My Merchant Account Blog

Small Businesses Processing Credit Cards Like Large Corporations

Sunday, January 16, 2011

Most merchants are also customers online at one time or another.  The merchant probably goes online to purchase just about anything.  And as a merchant, you probably take notes on how that merchant's e-commerce website works - especially the check-out procedure.  When you enter your credit card number, you might notice the website will reject your order immediately if you accidentally did not enter enough or too many numbers in the credit card number field. 

This is one of the options to consider adding before trying to get approval from the merchant account provider.  Credit card numbers are determined by a specific algorithm - this is called the Mod 10 or Luhn's method (How Credit Card Numbers Are Determined).  You can ask your programmer to implement this feature.  By doing this, you prevent the transaction from going to the electronic payment gateway, saving you a transaction fee.

Also, have the developer add a feature to check the expiration date - to at least verify the credit card number has not expired.  If you use a drop down menu, sometimes the customer might click too fast and not notice.  For example, if the customer is placing an order today, and their credit card expires in December 2011.  When choosing the date, the customer might accidentally choose 2010.  This is another check that can be added to help save you a transaction fee.  Sometimes, the electronic payment gateway might actually approve the transaction, but you might get a chargeback from the issuing bank.

Once you have determined the credit card number matches the basic algorithm and the expiration date is valid, you are ready to submit the transaction to the electronic payment gateway.  Once this happens, you might get a dialog box that refers to Verified By Visa / MasterCard Secure Code (VBV / MSC, verifying ) (Verified By Visa-MasterCard Secure Code-Things You Should Know).  Implementing this feature can actually protect you from a certain type of chargeback.

Credit Card Acceptance

Friday, January 14, 2011

Whether you are just starting a business or have owned a business for years, you probably will want to accept credit cards.  Merchants who are just starting up seem to be somewhat fearful about credit card processing.  They think that it is a long ordeal.  Usually, this is not the case for most merchants.  Being approved for a merchant account is usually pretty simple, especially if you are doing less than $30,000 a month and not selling anything high risk.  North American Bancard is an example of a credit card processing company that specializes in small business.  (Each merchant account provider has its own definitions for high risk, so read through their Acceptable Use Policy and Terms of Service - this should tell you what services / product cannot be supported.)

Applying for a Merchant Account

As we previously wrote, You Are Approved for a Merchant Account in Less than 24 Hours, be wary of these companies - they will approve you for a merchant account, but after a few days of vetting the merchant, the provider might decline your application.  When applying for a merchant account, the provider will look at a lot of things and this depends on if you are a new merchant or you have been processing with another provider. 

For example, you might be on the TMF List / MATCH.  On your merchant application, you might say you are not on this list.  Once the provider finds out you are on this list, you probably will not be approved - or your account will be terminated / suspended if the provider sets you up in less than 24 hours.

Merchant Account Application

On the merchant application, you will be asked a few questions regarding your transactions and monthly volume.  If you are just starting out, it is difficult to answer these questions.  You might hope that your monthly volume will be $500,000, but depending on your business model / advertising, etc., it might take you over a year to reach this goal.  Try to be realistic in these figures when you are entering these numbers. 

Merchant applications vary, but all should ask the monthly volume.  Some applications will ask you for the highest transaction and the average transaction.  One important factor in this - if you enter $1,000 for the highest transaction, and you get an order for $3,000 - you will want to scrub / vet the transaction.  Once you have verified the transaction is legitimate (Fighting Fraud in your E-Commerce Store and Preventing Online Fraud), you will want to contact the merchant account provider to let them know about the transaction (It is My Merchandise and Services Its My Money or Is It).  Tell the merchant account provider what you did to vet / scrub the transaction and ask for a reference number (this will help you in case something happens).  The merchant account provider might also verify the transaction or put a hold on the funds for 24-48 hours while this is happening. 

Committment / Contractual Period

The last, and most important item to note in this post - do not apply for multiple merchant accounts at the same time.  Apply for one and wait.  Some merchant account providers require a contract - we have seen providers requiring anywhere from six months to three years.  If you happen to sign up with a merchant account provider (Company A) that requires a three year commitment and another one (Company B) that requires you a one year commitment - this alone might put your business at risk before opening your doors. 

For example, Company A might have a customer service / statement fee of $10.00, a monthly minimum of $25.00, and an electronic payment gateway of $10.00.  Company B charges you a customer service / statement fee of $10.00, a monthly minimum of $15.00, and an electronic payment gateway of $10.00.

If you choose to stay with Company A (since the contract is three years), you end up paying Company B a total of $420.00.  You might decide to possibly even split the transactions, using one provider the first half of the month and the other provider that last half of the month.  This might work, but again, some providers have an exclusivity clause.  If this is the case, you might be in breach of the contract. 

If you just decide not to pay Company B or use both (possibly violating the merchant account agreement), the merchant account provider could put your company on the TMF List / MATCH - causing you more problems.

This post is sponsored by North American Bancard.

You Are Approved for a Merchant Account in Less than 24 Hours

Saturday, December 18, 2010

Being approved to accept credit cards on your website in less than twenty four hours sounds like a good idea.  Unfortunately, the merchant account processors cannot check the business to see if they are eligible for a merchant account.  Sometimes this can take usually three to four business days.  Some merchant account providers will give the merchant an account, hoping the merchant has answered the questions on the merchant account application truefully.  Sometimes this is not the case and by the time the merchant account provider has found out, the provider can be out thousands of dollars.  I have seen merchants approved in less than twenty four hours, and then four days later, then merchant account is terminated - either the merchant is on the TMF / MATCH or has other credit / financial issues.

By the time the underwriter finds this out, the provider could be out more than $100,000.00.  The merchant either closes the bank account or moves money to another bank account so the provider cannot retreive the money.  The customer requests a refund (chargeback) and the merchant account provider is unable to get the money back from the merchant.

How Much Money Did the Provider Lose?

The amount can vary of course, depending on the transaction rate / discount rate  / batch fees etc.  Some merchant account providers will give the provider a merchant account almost immediately if the volume is less than $30,000.00.  So let's base some figures on this.

