Five Common Mistakes Startups Make When Choosing Their Merchant Service Provider | Biz To Biz Pocast

Yo, what's up everybody? It's Justin live from B2B Vault, the biz to biz podcast sponsored by Nationwide Payment Systems, hosted by this guy, the Jimmy Johnson of payment processing himself, Allen Kopelman. And we'll be providing you educational information about fintech, small business payment processing, and the technology businesses are using in the world today. And in today's podcast, we'll be talking about 5 common mistakes startups make when choosing their merchant service provider. A lot of times, they're always just choosing the path of least resistance. So Allen thought he'd make some good points on doing your due diligence before just signing that paper. Anyway, man, how you doing?

I'm doing good. Getting ready for the Labor Day weekend. I'm sure Rocky, you want to have a 3-day weekend with no rain. That would be good because I think we're all tired of the rain.

Rain, rain, go away.

Yeah, having a lot of rain. And hopefully everybody that was in the path of Hurricane Idelia— is that how it was pronounced?

I have no idea.

Hope everybody's okay.

Thoughts and prayers.

Yeah, thoughts and prayers.

So what you got, man?

So today I thought we would talk about You know, what happens when you're starting a business and you're choosing to get a merchant account and then possibly, you know, getting a bank account and what's all involved with that, right? You know, and there's been a few questions in discussion groups that I'm in online.

Okay.

I'm in different forums and, you know, we did a podcast about banking, but a lot of people questioning about banking and also like when you get your merchant account, some of the things to consider when you're doing that. And also to consider that while you're using like an online service and you're familiar with those, right, Justin?

Yes.

Stripe, Square, PayPal, all that stuff. And people don't realize when you sign, when you're signing up for those companies, even though there's no physical paperwork and there's no signature, there is a contract.

Yep.

Right?

Yes, there is.

And one of the things a lot of businesses don't consider is what are the specific business types that are not accepted by the provider.

What does that mean?

So if you go to their terms of service, or you just Google and you say, uh, Stripe, what businesses are, um, not, you know, they don't support unsupported business type.

Okay.

Right. So they don't, you know, they see that. So a guy yesterday called me, he's like, oh, I've been processing on PayPal. He goes, I have them convinced that I'm not a dating service. It's clearly a dating service. He's going to get, you know, you're going to get shut off. Okay. And, you know, or you go and you sign up your CBD account because it's called something else, and then Stripe figures out you're selling CBD, they don't support it. So different business types are not supported by, you know, different companies. You know, like somebody made a Wix website recently with, uh, health-related products on it. When you go to the Restricted list. It's listed. Oh, and then, you know, they spent thousands of dollars building a Wix site.

How do you spend $1,000 on a Wix site?

There was— there's a lot of products, about 200. Wix is free. I guess they paid somebody to do it and the person said, oh, build it on Wix.

Man, I swear, I— dude, I'm ready to—

man.

Never mind, doesn't matter.

I know it doesn't make sense, right? And they had a WordPress site. I don't care. No, I know that. I'm just saying. And then they find out that they have to go pay an additional 60 basis points to use an outside credit card processor, and all because they didn't read the terms of service.

Yeah, man. I'm— yeah, it's just sickening. I don't know.

Oh, we saw a website the other day. Somebody built a website and they didn't install the— what was that?

SSL certificate.

Right. And then the whole site was completely jacked up.

Well, I don't know what was— there was nothing jacked up about it. Well, I mean, when you don't install an SSL certificate, Google sometimes doesn't let people go straight to your website. Right. So it's not jacked. It's a security thing.

Right.

And then that red screen comes up and which is telling you that your website's not secure, right?

Yeah. So your customers—

so your website's not jacked. You didn't— you don't know what you're doing. You didn't hire the right people. You didn't do your due diligence. You tried to go the cheapest route and now you're stuck with where you're at. I don't feel sorry for anyone like that. I don't care to hear your problems. Cry a river.

No, I get it.

I mean, it's the same thing.

