The Truth About Costco Merchant Services
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Buyer Beware
If you are thinking about using Costco for merchant services you might want to read this article first.
Because not too long ago a good friend shared his story with me about signing up with Costco for merchant services rather than talking with a few other merchant account providers.
And as it turned out that mistake cost him.
You see, soon after he signed on the dotted line his merchant account fees started going up each month.
What's worse, the contract did not guarantee his rates.
Without knowing it (or being told) he basically agreed to an "introductory rate" offer.
And when he finally checked the fine print he discovered that they could raise his rates each month without any prior notice or warning.
So much for that "great deal" he got, right?
Now the question you might be asking yourself is how this happened in the first place...
The Truth About Processing Rates
For starters, Costco is NOT in the merchant processing business. Or the credit card processing business.
And now they finally admit this fact.
They do not set up your account, or handle your account. And if (when) there's a problem they will not be able to fix it. In fact, they have nothing to do with you after you are referred off to another company.
But here's what else you don't know...
Their claim that they "teamed up with Elavon (formerly NOVA)... to provide Costco members with exclusive processing rates" is MISLEADING at best.
How can I say that?
Because ALL processing companies have to work with the same "INTERCHANGE fees." And interchange rates (set by Visa and MasterCard) dictate the overall fee structure that business owners have to pay to accept credit cards.
This is an undeniable fact.
What's more, because they receive a referral fee (a cut of the "action") do you really think you are paying less?
Think about it.
The real reason why they "teamed up" with Elavon (formerly NOVA) no doubt involves what their "cut" or revenue split will be on each account that signs up through them.
Costco could choose from any number of "mega processing" companies. But I guess Elavon cut them the best deal.
And who pays for this. You do...
Admittedly it's a great deal for Costco when you get down to it, but it doesn't help you out one bit. After all, the person who pays for their "cut" is you.
So why would Elavon team up with Costco?
Well, that's an easy one.
They are counting on the "borrowed" trust from Costco's customers to get them (you?) to sign up without asking too many questions.
Period.
What's more,the sales rep you get referred to is powerless to deliver on any promises they make to you, for the simple reason that their job is to get you to sign on the dotted line.
They don't make policy, nor can they change the processing rate structure for you.
Even if they wanted to.
If you notice anything "funny" on your merchant account statement, what can you do? In the case of my friend Larkland, when he noticed his rates going up, he called the 800 number on his statement.
A lot of good that did him, right?
In the end, he did sign the contract. And the call center providing "excellent" service said there was nothing they could do.
That's right.
When you sign the agreement or application, think CONTRACT. And to get out of it, you'll have to pay an "early termination fee."
That's what happened to my friend Larkland. He had to pay an early termination fee to get out of the contract, even though the quoted merchant account rates no longer applied...
How to Find the Best Merchant Account Provider
These companies know that most people won't pay the penalty to get out of the agreement.
They figure you'll come to the conclusion that if Costco can rip you off, everyone and anyone out there will do the same.
You'll most likely complain, but you won't act to make a change.
And that's exactly what they're counting on. Which is why Elavon can give such a sweet deal to Costco.
So what can you do?
Simply click the link and compare free merchant account quotes from a few qualified merchant service providers today.
Whether you need a new merchant account or you are looking for a better deal, it makes sense to speak with a few different companies. That way you can make a side by side comparison of their different rate quotes, fees, discounts and any specials (free equipment, annual fees, etc.) they may offer.
e sure to ask your questions.
Get their promises in writing.
And then review their answers and offers for yourself to choose the merchant account provider that's right for you and your business.
After all, it's your money...
CommentsLoading...
NOVA has been known to be unfaithful. Problem is ALL processing companies charge early termination fees. If you want true pricing and fees up front, check out Element Payment Services. www.elementps.com
Actually merchant services rep, you are either new to the business or you haven't explored ALL the processing companies out there.
And having direct experience and knowledge of this industry since 2006, I can think of at least THREE processing companies that do NOT charge early termination fees.
The truth is, most sales reps either work for companies that will not waive the fee, or they work for companies that allow the fee to be waived, but are told not to waive them, or refuse to waive them.
My company never charges and early termination fees and in most cases does not charge a monthly minimum requirement. More than I can say for more other credit card processors.
hi merchant services texas, glad to hear it. and thanks for the comment.
I had a great experience with Newtek Business Services for my merchant account. I would recommend them, they know what they are doing. Been fine with them for over 6 years.
Hi James, thanks for sharing your thoughts with us.
Intuit Merchant Services does not charge a cancellation fee either.