During the Cyber Monday, 82 sites were shut down by Federal Agents.  Let's assume the just these merchants were able to process $30,000.00 each day for three days, $100.00 for each transaction, and the same provider opened each of these accounts:

The Fees and Losses

• $7,380,000.00 - Volume
• $161,662.00 - discount rate (2.19%)
• $18,450.00 - transaction rate (25¢)
• $61.50 - batch fees (25¢)
• $22,500.00 - Chargeback Feess ($25.00)

This adds up to $7,582,673.50 - chances are pretty good that merchant account providers lost a lot more money unfortunately in the past month.  The providers want the business, however without doing a thorough check on the merchant, the provider will possibly lose money.  To recuperate this money, the provider has to make it up somehow - usually by raising the fees of its current merchants.

When you take an order on your website, you scrub the transaction with different tools that are available to you.  You want to make sure the transaction is not fraud.  Otherwise, you are lose your product, time, and money.  Usually, the merchant account provider charges you a chargeback fee.

There are many things that you look for when applying for a merchant account (Cheaper Merchant Account Provider, Merchant Account Agreements, Choosing a United States Merchant Account) but most do not take this into consideration.  There are even merchant account providers that will actually charge you more if you do not use the most basic fraud prevention tool Address Verification Service (AVS) for United States consumers.

Changing Merchant Account Providers

Friday, December 25, 2009

Changing merchant account providers can be very tedious at times, but it might be well worth it if the new merchant account provider is giving you more fraud prevention tools to prevent chargebacks and fraudulent transactions.  Unfortunately, these tools are built into the electronic payment gateway which is usually the reason some merchants do not want to change.

Electronic Payment Gateways

The electronic payment gateway (Quantum Gateway (recommended), Authorize.net (recommended), Payflow, LinkPoint / YourPay / First Data Global Gateway (not recommended)) is basically the virtual connection between your website and the transaction processors / card associations.  This can be compared to the point-of-sale (POS) terminal found in most retail businesses today.

Usually, if you have been processing with another provider and you have a good history (low chargeback ratio, etc), your merchant account will usually be approved within a day or so.  We recommend that you keep your other merchant account provider until the new merchant account provider has approved you.  We also recommend that you get a test store from the electronic payment gateway (if applicable) so you can test the connection.

If you are only changing merchant account providers and not the electronic payment gateway, you can just sign into the electronic payment gateway control panel and update your new merchant account identification number.

Merchant Accounts and Electronic Payment Gateways

Wednesday, August 19, 2009

When starting a business on the Internet, usually that business wants to make money.  It's up to the business owner to consider varying methods to collect payments from their customers.  If the business owner is based in the United States, he will usually have more options available to choose from (as compared to owners in other countries).

Merchant Accounts and Electronic Payment Gateways

Most owners will probably consider a merchant account, while others will look for an Internet Payment Service Provider (IPSP).  Simply put, the merchant account will allow the merchant to accept credit cards (Visa, MasterCard, Discover, American Express, JCB, etc).  However, if the business is online, it needs a way to communicate with the website and a transaction processor.  This is called an electronic payment gateway.  This could be compared to a POS terminal for a brick and mortar merchant account (aka swiped merchant account).  Some merchant account providers, like CDGCommerce, have developed their own gateway (Quantum Gateway) while some merchant account providers outsource this to other companies.

Having your own merchant account can be very beneficial to the merchant.  Most electronic payment gateways offer an API to process the credit card transaction on the merchant's website.  This helps to maintain a consistent checkout process without re-directing the customer over to another URL.  Usually, the timeframe to get the money from the transaction is two to three business days.  This time can be critical to some businesses depending on the cash flow.  The name of the merchant will also appear on the customer's credit card statement.

Merchant Account Fees

Some merchants might think it is too expensive to get a merchant account.  Some companies do charge more for about the same type of services.  Some will require a contract, a termination fee (even if the contract has been met), a set-up fee, or an application fee.  However, one merchant account provider, CDGCommerce, charges $10.00.  This includes the Quantum Gateway.  There is no monthly fee, customer service fee, or monthly minimums.  Most merchant account providers will charge $10.00 - $50.00 a month for a monthly fee or customer service fee.  Some might even charge a monthly minimum.

Electronic Payment Gateway Fees

The fees for an electronic payment gateway can vary, ranging from $10.00 to $100.00 or more a month, depending on the "extras" you choose.  For example, Authorize.net / Cybersource might charge 10¢ for each transaction.  Some resellers are able to get you 250 free transactions a month, and then charge a fee for each transaction.

The Quantum Gateway however does not charge for any transactions, periodic billing, or its QuantumVault (which allows the merchant to store credit card numbers in a secure environment - on Quantum's servers, allowing the merchant to charge it's repeat customers the same amount, or varying amounts each billing cycle.

One of the larger advantages to using the Quantum Gateway is its security and fraud prevention features built right into the gateway to help merchants reduce chargebacks.  Unlike most other gateways which might charge extra for each service, the Quantum Gateway does not charge extra for the features.  Compared to the LinkPoint / YourPay Gateway, (aka First Data Global Gateway - they renamed the gateway but did nothing to improve it), the Quantum Gateway is far superior.  First Data had a chance a few years ago to improve on its services when the gateway was completely rebuilt, but unfortunately First Data did not take advantage of this and merchants still have problems preventing fraud online.  Built right into the Quantum Gateway is MaxMind, DialVerify, and Verified by Visa / MasterCard Secure Code (VBV / MSC).  Unlike before, where you would need to have a developer integrate these extra features, all you need to do is integrate with the Quantum Gateway.  The gateway will then scrub (vet) the transaction before it hits the Quantum Gateway.  This saves the merchant a transaction fee (imposed by the merchant account provider) if it fails the process.