They don't ask the right questions when they're, you know, you have to ask the right questions. Does the company you're working with deal with the type of business that you're in? Yeah. And make sure that they deal with your type of business. And, you know, you need to know things like what is the monthly volume that you're expected to do? What is your average sale? Are you going to do, have like recurring transactions? And with recurring transactions, you know, the banks want 'em all month to month. We've discussed this before on the podcast. I wrote a couple blog posts about it, about how Visa and MasterCard feel about recurring transactions, what the FTC thinks about recurring transactions.

What's wrong with a recurring transaction?

So they want 'em to be month to month. So they want it to be a month to month transaction and not where people sign up for 2, 3 months or pay for a year. They want it all month to month.

Why is that all of a sudden a problem?

Because some companies are charging people like for a year, then they go out of business, then there's a chargeback, or they charge you for a year. Let's say 6 months in, you decide, okay, I'm going out of business, or I don't need this service anymore, or the service is not working anymore. And now you pay—

you don't You ain't going to your, your landlord and getting a month-to-month lease. Well, most of the time you're not.

Most of the time you're not going to get a month-to-month lease. You might have to pay extra if you're on a month-to-month lease.

Yeah, exactly. So I mean, it's like renting a car is another way of screwing the small business owner over again, because in all honesty, the month— like that, like those maintenance plans Most of the time we don't, you know, like when I was— when we set up, we get the whole chunk, man. And that's like a major piece of our income, right? So now you're saying that we can't say, you know, secure a yearly contract with business owners? That's terrible news.

It's been like that for a while. They don't— especially for new businesses, they frown, especially when it's like a software product. They kind of frown upon that. Gyms used to do it. They used to, used to go to the gym and they would go, oh, buy a 3-year membership and we'll sell it to you for like $1,000.

And, you know, and then I give customers discounts when they sign up for, for a maintenance contract for a year. They, and it's end up cheaper for them instead of paying it, right?

A lot of places have that where they give you a, a break on it. But I'm just saying, like, in the world of, with all the amount of SaaS companies there are and the amount of recurring transactions that are out. It's become a very popular business type. The FTC is kind of cracking down on how people are doing that and what's going on. I mean, let's say I signed up and I paid you for a year up front of web hosting and so on and so forth, and 6 months later I go out of business and I go, yeah man, I had to close up my business, you know, can I get a refund for half the money? No, right? That's the problem.

That's not a problem.

No, because the person's going to do chargeback, and they're probably going to win.

They shouldn't be able to win.

They're probably going to win if they're—

if they're— anyway, I don't want to argue about it, but in my, in my mind, if their business is going out of— if they're out of business, if they're going out of business and they're trying to do a chargeback, I'm gonna fight that and they're gonna lose that.

They might. This is not going— I've just seen a lot of businesses lately where they're having a very hard time trying to collect on these chargebacks when they get people in these contracts, especially with American Express.

That's why I don't take credit card. That's it, you know, debit.

It's harder to charge back a debit card.

You can't charge it back. Well, you could try, but it's not gonna happen.

It's the banks don't, don't really like it that much. But, you know, recurring transactions, if you're going to do that, how are you going to structure it? You need to have a cancellation button on your website so that people can easily cancel. And, you know, the banks now, every bank, and even I got an email—

I disagree with all of this. Well, I don't— I do not agree with having a cancellation button on your website. Like, I get it for like certain things, but It— they shouldn't be able to just say that for all industry. That's, that's totally unfair. That is really messed up. Like, I never really thought of it about like that, but that's not okay.

Well, now look at some of the— what do we see? What are those things called? Rocket something is that one software. Now I saw Equifax and a couple of other of the credit monitoring, and the banks are rolling out Oh, they show you all your recurring transactions, and if there's one that you don't want anymore, they let— they work— they cancel it for you.

Yeah.

So I'm just saying it's making it more difficult for businesses who are doing recurring billing to customers.

They shouldn't be messing with it.

Who, the banks?

No.

Well, I think the banks think so.

I said the FTC shouldn't be messing with it.

