in this industry, and as the former VP of Visa, Inc. in San Francisco, he probably knows a thing or two about the topic.

Robert, give us a quick background of what your company does. Preferably, in the easiest, most understandable way possible. I'm sure most of my readers (like me) are newbies in the subject.

Very simply the Bridge Pointe Group works with smaller and mid-sized card-not-present (CNP) merchants to mitigate their chargebacks that result from payment card transactions.

Chargebacks can be related to fraud, cardholder disputes pertaining to their purchases, or a combination of the two. When a chargeback occurs, the merchant not only doesn't get paid for the product they sold, they can also incur additional fees and charges levied by their payment card processor. One can argue that the merchant's processor has a conflict of interest when it comes to helping their merchant reduce chargebacks since they make money every time a chargeback occurs.

In contrast, at the Bridge Pointe Group we have no other interest but what is best for the merchant and solely act as their advocate to identify ways for reducing their chargebacks and associated expenses. Chargebacks can't entirely be eliminated but they can be reduced for every merchant out there. Our costs are minimal compared to what we can save the merchant in losses due to chargebacks.

What do you see as the biggest challenge for CNP merchants today? Strictly from a fraud and chargeback management perspective.

Unfortunately, the way the rules are currently structured by the global payment card networks, CNP merchants are usually liable for any fraud that occurs. This is different from the card-present (CP) merchants where the card issuers usually assume liability for transactions when fraud occurs. The biggest challenge we see for small and mid-sized merchants is the lack of knowledge they have when it comes to mitigating fraud and chargebacks. They know that they receive chargebacks, but often they don't know why and even more often, they don’t know what they can do to reduce them. The smaller the merchant is, the less help and support they receive from everyone. Merchants want to focus on their business and not having to become an expert on chargeback reason code 83 for example.

Can you offer some quick tips or best practices that merchants can implement right away to help mitigate fraud or reduce chargebacks?

Chargebacks are either the result of fraud; someone I didn't authorize used my payment card to conduct a transaction. Or they are the result of some issue the cardholder had with a transaction they conducted; I don't recognize this transaction, the merchandise I purchased is defective, I never received my merchandise, etc.

At a minimum every CNP merchant should work with their processor to fully utilize the following fraud prevention tools: Address Verification Service (AVS), card security code verification, verified by Visa/Secure Code from MasterCard.

The best way to try and reduce chargebacks related to other types of cardholder disputes is to communicate as much as possible with the cardholder throughout the entire purchase process e.g. send the cardholder an email to confirm the order and later inform them when they can expect to receive their merchandise. Also the merchant should make it easy for the cardholder to contact them should they have any issues with their purchase. One way to do this is to be sure the merchants phone number is included in their billing descriptor. If the cardholder can't contact the merchant easily they are likely to then contact their issuer who will send a costly chargeback to the merchant to dispute the transaction.

Can you recommend any online tools that would help with fraud monitoring?

I mentioned some of the basic fraud mitigation tools above that every merchant should utilize at a minimum. As a part of this they should review their policies when utilizing these tools. For example what will they do when they receive a "no match" response to a card security code verification? For some merchants these tools are enough. For others, additional tools might be needed such as a sophisticated fraud scoring system for each transaction. The important point is to implement the right amount of fraud prevention tools. There is no reason to buy more than you need as there is to incur fraud because current tools are inadequate. What we do at the Bridge Pointe Group is to help CNP merchants find the right level of fraud tools after doing an analysis of their fraud and chargebacks.

If my readers want to learn more about fraud and chargeback management, what resources do you recommend?

If your readers want to lean more about mitigating fraud and chargebacks the Resources page on our website has a great deal of information that they may not be getting from their processors to help them. The Resources page contains everything from transaction flows so that they understand how the payment card process works, to descriptions of the common fraud tools available to CNP merchants, to descriptions of the chargeback reason codes, to links to the operating rules for the global payment card schemes such as Visa and MasterCard. On the website we also have a blog that we use to inform readers about issues, trends, and rule changes that could affect them. Finally, there a couple of organizations that CNP merchants should look into joining which also have a number of resources, the Merchant Risk Council (MRC) and the Direct Response Forum (DRF).

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Thanks Robert! To learn more about the Bridge Pointe Group visit their website at: www.bridge-pointe-group.com.