Your Merchant Account and Your Growing Business

Saturday, January 17, 2009

You have purchased a domain name, found a good web hosting company, and found a product that you think you can sell.  Now it is time to think about accepting credit cards.  Normally, some people might think of going to their bank to get an Internet (keyed) merchant account.  Some banks might just tell you they refer merchants over to merchant account provider (ISO / MSP) since getting an Internet merchant account also requires having an electronic payment gateway.  And all you needed was a way to accept credit cards on your web site.  Unfortunately, this is a pretty large step and many companies are involved in a credit card transaction on the Internet.

You finally sifted through all the companies, listened to sales people tell you why their company is better and you have decided on a ISO / MSP and an electronic payment gateway.  The ISO / MSP needs you to complete an application.  Now, if you decided on a company based solely on a typical sales call, read the contract completely.  It will be very detailed, explaining all the fees that are involved and if there is a contractual obligation.  Even if the salesman told you it is month to month, make sure it is.  Some will tell you it is month to month, but you might find the provider wanting a three-year agreement.  So what if you business tanks in six months - the salesman made the sale and got the credit.  Now you are stuck with a merchant account for thirty months.  It could cost you upwards of $1,000 or more to cancel the contract and to make sure you do not end up on the TMF / MATCH List.

Once you have completed reading the contract, making sure it is everything you thought it would be, you are ready to start the process.  It wants a lot of information, your DBA, the EIN, your address, phone number, e-mail address, how long you are in business, if you have had a merchant account before, how much monthly volume you expect, your average ticket amount.  Now wait a minute, if you are just starting a business, how do you expect to know how much volume you will be receiving?  You hope a lot, of course but being realistic, it might take a few months before you turn a profit.

Monthly Volume

Well what number should you enter into this field?  Does it make a difference?  Should you enter a number higher or lower than what you think?  Some good questions to ponder. 

Well, it does make a difference in the number you enter.  And it makes even a bigger difference if the average ticket is a large amount.  For example, if you enter $20,000 for the monthly volume and $5,000 for the average ticket, the ISO / MSP will look into this account a bit more.  One chargeback could easily push you over the chargeback ratio, thus having your merchant account suspended or even terminated.

Merchant Account Suspended

Let's look at this a bit differently.  Most ISOs / MSPs in the United States will approve your application pretty quickly if it is under $30,000 a month and you are not selling something they consider high risk.  Some sales agents will tell you to enter what you think you will be doing in six months.  Merchant account providers are in business to make money - most businesses are.  The provider is the one who will have to pay the money back to the consumer if the merchant turns out to be fraudulent.  They are the ones that monitor the merchant's activity.  If there is a significant increase in volume and transactions, this could raise a red flag to the provider.  The ISO / MSP might think you, the merchant, is doing something dishonest and might want to review your account.  This is very typical - it helps to protect the provider.  The provider could suspend some of the transactions while they verify the transaction with the consumer.

If you call the ISO / MSP to let them know of this increase before it happens, things will usually be a lot easier.  For example, maybe next month you are considering doing an advertisement on the local radio.  You hope this will increase your sales.  And you don't want anything to hinder your company from getting the money from those sales.  The ISO / MSP might ask that you fax over the receipt from the radio station as confirmation.  Fax that over and maybe the next day, follow-up with a phone call to make sure everything is OK.

The ISO / MSP might also ask that you fax over a copy of your bank statement and complete a request for a limit increase.  Do this right away to ensure no funds are held.  Follow up with a phone call the next day or so, and always document who you spoke to - get their name or ID number.  I am not saying that a ISO / MSP will do anything negative, it's just always good to have documentation.

Merchant Organic Growth

Another factor in growing is time in business.  Hopefully your business grows month-to-month, year-to-year.  Usually, merchant account providers will take this into consideration.  For example, I spoke with Chris over at CDGCommerce recently about this.  He said that usually no action is taken on a merchant if the volume increases slowly over time.  He called it "typical merchant organic growth".

Consider this - each merchant is different.  Each ISO / MSP is different.  I know that most like certainty - something like the Pythagorean theorem if you will.  Unfortunately, there is not a formula for them (merchants and merchant account providers) to just enter a couple of numbers into to get a specific answer.  Everything is on a case by case basis.  A considerate and polite attitude always helps as well.  I know these matters can be very delicate and patience might be needed from time to time. 

If you see your business growing as the example above, it won't hurt to pick up the phone and call your ISO / MSP.  I know, why bring attention to your account - things seem to be going OK, money is going into your bank account daily.  But you are an honest businessman doing a hard day of work, so you have nothing to worry about.  This will show the ISO / MSP you understand how much you respect having the account and you want to make sure you are playing by all the rules.

The Players in an E-Commerce Transaction

Thursday, January 08, 2009

When you get a merchant account, you usually let the merchant account provider know what card types (Visa, American Express, MasterCard, JCB, Discover, etc) you would like to accept.  This usually permits the e-commerce merchant to accept any cards that display this logo, even debit cards (you might need to check something on your merchant account application for the debit cards).  Accepting these cards, credit / debit, and at least Visa / MasterCard, will allow you to sell to most everyone.

If you start to think about accepting credit cards, you might only be familiar with your merchant account provider, the electronic payment gateway, and the consumer.  However, there are a few more companies involved in the transaction.  We will take a look at some of the companies and their function in a (Visa) e-commerce transaction.

E-Commerce Merchant

An e-commerce merchant is an authorized individual / company of certain card associations (Visa, MasterCard, American Express, Discover Financial Services, JCB, etc. for services or products.

Cardholder

An authorized individual / company that has a card with one of the card association logos on it.

Issuing Bank

This is a financial institution that maintains the (Visa) cardholder's relationship while also issuing (Visa) cards and contracts to cardholders for repayments of transactions.

Acquiring Bank

This is a financial institution that contacts with merchants to accept and process (Visa) cards for payment of services and goods.

VisaNet Processor

A member (or Visa approved nonmember) that is directly connected to VisaNet® to provide authorization, clearing, or settlements for merchants / members.

