COVID-19 Effects on Merchant Processing- Dealing with Daily ACH and Reconciliation
Three Section Series:
How Merchant Processing Requirements and Guidelines have Changed
Author: Gary Liu
It is no surprise that COVID-19 has dramatically impacted merchant processing. In this post, we will take a look at the major elements concerning Daily Discounts versus Monthly Discounts, and discuss ways we can be proactive in a season of uncertainty.
The Definition and Difference between Underwriting and Risk:
Prior to approval, Underwriting monitors incoming applications and analyzes the risk involved when signing with a merchant. Once the merchant is approved, their activity, which could be anything from the type of transaction to its amount or volume, is monitored. This is put in place to ensure that the merchant follows the guidelines they were approved for.
If the amount and volume of a transaction turns out to exceed the amount that was originally approved and red flags are raised, Risk will place a hold on the account. The hold will remain on the account until processors are satisfied with the merchant’s response.
A Look into Daily Discounts vs Monthly Discounts:
A Daily Discount is when the merchant chooses to pay for their processing fees on a daily basis. Whereas a Monthly Discount is paid at the end of the month. When the merchant pays their fees on a monthly routine, the processor holds all liability until the merchant fees are paid for. However, if a merchant chooses a Daily Discount, it poses a lower risk for a processor because the fees are regained through smaller transactions.
How Underwriting has Changed:
Due to the impact of COVID-19, the risk of merchants shutting down has dramatically increased. As previously stated, merchant processors hold all liability when merchants pay their fees at the end of the month. Noting that these are fees which have already been paid to card brands by the merchant processor, the processors subsequently adopt the risks when a merchant signs up to accept credit card processing. In an attempt to limit any liability risks for processors, merchants are increasingly “being boarded” to Daily Discounts.
How Risk has Changed:
Knowing that risk will place a hold on an account, there is, understandably, a delay in funding from the merchant processor. Additionally, holds are influenced by ACH Monthly Rejects, which are merchants who fail to pay monthly fees due to a lack of funds or banking issues.
The effects of COVID-19 have also caused a delay in turnaround time. In regards to bank changes and overall transactions, merchants are being closely monitored. Proactive steps have been put in place to ensure the safety of account changes and to avoid any fraudulent activity. During such a time as this, the goal is to maintain security and make sure that merchants are not acting out of desperation and conducting unapproved sales. After grasping the situation at hand and the plan to move forward, the steps below will communicate how to set up a MX Merchant Account.
How Your Merchants can reconcile daily discount using MX Reporting
Author: Robert Copeland
After gaining a stronger understanding of the purpose behind current changes in merchant processing, the next step is to provide your merchants the tools to reconcile. Below, is a walk-through for creating a MX Merchant Account and finding the right reports to set merchants up for success.
Creating an MX Merchant Account
Before merchants are able to log in to MX Express, they will need to create an MX Merchant Account by following the steps below.
Head to mxmerchant.com
Click the "Sign In" link in the top right of the screen
Click the "Create New User" link the right toolbar
Your merchant will need to enter an email Priority Payments has on file. Once they click "Verify" They will receive an email to create a password and complete the setup.
How to Reconcile in MX Merchant if the merchant is on Daily Discount
Once Logged into MX Merchant, Merchants should click on “Reports” on the left-hand side of the screen
Click on the report called “Batch”. The batch amounts should match to the reports that the POS system or stand-alone terminal provided at the end of the day.
To compare the batch amount to the amount sent to the merchant’s bank, the merchant will navigate to the ACH Funding report. For merchant’s on Daily Discount, this report will show fees that were taken out of the batch before being deposited into the bank account.
The Number of rows that you might see will vary based on the card brands that where taken during that day of processing.
The merchant can confirm this amount by adding the fees back into the deposit amount to ensuring the money deposited matches the reports from the POS or terminal.
Best Practices for Boarding Merchants as a Result of COVID 19
Author: Nichole Kazenske
To avoid a delay in merchant application approval, below is a list of ways to be proactive in the boarding process. The goal is to effectively prepare you and your client for Underwriting while maintaining accuracy and account safety.
