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The ultra-low discount rates cited in the e-mails were deceptive, Gordon says. “When you peeled through the layers of the onion, [the discount rate] was on top of the bank fee, on top of a 50-cent transaction charge, on top of a $100 monthly minimum.”
Another practice used by some Web ISOs is offering credit card acceptance without a merchant account. So-called “factoring” or “laundering” is the processing of one merchant’s card transactions through another merchant’s account. Visa and MasterCard both prohibit this type of processing.
But if apparently fraudulent Internet ISOs are raising concerns, so too are companies that are simply ignorant about how the merchant-acquiring business works. “There are people out there processing credit cards who don’t have a clue as to what they’re doing,” says ETA’s Navis.
Merchants wanting to set up Web sites and accept cards online often contact local Internet service providers that advertise “dirt-cheap” rates, she says, adding, “There’s every package under the sun that for $50 will set you up on the Internet. But as a merchant, you never know that there are transaction fees. There’s just really a very massive amount of misunderstanding.”
But while observers agree there are problem ISOs on the Internet, they’re seldom of one mind on how to tackle the problem. Visa maintains it is up to acquirers and established ISOs to police new Internet ISOs.
Others say the two card associations should do policing. And yet others believe that ISOs themselves must act to uncover fraud. “I try never to get Visa or MasterCard involved in some-thing we try to police ourselves,” CSI’s Burtzloff says. “Their philosophy is: ‘Since we can’t stop the bad buys, let’s stop everybody,’ which doesn’t help anybody.”
The only point of agreement is that renegade online ISOs must be shut down. And that could prove to be a daunting task. There are literally thousands of sites merchants can go to.
In the meantime, Navis says that merchants, like acquirers, also have to investigate an ISO’s background of an ISO before signing a contract. “If you’re in business, you need to do due diligence in terms of understanding what the implications are, making sure you get a legitimate vendor to provide services for you,” she says.
And experts also offer another piece of advice: Avoid ISOs touting ultra-low rates. If an offer sounds too good to be true, it probably is.