Merchant acquirers say the industry has worked over the course of decades to improve its ethics. But some acquirers report that deceptive practices and dubious tactics still exist, and that the card brands could do a better job at enforcing their own rules.
“It’s still kind of the Wild West in the payments space,” says Jeff Marcous, CEO of Dharma Merchant Services. “My sense is that the card brands themselves have bigger fish to fry in terms of big, big disruptors – [products] like Bitcoin that threaten the payments industry."
The advance of technology is providing some reprieve, as independent sales organizations work to transform their business models to sell software and smart terminals; those products typically require an ongoing and healthy relationship, making trust essential.
The subject of industry ethics has received some attention this year. In February, Gravity Payments made headlines over accusations that the company violated card brand rules by incorrectly classifying several hundred bars as restaurants for processing purposes. In doing so, the bars would be eligible for lower processing fees, and Gravity could gain a pricing edge over its competitors. Gravity is the same company whose CEO gained worldwide attention for cutting his salary to $70,000 and raising the company’s minimum salaries to match that amount.
The accusations made against Gravity could hint at a more widespread problem in the industry, Marcous says. “If there’s any evidence that the associations are actually enforcing the violations of their rules, I’m not seeing it,” he says. “That’s probably why the Consumer Financial Protection Bureau came to be, because they saw that was this wasn’t an industry that self regulates.”
Visa and Mastercard did not respond to press inquiries by deadline.
Eureka Payments president Ken Musante contends that the card brands don’t always know about these violations unless someone files a complaint. “Although you might say the rules are being inconsistently applied, it’s because Visa and MasterCard aren’t all knowing,” he says. “Unless it’s brought to their attention, they’re not going to act on it.”
As a lucrative industry that does not require education, certification or licensing, the merchant acquiring profession has been known to lend itself to opportunities for unethical behavior that can lead to significant gains. “Any time you have that, there are going to be some individuals who try to bend the rules to their advantage,” Musante says.
That behavior has evolved from the way things were a decade ago, when the industry’s ethics issues stemmed from equipment sales that allowed sales reps to make a great deal of money from a single interaction with a merchant.
“The industry has changed,” Musante says. “Businesses know the cost of terminals, and there’s much less likelihood for an unscrupulous salesperson to survive with that one-off sale of leasing equipment and then burning the next merchant they come across.”
Jared Drieling, business intelligence manager for The Strawhecker Group consulting firm, says the industry has made strides due to the fact that more payments associations are developing certification programs. He points to the Electronic Transactions Association’s certified payments professional, or CPP, program as one example and how the National Retail Federation now encourages merchants to seek out payments professionals who are certified.
Another sign of progress, Drieling says, is that more ISOs are defining themselves as independent software vendors in an effort to become more than a sales agent to merchants, and to provide technologies such as apps and smart terminals to help merchants run other aspects of their businesses.
“The sales agent is becoming much more ingrained in that merchant’s business, thus at the end of the day creating a more transparent, sticky relationship – and a healthier relationship with that merchant,” Drieling says.