Credit Card Processing Scams Targeting Small Businesses

  • Credit card processing is required for any business that accepts credit or debit card payments.
  • Unfortunately, scams are common within the credit card processing industry, and many small business owners fall victim. 
  • When choosing a credit card processing service provider, ensure it’s legitimate by checking customer reviews and Better Business Bureau information.
  • This article is for business owners who want to know common scams to look out for when considering a credit card processor.

If you want to stay ahead of the competition in any industry, you’ll need to accept credit card payments. As many business owners know, card payments are so popular that cash-only businesses may be a deterrent to many consumers. This means you’ll need to find a credit card processor, and that process can be a little tricky. 

Credit card processors are well aware of the freedom they have in charging businesses for their services; unfortunately, some take advantage of business owners. Here’s a look at the most common credit card processing scams and what you can do to avoid them.

How to choose a credit card processor 

Each credit card processor you come across will offer a wide variety of pricing plans and features that you may not need. To make the process a little easier, here are three keys to look for as you weigh your options.

  • Pricing: A good rule of thumb is to stay away from processors with rates that the processor can change at their discretion.
  • Purchase: Stay away from processors that try to persuade you to lease a terminal, as this can add thousands to your bill.
  • Customer support: Do your research to make sure your processor offers live support during your business hours.

While these factors are a great start, they don’t cover tactics that some credit card processors may try. Let’s dive into the details of the most common scams you may come across during your search.

Did you know?FYI: Before you start your search, it helps to have at least general knowledge about how credit card processing works.

Hidden transaction fees

Some payment processors use low quotes to attract business owners, and then add costs based on transaction types. For this reason, it’s a good idea to steer 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 and non-qualified. Debit card transactions are usually covered under the low-cost qualified tier. On the other hand, if your business accepts a cardless transaction like Apple Pay, the processor may list this as a non-qualified transaction. Typically, mid-qualified and non-qualified transactions come with much higher fees that add up over time.

How to avoid hidden transaction fees

The number-one way to avoid hidden transaction fees is to choose a credit card processor that charges a flat rate. In the event you feel like trying out a tiered pricing processor, always be sure to read the fine print before entering an agreement. If you’d like to know more, review these tricks to lower your credit card processing fees. 

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. 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.

Leasing equipment means no cost upfront, but over the course of a few years, you’ll end up paying thousands of dollars. On the other hand, purchasing your credit card terminal would generally cost around $300. So equipment leasing comes down to this choice: Would you prefer paying $300 or $4,000 for your credit card terminal?

How to avoid equipment leasing

So what should you do if you don’t have the capital to purchase a terminal? A short-term terminal rental may be worth considering. An even better option is reprogramming the devices you already own. If you have between $100 and $300, it’s best for you to do your own research and find a credit card machine that suits your business’s needs before talking to a processor about leasing options. 

Hidden surcharges

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

As you can imagine, surcharges can significantly raise the price of your bill every month, which adds up to hundreds or thousands more than you expected in the long run. As you review your agreement, pay attention to the “surcharges” section to find the total of any additional fees your processor charges.

How to avoid surcharges

Aside from reading the fine print of your contract, there are other ways to avoid surcharges. Choose a credit card processor that won’t charge cancellation fees. That way, if your first bill is more than you expected, you’re free to find another processor to work with. Also, make sure you find a processor you can pay on a monthly basis so you don’t run into unexpected surprises. If you’re a solopreneur, you may want to consider a processor that doesn’t have a contract, like PayPal. You can learn more about its processing service in our PayPal review.

No customer support

Ask about customer support hours before you enter into an agreement with your credit card processor. Some sales representatives may be persistent until you sign the contract, but then after you do so, it becomes nearly impossible to reach someone for support.

This is especially common when a credit card processor outsources sales representatives and customer service representatives. It happens because the representatives are focused only on the commission they’ll receive from a sale; once they land the sale, they vanish.

How to avoid a lack of support

To avoid this scam, do your research. Get the opinions of other business owners who work with the credit card processor you’re considering. It’s also a good idea to read online reviews from reputable sites like the Better Business Bureau. Another good rule of thumb is to review their site for online resources, such as a section for frequently asked questions or a blog. 

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 tries to pressure you with dates or limited-time offers, take it as a huge red flag. 

This doesn’t mean credit card processors shouldn’t make you aware of exclusive offers. On the other hand, no company should be using offer deadlines to force you to choose them. In choosing a credit card processor, you’re essentially searching for a partner for your business, so always take your time. 

How to avoid being rushed into signing a contract

Steer clear of this scam by taking your time to do research on more than one credit card processor. Even if a credit processor initially sounds like the best option, continue to look at at least two other processors. When you make a decision, base it on your own research and not pressure from a salesperson.

POS software 

Another tactic credit card processors may use is trying to sell you specific point-of sale (POS) software. The fact that the software can handle all of your business operations may be appealing. The problem comes when the software drives prices through the roof because it’s another expense your credit card processor can tack on to your bill.

Credit card processors know that a business has the option to leave if it finds a better solution. If you are using their POS software, that makes it harder for you to leave. After all, would you really want to go through the hassle of starting from scratch when everything is already up and running?

How to avoid POS software scams

If a credit card processor offers POS software, ask if the software is compatible with other payment processors. If the answer is no, this is a huge red flag. It may initially seem enticing due to convenience, but there’s a chance it’ll cause you a huge headache and cost you big bucks in the long run. It’s also possible to find credit card processors that don’t charge for POS software. Read our Square review for one example. 

Finding a legitimate credit card processor

In short, you’ll have to do your due diligence on a processor before entering into a contract. Is the credit card processor you’re considering a reputable company? If you need help figuring this out, take a look at this list of the best credit card processing companies. 

Even with the best processors, service agreements can be lengthy and a bit confusing for even a very established business owner. Resist the urge to skip over the details. Before your search, know what to look for in your credit card processing service agreement. Choosing a processor is a major decision that can either enhance business operations or add an overwhelming amount of stress. 


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