Thanks for sharing Cindy. The last time I checked their rates (Intuit) are not really competitive when compared to other merchant account providers.
AcceptPay from American Express OPEN does not charge set up or termination fees, and has no contracts. Works great for my business.
hey merchantman, thanks for sharing.
The article seems a bit shady. I've worked with Elavon for years and they actually disclose everything in their application/contract. It looks like this article is based on an imaginary friend that allegedly had a bad experience in an effort to promote an affiliate link at the end of your article. Buyer Beware is right, but Beware of the Author's intent (although this will probably be deleted).
hi mike, thanks for your comment, misguided and inaccurate as it is. my friend larkland did sign up thru costco back when elavon was called "nova." also, the link at the end to the article is not an affiliate link at all.
it's interesting that you missed the main point of the article. i was critical of costco acting as a "middleman" for elavon/nova, not the way elavon might or might not sell merchant accounts on their own.
as for things being disclosed in the fine print, people should read everything carefully before they sign up. and that's exactly what my article recommends people do... read carefully and ask questions before they sign up.
one more point. you disclose that you work or worked for elavon, so i understand why you choose to defend them. but if you read the article carefully again, you'll note that i do NOT promote any single merchant processing company at all. not ONE.
so, let me reiterate for folks reading this article. before you sign up with a merchant account provider, make sure you read the fine print very carefully before you sign up. or else you'll have to deal with people like "mike" above who will miss the point of your complaint or deny that your complaint has any merits b/c you failed to read their disclosures.
Innovative does have an ETF. They just dont disclose it. Read the fine print. They told me we dont have a contract. Their customer service dept. told me that I signed an agreement and its $295 to cancel the agreement, but we dont have a contract. What a bunch of liars!
I appreciate your response and allowing an opposing view.
Now, it still holds that the article is not based on firsthand experience and the person, Larkland, is not someone that can confirm the exact facts around his situation.
Other things mentioned in the article are flawed though.
While Interchange rates do set a sort of baseline, most processors charge a substantial markup on those, while Costco Members get an extremely low rate in most situations and Elavon's profit margin is razor thin.
Now, it is NOT a one size fits all type of program. Some businesses my fair better with a different type of pricing structure.
Also, there are no "introductory rates". Your friend may have come in at a time when the Interchange Rates were pushed up (I see this article is from a while back). Usually, Costco Members are not affected by these rate hikes from Interchange. Actually, during the last Interchange increase, the rates went down.
The info given here is speculative and dated, at best.
Costco absolutely loves its Members and requires full disclosure from all of its Vendors. I am not a Costco Member, but I have seen firsthand how much they will do to keep their Members happy and fully satisfied.
More facts and less opinion would make this article more helpful.
The program may not be right for eveyone, but thousands of Costco Members benefit from it every month.
hi mike,
i really had to think twice before approving your last comment, simply because the tone of your first one was rude and insulting (to say the least).
i'll focus this time on your theme that my article is "speculative." in my book both of your comments are "speculative" when:
1. you claimed i used an "imaginary friend" to make a point
2. stated that your comment "would probably be deleted"
3. you claim costco "loves" their members, even though YOU are "not a costco memeber" (so how would know - how can you "confirm the exact facts.")
4. thanking me for allowing an "opposing view" when the only comments i've blocked since first writing this article were spam (caught by hubpages, not me).
btw, here's a link to an article about my "imaginary" friend: http://www.poughkeepsiejournal.com/article/2007030
thanks for sharing your opinion mike. yes, the article was written more than two years ago, but the lesson in there is as relevant now as it was then... which is to read the fine print.
don't believe me -- just go read what "Eric" had to say before you posted your reply.
his experience happens hundreds of times every month to business owners who need a merchant account for their business.
but since you probably don't accept credit cards (i do for my business) i guess you wouldn't know that. you have only experienced the process as a sales person, not a customer -- so i can't be surprised that you lack the "exact facts" of the situation b/c you don't have any "firsthand experience."
and thanks for validating the facts outlined in my article that interchange rates are used by all merchant processors, even those who sign up with elavon (you perhaps?) thru costco.
and one lesson i'll share with you is this:
you may not agree with everyone, but before you rudely accuse people of being liars and making stuff up, check your facts first.
