If you’re a property manager, you’re probably already aware that several merchant service companies refuse to work with property management businesses. This situation makes it extremely frustrating for property owners and landlords, as well as renters. With limited transaction services, it can often be difficult for property managers to find an available payment processing venue, even for transactions as simple as accepting a monthly rent payment. That’s why you need to work with a company experienced with property management credit card processing.

Why won’t merchant processors work with property managers?

What do payment processing companies have against property managers? To begin with, from a business perspective, property management transactions are considered “high-risk” transactions for merchant payment services. You may counter this by saying, “My credit is great, and my tenants always pay on time, so what’s the problem?” But unfortunately, the high-risk designation doesn’t have much to do with a payment track record or tenant reliability. Rather, it concerns the entire method of transacting a property payment, beginning with the way it’s initially processed.

Here are three reasons why merchant services and credit card processing companies won’t work with landlords:

Virtual transactions

Property management companies often transact business over the phone or via email, in a less concrete way than a retail business does. This type of virtual transaction poses more risks for merchant service providers.

Higher payments

Rental transactions typically involve more money than most simple retail transactions. The more money involved, the higher the risk for the bank or merchant processing company.

Credit card chargebacks

Credit card chargebacks often occur among renters. Sometimes it’s because of a dispute with the landlord, and sometimes it’s because renters break their lease. Whatever the reason, these numerous chargebacks not only create headaches for landlords, they also create major problems for merchant processing companies, making this a prime obstacle for property management credit card processing. Additionally, chargebacks can work the other way as well. For example, sometimes a landlord has to deal with property damage, such as a broken window, that the tenant is responsible for. In these cases, property managers have to create “tenant chargebacks” so the full amount is charged to the renter. From 2013 to 2016, the percentage of tenant chargebacks rose from 2 percent to 25 percent — numbers that make this another major consideration for merchant processing companies.

Why won’t landlords work with merchant processing companies?

There’s a flip side to this situation as well. Some property managers prefer not to deal with merchant processing companies. The reason? High fees. With higher risk involved, merchant processing companies often charge landlords a higher fee, making it far less cost-effective for landlords to use property management credit card processing.

Consider this: Whether it’s Visa, Mastercard, or Discover, all credit card companies tack on their fees, in addition to the processing fees charged by the merchant processing company. This leads to an even greater loss of profits for property owners.

Is this an insoluble situation? Fortunately, the answer is no. While most merchant processing companies still aren’t willing to work with property management accounts, the good news is that the tide is turning in the right direction, with the emergence of specialized, high-risk merchant account processing firms.

How high-risk merchant account processing works

For any so-called “high-risk” account, a merchant processing company needs to have its own, instantly accessible network of banks, credit card processors, and other financial management entities that will underwrite that particular high-risk industry. For example, in the high-risk world of real estate, some banks are specially equipped, both financially and administratively, to underwrite real estate transactions, despite the risk involved. For real estate, these risks can include everything from appraisal disputes and payment defaults to natural disasters that can endanger or even destroy the property.

Likewise, rental property management involves similar risks, and similar underwriting considerations. And in both cases, the keyword is “underwriting.”

Underwriting refers to the process of taking on financial risk for a third party, typically in return for a fee. Essentially, an underwriter is a financial backer with the capability of absorbing a loan in case of default.  A payment gateway company relies on its network of banks and credit card companies that can underwrite, and absorb the costs, of commercial financial transactions.

In the case of property management and other high-risk accounts, it’s necessary to find a specialized merchant processing company that has sufficient underwriting so that it’s willing and able to take on these higher-risk clients.

Risks for short-term rental property managers  

For merchant processing companies, short-term rentals such as hotel rooms and vacation homes provide a particularly high risk, especially due to the havoc caused by the pandemic on the tourism industry. Due to lockdowns and personal health concerns, unprecedented numbers of tourists have had to cancel their vacation plans, which has resulted in a larger number of chargebacks on short-term rental transactions. Some of the chargebacks are due to “undelivered services,” where renters have had to cancel their reservations and are requesting refunds. According to fulfillment credit card protections, these renters are usually entitled to a full refund on any payments made; but this has resulted in huge losses not only for property managers but also for credit card companies and merchant processors. It’s worth adding that, even in pre-pandemic times, there’s always been a fair amount of vacation reservation cancellations, so this isn’t exactly a new problem for the tourism industry, just a heightened one. And as such, it’s another primary reason why property management credit card processing services are typically denied.

Benefits of using a merchant processing company

Landlords and property managers not only have to oversee every little detail of their rental properties, but they also have to deal with large sums of money every month. This duo role of property manager and banker isn’t easy for anyone, no matter how long they’ve been in the business. On the financial side, it involves pinpointing accurate bookkeeping, as well as numerous tedious banking necessities that, over time, can get overwhelming if they’re not managed well.

