What is the deal with third party processing accounts?

Business
1

HELP: Nonprofits and Third Party Merchant Accounts

For the past three years, I’ve been running a profitable side business helping charities and some political candidates process online contributions. Our clients’ recent success has meant that we’ve needed to re-underwrite our merchant account.

Lo and behold, we are now being told that our business is a third party aggregator and is disallowed per Visa and Mastercard regulations, and that even high-risk merchant account providers would be reluctant to work with us because we do process some contributions on behalf of clients.

A few things make me go Wha…?

By our last count, several dozen businesses actively serve this corner of the market and serve as third party processors for charities. Many have been doing so for ten years or more. The names involved include groups most people in the nonprofit sector would instantly recognize, like Convio. What makes this more confusing is that Visa and Mastercard have a dedicated program just for third party merchant “service providers” that include several consumer-facing third-party merchant products including PayPal, Google Checkout, the much-buzzed about Square, and in our industry, the aforementioned Convio and Qgiv. I find it utterly bizarre that something could be banned from the face of the Earth in one breath, and given special status in the next, unless it can solely be explained by the hefty annual pays you pay Visa and Mastercard to be a third-party “service provider.”

Here’s the situation: virtually every merchant provider we’ve contacted has given us the same negative answer. Our current provider is pressuring us to complete service provider registration, which we’ve recently agreed to do, in order to keep processing. If we face any interruption in our ability to process for our clients, there is a very good chance we could lose the business. As a small business, this is literally life or death for us.

The merchant account consultants we’ve used to get this straightened out have been no help to us, and didn’t even know the basic details of third party processing when presented to them. I need someone to tell me what the f***in’ deal is. If third party processors are banned, how can big players like PayPal continue to process and even the aforementioned smaller players who do exactly the same thing we do? Is it just a matter of paying Visa and MasterCard to be service providers (which we’re happy to do)? Has the entire online fundraising industry, which by the way powered the election of Barack Obama and the rise of countless underdog causes and candidates, been flying under the radar for a decade or more? Are these Visa/MasterCard regs a recent thing that doesn’t take into account the central role companies like ours play in the nonprofit space and the political process?

And most importantly, how can we keep a third party account up for the foreseeable future, as we migrate our clients to their own merchant accounts?

We’re “play it by the book” kind of people but the double standards evident here seem kind of ridiculous.

2

I have a business with the same situation exactly. It will be very hard to tell my investors, employees, and roughly 1000 clients we are out of business because of TPPA. Four years and a promising business shot down. I need help - did you solve the problem? If so, how? How can I make these ‘special arrangements’ with Visa when my only experience is through an ISO? Who do we call - how do we start?

3

Do all the charities make more than $1,000 a month? If so, consider getting them their own merchant account. You can get a merchant account for about $8.00 a month and this will help get around factoring funds. Merchants get their own money and you are out of the processing biz. Merchants can give you your own virtual terminal ID if you need to run credit cards over the phone and you can even set up a donation link on their site.

4

Not sure if this thread is too old but what both of you are trying to accomplish can be done. The problem lies in the liability that your processor is taking on and the underwriting guidelines of processor. The entire merchant industry is based on one simple factor “RISK”.You have to truly understand how a underwriter is looking at your companies and what kind of risk you represent. Based on the way you are representing your company you are a “third party aggregator”. The simple definition of an 3rd party aggregator is 1 client that pays, 2 company that funded, and 3 company that is actually owed the funds. The problem is the “RISK” that is associated with this. If your company goes out of business who does the processor go after. The clients belong to company 3, the funds were deposited to company 2. It becomes a giant legal mess. After that has been said, believe it or not this is a simple problem to solve. It just a matter of having the right person on your side to explain the real in’s and out’s. If you are still around respond to the thread or PM me and I can go into more detail.

5

Big players like PayPal have separate agreements with Visa/MC. They didn’t go to a local bank and sign up for a normal merchant account. Everyone seems to be telling you the truth… the standard Visa operating regulations don’t allow you to process payments on behalf of another entity, so if that’s what you do, you need to make those special arrangements. You can’t just sign up with a regular bank or MSP online.

It’s a risk issue. The underwriting process is about understanding the risk the processor is taking on by allowing you to take payments. They want to know what you sell and who you sell it to, so that they can decide whether that’s likely to generate chargebacks, which they’ll be on the hook for if you run out of money or skip town. If you’re processing for third parties, then they have no way to evaluate that risk… you could start taking payments for a shady seller, incur a bunch of chargebacks you can’t afford, and the underwriting bank is now on the hook for the money.

It’s a serious problem. PayPal is here today because their many dot-com era competitors went out of business when they couldn’t manage the fraud and chargebacks associated with processing payments for third parties. PayPal was losing millions of dollars a month at times, but managed to build effective fraud screening technology and human systems in time to manage it, or they would’ve gone out of business too. You are far less likely than PayPal to have a large and effective fraud screening department, so nobody’s going to hand you a free pass to process 3rd parties’ payments.