Does Your Merchant Agreement Have an Auto Renewal Clause?

Ever been surprised by an automatic contract renewal? You know how awful it feels don't you? You get this rage in the pit of your stomach that no amount of kicking and screaming can take care of. The worst part is that you end up feeling like you have no defense whatsoever. Why? The auto-renew clause is right there in the contract that you signed, even though it may be hidden better than a ninja assassin. And to think, all this time you were waiting for the contract to end so you could walk away. Sucks doesn't it?

When it comes to the merchant account industry, auto-renewals are everywhere, especially with the big boys. What we don't understand though, is that these larger processors think differently than you and I. They look at their bottom-line. It's all about the numbers to them. It would be much more expensive for them to contact each merchant come renewal time, than it is to just let the contract automatically renew on its own. And, since most merchants are either too lazy or ignorant to follow the processor's cancellation guidelines...jackpot!

Now, this wouldn't be much of a problem if the processor communicated the auto renew clause more effectively. It wouldn't be a problem if the contract just went to a month-to-month agreement like most cell phone companies, but that's usually not the case with merchant account providers. There's usually a set term which starts at about 1-year, and goes up from there.

Speaking of terms...

What Are Typical Auto Renewal Terms?

They vary from provider to provider, but here's the most common scenario. This is actually a snippet that I pulled from the TransFirst Merchant Services contract:

Term/Renewal. The initial term of this Merchant Agreement shall be for the term of three (3) years (the “Initial Term”) commencing on the date this Merchant Agreement is executed by authorized officers of Merchant Bank and Processor. At the expiration of the Initial Term, this Merchant Agreement will automatically renew for successive one (1) year periods (each a “Renewal Term” and collectively with the Initial Term the “Term”) unless a party provides the other parties with notice of its intent not to renew this Merchant Agreement at least ninety (90) days prior to the expiration of the then current term.

Quick Bullets:

• 3-year term.
• Auto-renews for successive 1-year periods.
• You must cancel 90-days prior to 3-year term end.

Are Auto Renewal Contracts Illegal?

No. However, ever since the high profile case of Time, Inc. in 2005, many states in the U.S. have started placing regulations on how those automatic renewals need to be presented to the customer and/or enforced if necessary. Since these types of regulations are relatively new, it may take some time before your state moves forward on anything worth mentioning.

I'll start adding to this section the states that are passing laws against auto renewals, so you can stay updated for your own sake. It's possible that an auto-renewal clause by your provider is not compliant, thus rendering it null and void, so keep checking back periodically.

In the meantime, contact me if you have a contract that has recently renewed. I'll do some research to find out if you can get out of it or not.

Are Auto Renewal Contracts Ethical?

Personally, I think they're garbage. Don't make me jump through hoops in order to leave your service. Actually, that should be a warning sign to anyone that's thinking about working with a processor. Every merchant should ask their processor, "How hard will it be for me to leave you if I'm not satisfied with your service?"

What Should I Do If My Contract Auto Renews?

First thing you want to do is find out if the contract is enforceable. Visit the government website of the state in which the contract is bound. Usually it will be the state in which your merchant account provider resides, unless they operate in multiple states. Most contracts will have the state of compliance written directly in them.

Once you're at that state's government site, start a search for terms like "automatic renewal" or "auto renew." If you don't find anything, don't give up. Try calling the secretary of state office to see if they can dig up anything for you. As I mentioned above, I'll be adding info on each specific state, so that'll save you some of the headache as well.

If you find out that your provider's clause is not in compliance with state law, then be sure to bring it up to them. Provide written documentation if necessary. Chances are, you'll be able to get out of your contract that way. Otherwise, you'll either have to grin and bear it, or try and find a new provider that will hopefully pay the cost necessary to breach your contract.

My Two Cents

I have a wild idea for those of you that are still doing this auto-renew thing. How about you axe that policy and instead focus some manpower on keeping your merchants happy so you don't have to trick them into spending an extra year (plus) with you?

People talk (sometimes important people), and the general consensus is that most of us don't like auto-renewals, reverse-billing or opt-out schemes.

And, to the merchants reading this article, you no longer have the "ignorant" excuse, so please don't sign a contract without checking to see if there's an auto-renew clause in it.