Well, I think that they think that Visa and MasterCard made a rule in 2021 and again in 2022, and they see merchants not following the rules. So now the FTC is going to step in because it's a shit rule. I don't think it's— I think if you— I, I'll give you an example. I signed up for something, I went to the website to cancel. You have to go click a button and then you fill out a form, you fill something out, and they supposedly cancel you. So I screenshot it.

Okay, so This is, what you're talking about is totally different from what I'm talking about.

Okay.

You're talking about a monthly subscription to something.

Right, that's what we're talking about. Right.

I'm talking about like you sign a contract for a yearly maintenance program.

Well, that's two different things.

But it's still the same thing when you're talking. It's two different subscription models, right?

Yeah.

But it's still a subscription.

Right. Because you're providing—

you're providing a service instead of a piece of software, right? It's still a service though.

I understand that, but part of the service is deliver— you know, you're delivering a service over a period of time if someone's paying for a—

and as was the, the, the software would be delivering its functionality over a period of time as well, right?

But if they have a month-to-month deal, with the customer, the customer should be able to cancel the software.

That's not— I'm not disagreeing to that.

So what's happening is, is these companies are making it hard for people to—

but if you've paid for a year up front, right?

No, I'm talking about months.

I'm just saying, like, if you've already paid for your year, right? Like, yeah, you sign up and then 3 months in you don't like it, and you're supposed to be able to get your money back.

I don't know, I'm not I'm just saying, depends what's in the contract.

What happened? You're broke now and you're trying to recoup.

That's why they frown upon yearly contracts for new yearly software for new businesses, especially someone starting a new business. It's home-based. They have no skin in the game. They're operating the business out of their spare room in their house. How can you— you can't— how can you justify letting somebody do that? The banks aren't going for it anymore.

I don't know, man. I don't have the answers.

Okay, well, you know, when you don't have cancellation button on your site, you're, you're going to end up with a bunch of chargebacks.

Listen to Allen, he knows what he's talking about.

So You know, I talk to people all the time having this, having this issue, and I tell them, I go, I know you don't want to have a cancellation button and you want to have recurring billing and you want to ship out the product every month or charge people for the SaaS product every month. But if you don't do that, person is going to do a chargeback. Their bank's going to go in for 3 months, not just 1 month, and cancel. If you put the cancellation button, they'll cancel 1 month. And they'll tell the customer, sorry, we're not doing 3 months because there's a button there and the merchant is complying. I agree.

I get it. I totally get it. I just think that if this is like being enforced on a level of like of what you're talking— well, you got some abuses that I think that this is affecting people in my industry for sure.

Yeah. Well, the problem is, is you have a group of businesses that is abusing it, and then that's getting the attention of the FTC, and then it spills downhill, and then good businesses get hurt because you have whatever businesses with poor business practices.

Yep.

And then that spoils the cart for everybody. That's the same thing, and we see it in— I've seen it in every industry that we deal with. Nutraceutical industry, CBD industry, You have good, you know, people with a good business plan, and then you have other people that don't have— their business plan is, you know, very, very fluid and fast-moving, and then they get a ton of chargebacks. I had one guy, he's went through 3 corporations, tons of chargebacks because they don't want to put a cancellation button on the website.

Well, that's just dumb.

Yeah, so I mean, obviously there's a problem where people don't want to Like, don't get me twisted here.

Like I'm saying, like, I'm a fan of having a cancellation button, but also like, you know, there's a— what's right is right and what's wrong is wrong. You know, like if you sign a contract and you're, you know, you signed up for whatever, 3 months, 6 months, 12 months, whatever it may be. Right. If you sign that contract, man, that, you know, you should be held accountable for that and you shouldn't be able to like, call the bank and say, hey, I want a chargeback. That, that's, that's not cool. I think that's not okay.

I think there's also a difference between when somebody is providing a service and then there's a— or there's a product. So, you know, if someone's shipping you a product every month and something you decide after 2 months, I don't want this anymore.

I mean, I can argue that too, because you could say, oh, this product isn't working to my expectations. And this person that's doing the maintenance and this whatever, it's still— it's not up to my expectations. What's the— what is the difference there?

I know, but I'm saying it's two different kinds of industries.

