Small business suffers at the hands of card processors

I read an article recently which briefly covered the subject of UK based credit card processors and the way they treat their customers, specifically small businesses. I felt that there was some merit in expanding on this issue. Especially in light of the claims that the credit card giant Mastercard is pushing small firms ‘over to the brink with their timing for increases of up to 161 per cent in its charges and the introduction of a development charge.

At the moment there is a great deal of focus on small business and rightly so, given they account for 50% of our output and employ 13.5m people. Government has promised that small business will be targeted for support and investment. But how far can government really go and how much new money have they actually got to invest?

Credit card companies are forever harping on about how much they have to pay out each year on credit card fraud and the public could be forgiven for believing that this was a fair and accurate statement of affairs, but it is only part of the story. When credit card fraud takes place, many believe that it is the massive credit card companies that take the hit, but in most cases it is not. I cannot speak for large businesses such as supermarkets, DIY chains and electronic goods retailers, because they will almost certainly have separately negotiated terms. Small businesses however, have to accept the ‘standard terms and conditions’ of the credit card processors, which all attempt to pass any losses in respect of credit or debit card fraud back to the retailer.

This is how it works. A retailer wanting to accept credit or debit cards must use a card processing service, there are many large organisations that offer this service, as well as smaller and up and coming ones. So, there is choice, however, nearly all of them have identical terms of trade. Once the retailer has been accepted, he will normally be provided with a terminal and/or a virtual terminal to complete transactions and he will be charged a monthly fee for this as well as transaction fees. Many businesses that offer a mail order business or online transactions, which accounts for many of the ‘new industry’ small businesses, have to complete a transaction that is know as ‘cardholder not present’.

To minimise the risk of fraud, the retailer must ask for the card number, expiry date, the CCV code (from the signature strip) and the full address of the card holder. When the transaction is processed, the card processor will check that the card is valid, that the CVV code is correct and the address corresponds with that registered with the card supplier. If all these things check out, the card processor will approve the transaction. Whilst not obliged to do so, 99% of suppliers, will only ship to the cardholders address, to minimise the risk of fraud. Now you might think that is the end of matters..but it is not.

Sometimes, up to 12 weeks later, the card processor will reverse the transaction and should, although they don’t always do this, notify the retailer that the transaction was fraudulent. In other words, the card processor automatically takes the money, that they had authorised back from the retailer. The retailer, is asked for further information, in order that the transaction can be “investigated”, However, the card processors know full well that most retailers will not be able to provide the information they are requesting, so the right of appeal is lost and the retailer has to accept the loss.

With an ever rising number of cardholder not present transactions taking place, small businesses are increasingly finding themselves nursing significant losses on transactions that have been authorised by the credit card processors and subsequently reneged on. Worst still, because the credit card processors have provided themselves with the right to automatically offset any losses as a consequence of fraud to the retailer, they are in no hurry to introduce measures to address these hefty and increasing burdens on small businesses. On the other hand, small retailers are unable to do anything about it because all of the card processors have virtually identical terms.

Government claim to want to encourage small traders, they also say that the UK should be world leaders in embracing and using the Internet to conduct business and yet they do nothing about the virtual monopoly these credit card processors have in respect of their trading terms in relation to fraudulent transactions. This is a scandal and either government should investigate or the appropriate regulator must take a look.

For those people buying online, it is worth noting, that the people behind the scenes are often operating on gross margins of around 10%, therefore, if just 1 in 10 transaction was fraudulent, they could be nursing losses. Little wonder then, that so many small businesses fail, not only must they deal with the consequences of a downturn, but they are also alone when it comes to tackling the big credit card processors, who are indifferent to their plight.

Are the British moving to a Police State?

I don’t normally do politics on this site, but on this occasion, I thought I would make an exception, because fellow blogger, Power to the People has penned an interesting article on attempts by the British Government to increase their powers to intrude into the personal lives of its subjects. The UK government already have massive powers to demand telephone records, email and internet visits and yet this has done little to reduce crime or terrorism, so you have to ask yourself why they need so much power. There is also a powerful argument regarding liberty and freedom. In my view, no government should attempt to take this type of power without first putting it to the people, who in my view, will vote no.

Power to the People is urging the British people to write a letter to their MP, demanding that they do not vote to support this Act, they have also provided a draft letter to be used for this purpose. It is time the Brits started to stand up for themselves, maybe this is a first step?

