Card Fronters and why billers' card acceptance costs are significantly increasing

A Card Fronter is an unauthorized intermediary between a biller's customer (e.g. policyholder, insured, payer, etc.) and the biller (e.g. utility, insurance company, etc.), who facilitates payments between the biller's customer and the biller using the Card Fronter's Commercial Card.

The Card Fronter accepts a payment amount in one tender type (e.g. cash, ACH, debit card, etc.), exchanges the tender type for a physical or virtual corporate card, and then makes a payment on behalf of the consumer or corporate customer with the Card Fronter's Commercial Card, and does so to obtain the rebate on the commercial card transaction at the merchant's expense (e.g. higher Discount Rate, which equals interchange + network fees + other merchant processor costs).

This approach can change a relatively inexpensive online banking bill payment, ACH Debit, regulated Debit Card, consumer credit card transaction with a utility rate, etc. into an extremely expensive Commercial Card Not Present transaction (e.g. ~2.83%+), lose information related to the customer making the payment, and is generally not in the customer's interest, especially if a refund needs to be processed and has to be sent back to the virtual Fronter's Commercial Card, to which the customer has no relationship.

This approach can significantly and negatively impact the cost of card acceptance. One utility recently informed me their cost of absorbed card acceptance went from $1.90 per card transaction to $3.90 in one month because of this practice, dramatically increasing their expenses for accepting cards, which had not been budgeted for internally, and was not included in previous Rate Cases with their Public Utility Commission.

Illustrative Action Items for Billers' Consideration:

1. Indicate within Terms and Conditions online and on physical statements that payments made through electronic channels (e.g. IVR, online, CSR) are for customers only and are not for non-customer third party commercial entities. Make other adjustments as your Legal Counsel advises.
2. Enhance anti-fraud detection capabilities across all electronic channels receiving card payments to examine the source, device, channel, form of payment, etc. of originated payments and make appropriate adjustments to anti-fraud rules and velocity limits.
3. Report suspected, unlicensed Money Service Businesses conducting money transmissions to the appropriate State Division of Banking and/or federal authorities (e.g. FINCEN) where you believe interstate transactions are taking place without appropriate licensing.
4. Discuss other potential actions with your Legal Counsel.

Avoid using the BIN to block the use of a Commercial Card as BIN tables are used only to detect the type of card being used and not for other uses. If excluding a Card Fronter's Commercial Card from a channel, ensure the Card Fronter is prevented from using a different tender type in the same channel to which the Terms and Conditions apply.

Note: This article contains the opinions of the author. The information presented is not legal advice, may not be current, and is subject to change without notice. Consult with your Legal Counsel for appropriate actions and next steps.