How to Recognize and Avoid Merchant Account Scams in 2022

Our business security expert explains everything you need to know about merchant account scams and how to protect your business from fraudulent providers.

Merchant services scams can derail the success of your small business. By understanding how these schemes work, you'll have the awareness you need to avoid fraudulent providers. 

In this guide, we explore some of the most common merchant service scams and offer advice on how to shield your business from bad actors when selecting a merchant services provider

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Common Merchant Service Scams

Most scams featuring fraudulent merchant service providers follow one of these formats.

Backdoor Access Scam

This scam is often difficult to detect and can potentially cause serious harm to your business. The fraudulent provider gains "backdoor access" to sensitive financial information from your customers and your business by changing the code of your . 

Then, they can commit identity theft and transfer funds to their own bank accounts. If this occurs, you could be held legally responsible for financial losses faced by customers.

Fortunately, robust security measures can help protect your payment gateway from a backdoor access attack. You should always work with a PCI-certified merchant service provider that monitors your account for chargebacks and other red flags. 

You can also add a second layer of protection with an outside security service to scan your systems for viruses, malware and other weaknesses that could cause a breach.

Bait-and-Switch Sales Calls

This scam starts with an unexpected call or message that contains a recording. The speaker says they're from your merchant service provider and that you're agreeing to higher fees unless you respond right away. Alternatively, they might say you're due for a rate review. Either way, the goal is to get you to call the scammer back.

As you might have guessed, the call didn't come from your actual provider. Instead, you'll speak to someone when you call back who will continue to act like an agent from your existing provider, but you'll notice they'll never mention the company's name. The goal is to switch you to a new, more expensive service account with a different provider without realizing that you've agreed to make this change.

If you get this type of call, ask the person to identify their employer. If you're not sure whether it's a scam, you can request details in writing before agreeing to any changes to your service contract. 

Hidden Fees

If a merchant service provider advertises prices that seem surprisingly low, be on the lookout for hidden fees and loopholes that could dramatically increase your bill. You may think you've signed an affordable service contract when you've actually entered a costly scam. 

You'll often find hidden fees bundled with the charges from the processing bank, so they won't show up until you receive your first statement. At that point, you might be unable to cancel without costly cancellation penalties. 

Insisting on transparency can shield your business from hidden fee scams. A potential merchant service provider should give you an itemized list of all charges before you sign a contract. When you get your agreement, read it carefully so you understand what to expect from each billing cycle. 

You can also send the contract for legal review to reveal red flags. For example, it might include charges that the company didn't discuss during your initial conversations.

Fake Providers

Some advertised merchant service providers don't exist at all. The scammer sets up a quick social media page or basic website and spends a bit of money on ads. When you call to learn more about their services, they'll charge an astronomical upfront rate to enroll. 

If someone does take the bait, the scammer will immediately disappear with the deposit. Some schemes seek to steal your identity by asking for credit card and bank account details instead of cash. 

Careful research can help you avoid this type of fraud. You should look for a digital footprint for any vendor you plan to hire. Lack of online reviews and other public information about the company can signify a scam. Subdomains are another sign that something's off. For example, the business website could have an external host instead of a dedicated domain that matches the company name.

Who Is Responsible for Merchant Service Scams?

It can be challenging to pursue the responsible party when you experience a merchant service scam. If your business has fallen victim to hidden fees, start with a careful contract review to see if your signed agreement mentioned these charges. 

Sometimes, scammers skip talking about certain fees but put them in the contract. They might also charge you for items that aren't covered in the merchant services agreement.

Unfortunately, you can successfully file charges for hidden fees only if you can prove the business intended to deceive you based on the laws in your state. Some states have stronger consumer protection laws than others, which can affect your ability to recoup these losses. 

If you lose a large deposit to a merchant who goes missing, you likely have a legal basis for fraud charges. However, you'll need an attorney or private investigator who can track the person down, which could cost more than you originally lost. 

Usually, scammers shield their identities carefully with offshore accounts and proxy providers. They're often virtually untraceable if they aren't based in your area. 

When a merchant service scam impacts your customers, you may have legal responsibility to recover their financial losses. However, you can possibly avoid liability if you can prove that you had solid security measures and still suffered fraud. Using a merchant service provider that complies with the Payment Card Industry Data Security Standard (PCI DSS) ensures you have the appropriate safeguards.

