6 Credit Card Processing Scams to Avoid

Credit card processing scams to watch for

Evaluating credit card processors can be confusing. As you research credit card processors, watch for the following common scams, hidden fees and other undesirable features that can make your business pay more than necessary. 

1. Hidden transaction fees 

Credit card processing costs and fees aren’t always transparent. Some payment processors use low quotes to attract business owners and then tack on costs based on transaction types. For this reason, consider steering clear of credit card processors that offer tiered pricing models.

Tiered pricing means the processor separates your fees into three separate categories based on the type of payment method used:

• Qualified
• Mid-qualified
• Nonqualified

Typically, mid-qualified and nonqualified transactions incur much higher fees that add up over time. Debit card transactions are usually covered under the low-cost qualified tier. However, the processor may list cardless transactions like Apple Pay as nonqualified transactions. 

How to avoid hidden transaction fees

The No. 1 way to avoid hidden transaction fees is to choose a credit card processor that charges a flat rate. If you want to try a tiered-pricing processor, it’s crucial to read the fine print before signing a contract.

2. Equipment leasing

Do your best to avoid an equipment lease agreement with credit card processors, even if you don’t have the capital to purchase your equipment.

Leasing equipment means no upfront costs. However, over a few years, you’ll end up paying thousands of dollars. In contrast, purchasing your credit card terminal would cost around $300. Would you prefer paying $300 or $4,000 for your credit card terminal?

If you find that the credit card processor you’re considering is pushing you to lease equipment, your best bet is to keep shopping around.

How to avoid equipment leasing

So what should you do if you don’t have the capital to purchase a terminal? If you have between $100 and $300, do some research and find a credit card machine that suits your business’s needs before talking to a processor about leasing options.

A short-term terminal rental may be worth considering. An even better option is reprogramming the devices you already own.

3. Hidden surcharges

After gathering the details about your per-transaction rates, ask about surcharges. It’s not uncommon for credit card processors to add fees that aren’t included when they disclose rates.

Surcharges can significantly raise your monthly costs, eventually adding up to hundreds or thousands more than expected. As you review your agreement, pay attention to the “surcharges” section to find unexpected additional fees.

How to avoid surcharges

Aside from reading your contract’s fine print, here are some additional ways to avoid surcharges:

• Avoid cancellation fees. Choose a credit card processor that won’t charge cancellation fees. That way, if your first bill is more than you expected, you can find another processor.
• Pay monthly. Find a processor you can pay monthly so you don’t run into unpleasant surprises. If you’re a solopreneur, you may want to consider a processor that doesn’t have a contract, like PayPal.

4. No customer support

Ask about customer support hours before entering into an agreement with a credit card processor. Some sales representatives may be persistent until you sign the contract – and then it becomes challenging to reach someone for support.

Poor customer support is common when a credit card processor outsources sales representatives. They’re focused on their commission; they vanish once they close the deal.

How to avoid a lack of support

Research your potential credit card processor thoroughly to avoid this scam. Get opinions from other business customers, read positive and negative customer reviews, and consult the Better Business Bureau. Additionally, review the processor’s business website for online resources like FAQs, a blog and a knowledge base. 

5. Rushing the selection process

Never let a prospective credit card processor rush you into signing an agreement. If the sales representative you’re working with pressures you with dates or limited-time offers, it’s a huge red flag.

When choosing a credit card processor, you’re searching for a business partner, so always take your time. Many reputable credit card processors will present exclusive offers, but they won’t use offer deadlines to force you into a premature decision.

How to avoid being rushed into signing a contract

Steer clear of this scam by taking your time to research more than one credit card processor. Even if a processor initially sounds like the best option, look at at least two others. Base your final decision on research, not pressure from a salesperson.

6. POS software scams

Card processors may try to sell you specific point-of-sale (POS) system software. Software that can handle all your business operations is appealing. However, adding POS software to your package can drive prices through the roof.

Credit card processors know businesses can leave if they find a better option. However, it’s harder to leave if a business uses a provider’s POS software. Starting over from scratch is a huge hassle when everything is already running.

How to avoid POS software scams

If a credit card processor offers POS software, ask if it’s compatible with other payment processors. If the answer is no, it’s a huge red flag. While adding POS software to your agreement may seem enticing and convenient, it may cause massive headaches – and cost big bucks – in the long run.

Finding a legitimate credit card processor

When it comes to small business credit card processing, it’s crucial to understand your needs and evaluate your options. Here are some tips for finding a legitimate credit card processor. 

1. Research the market to find a credit card processor. 

Effective research starts with a solid foundation of industry basics. Before you demo, test or compare any processing companies, build your decision-making foundation by learning how credit card processing works.

Next, consider your business’s stage and goals; sales frequency, volume and predictability; and how much capital you can invest in credit card processing.

2. Request demos when evaluating credit card processors.

Demos can save you time and money and teach you about your potential partner. A demo from a knowledgeable sales rep will answer your initial questions about the company’s hardware and software. Additionally, you’ll learn how the company approaches customer service and if it wants to build a relationship with your business or just wants to sell you a product.

3. Take advantage of free trials when vetting credit card processors.

Free trials give business owners and their employees a chance to put the processor to the test in real-world service environments. Testing one or more processors during free trial periods will help you evaluate and compare details before signing a service agreement.

Trial periods give you more experience, confidence and fluency in each company’s terms, flaws and advantages. You’ll be better prepared to review features and ask informed questions.

4. Read BBB reports and customer reviews about credit card processors.

While researching providers, look to credible third-party sources for more information. The Better Business Bureau (BBB) is a good place to start to assess a company’s reputation and stability.

Pay close attention to customer reviews and recommendations from respected industry players. Their first-hand experiences can save you time, money and opportunity costs.

5. Negotiate contract terms with potential credit card processors.

Contracts and agreements with B2B processors are negotiable. Educate yourself on what to look for in your credit card processing service agreement.

Evaluate the contract’s length, out-of-pocket costs and recurring fees before you start negotiating. And remember that you’re negotiating with a potential future business partner. The end result should be a win-win.

The best credit card processing services

We evaluated the best credit card processors to help small businesses choose the right partner for their needs. Consider the following excellent credit card processors.

• Clover: Clover is our pick for the best credit card processor for new businesses. Clover features flat-rate pricing, doesn’t force you into long-term contracts, and offers robust POS software and hardware. Business owners can accept online orders, process mobile credit card payments, and create gift card programs and customer loyalty programs. Check out our in-depth Clover review to learn more.
• Stripe: Stripe is our pick for the best credit card processor for businesses that sell online. Stripe integrates with various e-commerce platforms, online shopping carts and other business software, including QuickBooks. For example, GoDaddy, Shopify, Squarespace, WooCommerce and Wix all integrate with Stripe. Stripe’s prebuilt online forms can be easily embedded on any website. And Stripe also allows extensive customization, so business owners with advanced website development capabilities can tweak their sites.

How to avoid credit card processing scams

Not accepting credit cards isn’t a viable option for most businesses. Your business likely needs a credit card processor to operate. But that doesn’t mean it also needs a tiered pricing model, licensed POS software, or hidden fees and surcharges.

Remember that credit card processing is a tool to help you serve customers and increase revenue. Research potential credit card processors thoroughly, ask for software and POS demos, and request a free trial.

The more you educate yourself before signing a contract, the more likely you’ll partner with a company that fits your needs and doesn’t try to scam or trick you out of your hard-earned money.

Dachondra Cason contributed to this article.