I hereby renew my vows to card acceptance.

The term irreconcilable differences is often associated with divorce, but it also applies to the ongoing battles over card acceptance fees. I find the related litigation tiresome, so I am offering a different perspective below. However, I also share some litigation/regulation highlights elsewhere on my website, including something new from Colorado.

My Card Acceptance Experience

With Valentine’s Day looming in the United States, it seemed appropriate to use this blog post to declare my love of card payments from a supplier’s point of view. I do not receive the lowest fee out there, but, considering various factors, I would not expect royal treatment. I simply expect a fair deal. Rather than focusing on the fee alone, I view my entire value package—namely, electronic payments that I do not need to touch and a no-surprise, consistent fee. I am grateful, not disgruntled like many suppliers.

Relationships Can Go Wrong

I realize other card acceptance relationships might be rocky, even if they started blissfully. The romance can fade. There are suppliers who outgrow their acquiring partners and the initial deals. Others are wooed by rates that dazzle and cause an immediate attraction. Such rates could be masking an ugly side—low fees that are unattainable most of the time due to corresponding requirements a transaction must meet. If something looks too good to be true, it is worth uncovering the faults before committing.

Suppliers who have already committed to a tedious and/or unfair fee structure should weigh their options. Renegotiating a better deal might be possible. If the partnership cannot be saved (here enters irreconcilable differences again), the supplier should seek a business divorce and move on.

I have a business owner friend who did just that. He initially pursued card acceptance with his bank; it was a natural choice given the banking relationship. However, it quickly proved to be the wrong choice. A couple $1,000 transactions from two different customers ended up incurring fees amounting to nearly 7%! The same thing could have happened with a non-bank partner. The devil is in the details. Fortunately, this story has a good ending. He later switched to a different card acceptance route that works better for him.

For suppliers, the key to loving card acceptance lies in finding the right acquiring partner and appreciating the entire value package. 

For suppliers, the key to loving card acceptance lies in finding the right acquiring partner and appreciating the entire value package. 

Advice to Suppliers

In the business-to-business (B2B) payments world, it is critical to find an acquirer who specializes in this space; Commercial Cards are unique and have more complexities. I invite industry providers and others to expand on this advice in the comments section below, but no bashing of another provider, please!

A supplier always has the option of forgoing card acceptance altogether, but other payment methods have costs, too, and other drawbacks. Suppliers tend to forget this. I encourage any supplier who is dissatisfied with card acceptance to channel their energy into:

  • evaluating the entire card acceptance value package for their business
  • understanding and calculating the costs of other payment methods
  • finding a different acquiring partner, if necessary

Let’s show a little love for the positive things payment cards have allowed businesses and consumers alike to do. If we really need to become riled up over something, look no further than the industry with unpredictable, ever-changing pricing; excessive fees; an unpleasant environment for customers; and inconsistent service. Need I say more? Airlines. They give everyone plenty of reasons to be disgruntled.

About the Author

Blog post author Lynn Larson, CPCP, is the founder of Recharged Education. With more than 15 years of Commercial Card experience, her mission is to make industry education readily accessible to all. Learn more…

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Procurement fraud and card misuse reenter the news.

Two different situations, but both yielded negative press. The following stories once again highlight control gaps that allowed fraud and misuse to occur. While we cannot control the media, we can learn from the mistakes of others. To keep your organization out of the “bad news” arena, take necessary actions now to improve internal controls. 

If your card program (or your client's card program) has been the subject of a good media report, I encourage you to share it within the comments section below. 

Avoid being the topic of bad news by utilizing effective internal controls.

Avoid being the topic of bad news by utilizing effective internal controls.

1. Procurement Fraud 

The Financial Industry Regulatory Authority (FINRA) permanently barred a former Charles Schwab financial representative after he purchased and resold approximately $1 million of office equipment.

FINRA records note that, between February and August 2014, the rep used the firm’s corporate procurement system to purchase office equipment for his branch office in Florida, which he later sold to various people to obtain cash for himself. Multiple organizations reported this story last November, including ThinkAdvisor.

