Thursday, July 10, 2014

Merchant Account Contracts

OMG, the credit card processing industry is so messed up.  I'm tempted to go start my own and cut through the industry like a knife through butter.

First, a little background, I run a ~$10M online business based on recurring monthly billing.  It's all about efficiency, effective handling of credit card data, and cost control. Also reliability. After a decade with one vendor that we have totally outgrown, we are finally switching vendors. After a few months of talking to vendors, we finally found one with great technology and prices for the handling of recurring card not present data.

I'm ready to sign and they send over the contract. OMG!  So poorly written and one-sided that instead of signing, we are now going back to our candidates two through five to see what's going on.

Our third favorite candidate immediately flew in (I'm going to see them this morning) and said: "You are a great merchant, we'll do whatever you want contractually."

Meanwhile, the first choice company just sent me a revised version of the contract which still has:
- a three year initial term during which there's no way out unless the processor messes up, gets notified in writing formally, and fails to address it within 60 days.  So they could stop answering the phone and  go down weekly and my business would be legally stuck with them for two months.  I don't think I'm going to sign that.
- no clarity (despite my request) that the customer's credit card data is ours and is available upon request to move
- not a single obligation by the processor to us that they'll remain compliant with all laws, stay solvent, safeguard data, do their best for us, etc etc But there's probably 1-2 pages of such certifications requested of us. Here's a for instance. They claim the right to see all of our financial statements upon request. Fair enough since they are underwriting. I told them in the conference call that this sort of thing needs to be clarified. For what purposes do they get to pull our data? Who gets to see it?  This will be confidential data etc etc.  Oops, it's not there!  Does this mean that other vendors agree to provide their financials but they do so with no if, ands or buts about it?
- they did in the latest draft agree to freeze prices during the initial 3 years but they didn't agree after that to any prior notice period before changing prices.  They did say that in the long term if they change prices, we can complain in writing and if they fail to address or reprice within 60- days, we would be allowed to change vendors.
- the agreement includes five specific references to processors "standard operating procedures."  Remember, this is a contract, not a conversation. I asked about getting a copy of the standard operating procedures. It turns out that these are not written down. I asked about the transparency of these procedures to an outsider and if there was any way that the Merchant could verify them or was it just: "whatever the Processor says it is."  Of course, it's a totally nebulous opaque concept. Yet they left it in the contract.  Who does that?

Of course, I understand that mostly, contract don't matter. People and companies do what they want to and the contract is one of many pieces of the process and relationship so focusing on the contract too much is not smart business.  But still, my minimum requirements;
- freedom to move if it's in our business interest
- clarity on the cost and mechanism for us getting our credit card data
- nothing weird in the rules that will come back to haunt us.