VisaNet®

This is a collection of systems that support the electronic transmission of all Visa card authorizations between acquirers and issuers and facilitates the settlement of funds.  In January 2002, First Data announced a program in which card transactions where First Data is the processor for both the card issuer and the merchant would be processed internally by First Data, without going through VisaNet®.  Visa did sue First Data but it was settled: Visa USA and First Data Corporation Agree to Settle Legal Dispute.

Merchant Servicer

This is a company that stores, processes, or transmits account numbers on behalf of a member's merchant.  Some examples include providing services as online shopping carts, electronic payment gateways, hosting facilities, data storage, authorization, and / or clearing and settlement messages.

All these companies or services help the authorization, authentication, and settlement of the transaction.

Let Me Use Your Merchant Account

Tuesday, January 15, 2008

Maybe you have a friend that has a small business.  And occasionally you allow him to run a credit card through your terminal or electronic payment gateway.  You see nothing wrong with this since he is your friend.  Unfortunately, chances are very great that this is against your merchant account agreement and card association rules (Rules for Visa Merchants and MasterCard Merchant Rules).  Allowing your friend to use your merchant account to accept credit cards will make you susceptible to chargebacks, specifically Reason Code 81 (Fraudulent Transaction - Card-Present Environment) or Reason Code 83 (Fraudulent Transaction - Card-Absent Environment) under Fraud Codes for Chargebacks.  The acquiring bank might also issue Reason Code 75 (Non Receipt of Information Chargebacks).

If your merchant account provider receives one of these reason codes from the issuing bank for a chargeback, your merchant account provider might suspend your processing until an investigation is complete.  Reason Code 75 usually will not be as bad as Reason Code 81 or 83, however you always want to do everything you can to prevent chargebacks.

Also, chances are very good that your merchant account provider will place you on the TMF / MATCH list.  Once on this list, it is near impossible to get another merchant account.

Excuses Not to Have a Merchant Account

A lot of times, business owners will make an excuse not to have a merchant account.  Unfortunately, these excuses might actually lead to the business going under.

Not Enough Money

Maybe your friend says he does not make enough to warrant a merchant account.  Well, a merchant account usually costs between $25.00 - $50.00 a month.  Most people have a cell phone that costs this much money per month.  And a lot of these fees are incorporated into your discount rate.  And since he does not advertise that he accepts credit cards, who knows what how much business is lost.  Always have confidence in your business so you will be able to invest money into your business.

Bad Personal Credit

Most merchant account providers understand people will run their business differently from their personal accounts.  If you are in the United States, applying for less than $30,000 a month in volume, and not selling any high risk items, your personal credit history will not have that much to do with your merchant account. 

Do not sign up for multiple merchant accounts if you think you might be turned down.  It usually takes less than 24 hours to be approved, wait for that confirmation.  Otherwise, you might end up with more than one merchant account which will cause you other problems.

Actually, your friend has a better chance of getting a merchant account than you since you are on the TMF / MATCH List.

Encourage Your Friends

They are your friends - encourage them to invest a little more money into their business.  You have seen first hand how much more business credit cards have brought to your business, share that knowledge with them.  Ask your friend to contact your ISO / agent for more information today!

Merchant Account Reviews

Thursday, June 14, 2007

There are scores of websites offering reviews of merchant accounts.  Unfortunately, most of the websites will usually be one-sided, favoring one merchant account provider or an agent.  If you are in the United States, you have hundreds of merchant account providers to choose from, and thousands of agents. 

First, remember you will always hear more negative comments about any company than positive ones.  A perfect example is Paypal.  You will hear a lot of negative stories and comments regarding Paypal.  Some people will even claim Paypal is a scam.  When something does not go our way, we tend to complain about it or find others that have had similar situations.  The Internet has allowed those people to congregate on message boards, newsgroups, etc to share experiences.

You can try your best to look at different websites and get a people's opinions.  Unfortunately, that is all it is - an opinion.  The more times you use a service, your chances increase that something will go wrong.  Reviewing a product or service can be very difficult.  Sometimes the reviewer has a bias already toward the company.  Or maybe the reviewer gets other people's opinions of a certain service since there is not any way the reviewer can test that product effectively.  And usually this is the case. 

Each merchant is different.  The reviews that you will read will also just use a certain amount of those services.  And it cannot really compare to your needs.

So what does matter in these reviews?  You can consider these opinions but most people will not give positive comments for a company. What about your money?  With the larger companies (First Data, Nova, Chase-Paymentech), you know your money is safe.  You have a large corporation to back it up.  Most agents will resell for one of these companies (and we have already discussed on how to choose a United States merchant account provider).  Most should be able to give you a free rate review if you have established processing history.   This review is the important factor.  It will allow you to see if you could save money by changing merchant account providers.  And you might be able to keep the same electronic payment gateway so your website will not need to be re-programmed.

Getting Your Money

Wednesday, June 13, 2007

When it comes to having a merchant account, getting your money is just as important.  Some people might tell you if you are in the United States and doing more than $1,000 a month, consider a merchant account along with an electronic payment gateway instead of an IPSP (Internet payment service provider) like (some versions of) Paypal and 2Checkout.

There are some reasons behind this.  Some processors change a minimum fee a month, maybe $15.00.  So if you sold $1,000 of merchandise that month and your discount rate is 2.29%, that would be $22.90.  You have met this monthly minimum requirement and should have nothing to worry about with this fee.

In Business to Make Money

Chances are you are in business to make money though.  And chances are, you will doing more than $1,000 a month.  But let's say that is what you are doing.  Is Paypal better for you?  Yes and no.  It might be cheaper for you when considering the amount of money they charge.  guess what though?  Paypal is keeping your money until you sign into their website and tell them to send it over.  Or you might be able to drive down to the bank and withdraw the money via an ATM.  Either way, it is going to take you some time. 

Faster Money with a Merchant Account

With a merchant account, your money is going to be deposited into your bank account usually in a couple of days after the batch is completed. Let's say you close your batch on Sunday (usually before a certain time as well - check with your processor).  If all the programs run correctly, you should have the money in your bank account on Tuesday. 