In the famous words of the Notorious B.I.G..."If you don't know, now you know."

The 5 Rules for You Problem Merchants

The other day I was reading an article over at Transaction Trends called "Managing Problem Merchants." If you feel like putting yourself in your ISOs shoes for a bit, give it a read.

As much as we like to think that we're always 100% right, and that we should do everything in our power to make our merchant service provider's life a living hell, I think that sometimes it's important to cut them some slack. Especially if your provider is a good one.

Based on the Transaction Trends report, I've created "The 5 Rules For You Problem Merchants." Follow them, and you will be well on your way to becoming the beloved, "ideal merchant."

Rule #1 - Don't Be a Contract Buster
I've said it a million times, and I'll say it again...read your contract. I know it can be difficult when you have a pushy salesman in your face shoving a pen down your throat, but remember, you have control, not them. So, slow down and make sure you understand the entire contract before you sign the dotted line.

Once you do that, don't back out of the deal. If you've read your contract then there shouldn't be any surprises, so trying to kill your contract because you have buyers remorse would only mean one thing...you're a problem merchant.

There are obvious exceptions to this rule, but I'm pretty sure most of you know the kind of contract busting that I'm talking about.

Rule #2 - Don't Be a Risky Merchant
Whenever a merchant signs up to process credit cards, they're always required to provide their "business profile" in their application. Your business profile gives your provider an idea of what type of business you are, how much you process (or anticipate you'll process) per month and what level of risk you pose to them. You're basically telling your ISO or MSP the who, what when, where and why of your business. If you change any of those after signing up, then you're essentially changing your business profile, which could pose a whole new level of risk to your provider.

Other "problem merchants" are those that alter their business models and/or practices without warning their ISO or MSP."

Always inform your provider if anything changes, better yet, let them know before the change even occurs.

Rule #3 - Don't Not Be a Haggler
Although it's good to negotiate with your ISO or MSP, being super cheap might land you with a provider that promises you the world, but cleans your clock on the back-end.

You first need to understand the fee structure for your new merchant account before even getting into any type of negotiation. Ask your rep to break down the fee structure, and possibly even do a side-by-side comparison of their rate with the other, "cheaper," guys.

Read up on interchange-plus and tiered pricing, so you know the difference. Learn about other fees that might be tacked on as well. The saying, "you get what you pay for" applies here just as much as anywhere else. If you focus too much on rate, you may be sacrificing service. Especially since so many of these ISOs and MSPs know how to manipulate their rate structure to make it look just the way you want it.

Rule #4 - Don't Be Unreasonably Demanding
It's your sales rep's job to set your expectations from the get-go. If they do that correctly, then you shouldn't have any reason to be a pain in the ass. If you're gonna be demanding just for the sake of it...well...that makes you a problem merchant. And, we all know how everyone feels about problem merchants.

Rule #5 - Don't Be Quick To Judge
Merchant Maverick is a site where you can publicly express your opinion of an ISO or MSP, whether it be good or bad. I see so many people shooting first, then asking questions later when it comes to leaving negative reviews. Always do your best to reach your provider before you make a judgement call publicly. Sometimes, all it takes is getting to the right person within the company to have your voice heard, and your problem resolved. Negative reviews and comments should be an option of last resort.

Trading Ease For Transparency With Interchange-Plus

I've already talked about tiered-pricing in my previous posts. I've talked about the fact that I dislike it as pricing model, and that I prefer a different model instead. That different model is interchange-plus also known as “interchange pass through.”

A quick review of what interchange-plus actually is...

Until recently, only the largest merchants have been able to obtain “Interchange-Plus” Pricing. Otherwise known as “interchange pass through” pricing, Interchange-Plus is the practice of pricing a merchant with a transaction fee and then passing the exact interchange and assessment costs from the Associations to the merchant. - TransactionWorld.net

Instead of narrowing down the interchange rate categories into a few manageable tiers, interchange-plus just passes the Visa and Mastercard interchange rates directly to the consumer. The acquirer then tacks on their markup, and calls it a day. A detailed writeup of what interchange pass through pricing is, can be found on the TransFS site.

So, what's the benefit?

With interchange-plus, you know exactly what Visa and Mastercard are charging you, and you know exactly what your acquirer's markup is. You don't have to guess why only a fraction of your transactions are falling under the Qualified Rate tier that you were quoted by your agent, and why most of your other transactions are listed under the more expensive Mid-Qualified and Non-Qualified tiers.

