Firms fight for card-processing business

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Ordinarily, when a woman walks into Lisa Shaub’s eponymous NoLIta hat shop, Ms. Shaub is the one making the sales pitch.

Last spring, though, a sales representative from Citi Merchant Services made a surprising personal call to offer Ms. Shaub a deal on a hot new item: a juiced-up merchant service agreement for credit card processing, plus full-service banking. Eye-catching perks ranged from lower rates on processing fees for various cards, to faster payments, to a free transaction terminal.

“That’s the first time I’ve from a major bank,” said Shaub, whose company has annual revenues under $500,000. “They want you to switch the whole business account to them and are offering a very, very nice package.”

Like many entrepreneurs, Ms. Shaub would rather focus on products—in her case, sumptuous hand-made fedoras and cloches beloved by L.A. stylists and Manhattan fashionistas alike—than delve into the complexities of credit card merchant service arrangements.

The recession, however, is prompting her and other local retailers to slash costs wherever they can. Their search for deals comes amid increasingly fierce competition among players such as Citi Merchant Services -- a patnership between Citicorp Payment Services, Inc. and First Data Merchant Services Corp. -- and American Credit Card Processing Co., or ACCPC, for small business clients.

There’s a lot of money at stake. The “interchange” or transaction fees banks charge merchants skyrocketed to $48 billion in 2008 from $16.6 billion in 2001, according to the National Retail Federation. These fees have drawn fire, and several bills aimed at curbing them are now moving through Congress.

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“If Citi makes a deal you think sounds good, go to someone else and say, here’s what Citi is offering, can you do a little better?” said Adam Levitin, a credit expert and Associate Professor of Law at Georgetown Law. “There’s a lot of competing for this …and they will negotiate.”

http://www.crainsnewyork.com/article/20090717/SMALLBIZ/907179982

[DJ13]

1. Just another bank con job

They'll lure the merchant into signing an agreement that obligates them to obtaining all those services from a sole bank, then when they cant shop around anymore the bank will systematically raise the fees to the prevailing rates (or higher).

Its a variation of the same marketing tactics they've used for years on consumer accounts.

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2. True, but merchants can use the offers by the big banks to squeeze their existing processors

for a better deal. The merchant processing business is highly fragmented, and ripe for consolidation.