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The Hidden Dangers of …

The Hidden Dangers of Dealing with Credit Card Processing Auditing Companies

You might find this an odd topic coming from me, given that I run an auditing firm specialising in credit card processing fees. But the only thing worse than being overbilled by your processor is being duped by someone claiming to be an expert in this industry, and then sued by them for non-payment once you stop paying and realise what happened.

The short version

The risk in hiring an audit firm is rarely the audit. It is the agreement you sign to get it. Check who owns the firm, check whether the people have actually worked in this industry, and read the exit terms before you read anything else.

Check the people, not the website

If you need help with your processing fees, make sure the company you are hiring employs genuine experts, and be clear in your own mind about what qualifies someone as one. This is a technical field. Reading a statement correctly takes years of exposure to how processors actually bill, not a weekend with a spreadsheet.

LinkedIn is a good tool for validating work history. Look up the named individuals and ask a simple question: have these people ever worked inside a processor, an ISO or an acquiring bank? Plenty of firms in this space are staffed by salespeople who have only ever sold against processors, never worked within one.

When you cannot find out who owns it

Some firms do not show who their owners are at all. At that point you have to ask the obvious question. Why hide that?

Processors are notorious for hiding information, so the instinct is worth following. Is the company you are looking at owned by one of the processors? If you asked, I am sure they would say no. But then why not make the ownership public and verifiable?

You do not need to prove anything here. You need to notice that a firm asking you to trust it with your financial data will not tell you who it is.

The agreement is the real risk

Like an iceberg, which looks harmless from the surface and can still open a hole in the hull, what appears to be a routine audit agreement can do far more damage to your business than the fees you hired someone to find.

These are the terms worth finding before you sign anything.

The term, and what happens if you want out. A multi-year commitment means that if the firm does not deliver, you cannot go to anyone else for the length of it.
Automatic renewal. Check whether the agreement rolls over, how much notice you must give, and in what window. Miss it and you have bought another term.
How they are paid, and for how long. A percentage of savings sounds aligned until you read how many months or years it continues, including after they have stopped doing anything.
Whether the agreement can be assigned. If it can be sold to another company, the firm you carefully vetted is not necessarily the firm you end up with.
Who handles your data. Ask whether your statements are audited in-house or passed to a third party. Your processing data is financial data about your business.

When things are hidden there is a reason, and it is not to surprise you the way a birthday present does.

Four questions that settle most of it

Rather than repeat them here, we keep a short vetting checklist on another page, and it applies to any firm offering to cut your processing costs, mine included: four questions to ask any firm that offers to cut your processing costs. They cover how the firm is paid and by whom, whose side it is on if a processor offers it money, what happens if you want out, and who has checked its work.

If you are comparing specific firms, we keep a page covering the companies we compete with, and what an audit should cost is covered on the audit cost page.

Frequently asked questions

How do I check whether a processing audit company is legitimate?

Start with the people rather than the website. Look up the named owners and senior staff and check whether they have actually worked inside the industry. If a firm does not publish who owns it, treat that as the finding, not as an administrative gap.

Can an audit company be owned by a credit card processor?

It is a fair question to ask, and the honest answer is that you often cannot tell from the outside. That is precisely why undisclosed ownership matters. A firm auditing the party that owns it has an obvious problem, and you are entitled to know before you sign.

What should I look for in an audit agreement?

The term length, what happens if you want out, whether it auto-renews, how the firm is paid, whether payment continues after the engagement ends, and whether the agreement can be assigned to another company. Any of those can cost far more than the audit saves.

Can an audit firm sue me if I stop paying?

If you signed an agreement obliging you to pay, yes. That is the specific trap worth avoiding: realising a firm was not what it claimed and discovering you are still contractually on the hook. Read the exit terms before the engagement, not after.

Should an audit cost me anything up front?

It does not have to. Ask what a review costs before you commit to anything, and be wary of arrangements that require a signature before you have seen a single finding.

Apply those questions to us first

Our ownership, our people and our terms are all public. Send a statement and see what a review actually looks like before you commit to anything.

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Author

Robert Day

In short, as a merchant, you very well may have more experience in credit card processing fees than the company you are hiring to help you fix your issues!

Before you think I am being too hard on these guys, remember, YOU (the merchant) will pay the price for their lack of experience and deception. They’ll make you sign an agreement before you even know if you have an issue, locking you into a three-year contract and giving them as much as 50% of whatever they forecast in their assessment.

Here is a real-life example of how that can turn out… I was hired as an expert witness to help a merchant that was being sued by one of these types of companies. The merchant was not happy with the savings this company had forecasted and promised. So, they decided to outsource their credit card processing to a third party so that the merchant now had no merchant fees. Because of this, the company sued this merchant for 50% of what their total bill used to be. Now, this was a very large merchant, so the liability was in the millions. The good news is that we beat that company in court, due in large part because they duped the merchant into signing with them by claiming to be experts, and it turned out they had zero experience in merchant processing. To put “experience” into the proper perspective, it takes a minimum of two years to get just the basics down and ten years to have a decent comprehension.

Due to these companies’ lack of experience and understanding of this industry, they will typically only focus on getting your discount rate lowered; however, you can do that yourself. Just call your processor and complain, and 90% of the time, they’re going to reduce your rates just because you asked. But when you hire a company like this to do this for you, things will get worse, not better. Remember, you will have to pay that company 50% of your savings because you allowed them to make that phone call. But here is the worst part – merchant processing is unregulated. Why does that matter? First, let me validate what I just said:

“We also know the current interchange system is unregulated and uncompetitive.” – Senator Dick Durbin (September 27, 2011)

So, again, why does the lack of regulation matter? Because it gives credit card processors the ability to charge merchants anything they want. They simply raise merchants’ fees, hide fees by inflating interchange or other standard fees, or even make-up new fees, etc. For example, this type of company may get your discount rate lowered by ten basis points, but the processor will simply make that money back by doing one of these deceptive billing tricks. Or even worse, they may also raise your fees more than the ten basis points they previously lowered.

What does this mean for you?…

Let’s assume you were paying twenty basis points for your discount rate. This company you hired got it down to ten basis points and takes five basis points (50% of your savings), so your net savings is only five basis points. Your processor, in return, inflates your interchange and/or adds a new fee. And even if we assume they only want to get their profits back and not go even higher (which we see all the time), this will now put you paying five basis points more, and potentially even MORE! Once you realize this and stop paying, that company will sue you. What was once a great idea has now turned into a nightmare.

If you are going to hire a company to negotiate and help manage your credit card processing fees, you need to make sure:

- Who are their key people?
- What is their experience? (And validate them on LinkedIn as well as Google.)
- Will they take a percentage of your savings?
- Will they lock you into a contract?
- Does that contract allow them to sue you for non-payment?
- Do they have their own proprietary auditing software or do they use a third party?
- Do they have a money back guarantee?
- Do they have any financial connections to any processor, ISO, MSP, or sales agents?
- Do they pay revenue share to anyone or any company, etc.?

You will want them to answer the above questions on company letterhead and have it signed by an officer. Phone calls and emails are not binding, and anything in writing is not binding if not signed by an officer. This is VERY IMPORTANT!