Although tiered-pricing was setup by acquirers to make it easier for us merchants to understand our statements, it offered an incentive for the acquirer as well.

In addition, common practice was for acquirers to mark up and charge significantly more for “downgraded” transactions (those that did not qualify for the best rate applicable). These “downgrades” often comprised the majority of the profit acquirers received on merchants, as business owners focused mainly on the “qualified” or best rate. - TransactionWorld.net

But, with interchange-plus, they don't have that incentive...

Interchange-Plus does not allow acquirers to increase profit on “downgraded” transactions. - TransactionWorld.net

So, interchange-plus = bad for acquirers, but good for you.

There has been a great deal of debate about whether Interchange-Plus is a purer form of pricing. Interchange-Plus puts the merchant in a situation where they will always pay their acquirer the same and be directly responsible for the costs from the Associations, with no mark-ups. However, this pricing methodology can create merchant confusion as understanding statements with numerous qualification levels is complex and tedious. - TransactionWorld.net

The question to be asking yourself is; are you willing to sacrifice ease for transparency? In a time like this, I'd opt for interchange-plus.

Tiered Merchant Account Pricing: The Epic Fail of a Pricing Model

The infamous tiered-pricing model...do you know what it is? If not, I suggest you start learning, because chances are, it's working against you as we speak.

Remember the interchange reimbursement fee? Remember all of those different rate categories (125 or more) that your credit card transactions could qualify to?

Tiered-pricing is your ISO/MSP's attempt at making the whole process a little easier, simply by taking those interchange rate categories and narrowing them down into small clusters called "tiers." That way, only the tiers show up on your statement, and you don't have to dig through all 125+ rate categories to see where your transactions are.

Traditionally, smaller merchants had pricing blended into three or four categories. This practice made explaining the payment network and pricing structure much easier. Instead of having to educate merchants (and salespeople) on the various levels of interchange qualification (now more than 100 if we count all MasterCard and Visa card and charge types), acquirers explained the three or four different prices a merchant could receive for various transactions. This simplified the entire process. - TransactionWorld.net

I'm not gonna get too much into detail about what tiered-pricing is. You can find plenty of resources online that do a great job already...here, here and here.

I'll give you the 80/20 version:

• The MSP re-organizes those 125 (or more) interchange rate categories into small clusters called “tiers” or “buckets.”
• There can be anywhere between 3 to 12 different buckets....MSP's choice.
• Each bucket has a different rate based on a sliding scale from best to worst.
• The MSP has full control of choosing which rate buckets to allocate each of the 125 (or more) categories to.
• Every MSP arranges their buckets differently.
• The MSP quotes you the price of their best rate bucket called the “Qualified Discount Rate.”
• The other buckets (i.e. Mid-Qualified, Non-Qualified, etc...) have higher rates, but chances are you don't know that.
• You begin processing credit cards, but your transactions start qualifying to the crappier buckets because of the way your MSP has arranged them. So, you end up paying the higher rates, of which you knew nothing about in the first place.

*The most important points have been highlighted.

Can you see the problem here?

In theory, grouping transactions into categories to make merchant statements simpler is a valid idea. In practice, however, it reduces transparency and often results in a bad deal for the business owner for a few reasons:

Those reasons being...

1. What is qualified at one processor could be mid-qualified (or even non-qualified) at another processor. This makes rate quotes from one processor very difficult to compare to another.
2. Most processors do not disclose what interchange categories are grouped into each tier. Since sometimes a lower interchange rate can be addressed by an action that the business owner can take, burying the actual categories within tiers can make it harder for a business owner to identify opportunities to lower his/her rates.
3. Since there is so little transparency into the rates, it is often the result of misunderstandings between the processor and merchant and sometimes can be an area where the situation is manipulated by the processor to generate additional profit at expense of the merchant. Here is an article written by a VP at Global Payments, one of the biggest credit card processors, about how tiered pricing can be used to generate additional profit at the expense of the business owner.

The piece above from the TransFS blog pretty much sums it up. If you need more proof that tiered-pricing is less than ideal...