So you just have to ask yourself is your time worth the $25.00 or so a month you might be spending for a merchant account?  If the answer is yes, then get a merchant account.  If the answer is no, get a Paypal account.

(Keep in mind that we only discussed $1,000 a month in volume.  Chances are, anything over this amount, the scales are going to tilt more in your favor of having a merchant account.)

Debit Cards on the Internet

Friday, June 08, 2007

You might have seen some discounts that are being posted 2.05% or even lower on some merchant account provider websites.  This discount rate is easy to come by if you have enough volume.  Some merchant account providers though are now offering merchants two rates - often times called a split rate.  One rate for debit card transactions and one rate for credit card transactions.

Split Rates

Split rates might help your business if you think you have a lot of customers using a debit card.  Of course, it will have to be at least half of your volume to consider making the switch. 

Blended Rates

A blended rate is what most merchants have today, whether you know it or not. Merchant account providers charge you the same for debit card and credit card transactions.

For example, let's say the debit card discount rate is 2.05% and the credit card discount rate is 2.58% . And the blended rate 2.29%.  The average transaction is $50.00 and there are 30 transactions.  With a split rate and consider that half of your transactions are with a debit card, you would be spending about $34.73.  With a blended rate, the charges would be about $34.35. 

Remember, your discount rate is based on volume, not the number of transactions.  As usual, do a little research before switching or signing up for a split rate.  With the small monthly volume listed about ($1,500.00), your charges could be about $38.70 using a split rate and all your transactions are credit cards.

Some Basic Merchant Account Fees

Thursday, May 03, 2007

Merchant account fees vary per provider. The more volume you do, the better chances you have that your discount rate will be lower.  On your merchant account agreement, you will find some or all of the fees listed below.  If you see that you are being charged for something that was not on your merchant account agreement, contact your merchant account provider immediately.

Merchant Account Fees

But there are so many fees associated with accepted a credit card.  Some of the fees are (in no particular order):

• (Qualified) Discount Rate
• Transaction Fee
• Electronic Gateway Fee
  • Set-up Fee
  • Monthly Fee
• Batch Fee
• Address Verification Service Fee (AVS)
• Chargeback Fee
• Retrieval Request Fee
• ACH Fee
• Early Cancellation Fee
• Monthly Minimum Fee
• Cancellation Fee
• Monthly Fee
  • Statement Fee
  • Customer Service Fee
• Yearly (Club) Fee
• Point-of-Sale (POS) Terminal (lease or buy)
• Mid-Qualified Rate
• Non-Qualified Rate

Some fees above range from 5¢ to $50.00.  A lot of the fees can also be negotiated by you, especially if you have a lot of volume. And most of these - you won't ever see.

Discount Rate

The discount rate is a percentage of the sale.  The more volume you have, the lower the discount rate will be.  Right now, some providers are offering 2.39%.  Usually you can get a discount rate lower than this, even if you are only doing $10,000 a month.

Transaction Fee

The transaction fee is usually imposed by the electronic payment gateway. You will see some gateways giveaway a number of transactions per month, some might charge 10¢ per transaction, some might charge a percentage and some don't charge anything.  This might also be called an Authorization Fee.

Electronic Payment Gateway Fee

This set-up fee can usually range from $0.00 to about $500.00 per month, depending on the gateway.  The monthly fee is around $15.00 - $50.00 a month.  Take into consideration the number of transactions that you get for free as well when determining what is the best monthly fee for your account.

Early Cancellation Fee

Usually most merchant account providers request some type of a commitment, ranging from six months to three years.  And some providers will give you more discounts if you sign up for a longer contract.  Most businesses usually plan on being in business for years, so a 6-month contract is usually nothing to them.

Batch Fee

The batch fee is usually the same amount as the authorization fee from the merchant account provider.  This fee is usually charged when the merchant account provider moves the money into your checking account.

Address Verification Service (AVS) Fee

The Address Verification Service fee is usually 5¢ - 10¢ per transaction. This is your first line in defense on preventing fraud. Usually with recurring billing done via the electronic payment gateway, the AVS does not need to be accomplished and you will not be charged.  This function cannot be done usually on for consumers not living in the United States and will usually cause the transaction to be downgraded to a non-qualified rate.

Chargeback Fee

This fee is charged to you if a consumer calls the issuing bank to dispute the charges.  There are Some Ways to Help Internet Merchants Reduce Fraud and Chargebacks.

Retrieval Request Fee

This fee is sometimes charged along with a chargeback. It's a fee that the providers charge to pull all the information on the transactions. This fee can also be just when the consumer does not remember the transaction and requests more information about it.

Monthly Minimum Fee

This fee guarantees the merchant account provider a set amount each month from the merchant.  Usually though, this never affects the merchant.  For example, let's say your discount rate is 2.25% and the monthly minimum on your merchant account agreement is $25.00.  During the month of April, you processed $10,000.  The merchant account provider's portion would be $225.00 (10,000 * 2.25%).  The monthly minimum fee of $25.00 has been met and no charges should be applied.

Let's say you were just starting out and you did $1,000.00 that month.  The merchant account provider's portion would be $22.50, so you would still owe the merchant account provider $2.50.

Cancellation Fee

Some providers will charge this fee when your contract ends.  Usually this fee is waived and most are veering away from this fee.

Miscellaneous Monthly Fees

Some providers will charge some type of a monthly fee, usually $10.00 - $25.00 a month.  They might call it a statement fee, a customer service fee, or just monthly fee.

Yearly (Club) Fee

Some providers have a yearly fee as well as the monthly fee. They might offer you specials for signing up for this fee.  Or this fee might not be optional and you might have to pay a yearly fee to have a merchant account with that provider.

Point-of-Sale (POS) Terminal (lease or buy)

This equipment would only be if you had a retail business.  The terminal would be used to swipe the consumer's credit card.

Mid-Qualified Rate

This rate is applied to certain transactions when specific credit card types are used. This rate will usually only apply to retail businesses.  Some providers might downgrade reward cards - ask your merchant account provider for more information.

