The truth about BJ’s & Costco “Free Trial” Merchant Accounts Deals
Posted on : 04-12-2010 | By : admin | In : Credit Card Processing, Discussion
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I get asked often how the processing services we offer can compete with a large shopping club like BJ’s & Costco as well as those offering free trials to use their service.
The answer is simple; all processors have the same core expense supplied to them by the card associations called interchange.
It seems like many folks are intrigued by “trial offers” that are verbally extended by the sales rep to sign them on for the service. Essentially it’s implied that the merchant can cancel anytime if they’re not happy with the the service but that’s not always true!
The truth about Costco & BJ’s Wholesale Club is that neither is actually in the merchant services business. They’re simply a marketing group formerly for NOVA and now Elevon.
What they’ve done is created a third part relationship with Elevon and receive a monthly residual lifetime split.
Due to this split and that they need to be perceived as a “cost cutter” there really isn’t a lot of margin left so once you’re referred to Elevon the only goal is to close the sale at whatever means necessary.
Many of my merchants have told me of the spectacular rates they’ve been verbally promised and quoted by their sales rep.
At first glance the rates are much lower than the industry average but the truth is these rates are often “trial rates” which will incrementally increase over time and if the verbal promise isn’t in writing than it won’t be honored.
You may be saying “if it’s not what I thought it was I’ll just try the service and cancel” but the problem is that if you look closely at the terms and conditions of the merchant agreement you’ll be required to enter into a contract term which holds an early termination fee.
Most are attracted to the seemingly low rate and are quick to sign the agreement with little attention paid to the terms – which is what they’re counting on.
After you get your first statement and notice that the numbers aren’t what you were promised (assuming you even reviewed the agreement) it’s often difficult to reach the sales rep that verbally made the promises to you.
This is part of the “free trial” strategy because they’re ultimately making more than you expected to pay.
For example you may see a rate of 1.99% but in reality the likelihood of you running cards at this rate is less than 10% of the time. What they’re doing is charging more for common transactions such as rewards cards and even more for cards that are considered non qualified.
So the 1.99% you thought you were getting rarely will happen. It does cost more to collect a rewards and non qualified card but if you’re not careful can can cost you more than it needs too.
By not carefully reading the terms and conditions you’ll find that you need to pay an early termination fee to get out of the agreement. This is where companies offering free trials and low rates make their money because they know most merchants aren’t going to pay the price to get out of the contract.
So the next time you see rates that seem lower than the industry average and feel tempted to take a chance because there’s a “free trail” think again because you’ll pay for it in the end!