Essentially, a merchant processing service provides landlords and property managers with significantly better money management tools, plus the huge benefit of being able to accept credit cards. It also mitigates the occurrence of bad checks and provides greatly enhanced customer service to your tenants.

If you’re a landlord or property manager, here’s a look at the top benefits of using a merchant processing company:

Convenient e-checks

By using a merchant processing company, you won’t have to deal with physical checks, which can be a hassle for landlords as well as tenants. Instead, as one of your payment options, you’ll be able to take e-checks, which are much more convenient and offer less risk for both tenants and landlords. By eliminating traditional check payments, you’re not only getting rid of unnecessary paperwork, but you’re also mitigating the occurrence of bad checks, which are often more a result of a tenant’s faulty bookkeeping rather than tenant insolvency.  

Property management credit card processing

You’ll be able to accept credit and debit cards, thus eliminating the risk of traditional checks, while also making payments much easier for tenants. By allowing tenants to use credit cards, landlords have a better chance of being paid on time every month.  

Up-to-date payment tracking

Merchant processing companies can track all submitted payments immediately, from the moment they’re received. This means that you’ll have up-to-date records of all payments without any annoying lags or delays. Plus, this enables you to accurately assess when it’s time to impose a late fee on a tenant.

Professional management tools

A merchant processing company will provide you with the extra tools you need to deal with tenants in a professional, courteous, businesslike fashion. It also eliminates the need for intrusive phone calls and tenant visits, memos, and other time-consuming interactions that you’d prefer not to do. In addition, you’ll have access to strategic management tools, such as email invoicing and email receipts, that will help you keep track of payments.  

Multiple payment options

You’ll be able to offer a variety of quicker, easier payment options to your tenants, either through credit cards, e-check, mobile apps, or online payments made through a secure processor.

And speaking of security…

Keeping your account secure

Thanks to vastly improved financial security protocols, such as point-to-point encryption and tokenization, merchant account services have become safer and more secure than ever before. These cybersecurity technologies enable merchant account processors to protect their clients against today’s biggest threats, including cyberattacks and data breaches.

Tokenization works by substituting a client’s payment details — such as bank and credit card account numbers and CVV codes — with randomly generated ID markers called “tokens.” These provide complete anonymity for account users.

Likewise, point-to-point encryption, as the term indicates, involves complete encryption of all credit card data, from the time the card is swiped and processed through its final approval. As with tokenization, this process ensures that all client data is completely unidentifiable.

Tools like tokenization, encryption, and enhanced security software help ensure the safety of property management credit card processing, e-check payments, mobile app payments, and other types of online payment platforms.

What to look for in a merchant processing company

High-risk merchant processing companies differ in services and acceptance eligibility, so it’s important to find one that’s best suited for your property management needs. Here’s a quick primer on what to look for:

• Make sure that it serves the property management industry. While high-risk merchant processing might seem like a one-size-fits-all proposition, in reality, these firms can be extremely selective in choosing which industries to work with. For example, while many high-risk merchant account companies have begun to take cannabis merchant accounts, others still won’t accept them. Likewise, some merchant processing firms don’t have the necessary underwriting to accept property management clients, or else they might provide only a limited roster of services to landlords.
• Look for a company that offers next-gen, latest-and-greatest fraud protection. This includes the security protocols mentioned above, as well as other types of secure payment platforms that follow the industry standard for trustworthiness.
• Make sure the company offers recurring billing. As the name implies, recurring billing is an automated system that bills customers on a regularly recurring cycle each month. This provides landlords with a sophisticated automated rent collection system that eliminates extra bookkeeping and invoicing. And by offering a consistent, dependable payment format each month, recurring billing can maximize collections by helping tenants plan and budget their incomes more efficiently.  
• Choose a merchant account processor that has honest pricing. It’s worth noting here that high-risk accounts do cost more for processors to manage, so services typically incur higher costs than they would for low-risk accounts. These extra costs might include higher account or processing fees, early termination fees, or higher chargeback fees. However, a reputable company will provide full, open disclosure on these fees, and follow an honest pricing structure that includes:
  • No hidden fees: Some merchant account processors charge authorization fees, as well as refund and statement fees, and even PCI-compliance fees.
  • Consistent card rates: A good merchant account processor will accept all the main credit cards — Visa, MasterCard, Discover, and American Express. Plus (and importantly), a reputable payment gateway company will charge the same rate for every credit card.
  • A good merchant account processing company will not only offer property management credit card processing but will also facilitate payment processing through a variety of electronic payment platforms, including online sites and mobile apps. Likewise, e-check processing is also an added benefit for landlords as well as tenants.

If you’re ready to enjoy the benefits of easy, streamlined online rent payments for your property management business, Zenti can help. By providing property management credit card processing, as well as other convenient payment solutions, Zenti can help you reduce your chargeback ratio, eliminate paperwork and bookkeeping, and increase on-time collections from your tenants. To find out more, be sure to visit contact us and learn how our team of experts can help your high-risk property management company get the merchant processing services that it needs — and deserves.