Avoiding Pends on Merchant Applications
Please be aware that the underwriting department has a 24-hour review period for pending applications prior to their approval, which may result in a delay in processing. To help minimize any frustrations from either party, checking the items below may be useful in expediting the process.
Is the merchant’s credit locked or frozen?
If their credit is locked, they will need to either a) open their credit during the application process or, b) ask the PRM team to request a verification call if there is push back from the owner. An additional option would be to ask for their most recent credit report.
If the owner’s credit is frozen, they will need to unlock their credit based on Federal Regulations.
Has there been a change in the merchant’s home address?
If the merchant’s home address is new, request a copy of their driver’s license or utility bill.
Is the merchant’s business and/or bank account new?
If the merchant’s business is new, they will most likely need to provide a business license, articles of incorporation, or pictures of the merchant’s signage. If the signage is not yet installed, a photograph of the business with a sign on the door or window will suffice.
If the bank account is new, request a copy of a blank, voided check, or a bank letter. It will likely come back on the GIACT report with No Data available.
Setting Merchant Expectations
I believe it’s safe to say that the days of manual imprinters ruling the world of transactions are long gone. The processing industry has shown tremendous development in terms of technological advancements, pricing programs, accessibility, and so much more. We’ve seen merchants gain knowledge, as well as search engines, such as Google, provide information to those who aren’t as informed. Today, we have the ability to fund a business within 1-2 days, depending on the type of merchant and the sponsor bank affiliated. That said, the weeks spent waiting for carbon copy receipts to be sorted and daily funds to be distributed are finally behind us.
While there have been advances in every sector of our industry, the effects of COVID-19 have regressed those advancements in one category specifically; Underwriting. Concerns over fraud and merchants going out of business have forced the hand of most, if not all, Underwriters to process with caution when it comes to account approvals. As a result, we have also been forced to regress in the way a merchant application is signed, received, and submitted.
Prior to COVID-19, merchant processors were at a point where everything, from background checks to banking verifications, was handled electronically. We had the ability to send an application and request nothing more than a digital signature in return (barring no obstacles with information found through the electronic processes). Our unwelcome guest, COVID-19, has changed that.
Presently, additional detail is being given to each and every applicant and, whether warranted or not, further scrutiny as well. “Did the merchant recently move?” “Why is their banking coming back with this response?” “They don’t qualify for Next Day Funding during these times” and my personal favorite “Please provide a copy of their business license or lease agreement.” We feel your frustration, we hear you, and we want to help. The purpose for this article is to shed light on best practices and provide the resources to avoid future frustrations.
Until we are certain this pandemic is behind us, here are our recommendations for setting the expectations with your merchants and what to do in light of these changes. Keep in mind, the Underwriting department has an SLA (Service Level Agreement) of 24 hours to review any Pended Application that goes back Under Review. Asking for this additional information up front will minimize your frustration, as well as the merchant’s, and expedite your approvals.
Request documentation to accompany the application. Examples are as follows:
A Void Check or Bank Letter - This will verify the routing and account numbers being used for transferring funds.
A Copy of a Driver’s License or Utility Bill - This will confirm a recent address change.
A Copy of a Business License - In the case that a Business License is unavailable, photographs of the interior and exterior of the business will suffice.
Request 2-3 months of previous processing history - This will support a request for Next Day Funding.
Request 2-3 months of recent Bank Statements - This will support volume, average and high ticket parameters, and a request for Monthly Discount for billing.
Inquire whether or not the merchant’s credit report is locked or frozen. This request has been in place since the FINCEN Ruling took action in 2018. Underwriting will need to do a check during the approval process. However, immediately after, the merchant can lock it or freeze it again.
We understand that this may feel excessive. Nonetheless, the reasoning behind it is to effectively prepare you and your prospective client(s) for Underwriting, and avoid the need to continually ask them for additional documentation. Ideally, this process will save you time and, subsequently, help you create the margin you need to focus on other important business matters.
Our time is our greatest commodity. It cannot be manufactured or replicated so, if time is money, then let’s stop wasting one and start earning more of the other.