Interview with Merchant Account Consultant Adam Pflaumer

I had the pleasure of interviewing merchant account consultant Adam Pflaumer over the weekend. Adam and I have worked together since the early days of Merchant Maverick. I featured him in one of my earliest articles, and we've hit it off ever since. He's actually helped me out with some of your accounts and inquiries, so some of you may already know him.

For those that don't know Adam, this interview will help you get acquainted. It'll also shed some light on the services that Adam offers, which I personally think are invaluable.

Most merchants feel like the only way that they can save money on their credit card processing fees, is by switching to a new provider, but that couldn’t be farther from the truth.

Without further ado...

Tell us a little bit about yourself Adam. How did you get started in this industry? What areas have you worked in & with what companies? What are you doing these days?

I began my career in the payments industry in 1994 selling merchant accounts to mom and pop merchants. I fell in love with this dynamic industry and over the last 17 years I have worked with such industry leaders as First Data, Global Payments, Union Bank, and Connect Merchant Payment Services. Over the years I have been fortunate enough to have worked within nearly every facet of the payments value chain. From sales, to underwriting, risk management, operations and prior to starting EP Consulting, I served as president of Connect Merchant Payment Services.

So, you’re a merchant account consultant, right? How does that differ from a merchant account sales agent? I ask because I’ve seen some other guys that brand themselves as “consultants,” but really they’re just sales agents that work for one particular credit card processor.

EP Consulting is an expense management firm and not a credit card processing company.

There are 4 major differences;

First, unlike a processing company that makes their money by way of processing fees that the merchant pays, we actually work for our merchant client and our fees are based upon incremental cash flow that we deliver to them by way of reduced fees. Our interests are congruent with the merchant’s, in that we both want to minimize this cost. Processing companies and the merchants have conflicting interests, the merchant wants to pay as little as possible, and the processors want to make as much as possible from each merchant account.

The second biggest difference between what we do as an expense management firm specializing in the payments industry vs. a payment processor is that we are not out to get merchants to switch processing companies. We play a neutral role when it comes to their processor. In fact, over 90% of our clients never have to change processing companies. We have worked with nearly every processing company out there and almost all are very cooperative. Although the processing companies are not thrilled about the reduction in margin that usually ensues when we get involved, they do benefit from a much longer and better relationship with their merchant and they no longer have to worry about a competitor stealing their client based on price. When we work with their client, they get a much more informed and confident client who is less likely to ever leave. From a merchant’s standpoint they are relieved that they don’t need to change companies to achieve optimal savings. They not only gain incremental profit from our services, but they also gain the peace of mind knowing that this expense category has truly been minimized.

The third major difference is that since we have “skin in the game” in terms of reducing this cost, we allocate time and resources to review transactions every month to identify and fix transaction types that are eligible to clear at lower costs based on Interchange compliance and other factors. While most processors give a general overview of good practices to follow, it simply isn’t feasible nor is it in their best interest to manage the details month after month as we do. That statement isn’t meant to villainize the processing companies but rather to state a fact that they would have to staff so many more people to do this that their overhead costs would usurp nearly all of their profits. The processing companies are in the business to provide merchant account processing, not manage granular details for each of their merchant clients. It is the responsibility of the merchant to do this, but there is a huge gap in terms of the expertise and time needed to do this on a regular basis and we cover that gap on behalf of our merchant clients.

Finally, the fourth major difference is that since we are an expense management firm and not a processing company, we seek out solutions beyond what the processors have to offer in terms of alternative payment methods. Let’s face it, since processors make their money from processing credit card transactions, they are not eager to introduce new payment methods that could potentially cannibalize the revenues they make from processing credit cards. We stay on top of all the payment industry trends so when technologies do emerge that will help our client’s save, we not only recommend them, we actually share in the cost of implementing them.

Can you explain your services to us? Specifically, how your merchant account fee reduction services work? Most merchants that I’ve talked to don’t even know that something like this exists.

Sure, but one thing I can’t help commenting on is the phrase “merchant account fee reduction.” Many merchants have a misconception that we are simply expert negotiators. The reality is that there is a lot more that goes into what we do than negotiating with the processing companies. On average, only half of the incremental savings dollars comes from achieving better pricing terms. The other half comes from Interchange management and when appropriate, the introduction of technologies and processes that reduce this cost even more.

The best way to describe how we work with our clients is that we become their in-house expert on this expense category. Like an attorney knows the law, a CPA knows tax code, we know the payments industry. Instead of charging our client by the hour, we charge based on results, i.e. the additional cash flow generated from our expense reduction services.

