Customer Question: How Sound are Processors on FeeFighters?

Recently, a FeeFighters user asked:

After looking at the bids, our accounting team is concerned about the risks of the provider (a) going out of business or (b) for some other reason not giving us the money from our sales. We are handling high volume, so we need to be sure this side of our business is solid. How can I know that that is not going to happen?

Here was our answer:

We do have some smaller processors on FeeFighters, most of them are in the top 100 largest, but not top 5…although we are adding new ones that are larger very quickly. Neither of those is a risk because the processors are all underwritten by FDIC-governed banks. The processors on our site are backed by Wells Fargo, Chase, Harris Bank, etc. big, money-center banks that are very stable. Visa and Mastercard require all processors have that kind of “Sponsor Bank” for precisely the reasons that you highlight.

One Comment

Gotmerchant.com says:

September 2, 2010 at 5:57 pm

To add more clarity, all merchant accounts must be sponsored by a bank that is a member of V/MC. Not all banks are members, generally only the big ones and not your small community banks for sure. The bank holds ultimate risk. If the provider goes belly up and if there are any other company in the lineup before the bank, they take the loss. if they too go belly up, the bank will then take the losses. Banks generally have stiff reserve requirements for ISO’s and processors to ensure this doesn’t happen. Hence the reason why they do not want to cover their loss if they take on too much risk. I have yet to hear of a sponsoring banking taking a hit on an ISO or processor going belly up, generally there are too many companies involved and are on the chopping block to take the hit before the bank ever does.