Is Your Payment Processor Holding Your Funds?

payment processor holding funds

Is Your Payment Processor Holding Your Funds?

With COVID having changed a lot of how business works, merchant service providers are not unaffected. For various reasons payment providers and aggregators like PayPal, Square, Stripe, and Worldplay have begun holding funds from certain businesses. Their blanket approach is counterintuitive for many businesses, having a huge impact on their cashflow. Payment aggregators are also limiting processing volume.


Merchant Service Provider Info

As of right now, it seems that most businesses will not be affected by these changes. However, these are concerning for everyone. These decisions should be yours to make, and work for your needs. If you have been affected by your payment processor holding funds, please reach out. We can direct you to a service provider that better understands you needs. 

Merchant Service Provider Changes

CNN recently published an article which gives a breakdown of what’s going on with an express focus on Square. In the Wall Street Journal, Pete Rudegair wrote the following on the topic, “Payment processors tell customers they will take care of the nagging details. But lately, they are emerging as yet another headache for businesses hit hard by the new coronavirus.” Indeed, MSPs (merchant service providers) are creating a minor but snowballing issue.

So far, PayPal, Square, Stripe, and WorldPlay have all begun issuing a policy of holding money. They have applied this policy in varying numbers, with Square reportedly holding as much as 30% of sales. Timelines were unclear, leading to confusion from many users of these payment processors, but seems to be as long as a 120-day rolling reserve. These funds are being held in a reserve account, which was a previously rare practice for low risk businesses that these aggregators are best for.

However, MSPs are using this ability with increasing frequency since the beginning of the coronavirus pandemic. Square has been the most vocal about the practice, explaining that the decision is based on many factors. These include their perceived proneness to chargeback risk and the length of time that a company has been using their service. Square says that the businesses most likely to be affected are those that ask for payment prior to delivery of a service or good. This is a method of protection for the merchant service provider, which should theoretically extend to the user. Square estimates that only 1% of their customers will be affected, but the policy does not seem in line with that information.

credit card merchant provider for jewelry

Why Merchant Service Provider Changes Should Concern You

With such a small percentage of businesses being affected by these changes, it’s easy to pass them off. However, the potential impact of them is very concerning. Consider you’re a business that sells high ticket items. Maybe a jewelry business. 30% withholdings on even a single charge would be a very significant amount of money. That could be a bigger threat to some e-commerce businesses than coronavirus had been previously.

Similarly, it appears that prior standing with the MSP doesn’t have much of an effect on qualifying for withholding. The woman interviewed in the aforementioned Wall Street Journal article claims to have never had a chargeback during her 3 years with Square. This is symptomatic of a much larger problem with MSPs and payment aggregators that affects every business, every day. If your payment processor doesn’t know you, if you’re just data in a spreadsheet, then you are putting yourself at risk and paying unnecessary fees.

You see, this is a great example of that larger problem. While chargebacks are on the rise – especially in the travel industry – that might not be the same for every business. If chargebacks haven’t been a problem the chargeback withholding will be – and just as much of a surprise. MSPs are doing what makes sense for themselves and most of their customers, but it’s easy to get lost in the fray. We spoke with Kirstyn from The Very Best Cookie In The Whole Wide World, a direct to consumber cookie company who had been considering leaving PayPal after they surprised her by holding funds. 

She had this to say after the new changes:

Luckily right now most of my business expenses are going on my credit card, which I’m waiting to pay off until the PayPal money can be transferred to my bank.  If this continues to be an issue though I would have to remove PayPal as an option from my site, it’s not worth the hours of hassle I’ve spent trying to get someone to help with this issue.

Is Your MSP Holding Funds from Your Sales?

If you are affected by or even just concerned by the recent MSP changes, please reach out to us at Direct Payment Group. We help businesses apply for properly underwritten merchant accounts that cater to their industry and risk profile. 

Staying up to date on changes like this can save you from the headaches they cause, too. If you want to stay in touch with what’s going on with your payment processor and major payment aggregators, follow us on Facebook or LinkedIn. We post informative and helpful content to keep you in the loop.