Enough is enough, the UK is becoming a police state by our control obsessed government and we are sitting back and allowing it to happen. It makes me angry to see such lethargy. Everytime a new act is brought in, far more sinister aspects are buried in the detail, which further curtail our civil liberties, freedom and privacy. This has got to stop and now, state should not be permitted to control the people, it should be the other way around. As it stands, just 650 members of parliament are pushing some 65m people around, yes, I mean 650, because whilst this government may have a majority, the MP’s from other parties are not making enough noise about this massive intrusion into our lives, they should be fired, the lot of them. We are quick to condemn the bankers (rightly so in many cases), but we do nothing about the MP’s that have consistently introduced or supported Acts of Parliament that intrude into our lives, in a way that will affect us for many years to come. We must put a stop to it.

It is expected that plans to collect more data on people’s phone, e-mail and web-browsing habits will be included in the innocuouslysounding ”Communications Data Bill”, due to be introduced in the Queen’s Speech in November. By all accounts, these proposals are supported by Home Secretary Jacqui Smith, Gordon Brown and much of the Labour government. Once again, the government is expected to justify this gross intrusion into the personal lives of 65m people under the auspices of ‘counter-terrorism’, this is utter garbage, they know it and we know it. Yes, there are terrorists out there and they don’t wear badges, but this country has faced terrorism before and the security forces managed to investigate and prosecute without such laws.

I don’t know how many terrorists are out there, but it is not 65m and is probably less that a couple of thousand, why should the privacy and personal of 65m people be invaded by this government because of a few people that mean us harm? This whole thing needs to be put in perspective, more people in the UK die on the roads than as a result of terrorism, more soldiers are killed abroad, that in the UK as a result of terrorism, in fact, more people are killed in farming accidents that as a consequence of terrorism. This government have invested massively in the security services, allowing them to go on a substantial recruitment drive, there should be no need for a massive Big Brother surveillanceoperation of the entire population of the UK. Before some smart-arse suggests that it is this surveillance and investment in the security services that has reduced the number of terrorist incidents in the UK, I would ask them to provide further evidence that this is the case and then to put it into perspective. For example, it is well know that the airline industry work out whether safety mechanisms are worth introducing on their planes on the basis of a cost/benefit analysis. In other words, will the costs associated with an accident outweigh the cost of implementing the safety programmes. Fact of life, they all do it, they just rarely tell us!

Of course the government will issue the usual platitudes and assurances that they will not misuse this information, but can we believe them. The Icelandic authorities had their assets frozen using anti-terror laws, in spite of the fact that there were other laws that could have been used and would have been just as effective. A local council used anti-terror legislation to spy on the parents of a child that they throught was in the wrong ‘catchment area’. This list, trust me, goes on and on. We also know that this government ant it’s private sector partners are incapapble of securing data, which means our personal lives could be open to all and sundry. Some will argue that if you have nothing to hide, then there is nothing to hide, these same people probably still believe in Father Christmas. As we know information, any information can be used in different ways, depending on the the intepretation of the recipient, how many times have we said or done something that was completely misrepresented?

I have nothing to hide, but I object strongly to my personal calls, web browsing habits and email being monitored and invaded by the state. Government’s could even misuse this information to find out how we intend to vote! It is an appalling proposal and it is high time the British public called time on the control obsessed government and it’s supporters, irrespective of which party they represent. This goes beyond party politics, it is a direct attack on the very fabric of our society and no-one will be safe from government interference if it is allowed to pass into law. If the government believe that this act is so important, then they should allow the British people to vote on it through a referendum, I believe they will get a resounding No…and they know it!

People often tell me that there is “not much we can do”, but there is. Our members of parliament are worried sick that they may lose their seat at the next election, we must emphasise to them that if they support this attack on our civil liberties that we guarantee they will. We must demonstrate to our MP’s that they should be more in fear of the wrath of the British public that the Chief Whip of their own parties. Opposition MP’s should do their jobs and oppose this draconian piece of legislation. We must also warn our local members of parliament that if they vote for this Act, that we will not vote for them, we must make it clear, that we have a voice, not once every 5 years, but throughout their tenure and that we will have it heard. Everyone that feels this Act is a direct infringement of our civil liberties, right to privacy and an attack on the very fabric of our society, should write to their MP and tell them so. I have provided a ‘draft letter’ which can be viewed, personalised and sent to your MP. Draft Letter to MP

I would also invite all fellow bloggers that feel as strongly as I do on this issue to reproduce this article in part or full, topped and tailed if they wish, to publicise this issue to as many people as possible. Let us all stand up and fight in this issue, and remind this government who is actually in charge.

Full Article: Power to the People – UK attempts to spy on it’s citizens

XL Airways failure, should people lose their money

It is always a sad day when companies fail due to economic conditions, or in this case, the rising cost of fuel. According to company statements, some 67,000 passengers are stranded, 23,000 people affected who booked through other companies, 1700 staff will lose their jobs and 21 aircraft are grounded. Some customerswill be protected by Atol, some through the Civil Aviation Authorities own programme designed to bring stranded passengers home and others through their credit card companies.