Merchant service providers have the ability to dictate which rate bucket the various interchange categories will qualify to. This makes it impossible to accurately compare rates and fees from different providers unless you know how each provider will be qualifying the various interchange categories. It's often the case that a business gets multiple merchant account quotes with nearly identical rates and fees and one of the accounts costs hundreds of dollars less than the others each month. - MerchantCouncil.org

So the sad truth is, that tiered-pricing never really accomplished what it was meant to. Because of that a new pricing model had to emerge. At first it was only offered to the big dogs, but it has become a bit more mainstream these days.

That pricing model is “interchange-plus,”.

Middle-Men That Are Actually Worth Using

It's no secret that the merchant account industry is a difficult maze to navigate, but I have a hunch it's supposed to be that way.

Maybe it's supposed to be difficult, to deter us from ever questioning our contracts. Maybe it's supposed to be difficult, so we continue walking blindly into terms that are obviously not in our favor. Maybe it's supposed to be difficult, so MSP's can continue to nickle and dime us month after month...you get the point, right?

We've all seen it with so many other industries. Companies taking advantage of the fact that most of us are L.A.Z.Y! It takes a HUGE amount of motivation for us to change anything, so we just leave it alone. A little fee here, a little charge there, no big deal.

If you've had the chance to read any of my posts, you'll see that I could care less about keeping with the "obscurity" mantra. Matter of fact, I do everything in my power to educate merchants and expose any fraudulent companies or practices.

I take it as my job to lead business owners down the right path when it comes to finding a merchant service provider, and luckily, I'm not alone.

There are a handful of awesome resources popping up online that can help give you a fighting chance in this game (the keyword being "handful"). Hopefully in the future we'll have more than just a few of these guys, but for now, we're happy with the ones we've got.

They range from merchant account consultants to payment operations auditor's to reverse auction quote companies that help you get the best deal by having MSP's bid for your business.

All great ways to load the dice in your favor.

The Merchant Account Consultant

Good luck trying to find one of these. My search on Google brought back only a few results, and most of them looked like consultants that offer merchant services on the side...how convenient.

"So you're telling me that the best way for me to lower my fees is to just switch over to your company? That's awesome Mr. Consultant! I wish I would've found you earlier. Gee thanks!"

I'd be highly skeptical of merchant account consultants that are also merchant account providers themselves. If that's not a conflict of interest, I don't know what is.

Anyway, I was able to find two consulting companies that look pretty reputable. I've personally never dealt with any of these guys, although I might in the near future.

If you do happen to work with either of these consultants, feel free to let us know how it went.

EP Consulting
Adam Pflaumer is the owner of EP Consulting based out of Temecula, Ca. According to his bio, he's been in the payment processing business for 15 years. That's great and all, but what matters to me is if he can deliver the goods...it looks like he can.

Apparently, EP Consulting works on a results-only basis, which is great. Their job is to review your merchant account statements and spot areas where they can lower your fees. They then negotiate the new terms with your merchant service provider. If they don't lower your fees, you don't have to pay. As always, make sure you clarify those terms before you sign the dotted line.

To buy yourself some more assurance, go ahead and contact all the testimonials listed on their site, and ask for some references as well.

The Merchant's Guide
Mike Shatz runs TheMerchantsGuide.com, which is an educational and consulting service site for merchant accounts. He's been in the industry for 20 years, and actually served as Vice President of Sales at Litle&Co, so it's safe to say that he knows his Shat...sorry Mike...it's the last name.

Mike has written an outstanding book on the subject of merchant account fees called: "Understanding Merchant Account Fees In Card-Not-Present Environments" Wow! That's a mouthful! But, a really informative book nonetheless.

He also offers both consulting services and a payment operations audit, which might sound pretty technical, but it's basically the same thing that EP Consulting does. He finds out where you're spending too much in fees, then attempts to reduce them for you.

Merchant Account Quote and Comparison Services

This category is still in its infancy, and most merchants don't even know these kinds of services exist. The easiest way for me to explain the companies I'm about to list would be to think of them as the LendingTree of merchant accounts.

They all help you find the right merchant service provider, much I like I do with my words, but they do it with software.

Transparent Financial Services
TransFS is a comparison shopping engine for the merchant account industry. They collect your business information from you, then run a reverse auction by allowing merchant service providers (MSP's) to bid for your business. They then assist you in choosing the right provider.