Fixing Payment Problems for Giorgio Bergamo: A Case Study

case study lowering payment processing fees

Fixing Problems for Giorgio Bergamo:

A Case Study For Lowering Payment Processing Fees

With many businesses experiencing a boost in their online sales, it is important to understand what limitations some e-commerce platforms have. Especially now that many businesses have suddenly found their online presence to be more important, it’s easy to fall back on popular platforms without much thought. That’s not a bad or uncommon thing—as a business owner, there are plenty of other things for you to think about.

Your choices of merchant service providers is one of the limitations present on most e-commerce platforms, as they’ll try and route your payments through a payment service provider or an aggregator. Because payment processing isn’t designed to meet every individual business’s needs, those aggregators can cost your business more and cause problems for your business. Aggregators are often quick to set up accounts, but they don’t necessarily come with ideal terms for your business. You can end up paying much more money than needed, finding yourself in a difficult situation.

Let me introduce you to Marc:

Marc sells high-end jewelry and was working with a payment aggregator, recommended through Shopify where his site is hosted. He got his approval in less than 10 minutes and started accepting payments. But just a few weeks later, as his sales volume increased, he found himself looking for a better solution for processing payments). The profile set up for him kept triggering his processor’s fraud detection and they eventually asked him to take his business elsewhere, leaving him and his business on hold for a few crucial days.

We were able to help Marc not only get out of that situation but reduce the rates he was paying for payment processing significantly. Here’s the story as he tells it:

[DPG] Hey Marc!

[Marc] Hey!

Can you tell us about your business?

Our company name is MJ Jewelers, and we’re building a brand called Giorgio Bergamo.

How’d you get into that?

So, I’ve been (in the jewelry production space) doing jewelry for over 10 years and my family was doing jewelry before me. It’s in the blood. My family’s business before me was more custom jewelry, which is low value. Great look, but it’s low value – it’s not going to last you forever, but it is what it is.

My brother and I took it to the next level and started doing precious jewelry, precious gems, precious metals.

So, you were running your store through Shopify and ran into some issues?

Yes, I’m still running through Shopify now while looking for other options. Because we deal with high-value orders, our payment processor didn’t know how to handle our company. “This merchant received a $1,000 order and it’s one item. Is it fraudulent? is it not fraudulent? Should we fulfill this transaction or not?”

So, after not too long they kind of kicked me off and said, “You need to find a new service provider.”

And how did that affect you?

It was a huge scramble to figure out the next step. Overnight we were told we didn’t have a way to accept payments from our customers.

How did you find Direct Payments Group?

So, Aviv from DPG and my brother happened to be good friends. My brother said “Aviv can help with this sort of stuff, why don’t you give him a call and see if he can help?” So, I did. And I didn’t sign up with him right away because I found a different merchant account through our bank. I just wanted to stop dealing with headaches. You’re happy to just settle down with somebody, and not think about it.

Aviv helped me look over my account to make sure everything was set up correctly, and I had the right security measures and compliances. And he reviewed some statements to make sure I was getting the best rates possible. Every credit card we take has a different rate, based on region or what the company is or even what type of card. Rewards cards or cashback or mileage. Every card has intricacies on what they charge our business, which I didn’t know.

So Aviv analyzed all of my transactions, and what kind of cards they were coming from, what percentages I was being charged. I switched over because I was happy with his analytics, and he put me on a plan no one had offered me before. When I signed up directly with a bank, they just said “You’re on this plan. You’re doing this amount of volume, you’re getting this tier. We’re gonna lump sum the transactions as an average.”

Aviv said, “I don’t like this. I think you can apply for a lower rate overall based on what I’m looking at. If you go with me on this plan, we’ll break down every card and process it separately. It doesn’t cost me anything extra.” It’s simpler. I read my statements, it all looks the same on my end. This is my breakdown, this is how much I’m saving.

Everyone walks away happy.

What’s the biggest impact it’s had on you? Just cleaning up the math?