Non-Qualified Rate

This rate is applied to certain transactions when specific credit card types are used, i.e. business or corporate cards.  Ask your provider to reduce this amount if your business accepts a lot of cards that are downgraded.  Other reasons that some providers might downgrade your transaction(s) to the non-qualified rate are:

• AVS is not done on a keyed transaction
• Batches are not done in a timely manner - be very careful with this one, if you are late all transactions in that batch will be downgraded
• A special card is used and the correct data was not entered (Level I, Level II, Level III data)
• A credit card was used that was not issued in the United States
• A credit card number was keyed in on a swiped account

Of course these rates vary per processor and the rules vary as well.

Your merchant account provider should be able to answer the above with ease.  These are the very basics of the credit card industry.

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.

Level I, Level II, Level III Data

Friday, April 20, 2007

Some of the buzzwords in the merchant account business seems to be Level I, Level II, and Level III data.  Even though this information has been around for quite some time, April is the big month for card association changes.  And some of the changes affected the regulations on how this data is processed.  But exactly what is this data?

Level I Data

Level I data includes:

• Date
• Merchant Name
• City
• State
• ZIP Code

which is not prompted by the terminal.  The merchant will need to enter the purchase amount which also includes sales tax. 

Level II Data

Level II Data includes:

• Date
• Merchant Name
• Tax ID
• Merchant Type Code
• Merchant Category Code (MCC)
• City
• State
• ZIP Code

This information will automatically programmed into your terminal and you should not need to enter it.  The merchant will then need to enter:

• Purchase Amount Excluding Sales Tax
• Sales Tax
• Local Tax Indicator
• Customer Code (if using a purchasing Card)

Your terminal should prompt you to enter the above information for all Level II transactions.

Level III Data

Level III Data includes:

• Date
• Merchant Name
• Tax ID
• Merchant Type Code
• Merchant Category Code (MCC)
• City
• State
• ZIP Code

This information will automatically programmed into your terminal and you should not need to enter it.  The merchant will then need to enter:

• Purchase Amount Excluding Sales Tax
• Sales Tax
• Local Tax Indicator
• Customer Code (if using a purchasing Card)
• Full Line Item Details

Your terminal should prompt you to enter the above information for all Level III transactions.

Enhanced Data

With Level II and Level III data, some merchants can require even more specific data depending on their category.  Some examples are:

• Fleet
  • Level II Data
    • Vehicle or Driver ID Number (AKA Customer Code)
    • Fuel Type
    • Fuel Quantity
    • Fuel Unit of Measure
    • Fuel Unit Cost
    • Fuel Tax Exemption Status
    • Gross Fuel Price
  • Level III Data
    • Odometer Reading
    • Service Type
    • Net Fuel Price
    • Non-Fuel Gross/Net Price
    • Item Discount Amount
    • Item Description
    • Item Commodity Code
    • Item Unit Cost
    • Item Quantity
    • Item Unit of Measure
    • Item Total
• Airline Itineraries
  • Level II Data
    • Merchant Name / Original Ticker Number
    • Passenger Name
    • Departure Date
    • Origination City / Airport Code
    • Travel Agency Code / Name
    • Detailed Data for up to four legs of Travel
      • Carrier Code
      • Services Class
      • Stop-over Code
      • Destination City / Airport Code
  • Level III Data
    • Restricted Ticket Indicator
    • Total Fare / Tax / Fee Amount
    • Currency Code
    • Exchange ticket number and amount
    • Internet Indicator
    • Electronic Ticket Indicator
    • Conjunction Ticker Number
    • Ticket Issue Date
    • Fare Basis Code
    • Control ID detailed information for up to 198 legs of travel
• Hotel Folios
  • Level II Data
    • Check-In Date
    • Hotel Folio Number
    • Number of Room nights
  • Level III Data
    • Daily Room Rate
    • Summary Tax Elements
    • Telephone and FAX Charges
    • Gift Shop Purchases
    • Movies Charges
    • Health Club Charges
    • No Show Indicator
    • Business Center Charges
    • Laundry Charges
    • Check In / Out Dates
    • Food & Beverages & Mini Bar Charges
    • Folio Number
    • Parking & Valet Charges
    • Cash Advances
    • Non-Room Charges
• Purchasing
  • Level III Summary Data
    • Ship to / from ZIP Code
    • Destination Country Code
    • VAT invoice Reference Number
    • VAT tax amount / rate
    • Discount Amount
    • Freight / Shipping Amount
    • Duty Amount
    • Order Date
  • Level III Line Item Detail
    • Item Description
    • Item Quantity
    • Item Unit of Measure
    • Item Total
    • Item Commodity Code
    • Item Product Code
    • Item Unit Cost
    • Item VAT Tax Amount / Rate
• Car Rentals
  • Level II Data
    • Days Rented
    • Car Rental Agreement Number
    • Renter Name
    • Check-Out Date
  • Level III Data
    • Daily/Weekly Rental Rate
    • Check Out/In Date
    • Location/City of Car Return
    • One-way/Drop-off Charges
    • Late Return Charges / Hourly Rate
    • Insurance Charges
    • Fuel Charges
    • Regular and Extra Mileage Charges
    • Total Tax/VAT
    • Telephone Charges
    • Car Class Code
    • No Show Indicator
    • Extra/Other Charges
• Shipping and Overnight Courier Services Data
  • Level III Data
    • Tracking Number
    • Pick up Date
    • Origin/Destination Country Code
    • Number of Packages
    • Origin/Destination Name and Address
    • Item Service Description
    • Item Unit of Measure
    • Item Weight
    • Item Discount Amount
    • Item Net / Tax Amount
• Temporary Help Services Data
  • Level III Data
    • Employee/Temporary Name
    • Social Security Number
    • Description
    • Cost Center
    • Week Start / End Date
    • Rate Indicator

This data might be be passed back to the consumer if the merchant has not made the investment of such terminals.  Merchants are only likely to pass this data if there is a demand for it.  Merchants who have made the necessary changes to their systems will be capable of passing this enhanced data through their card systems.