However, CAA suggest that some 200,000 people have booked a flight through XL and many of these people face losing their deposits, or worst still the full flight cost and this brings me to the point of my post. Deposits and advance payments are an act of good faith demanded by an increasing numbers of suppliers and offered by the customer. This money should never be used to allow companies to trade, instead it should be ring-fenced. Given the company should not need to access the money unless, or until they have provided the service.

Far too often we hear of cases where customers have lost deposits, or worst still all of their money, because companies have traded, using money that was provided to demonstrate good faith not cashflow. In spite of these well publicised instances, the government has still done nothing to protect the consumer and they should be ashamed.

There is no reason why customers money should not be protected, especially when this money has been paid in advance for goods or services which have yet to be provided. No company should have to collect deposits and advance payments simply to trade. The DTI and the OFT should make clear that organisations with insufficient funds to trade without resorting to utilising advance payments are technically trading whilst insolvent. This is because the money should be held on their balance sheet as a liability until the goods or services have been provided.

The government must legislate, if necessary, to require all companies that accept advance payments (deposits, or full payments), from customers, to place this in a secure account. The company must only be able to access this money as and when they have provided the service or goods, much the same as businesses buying another company will have to place the money in an escrow account. The principle is firmly established in business acquisitions, so why not to protect consumers.

It does not have to be as complicated as an escrow account, but there is no reason why advance payments should not be placed into secure bank accounts, which are protected from any creditor claims should a company go into liquidation or receivership and cannot provide the goods or service. Why the government have done nothing is beyond me.

There is no suggestion that XL Airways have done anything untoward and I am not suggesting otherwise. But I wish to make this point. The DTI have the power to take action against any company that has been trading recklessly or whilst insolvent, though they rarely do. What is not clear, is whether the DTI would consider a company that has been using advance payments to prop or fund their business as being reckless. Once again, and I stress, I am not suggesting that XL Airways were trading recklessly. My point is, should the DTI take into account, that if people have lost their money and have not received the goods or services, that that the company may have been acting recklessly? More and more companies now insist on deposits and if these businesses fail, there is rarely any money left for the customers. We have to ask ourselves why.

There is not much point in looking retrospectively, other than to learn the lessons and look at ways of protecting the consumer in the future. In my view, any form of advance payment must be ring-fenced and kept in secure accounts until the goods or services have been provided. And, if a compoany fails to meet this obligation and business subsequently fails, consideration should be given to prosecuting the directors of the company for trading recklessly or whilst insolvent.

I accept that this may affect the cashflow of some existing companies, but that is tough, they will have to look to factoring or some other way of funding their business, or if they have to, close the doors. What is not acceptable is the public having to fund poorly financed businesses.

Recruitment consultants are very short-sighted or inept

Yes, this is a generalisation, but I just wanted to pass on to you the thoughts of a friend of mine. He was a very senior manager and spent a few years doing his own thing, recently he started to apply for some senior management posts (MD, VP, CEO etc).

He told me that many of the recruitment agencies that use the internet simply do not respond, or even provide a confirmation, that they have received your application. Others, will confirm receipt, but send a ’standard letter’ saying that if you don’t hear anything within say 4 weeks, then they are not interested in your application. On top of that, he has told me about some recruitment agencies who conduct a telephone interview and then, once again, provide no feedback. Now he tells me that his experience is limited, given he has only applied for a small number of senior positions, but he has said based on his experience he is appalled at the lack of professionalism shown by recruitment consultants.

Now I know he is not happy with the way these recruitment companies have handled things, but something he said, made me think and maybe the employment agencies should also think on. He has told me that in his view, this type of indifference shown to people that have taken the time to provide a ‘letter of introduction’ reflects badly on the companies that they claim to represent. So he has started to compile a list of the recruitment agencies, some of them very big names and he has made clear, that when he takes on his next role, he will not use these agencies and, if the company is already using them, he will dismiss them. I know him quite well, he is a professional and dislikes anyone that demonstrates disrespect or shows the company he is representing in a poor light, irrespective of whether they are shareholders, customers or employees.

This made me think. Do these recruitment agencies, many household names, have any idea that they are alienating the very people that may shortly be determining whether or not their service is utilised or continued? Now, they may have got away with dealing with more junior people like this in the past, but when it comes to senior appointments, are they wise not to differentiate?

My friend tells me that recruitment consultants invariably charge a very high percentage of the successful candidates salary package as a commission and he can see no reason whatsoever, why applicants cannot be dealt with as individuals. I think he has a point, he has also suggested that he may start to name and shame the “guilty” parties. I guess the recruitment agencies should think on!