I get that. So like, so, but if the bank is just saying like, we— you can't do this, then it's not— where are they— how are they going down the checklist and saying, okay, this guy's okay for charging like this, but this business isn't?

Okay, look at that, what kind of businesses.

That's why that's ridiculous.

Yeah, but now you have tons of businesses, these agencies and coaching companies and all that, and they're, they're the one— dude, there's tons and tons of problems with some of the way people are conducting business.

Because people are idiots and saying that this guy's gonna change their life by watching a 12-hour video for self-improvement.

I get it. I'm just saying that's—

You shouldn't be, and your money should get taken for sending that money to that guy. You should not be allowed to do a chargeback. And you should sit there and really dwell and think about what you learned for the past 12 hours from this guru. Anyway, what's the monthly, you know, let's move forward.

And then other things to consider is, is customer service important? Because if you're dealing with some of the—

skipped over monthly volume—

oh, monthly. Well, you have to know what's your monthly volume, your average sale, and whether, you know, you're going to—

what he means by that is, so like, if you're doing $400 a month in your business, then you shouldn't switch over to a merchant account and PayPal is just fine for you.

Yeah.

But once you hit like that $5,000, $10,000, $15,000 a month threshold, threshold, then you might want to think, okay, or if you're already making $15,000, $20,000 a month and you're, you know, taking cash and Zelle and you're not trying to figure out what's the best option, I'm going to tell you right now, and Allen will back me up, that PayPal, Stripe, and Square are not your best option. Um, so yeah, that's what he means by monthly volume.

Yeah, so you need to— when you have a low— when you're starting out, you have low monthly volume, those services work for most businesses as long as support your business type.

But the other thing is, you can't sell crack and, you know, I mean, use PayPal, bro, whatever. Or let's say you're gonna run $10,000 tickets, you know, you can't start your OnlyFans account, you know, like running it through Square, right? They don't like that, you know. But we can help. Sorry, I had to get that one off. That's okay.

Yeah, there's— you just have to re— you know, read, make sure the business type that you're that you choose is going to be— is works with that particular company. The other things are customer service. Can you— do you need to talk to someone on the phone or are you fine with email?

I mean, waiting for 3 weeks to hear something back from customer service, I will— that used to drive me nuts.

So, you know, and, you know, there's a lot of, you know, internet posts about PayPal held my money, Stripe held my money, Square held my money.

So GoDaddy holds your money.

A lot of different companies.

Shots fired.

Shots— no, I'm just saying it happens. Uh, you know, at least with GoDaddy you can get somebody on the phone and argue with them.

Yeah, you're, you're right, but that's only because you're you.

Well, that's the deal with people that have the pull to be able to, to get, get you out of your problems.

This is another reason why you choose your merchant service provider wisely. You know, you got people like Allen who's been connected in the business for 20+ years and, you know, he's got like direct lines to the, the, to Oz, literally behind the green screen. You know, he can make stuff happen, you know.

And then security, you want to make sure PCI compliance, like we talked about the SSL certificate on your website, additional website security if that's where your business is on the internet. You know, you want to make sure you're storing customer data in a compliant manner. A lot of businesses want to key enter credit cards and then keep the credit cards on a spreadsheet.

Key entering credit cards is so— Yeah, shite, dude. Like, I, I don't even understand how businesses are still able to do that. Yeah, like this one, I just the other day I went to a corner bodega and his machine was down, so he had to key enter my card into, into the—

a little—

some other device that he had, right? I was just like, yo, this is so sketchy. I do not like this, right? Like, you're literally taking all— like, I don't know what is going on right here. Um, so yeah, everything is fine. Like, you know, I, I trust the guy, okay? Otherwise I wouldn't have let him do it.

But needs a backup system from Nationwide Payment Systems.

I've been trying to get His mom owns the store. She's an old— she's from, I don't know, Greece.

I think that's where I was telling her.

She's not moving, dude.

