My Merchant Account Blog

Manually Processing Credit Cards

Wednesday, April 25, 2007

A lot of merchants think they can use their swiped merchant account for their e-commerce solution.  A swiped merchant account is given to the merchant on the pretext the merchant will verify the credit card holder while doing the transaction using Visa's credit card security features or MasterCard's security features. If you suspect suspicious activity during the transaction, you might want to make a Code 10 call.

When a merchant is given a merchant account, the merchant assumes some risks and responsibilities.  These risks are also assumed by the merchant account provider, acquiring bank, issuing bank, and the card associations.  Basically there are two types of merchant accounts - one for your brick and mortar store, sometimes known as a swiped account, an internet merchant account, and a mail-order / telephone (MOTO) account.  The internet and MOTO accounts are sometimes known as keyed accounts.  You will need an electronic payment gateway, i.e. LinkPoint, Payflow, Quantum, or Authorize.net, to help process the transaction.  You can also accept credit cards over the telephone with an internet merchant account because the risks are very similar. 

Higher Risks

You have no way of verifying the cardholder on an keyed account as you would on a swiped account. The risks that the merchant assumes is usually passed through as a discount rate.  Since the risk is greater on a merchant keying in a transaction, usually the merchant account provider will downgrade this transaction.  This usually will result in a higher discount rate being charged on the transaction.

Even More Risks - Storing Cardholder Data

Plus you will need to store cardholder data, which you will need to be PCI compliant, to get the credit card number. Failure to comply could be very costly, especially to the small business owner.

Merchant Account Agreements

Read your merchant account agreement - it might even say that you only will swiped a certain per cent of your transactions a month.  This could be very costly in time making sure you do not violate this agreement.  I have even seen some providers raise the rates to over 3% on a swiped account because the merchant was keying in all of his transactions.  They claimed it was for his excessive chargebacks (he only had one in three years).  He immediately signed up for a MOTO merchant account. 

Savings

Let's say that you have 30 transactions that month at $50.00 each.  So you take time out of your busy day to enter the credit card number into your POS terminal.  And the provider charges you 1.9% on top of your 1.69% that you are already paying.  You would be paying about $63.00 a month for this.  This also does not include any time that you might need to use to call the customer because the credit card transaction failed. 

Internet Merchant Account

With an internet merchant account, you would probably be spending about the same amount of money.  But a few big differences that come to mind are:

• You are not doing anything that is against your contract that could get your merchant account terminated and you end up on the MATCH list
• Your customer knows immediately if his / her ordered was approved or denied
• You have a more professional look - having the transaction processed on your secure website
• You have saved your valuable time
• You can sleep well at night knowing that no credit card numbers will be compromised if your website is hacked
• There is no need to be PCI Compliant (even though it is a good idea), saving you hundreds of dollars up-front.

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