Control Gaps

I doubt that it was typical for a rep with his size of office to spend nearly $1M on office equipment in less than a year using corporate funds. Such activity could not even be explained away as a new rep establishing an office (it would be quite an office!), as he was a 15-year veteran. I assume that the control gaps included:

  • Overly trusting management who did not consider or believe that a veteran employee would commit fraud 
  • No budget for the rep to adhere to 
  • No purchase limit/threshold preventing the rep from spending above “X” amount via the procurement system each month 
  • No one monitored his purchases or visited the branch office for purchase follow up 
  • Lack of fixed assets tracking 
  • No one reviewed spend reports to compare the rep’s monthly spend total to previous year(s) or to other similar sized reps in an effort to identify out-of-norm spending activity

2. Card Misuse/Abuse

Right in my own backyard, the local newspaper, Star Tribune, reported last month on card misuse and abuse within the Minneapolis Public Schools (MPS). The issues included inappropriate purchases, lack of receipts (even though receipts are required) and out-of-policy purchases; for example, using the card at local restaurants when the policy only allowed meal purchases while on business travel. Top executives have been part of the problem. 

Fixing What is Broken

After reading the initial article on January 11, I contacted the author to offer my insight on the district's woes. A follow up article published by the Star Tribune on January 12 included some of my comments. (I garnered a modest 80 words.) My recommendations included the standard control best practices:

  • Assigning and enforcing accountability for the oversight role to ensure policies are followed by everyone, including executives 
  • Clear P-Card policies and procedures (P&P) 
  • Mandated training prior to card issuance and annually to stress key P&P, such as what is and is not allowed 
  • No tolerance for policy violations, including missing receipts 
  • More strategic MCC blocks; for the district, this could mean blocking restaurants and similar unless the cardholder will be traveling 
  • Obtaining reports from key suppliers that show off-contract purchases; for example, with the office suppliers vendor, are cardholders purchasing higher quality goods than what are allowed? 
  • Effective auditing on an ongoing basis to catch and remedy issues if/when they emerge

About the Author

Blog post author Lynn Larson, CPCP, is the founder of Recharged Education. With more than 15 years of Commercial Card experience, her mission is to make industry education readily accessible to all. Learn more…

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Restacking the chips—pros and cons of EMV options.

Have you formed an opinion yet on the topic of chip-and-PIN versus chip-and-signature cards? Maybe you saw the recent news that many U.S. banks are leaning more toward the latter, which is less secure. I wondered about the reasons for this since other countries have already predominantly adopted the more secure chip-and-PIN. However, before diving in further, we cannot forget that any card with a smart chip and the EMV security standards is more secure than cards with only a magnetic stripe.  

On the PIN vs. signature topic, I found some great insights in an article by Brian Krebs of Krebs on Security in which he interviews industry experts from Aite Group and Gartner Inc. I highly recommend you read it, but following is a summary of two key considerations at play.

Ease of Use

Chip-and-signature takes the lead, being quicker and easier to use at the point of sale. Chip-and-PIN requires the extra step of entering the correct PIN (personal identification number). If the cardholder forgets the PIN, he or she would need to pay a different way or abandon the purchase altogether. These are not good outcomes for the card-issuing bank or your card program. 

Then there is the issue noted by Jack Jania, Gemalto Inc., during my 2014 interview with him: limitations of the current U.S. ATM infrastructure to manage card PINs in the field. Since the PIN is tied to the smart chip, it is not easy to reset. As a last resort, the bank might need to reissue the card, which is another hassle for everyone.

 

Protection for Lost or Stolen Cards

The advantage here goes to chip-and-PIN since a lost or stolen card would require a fraudster to enter the correct PIN in order to use it. With a chip-and-signature card, a fraudster could forge the cardholder’s signature at the point of sale and/or use the card at an unmanned kiosk or terminal. 

Is it a gamble or good business decision for banks to go the chip-and-signature route? Probably a mix of both.

Is it a gamble or good business decision for banks to go the chip-and-signature route? Probably a mix of both.

Given the above plus other nuances, each bank needs to decide what makes the most sense for its business. If you are an end-user organization, ensure you understand what type of card you have, requirements for usage, what could go wrong and how to resolve any issues. 

For more on EMV, see the related webpage.

Related article: Banks Opting For Less Secure Signature Cards, January 6, 2015, PYMNTS.com.

About the Author

Blog post author Lynn Larson, CPCP, is the founder of Recharged Education. With more than 15 years of Commercial Card experience, her mission is to make industry education readily accessible to all. Learn more…

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