What Can You Do If You've Fallen Victim to a Merchant Service Scam?

When a data breach impacts your customers and you suspect your service provider, immediately cut off debit and credit cards linked to your merchant service account. If you think the company caused the breach, this step is especially important. 

You can also reach out to the provider to report the fraud and ask their advice for next steps. Scammers typically drop off the radar at this stage, so if that happens you'll know the company likely hacked their way to backdoor access.

After securing your account, you should review the laws in your state and the details of your merchant account contract. You can also seek advice about next steps from the consumer affairs agency in your county or state. If the fraud occurred online and you can't get in touch with the merchant service provider, reaching out to their internet services provider can help shut down the scam.

What to Look For in a Merchant Service Provider

These qualities serve as "green flags" for a merchant service company you can trust. 

Reliable Reputation

If you've seen an ad or received a referral for a provider, research online before signing a contract. Look for a legitimate website (not just a social media page) as a sign of an established business. 

Strong customer support signifies a reputation for reliability. For example, does the company advertise multiple channels for customers who need assistance? Before signing up, try reaching out by different avenues to see how quickly an agent responds. You want to know that your provider will be available if an issue arises that impacts your business.

True Transparency

All terms and conditions, including a full fee structure and pricing details, should appear in your merchant agreement. If you have questions as you review your contract, seek satisfactory answers from your customer service agent. If they aren't able to provide transparent information in response, the company could be trying to scam you. 

Pay.com lets you track every transaction and see the status when you log into your dashboard. We also provide a simple flat-fee structure so you'll know what to expect from your monthly bill. Click here to find out how you can get started.

Industry-Standard Security

You can keep customer data safe by using a PCI-compliant merchant service provider. Pay.com meets Level 1 security standards, the highest level of PCI DSS compliance. We tokenize all transmissions to send credit card details in an encrypted format, and we'll never store your sensitive data on our services. Our service also supports 3D Secure 2.0 (3DS2) for another layer of authentication.

When you partner with Pay.com, you can display a PCI DSS logo on your website to build trust for your brand. You'll also have assurance that your customers' transactions are safe.

Flexible Full-Service Offerings

Using one trustworthy provider for all your payment needs can lower costs and reduce your possible exposure to merchant service scams. As a Pay.com customer, you can personalize your platform with options like a branded checkout page and multiple methods of payment

The Pay Dashboard delivers the data you need to make smart financial decisions for your small business and powers transactions through your website. You can also direct clients to the Pay Virtual Terminal, or send them a secure link or Pay Checkout Request.

The Bottom Line: How to Avoid Merchant Service Scams 

Good research skills can help you steer clear of merchant service scams. After you sign up for services, remain alert for red flags and take action right away if you notice anything odd about your bills.

It can be difficult to recoup losses after a merchant service scam, so choose a provider carefully. Pay.com provides a simple rate structure with no hidden fees, with a policy of total transparency. 

It's easy to set up and learn to use your Pay Dashboard. In fact, Pay.com is so convenient that you don't even need a website to start serving your clients with our secure software system. Click here to get started now!

FAQs

What's the most reliable way for a small business to accept payments?

Pay.com provides everything your small business needs to accept credit and debit card payments on your intuitive Pay Dashboard. It has a completely transparent fee structure and easy-to-use interface designed for all levels of tech experience. 

You can accept multiple payment methods and send secure links to connect with customers for payment. Click here to sign up now.

What is a merchant service account?

Your merchant services account manages credit and debit card sales for your small business. The provider processes online and in-person card payments and places the money in your account. It also handles requests from the customer's bank such as chargebacks and information retrieval.

How can I tell if my merchant service provider is scamming me?

A bill that's much higher than you expected is the most common sign of a merchant service scam. You may notice charges you didn't see in your contract or discuss with a sales agent when you opened your account. You'll also have trouble getting in touch with anyone at the company, even if they called constantly while trying to get your business.

Meet the author
Andrea Miller
Andrea Miller has been a writer and editor for more than two decades. Specializing in business and finance, she has written for some of the major websites in the financial sector. Outside of work, she spends most of her time with her family and enjoys hiking, yoga, and reading.
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