The service is free because they get paid by the MSP, so you don't have to worry about shelling out any of your own cash.

I've personally chatted with one of the co-founders, Eric Olsen, who's a very cool, stand-up guy. The reason him and his partners started the company was basically out of frustration. They felt there was a lack of unbiased council in the industry, so they opened TransFS to fill that need.

CardFellow
Another comparison engine, very similar to TransFS is CardFellow. The owner Ben Dwyer also runs a great information site called MerchantCouncil.org.

CardFellow makes money by charging merchant service providers a one-time flat fee to place a quote.

Payments-R-us
Last but not least we have Payments-R-Us. They operate a bit different than TransFS and CardFellow. Payments-R-Us uses a "matching logic" system to pair merchants with providers that Payments-R-Us deems the best fit for your business.

Conclusion

It really is unfortunate that as business owners we're forced to hire "go-between's" to deal with the first set of middle-men (ISO's/MSP's) to begin with. And for what? Just to be sure that we're not gonna get ripped off?

Not to discount the great service that these folks offer, but if we had just a tad bit more transparency in the industry, then there wouldn't even be a need for these services. But wait, I almost forgot...

I almost forgot that we live in a world where the federal government bails out banks to the tune of two trillion dollars, then allows those same banks to operate with impunity while the rest of us lazy consumers fit the bill.

In a world like ours, we need this type of middle-man because at least these guys are working to bail us out. They're on our side.

Does Your Merchant Account Have an Early Cancellation Fee?

After reviewing a few dozen MSP's, I've started to see a pattern of sticking points that unhappy merchants repeatedly complain about. One of those points is the early cancellation, or early termination fee.

I can't count how many complaints I've read from folks who've lost their marbles once they've found out that they have to pay a cancellation fee. They swear up and down that they were never told about it, so they refuse to shell out the anywhere between $100 to $500 bucks just to break their merchant processing agreement (MPA).

The title of this post poses the question; “Does Your Merchant Account Have a Cancellation Fee?” Well, I ask you again today...does yours?

I'll bet that some of you don't even know, but to be fair, it's not entirely your fault.

Sales reps are out to make money, so I would never expect to see one ruin a deal by verbalizing the existence of a cancellation fee before the deal is closed. Matter of fact, I'm willing to bet that they'd do whatever they can to actually avoid the subject entirely. I'm not trying to bad mouth all sales reps here, because the vast majority are actually very honest in their dealings, but I'll take a quote from Upton Sinclair to explain myself...modified Merchant Maverick style:

It is difficult to get your sales rep to mention the early termination fee, when his salary depends upon him not mentioning it!

I urge you not to assume that there isn't a cancellation fee just because your rep didn't say anything about it. If you don't ask, then chances are, they won't tell.

The only way to be sure is to first ask, then ask a second time, then finally verify by reading your ENTIRE contract. It's boring, I know...reading contracts sucks! But trust me, early termination fees suck even more.

Wanna know how to avoid a cancellation fee? Drop me a line, and I'll tell you.

Interchange Reimbursement: What You Need to Know About Your Most Costly Merchant Account Fee

If you didn't already know this, I'll fill you in on a little secret. About 80% of your merchant account costs are coming from just one source, and that source is interchange.

I won't get into too much detail about how interchange works, but if you're feeling ambitious, there are plenty of online sources where you can learn more.

The average merchant doesn't really need to understand it all, so for the sake of this article, I'll be giving you the CliffsNotes version.

Interchange Reimbursement Fee
Interchange reimbursement is a set fee that the acquiring bank is charged by the issuing bank every time a credit card transaction, or “interchange" occurs between them. The fee is created and regulated by the credit card companies, Visa and MasterCard.

Both Visa and MasterCard have the ability to change those interchange rates twice a year in April and October.

Visa Interchange Rates (PDF)
MasterCard Interchange Rates (PDF)

Take a look at the above PDF docs and you'll notice that there're tens, if not hundreds, of different rate categories (tiers) for various types of credit card transactions (i.e. CPS/Automated Fuel Dispenser, Debit, CPS/Supermarket Debit—All Other, blah, blah, blah).

No need to waste your time trying to memorize all of them now, but in the future I'll show you how to use them as a reference to lower your merchant account costs.