Cheaper Merchant Account Provider

Sunday, April 01, 2007

A lot of times, people go looking for the cheapest merchant account provider.  I totally understand that people want to save money.  However, a lot of times, when you are dealing with a few basis points - you are only dealing with a few dollars every month.  And the time that you have put in trying to get a better deal even though you know the provider is top notch, costs you more money in the long run.

For example, let's say that you are going to be doing $10,000 a month.  And this largest merchant account provider wants to charge you 2.44% for your discount rate.  And chances are, it will cost more to maintain your account but the provider still wants to do business with your company.  But you found another processor who is willing to offer you 2.29%.  Now the actual difference in this is about $15.00.  And chances are, you charge $150.00 an hour at least for your time.  In the time that you have taken to inquire about a cheaper rate, you probably have already spent the $15.00 and then some.  And you know that the other provider might be smaller and could not support all your needs when your business grew.

Or maybe Visa and MasterCard raised their rates.  So the merchant account provider decided to pass along those fees to you, the merchant.  And let's say you are doing $10,000 a month.  At raising your discount rate 4 basis point (.04 per cent), it is basically $4.00 more a month that they are charging you.  The time you have taken out of your schedule to possibly complain to others, etc., is time that you have wasted.  And of course, you understand that usually these smaller companies actually cost more to maintain but you would rather have a large, stable company process your credit card transactions.

The best thing, of course, use a large, stable, reliable processor - since this is your money in the end.  A processor that started and built its business with merchants in mind the first time, CDGCommerce.  You can see a few of their partners: Mile High Merchant Accounts, LoudestCommerce, and ProcessingMatters.

Another issue is fraud prevention.  If a gateway offers you a proprietary solution, you might be in a world of hurt if you have to move.  Plus, using a fraud prevention tool, like MaxMind, you know other merchants can use it.  For example, a merchant account with First Data will cost you $8.00 a month for their "Fraud Flex Detect" and 9¢ per transaction.  If you add Verified by Visa / MasterCard Secure Code, expect to pay $8.00 more a month and 8¢ per transaction.  You will also be paying a yearly PCI compliance fee of $99.00.  Including the payment gateway fee, that is almost $500 a year just in known fees.  Each transaction is going to cost you about 35¢.

See our article: Comparison of Fees and Options for Six Electronic Payment Gateways.

Merchant Account Agreements

Friday, March 23, 2007

When you sign up with a merchant account provider, they want a contract.  This contract helps to ensure the provider that you will do some type of business with them.  Most businesses start because people want to make money.  And to make money, businesses sell services and products to others.  This merchant account agreement helps to ensure that you, as a merchant, will provide a business to the provider and will also stay in compliance with regulations set forth by the provider, by the acquiring bank, and by Visa and MasterCard.

Some providers want you to sign an agreement for one year, two years, maybe even three years.  This not only protects the provider in knowing he will have a customer (the merchant) for a number of years, but it also protects, you - the merchant.  As the merchant, this contract ensures that you will have the processing capability that you will rely on.  Without this, you the provider could shut down at anytime without any recourse.  You, as the merchant, would be left without a merchant account provider, unable to process any credit card transactions and not making any money.

When getting a merchant account, look to see how long the company has been in business.  Check to see if they are a public company and to see how much they are worth.  You want to know that the company you are going to choose is stable and reliable.  You want to know that the company you choose to process your credit card transactions will always be there for you and is not a fly by night company.  Also check out Choosing a United States Merchant Account Provider to see what information to look for.

Merchant Account Fraud

Friday, March 09, 2007

When applying for a merchant account, merchants tend to look for the cheapest processor.  This might be OK for some, but for others, you might want to consider who you are giving your personal information to. 

Merchant account providers' websites should always contain the acquiring bank name and if they are an ISO or MSP.  I know I wrote about this last April, but it always bears repeating about this time of the year.  Why?  Because April is usually the month that the interchange rates are increased by Visa and MasterCard.  And merchants get the notification that their rates will be increasing and they think that if they go to another provider, they will get cheaper rates.  Usually this is not the case and you will have a better chance at getting a better rate if you contact your current merchant account provider. 

Check choosing a United States Merchant Account Provider to remember the most simplest rules set forth by Visa and MasterCard to help to identify the company you wish to do business with.  If the provider does not have this, think twice about giving this company your personal information. 

Always choose a reputable company when picking a merchant account provider.  Know who you are dealing with, after all, it is your money as well.  Spending a little extra might be worth it - you will be less concerned that the provider will go bankrupt.

Credit Card Logos

Friday, February 23, 2007

When accepting credit cards on your website, you want customers to know what card associations (Visa, MasterCard, Discover, American Express, etc.) that you accept.  Each card association has their authorized logos available from their website for you to download and display. Usually, when you apply for a merchant account, Visa, MasterCard, and Discover brands are automatically included in your merchant account and American Express will require separate approval. 

As a courtesy, you can download all the images you see here, plus a few others without having to provide an e-mail address or any contact information in a compressed file (243759 bytes).

Visa Logo

The Visa logo is used to show that you accept Visa credit cards and possibly debit card on your website.  Most debits cards issued today will have a Visa or MasterCard logo on them.  If your debit card has this, chances are that you can use your card anywhere Visa is accepted. You can download their images from our website in a compressed file (10430 bytes) and visit Visa Brand Mark Artwork has the instructions and logos that you can download to use on your website.

MasterCard Logo

The MasterCard logo is used to show that you accept MasterCard credit cards.  MasterCard actually has two images.  One is acceptance marks to indicate that you accept MasterCard.  Another is the brand mark which is used to when you are marketing or promoting MasterCard's products and programs.  You can download their logos in a compressed file (105591 bytes) from our website and visit their MasterCard Acceptance Marks or Brand Marks from MasterCard's official website.  These images are permitted when you accept MasterCard.