I have first hand experience with Elavon/Nova working for a merchant client, and some of the companies they acquired in other roles. Elavon's merchant statements are designed to obfuscate the total amount of fees the merchants pay. A good example is the security The company's merchant agreement's are some of the most one-sided in the industry, they literally allow fees to be changed immediately, and the merchant accepts the new fees upon processing its very next transaction. Costco has done its membership a disservice by allowing Elavon to sell merchant services to its members. Merchants should look for alternatives - focus on total price/fees, not individual rates!
thanks knowledgeable person. that's definitely what happened to my buddy. just because he shared his story with me didn't make it wrong, or false. especially since he called for clarification and was told basically the same thing.
my basic point is to focus on merchant processors that don't have early termination fees or other cancellation fees. they tend to be the best to deal with b/c they know you're free to leave anytime for a better deal.
thanks for sharing...
Interesting read. My mom had ton of trouble with her credit card processing company until she started with Costco. She's had them for years now and swears by them, but it may be that they were just a good fit. Looking for someone for my company now and thought first of Costco because of her experience, but always do my research first!
hi mommasgirl, thanks for sharing. it could also be that b/c she signed up through them years ago it worked out ok. not sure who they partnered with prior to 2007, since costco doesn't actually sign you up, they just refer you to an elavon rep. again, thanks for sharing and glad you found this an interesting read.
Chase Bank in WA had a deal that they would pay you $100 if they could not meet or beat your credit card processing rates. I told the guy I processed with Elavon via Costo. He flat out said they could not beat them. Most companies that charge a lower rate have extremely high fees on leased equipment. I paid around $400 for my terminal and have had no problems in 4 years. All that said Elavon's statements are hard to comprehend. Nothing is clear on what is qualified or not. No matter what you can easily divide what you are charged by the total amount processed to see the over all rate you pay (multiply by 100 for your percentage). Your review forgot to mention most card processors seem to use agents who get a percentage just the same as Costco. That person calling or walking in to talk about card processing rates isn't working for free.
hi tim, thanks for the comment. just a few points i'd like to mention. for starters, yes it's true that leased equipment will cost people big time. in my book it's the single biggest rip off in the industry (48 months, no early cancellation and between $29 and $49 per month). crazy.
now, i find it hard to believe that the guy at chase "flat out" said he couldn't beat elavon. just about every merchant processor would perform a free analysis or review of your statement to see what they could do. and i've had thank you emails from folks who saved by switching -- an attorney in illinois saved about $150 per month (according to him) and a company in florida saved about $240. so sorry if i find that claim a bit hard to accept at face value.
you're right when you say that merchant account providers do need to make money. all i'm saying is that before someone signs up be careful b/c sometimes rates or fees aren't disclosed, or misrepresented. and once you sign up for the most part you have to pay to get out of it.
one last point. this article couldn't (nor was it meant to) address everything. what i have found is that many "captive" sales reps are paid a salary of sorts, provided they make their monthly quota - so no percentage. isos, however, do get a percentage and typically represent more than one company. however, this is typically disclosed - i.e. the person who is an iso will mention that they are paid a percentage.
so your point is not strong analogy, and here's why. as far as i know costco never discloses that they receive a percentage of ongoing sales when someone signs up with elavon thru them. so you can often get a better deal by working with an iso since they want your business, will provide personal service, and act as a kind of advocate between you and the merchant services provider.
if you have a problem with elavon after signing up thru costco, will costco intervene for you and say they'll take care of it, or will they simply say that you need to call elavon?
I am a nail technician. I recently had a bad experience with a merchant service provider I have used for 4 years. I have cancled them, with no penalty because my contract was up. I am currently shopping for a new provider, and was thinking of using Costco, but now I am so confused! I will still contact them to get information, but am beginning to lean towards cash or check payments only!!
hi allison, thanks for the comment. accepting credit cards only makes sense for most businesses because customers want to pay with plastic. that's just the way things are now. the key is to find a provider that does not have termination fees, offers deals on equipment (if needed), discloses all fees and offers personal service.
if you'd like free merchant account quotes from merchant account providers you can check out this link: http://bestmerchantaccountquotes.com/get-the-best-
good luck allison!
Merchant Guide - great article. We actually just launched a new website that attempts to provide a venue for new and existing merchants a chance to see behind the curtain on various merchant service providers. The website is creditcardprocessingscams.com - you'll notice we have no urls linked to any "preferred" merchant account provider and will not be hosting any affiliate links on the website. Knowledge is power and we hope to be a force of change in the industry.
I love Costco for most things. But some of their 3rd party relationships are more of convenience than the best deals. Insurance, Car purchases, Merchant Services, all need to be shopped around. Good article.
hi john & mike, thanks for the comments. glad you both enjoyed the article.