What you do need to know about interchange is the fact that every single transaction that occurs, whether on your website or in your store, falls into one of those rate tiers.

You will never know ahead of time which category your transactions will be charged under. That is up to the credit card company to decide.

Can you see the problem here? How are you supposed to compare merchant accounts based on rate if those rates are so dynamic? It becomes impossible.

In an effort to simplify this whole mess, the ISO/MSP's of the world have created their own pricing structures:

Tiered-Pricing and Interchange-Plus.

If you're looking to lower your current merchant account fees, I might be able to help. Click here to learn more.

Why Not Understanding the “Rolling Reserve” Could Put You Out of Business.

There's a little known risk management tactic that the bankcard industry is using with increased frequency these days called the “rolling reserve” or holdback. For those of you that don't know what it is, here's a quick definition:

A strategy used by credit card processors, acquiring banks or MSP's (merchant service providers) to lower the risk profile of merchants that would otherwise not qualify for a merchant account based on current underwriting guidelines. The rolling reserve gives the above mentioned institutions the right to withhold a percentage (usually 5-10%) of gross sales from the merchant for a specific time frame in a non-interest bearing account to cover for the possibility of fraud or chargebacks.

The horrible economy that we're currently facing has caused those involved with the processing of credit card transactions to act like paranoid crack addicts, but is it for good reason?

Bankruptcies are a dime a dozen these days, so overcome by the fear of losing money, the processors pass their risks on to us merchants instead. I read a BusinessWeek article the other day that does a pretty good job of explaining everything.

The recession and rising business bankruptcies have prompted giant credit-card companies such as Denver (Colo)-based First Data and Atlanta-based Elavon to demand that some business owners maintain a cash reserve with the processors in order to protect against the possibility that customers may require refunds after the merchants have gone belly-up.

As a merchant, so long as you can accommodate for that missing cash flow, then you won't have any problems, but in some cases having 5 to 10% of your sales withheld from you, could put you under. Especially if a large part of your business comes from credit card transactions.

Personally, I think the risk should be spread across all players involved; merchants, ISO/MSP's, the acquiring banks and the processors. Seriously, instead of forcing the merchant to accept a certain percentage (5-10%) that you dictate, why not ask them what they can handle? I mean, don't these guys understand that if the small-business goes bankrupt, everybody loses? Wait, who am I kidding, that's like trying to tell Tony Soprano to stop with the extortion.

Anyway, your only option as a merchant right now is to make sure you understand what the rolling reserve is, what percentage of your money the processor is planning on withholding, and whether or not you can even stay in business without that cash flow. If not, then I would seriously consider alternative payment methods until you feel you have enough of your own reserves to cover the stinkin' rolling reserves.

Meet The Sopranos: Introducing the Merchant Account Mafia, Part I

One of the toughest things to understand about the merchant account industry, is the actual industry itself (i.e. how it operates, who the players are and what goes on behind the scenes.). The credit card Cosa Nostra doesn't like to function in plain site, so you need to dig deeper to understand it all.

Between the credit card companies, issuing banks, acquiring banks, processors, merchant service providers (MSP's), independent sales organizations (ISO's), payment gateways and everyone else in between, it seems like it would take a college level course to comprehend all of the madness. And what kills me the most, is that many of the "helpful" industry related sites I've visited, just write the whole issue off with a quick quote like, “The average merchant doesn't need to understand the entire process...” Madonn'!!!!

It's that exact lack of understanding that puts merchants in a defenseless position (like in the trunk), leaving an opening for the guys up top to take full advantage. Even if you don't attempt to learn the process, I urge you to at least learn the players. That way, you'll know who to go after if you ever run into any problems. Just make sure you go heavy.

You - “But, all of this stuff is soooooo boring Mr. Maverick!”
Me - I know, I know, you're absolutely right, but you still need to learn it...capiche!?

Seriously though, nobody wants to spend their entire Saturday reading about credit card processing. Am I right? So to make the whole ordeal a little more interesting I've decided to substitute all of the key figures in the industry with some good old fashion italian mobsters...David Chase style.

So without further ado, let me introduce you to the administration:

Tony Soprano

Boss of the family: Also known as “the credit card company” (i.e. Visa and MasterCard).