Have your clients had any success? In other words, does it work?

Yes, we have a 100% success rate in reducing costs for our clients. Bear in mind, however, that prior to bringing on a client we ensure that there is indeed a minimum threshold of savings to justify our efforts. Over 80% of the accounts we review do qualify for our services. On average we are able to give back approximately $11,000 in cash flow by way of reducing this cost. Like I mentioned before, upwards of 90% of our clients do not change processors. So when you talk to any of our customers, they will tell you that it is a no-brainer; the investment is $0, the amount of time on their end is less than 30 minutes on average, and the incremental savings/profits derived is pretty substantial. We have some clients that have reduced their merchant account costs by over $100,000 annually, and some as little as $3,000 annually, and it is all new found money.

We also have quite a few testimonials on the EP Consulting website, and I believe there are a few on your site as well.

True. They can be found in the comments section of the this article.

So, what do you charge for your services?

Most of our clients pay us on a contingency or pay-per-performance basis where we share in 50% of the savings that we create over 24 months. This is the most popular because if our services don’t return incremental cash flows as a result of this cost reduction, then there is no fee. It is all upside with no downside.

We are getting more and more Do-It-Yourself’er business owners, CFO’s, and Controllers that want to do this on their own, but they realize they don’t know what they don’t know, and they have retained our firm to review their situation, and teach them everything they need for their particular business case in order to do this on their own. In these cases we do work on an agreed retainer and give them the information and materials that they will need to successfully do it themselves.

Is it something that a merchant can do on their own?

We find that most merchants have already done a really good job in shopping for and negotiating processing fees but we can almost always reduce this cost substantially more. There are a lot more complexities to this industry than merchants know. Prior to working with our clients almost all of them are convinced that there is absolutely no savings to be had, however, a few months and several thousands of dollars later, they will be the first to tell you that there is much more to this than they ever knew.

To be effective at it, you have to know what this service actually costs the processor. You need to know their break even costs, and then you need to know the margin tolerance given each specific account’s risk exposure. You need to know Interchange Compliance inside and out, and you need to keep on top of emerging technologies and solutions within the payments industry. I have been in this industry for almost 20 years now and there are still things I learn. Without deep industry expertise a merchant may have a false sense of security that they have done everything there is to do, but the reality is that merchants are consistently and unknowingly leaking profits.

One thing your readers might be interested in knowing is that we are very close to releasing a 146 page how-to guide and video called "The Smart Merchant’s Guide To Reducing Merchant Account Fees" which will give most merchants the info they need to be far more effective in reducing this cost. Update: You can find Adam's eBook here. Use the promo code merchantmaverick get it for $79 instead of $97.

Let’s say I’m about to sign a contract with a new processor. What type of term do you think is reasonable? 1-year, 2-years, 0-years?

The term of the agreement is much less important than the consequences of breaking the term. As long as there are little to no early termination fees, then the longer the term the better.

How about a cancellation fee?

Most processors will agree to waiving their early termination fee going into a new account. Most early termination fees are pretty innocuous, only about $300 or so, but I am a believer in the old fashion way of doing business. If a processor provides ideal pricing terms with excellent service, then they shouldn’t need to have an early termination fee to keep their customer. There is one type of early termination fee which should be avoided. There are only a few processors that have it, but it is vicious. It is the liquidated damages early termination fee which enables the processor to charge the projected lost revenue for the remainder of the agreement term. Fortunately only a few processors have this type of early termination fee. I would never recommend signing this type of agreement. Believe me there are an unlimited number of great processing companies out there who would gladly provide services without any early termination fee. Many of them are listed in your reviews, so your readers shouldn’t have any trouble finding one.

Finally, if Merchant Maverick readers want to use your services will you be willing to offer some sort of discount?

Fortunately, we are at a point where there is such an abundance of businesses people who love our concept and are keen to reducing this cost category that we are literally turning away some business today that we would have jumped at four years ago, when we first started. We are at a point a where we have all we can handle but if any of your readers come to us looking for help, and if they let us know that they were referred from Merchant Maverick, we will do everything we can to help them. The best way to do this is to email us using this designated email; maverickreferral@epconsulting.com and we will move your reader to the “front of the line” to see how we can help them. Any friend of the Maverick is a friend of mine.