I was telling a customer yesterday, you need to send the customer a link that let them pay. And the guy was like, no, we don't want to do that. We want to get— call them on the phone and put the number in ourselves. And I was like, well, the bank doesn't really like that. And then if you're going to do it that way, they want a signed authorization form. And the guy's like, I don't want to do that. And I was like, well, you have to pick. A or B, right? And if you want to do it your way, the bank wants a reserve on your account or a personal guarantee. And the guy's like, I don't want to do that. And I was like, okay, you have to do things like, you know, ACH, I think is going to change in the near future where everything's going to be done through like this Plaid or some other companies that are similar to Plaid where you have to log into your bank account first in order to do all these bank transfers.

You know, I'm— who does all this on their phone though? Yo, like, I just don't understand, man. I just don't. I guess I'm just out of touch.

Well, you can do it on the computer.

No, I'm just not in that, like, income bracket, I guess. That's all that I'm—

no, I'm just saying it's, it's going to come to that at some point. And, you know, the other thing is ask your friends, who do they deal with? Get a referral, make a good informed decision. But your informed decision needs to be made up of You know, what kind of business are you in? Does the company you want to work with or you're thinking about working with support your business type? Do you need a point-of-sale system, a credit card, or just a gateway and a virtual terminal? Or do you need some kind of mobile processing, right?

Or something customized for you?

Get a customized— where we can do a more customized solution where if you go with a PayPal, Stripe, Square, things like that, and that's it.

Yeah, you get this. This or this, and that's that.

It's just in the box, and whatever's in the box, that's what you have. Where we can create customized solutions for you, even with point of sale, for— we can get— we can— we have customized solutions that are customized specifically for convenience store, liquor store, smoke shops, bars, you know, things like that. So there are customized solutions out there where the software provider, even for billing, for B2B billing, we have customizable solutions for all of those type of And that's what's important, you know. So when you're starting your business, you know, think about these things and, uh, you know, make yourself a checklist and make sure you're following the checklist. Agreed. And that's the podcast for today. And indeed, we'll post a link to a blog article where we talk about—

yeah, I was just looking at it before we started the pod. Yeah, there's anything different on here, but No, pretty much covered everything.

Yeah, we can— yeah, we'll post the link to the blog article. You can refer to the blog article to educate yourself and learn, learn what to do. There's lots of startup companies out there starting. People are starting all types of businesses all the time. Yes, sir. That's the American dream, I guess.

Don't get me started out. Okay, I won't start with It's, you know, that's what the American dream is broken, shattered, and is falling from the sky. It's on fire.

People are screaming, come on, let's, you know.

Yeah, I'm just saying, bro, the American dream is done.

I don't know about that, people.

Bro, you can't buy a house. The American dream was built on a model from the early 1960s, right? Do you agree to that?

Probably, probably from way before though. Way before that.

Okay, so how much has changed since then?

Too much.

So can you honestly say that the American dream is still the same?

It's not the same.

It's not. You know what the American dream is? What? To wake up and being able to feed your family, bro. On a lighter note, please subscribe to this channel on YouTube, Biz to Biz Podcast. Like, smash the subscribe button, man. Please, you know what I mean? We love you for it. Shout out to the listeners that keep coming back and listening to our shenanigans weekly. We appreciate you guys. Shout out to my mom. I love you.

Justin's mom's always listening.

Make sure you tune in, man. We love you over here. We love Allen's mom as well.

I never get her. I send her the podcast. She's like, I don't know how to get on YouTube.

I have to have my mom send her a tutorial. It's really easy. Anyway, man, we love you guys. Have a good rest of your weekend. Shout out to everybody that's not laboring on Labor Day. You know, and if you do have to work on Labor Day, that really sucks. You should probably quit.

And football season is starting soon and baseball's getting finished up, so shout out to the Brewers, 6 games ahead in first place.

Nice, they're kicking arse.

I don't know how the Marlins are doing.

I don't care.

Jacob's a big Marlins fan, going to the game next month too, man.

Nice, going to see the Brew Crew. Anyway, man, have a good Weekend. Don't burn yourself on the barbecue grill. Don't get drunk.

Have a safe Labor Day and be good and be on time to work on Tuesday.

Yes.

All right, peace.