Tony is the boss of all bosses; he sets the rules of the game. It's because of him that there are even any transactions (interchange) allowed to be made on the streets. He's the ultimate middle-man...scratch that...he is "THE" man. You only exist out here because of him. You couldn't do business without him, even if you wanted to...so fuggedaboutit.

You can tell he's the boss just by looking at his net worth (NYSE:V, NYSE:MA)...BIG EARNER!

Peter Paul "Paulie Walnuts" Gualtieri

Underboss of the Soprano family: Also known as “the issuing bank” (i.e. Bank of America).

Paulie reports directly to Tony (the credit card company), and is authorized (licensed) to offer Tony's personally branded (Visa and MasterCard) credit cards directly to the street-level consumer. Paulie extends a line of credit along with those cards that he hands out, with the solid understanding that if the cardholder doesn't pay back the loan, he'll break their f*ckin' kneecaps...figuratively speaking.

Since Paulie vouches for the consumer/cardholder in this equation, he's also responsible for transferring funds to Silvio Dante (the acquiring bank), on behalf of those cardholders, for any purchases that they make from Silvio's merchants (see below).

Silvio Dante

Consigliere of the Soprano family: Also known as “the acquiring bank” or "acquirer" (i.e. Wells Fargo).

Silvio's business dealings are strictly with the neighborhood merchants. He's responsible for paying his merchants the money owed to them by Paulie's cardholders for the purchase of goods and/or services that those cardholders have made.

In order to keep the racket running smoothly, Silvio "fronts" the money to his merchants before he even gets his dough from Paulie, with an agreement that Paulie will reimburse him down the road.

Christopher Moltisanti

Caporegime to the Soprano family: Also known as “the credit card processor” or "payment processor" (i.e. FirstData).

Christopher is the guy who makes sure everything checks out (authorization, clearing and settlement...ACH) between the consumer, the merchant, Paulie and Silvio. He determines whether the consumer is legit, he makes sure the money changes hands and he records the details of each transaction in is books. You could say he runs the numbers.

At the end of each day, Paulie, Silvio and Christopher meet up at Satriale's Pork Store to exchange funds, and shoot the sh*t over a couple of Mortadella sandwiches and some Gabagool. If the process runs smoothly, everybody gets a cut, everybody stays happy.

Furio Giunta

Soldier to the Soprano family: Also known as “the merchant service provider (MSP)," "merchant account provider (MAP)" or "independent sales organization (ISO)” (i.e. MerchantPlus).

Some might argue that Furio Guinta is an unnecessary middleman, but they would be dead wrong. You see, Furio handles all of the work that the higher level guys don't want to deal with (i.e. shakedowns and extortion...I mean...sales and support).

Furio must have authorization from Tony (the credit card company), and direct backing from Silvio (the acquiring bank) in order to operate...which he does, of course.

Occasionally, an ambitious soldier like Furio will try and take on a higher level of responsibility, by doing some of Christoper's (the credit card processor's) work. So long as it doesn't invade on Christopher's territory, it's a-ok.

You

You're a nobody: Also known as “the merchant.”

The Consumer

Even more of a nobody: Also known as “the cardholder.”

Now that you know all the players, we'll get into how they all tie in together, but I'll save all of that for next week.

In Part II of this article, we'll dive a little deeper into the family's inner workings.

Welcome to MerchantMaverick.com

Merchant Maverick.com is a no-nonsense review, ratings and comparison site for merchant accounts, credit card processors and payment gateways.

If you haven't had a chance to read the "About" section yet, you can do so here.

You can also visit "How I Review" to learn about my reviewing and rating process.

To Learn more about how this site makes money, click here.

I am your author "The Merchant Maverick" aka "The Maverick" aka "Mr. Awesome" (I have no shame) and I've spent years in the e-Commerce industry both on my own ventures, and as a consultant/employee for other firms.

I've also spent hundreds of hours sifting and sorting through the mess that is the merchant account industry. I've been lucky enough to deal with a few great companies and unfortunate enough to get burned by others.

When it comes to merchant accounts, you have to be ruthless in your decisions. Don't cut corners, don't assume that you're going to be treated well and most of all, read the fine print. If you do your due diligence and can negotiate well, then you should be just fine.

Hopefully the Maverick can help you out along the way.