Understanding that $295 and up to change your processor
I love Netflix – it’s a great service. I feel like I get a bargain for the $9 or $10 per month I spend. Netflix continues to invest in quality content, the deliverability is stellar, and the interface is super friendly. So go buy some stock already… Seriously though, it’s a great service. But even a great service might get old. I may get tired of it. I may move to a Yurt on the side of a mountain in northern Wyoming without reliable internet service. If I were to cancel my Netflix service, I would be charged $0.
So why is it that if you want to cancel a merchant processing agreement, you have to pay anywhere from $300 to $3,000 to do so? There’s no “cost” to cancel a merchant agreement. It’s not like they send a technician out to your place of business to read the meter, disconnect some wiring, and take some physical action. The cost to cancel a merchant agreement is the same cost a retailer has of a customer not coming into their store. They lose revenue, but they don’t incur a cost.
If it doesn’t cost anything, why do you get charged to cancel?
Long-forgotten brain cells are remembering something from my accounting degree at the University of Tampa – something to do with future contracts and recognizing revenue in the current term based on FASB or GAAP principles. After all, most merchant service providers are public and the big wigs at the top of the org chart get their bonus based on returning profit to the shareholders. What better way than to charge a fee for a service that no longer needs to be provided?
The other reason, aside from the nefarious push of cash to the bottom line to pad equity bonuses and golden parachutes, is simple intimidation.
Let’s face it, most merchant companies have lackluster customer service, limited technology, and a high turnover salesforce. There’s literally no continuity of service from one point to the next and the customer churn is drastic. Consider the financials here. Fixing a low-impact customer service department is expensive… there’s training time, training development, hiring, bonusing, and rewarding great employees so they stay. Implementing or acquiring new and exciting technology is also expensive… it requires cash, a competent salesforce to push it out to market, and a good service team to implement.
Without investing major capital into your service and your product, how do you attempt to reduce customer attrition? Intimidation… $300 at a time.
It’s that simple.
One merchant company will only pay an up-front bonus if you lock someone into a 3-year contract. Others charge obscene cancellation fees in the first year and deescalate those fees to where they’re just a little horrible come year three. That seems to be the magic number – 3 years.
Imagine a world of no cancellation fees.
What would that require from the service provider?
It would require honest dealings in the beginning – you’re going to get XYZ and we have to deliver XYZ. It would require earning the business of your customers each day – not once every three years. That’s it – that’s what it would take. That, and the belief from the top down that your company could actually deliver on those promises.
It sounds simple, but so does hitting a major league fastball or bowling a strike. It takes a lot.
It takes courage.
It takes people – the right people.
It’s what we do at Beyond.