A helpful resource on merchant providers is MerchantMaverick.com, an unbiased review site. I'm not the author of the site but do work for a processor that has been reviewed by them.
hi curtis, thanks for the comment. some of those review sites are set up by merchant processing companies, so people have to be careful when one or two companies are given rave reviews. there's a hub about it you can find here: http://michael-guerin.hubpages.com/hub/The-Truth-A
thanks again for the comment. all best...
I am looking forward to when Congress does for the merchant what they spearheaded for the consumer as it relates to credit cards and the predatory nature. It is rampant theft how merchant services does not abide by the contact you sign (its not just Elavon/Costco). You are left with no other recourse than to cancel your contract - which is something I am doing this morning with another credit card processor. After doing business with Elavon for 8 years, I switched. Worse thing I ever did and I have no recourse other than to make sure this company can no longer steal from my company with made up new fees. I am going to use a few of the sites recommended here. Thanks!
Hello Anna,
thanks for the comment. yes, this is why I always point out that the number one question should be "are there any early termination fees?" and get their answer in writing. Then ask about rate guarantees, i.e. "How long will the quoted rates apply?" and get that in writing as well.
Good luck with your search.
All best...
I had the same experience that your friend had. Was better when it was under Nova and became horrible under elavon in my book it is on the border of a scheme.
hi mp, thanks for the comment. i hope you were able to find a better company to handle your merchant processing.
It would be nice to know where to go once trouble begins
with these outfits. I know about the FTC, went to their website,it is a joke.A bite-less watchdog.
Hello Jose,
it's true, there's not much you can do. For people stuck in a credit card terminal lease you can try contacting your State's banking office and trying to go after them for violation of the Truth in Lending Act, but that's no guarantee either. Best bet is to get out and find another provider -- and get it in writing.
I have been thinking about getting a merchant account for my business. I consider myself to be fairly well versed in contracts and business over all, and you are right with the buyer beware. Costco does provide some things and services that are at a great savings to some people, while other things are just not a good fit. Its like the example that the price for most food items are at a better price in bulk, but the item goes bad before a small family ever gets to eat it all. The 3rd party point is usually where people get into trouble with the Costco's of the world. In my business, people would be most upset if I sent their videos to be processed off site, but they never think to ask Costco about it because with a big print center just as you walk in the door (at least at the ones I have been to), you think its all done on site when it not and they do remove themselfs from problems by telling you its done off site after the problem happens. Sorry for the tangent.
So my question is... I was hearing a lot about this square one merchant processing, but I cant seem to get past the front gate with them?? Am I missing something? or was it just to good to last and they also are gone? Let me know what you think.
Hey John, thanks for the comment.
I'll tell you this, the reality of paying merchant account fees comes down to a cost of doing business. And those fees might even be tax deductible. I think the problem most people have is the lack of transparency involved when it comes of knowing exactly what it will cost. And few companies are very good at disclosing everything. That's why I still maintain that getting competitive rate quotes every so often makes sense, because even if you have been with a provider for a while your rates and fees can slowly increase over time.
Does that make sense?
Yes, it just always is an uphill battle to compair when companies keep it mixed up enough so you cant do an apples to apples comp.. Try the insurance world. Even if you try to keep it simple like just adding (or not) towing coverage to your auto policy. Sounds like a simple yes or no type of thing, but no... Some only pay up to so much and only as a secondary coverage etc.. Anyway, thanks for the reply. I think I am going to push a little harder to get the "Square up" account going. It would really be a value to my clients.
Well, it's true it can be tough to do an apples to apples comparison, but I wouldn't you can't do it. Any merchant account provider worth working with could do a fair analysis -- and as long as they accounted for all the rates and fees and matched them up side by side you should get a fair idea about the differences.
Good luck to you John.
Can anyone tell me about Chase?
Thanks
Hi Mayra,
all I have to say about Chase is that they just lost 2 billion dollars gambling with other people's money. So how do you think they are going to get it back? Perhaps high fees on their banking customers, including merchant accounts?
You are better off working with a broker/ISO because they will actually do their best to keep you as a customer, rather than the big banks that are looking to pay their CEO's 7 figure bonuses for losing other people's money, then asking the government for a "bailout" only to do the same stupid stuff all over again.
Buyer beware indeed...
Gareth Wood 3 years ago
I would have to agree with your comments. It is not only the qualified rates mentioned that can prove if the deal is really competitive. There are debit card fees (qualified, mid-qualified and non-qualified rates), visa rewards cards and mid,non-qualified rates. There is no mention of it on their site, just that "Reward cards process at a higher rate." To receive truly competitive rates, it must be balanced correctly. I've personally found ImGlobal Solutions - www.imglobalsolutions.com to have competitive rates on all fronts. Just thougt to share that information with you.