By Ken Musante
Humboldt Merchant Services
A major processor was taken offline recently because of the actions of a contracted security guard. In a second incident, merchants were unable to receive authorizations due to problems caused by a processor's telecom provider.
And third, Humboldt Merchant Services' former parent banking organization was taken over by the Federal Deposit Insurance Corp., and HMS is now being acquired by Moneris US. While our situation has not impacted our sales partners and merchants, HMS staff have been adjusting to accommodate this change.
These cases are similar because, in all three examples, there was negative impact caused by a third party. A contracted security guard kicked the plug from the wall, shutting down the processor's ability to serve its clients. I would estimate the number of merchants impacted was over 1 million.
It's incredible to think that one contracted individual could shut down a major processor, adversely affecting a huge number of merchants, the processor's clients, cardholders and the processor itself.
In the second example, a long distance provider temporarily failed, interrupting a processor's ability to provide authorizations to its merchants. This occurred during the peak Friday night dinner hour for East Coast merchants.
The slight increase in monthly or transactional fees for having a ready and available backup would seem an incredible bargain to an upscale merchant who is unable to process transactions during a Friday evening dinner hour.
From the HMS example, I can relate that having a backup sponsor readily available would have lessened the impact on our staff when our parent banking organization was taken over.
Regardless of how well-run any organization is, we are only as strong as our partners and vendors. We can spend all the time and money we wish to board and sell new merchants, yet if our service vendor is performing poorly, those merchants will move to another provider.
We can partner with the least expensive processor available, but if that processor does not have backup or has an inordinate amount of outages, what good is the savings? Even when we have a rock-solid partner, if that partner is providing a critical service, it's best to develop a backup provider. It's impossible to thoroughly inspect and audit all of your existing partners or vendors, but there are easy checks to use going forward.
Following are time-tested inquiries to aid in assessing potential partners. These should augment financial, legal and association compliance reviews:
Finally, talk to your network and listen to your gut. The above questions will likely reinforce the decision that you have already reached. Following these steps - while also ensuring you have a backup for critical services - will protect the value of your hard-earned investment.
Ken Musante is President of Humboldt Merchant Services. Contact him by e-mail at firstname.lastname@example.org or by phone at 707-269-3200.
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