It’s not so much the numbers, it’s the expense. I have to think, when I’m marking things up, how much it’s going to cost me. I’m paying a fee in every direction, even advertising. So the smallest percent can impact my product by a lot. He lowered my costs by categorizing and differentiating my plan from before.

Aviv took down a 4% average rate to under 2.5%.

Would you recommend Direct Payment Group?

Definitely. 2 reasons: Aviv likes the math, he does his due diligence. Second, he answers me right away when I need something. No chase. Everything is straightforward.

Thank you!

How We Helped Marc

When assessing Marc’s situation, we looked at the business like any underwriter would when reviewing long-term merchant accounts. We looked over their terms and conditions, return policy, and compliance levels. Ensuring that all of these elements were in line with Marc’s needs required two things: the ability to recognize what we can change, and the ability to recognize Marc’s needs.

When we submitted the application, it was much the same. We offered as much context on the business and its trends so the underwriters could make an informed decision. Giving them a better understanding of Marc’s business allowed them to work with Marc and find agreeable terms. Unlike higher scale solutions that didn’t know what Marc was doing, our solution accounted for his higher ticket sales. With that information, they won’t suddenly shut down his account.

How Your Business Is Like Marc's

While Marc’s situation came up because of the aforementioned high ticket sales, he’s not alone in having issues. Even if you aren’t doing four-digit sales, you always run the risk of similar difficulties with payment aggregators. Accounts can have issues because of volume, a series of refunds, or a plethora of other unique situations. Every business has individual factors that need to be considered.

Even if you aren’t worried about your account getting shut down, you can still see how you are often paying too much in fees. Small percentages of each sale can add up very quickly. Looking at your books, how much money would an extra 2% of your sales be? It would have a pretty significant impact on you, wouldn’t it?

At Direct Payment Group, we’re passionate about helping you to find the ideal payment processing. We understand how detrimental these issues and fees can be to your business. Because so many business owners gloss over them, it can be a shock to the system when payment issues come up. Don’t let yourself be surprised—get in touch with us today to find out how much you can save or to get an answer to any questions you have.

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Ready to Test Your New Payment Account?

test new payment account

Test Your Payments!

You Did It!

Congrats! You’ve successfully set up your new payment account and now you’re wondering if it works. 

It’s important to know what your customer will see when they go through the checkout page. 

Now that your account is live, it’s give it a try to test transactions and ensure the rest of your process is running smoothly.  

To process a successful test transaction use the following card number information:

Name on card: Any 2 words will do

Expiration date: Any date in the future

Security code: Any 3 digits

Card numbers

Visa: 4242424242424242

Mastercard: 5555555555554444

American Express: 378282246310005

Discover: 6011111111111117 

Diners Club: 30569309025904

JCB: 3530111333300000

To process a failed test transaction you can use the following information to trigger different error messages:

Card Declined: Card Number 4000000000000002  

Incorrect Number: Card Number 4242424242424241

Disputed Transaction: Card Number 4000000000000259

Invalid Expiration Date: Try any invalid sequence of numbers, such as 55

Invalid Security Code: Any 2 digits 

You should use the responses on both to make sure that notifications are going to the correct departments so you can address them accordingly or adjust your sales process.

Looking to have custom notifications on different transaction successes or failures?

Let’s Talk Process

payment processing

3 Common Ways Businesses Can Save Money and Time on Processing Payments

1. Customer Information

If you process a payment without certain customer information you can be subject to a higher interchange rate. If your sales process requires your customers to fill out a form with card information always ask for billing zip code and CVV number as well. Some payment gateways offer customer vaults that let you store this information for the future and take advantage of a lower fee.

2. Multiple Choice

If you thought Visa, MasterCard, AMEX and Discover were enough, I’m here to tell you otherwise. Offering your customers the option (and incentive) to pay by check, ACH or other lower cost methods does not take a lot of time to set up. Omni Channel gateways handle all your payment options, customer information and invoice management in one place.

3. Ask For It!

Customers. Love. Points. Except when they need to pay for it. Passing interchange fees to customers is only allowed in certain cases. Let’s talk about how you can send out request for payments that shift the cost away from your business.

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