Discover Logo

The Discover Logo is used to show that you accept the Discover Card as a payment option. If you do not use the Discover Logo, you must use the text Discover Network to show customers that you accept the Discover Card.  And if you are talking to customers over the phone, you should ask the customer if they will be using the Discover Network Card to pay for the purchase.  Feel dree to download their images from our website in a compressed file (90374 bytes) and review the regulations on using their logos on  Discover logos from their official website to use on your e-commerce driven website.

American Express Logo

The American Express logo is used to show that you accept American Express on your e-commerce website. You can download American Express's logos from their official website after providing some more information as well to American Express.  You can also download American Express logos ZIP file (79054 bytes) from our website.

JCB Logo

JCB is another card association that some merchants in the United States will want to accept as well.  You can dowload their images in a compressed file (8035 bytes) and then review their regulations on use of the logo on JCB Logo Mark's web page.

As you can see though, most of the website above will provide the card association's logos.  Just make sure you are familiar with each of the card associations regulations on displaying their logo on your website.

Code 10 Calls

Wednesday, February 07, 2007

When something does not look right, i.e. the security features look altered or they are missing, keep the card in your possession and make a Code 10 call to your authorization center.  You may be asked to keep the credit card or you might be instructed to return the card.  If your authorization center tells you it is ok, write down the authorization number on the sales receipt.

Code 10 calls allow merchants to alert card issuers to suspicious activity and take appropriate action when instructed to do so. You should make a Code 10 call to your voice authorization center whenever you are suspicious about a card, cardholder, or a transaction. The term "Code 10" is used so the call can be made at any time during a transaction without arousing a customer's suspicions.

How to Make a Code 10 Call

• Keep the card in your possession during the call.
• Call your voice authorization center, and say, "I have a Code 10 authorization request."

  The call may first be routed to a representative at your merchant bank who may need to ask you for some merchant or transaction details. You will then be transferred to the card issuer and connected to a special operator who will ask you a series of questions that can be answered with a simple yes or no.

• When connected to the special operator, answer all questions calmly and in a normal tone of voice. Your answers will be used to determine whether the card is valid.
• Follow all operator instructions.
• If the operator tells you to pick up the card, do so only if recovery is possible by reasonable and peaceful means.

If for some reason, you do not feel comfortable making this call during the transaction, you can still call the authorization center after the consumer has left your store.  Doing this might help to prevent more fraudulent transactions to another merchant.

Adding a Surcharge to a Credit Card Transaction

Wednesday, December 06, 2006

Usually in your merchant account agreement, it will state that you cannot charge any additional fees to the consumer if they pay using a credit card instead of cash.

However, debit cards and credit cards have different rules and regulations. Interlink Debit grandfathered in organizations about ten years ago that were using their system to accept payment. Interlink allows these merchants to charge a surcharge specifically when a consumer pays and it goes through the Interlink debit system.

Credit card companies also allow the merchant to surcharge the consumer if and only if:

• Charged for a bona fide convenience outside of the merchants customary payment channel
• Disclosed to the cardholder as a charge for alternative payment channel
• Added only to non face to face (if merchant is face to face merchant)
• A flat or fixed amount
• Applicable to all forms of payment
• Disclosed prior to completing transactions
• Included in total amount of transaction
• The merchant does not make any money on the transaction

Meeting the above requirements, remember will be in the credit card associations (Visa, MasterCard, etc) and your merchant account provider. Before doing any type of surcharging, contact your merchant account provider and / or the associations for specifics.

I do not recommend this be done because if it does not follow the guidelines as set forth between your merchant account provider, the card associations, and yourself, you might find yourself without a merchant account and on the MATCH list.

Subscription Based Websites

Saturday, December 02, 2006

A lot of websites are based on subscriptions. Charging a consumer for anything is very risky and charging them monthly just makes it riskier. You run the risk of chargebacks and fraud. A lot of times, these go hand in hand. Someone might want to see what you have to offer and will use a credit card number that does not belong to them. By the time that you find out, they could potentially have used your services for a couple of months. You are now out your subscription fee(s) as well as chargeback fee(s). A few of these can potentially ruin a merchant.

You have a number of options available to you and choices to consider. The first, of course, is do you really want to get involved with something like this? Once you realize you do, you will want to protect your merchant account. You might even consider using a third party processor to process your transactions. Using a third party processor will help with a lot of the "scrubbing". Scrubbing basically means that the transaction will go through a few fraud prevention tools to help verify the transaction.

Once this is completed and the transaction is deemed OK by the processor, the consumer will be allowed access to your site. A lot of times, chargebacks will happen in days of the transaction. The consumer might not have thought it was worth their money. And instead of calling you, they contact their issuing bank. A good rule of thumb for this is to always send out an email maybe a couple of hours later even asking them about the service, etc. This way you open the communication with them.

Depending on the issuing bank, the consumer can have months to potentially request their money back. Usually with a debit card (with a Visa or MasterCard logo on it), the time frame is less than a credit card (with a Visa or MasterCard logo on it). With American Express, the time frame increases to almost forever. I have seen merchants complaining of chargebacks from over 18 months. This is why you should always keep records.

There are pros and cons to a subscription website. Whenever you are dealing with consumers, the word chargeback always lurks around. Increasing your business unfortunately increases your risks. You will want to do everything possible to scrub the transaction to prevent a chargeback.

Other Issues

Sometimes when you have a subscription based website, you might also need to charge more one month (or less).  Or maybe the transaction failed.  Usually when the transaction fails, you get an email from the electronic payment gateway.  However, with the Quantum Payment Gateway available through Mile High Merchant Accounts, the Quantum Gateway can communicate with your database through its API to automatically update your database.  And the Quantum Payment Gateway's will also store the credit card numbers securely on their server for all your processing needs.

Should I have my Own Merchant Account

Tuesday, August 29, 2006

It has often been said that if you are in the United States and doing about $1,000 a month, usually a merchant account is better than Paypal. But is that exactly true?

The Standard rate with Paypal is 2.9% with a $.30 transaction rate. Let's say that you are doing 100 transactions a month at $10. With Paypal, you are going to be charged about $60.00 and a merchant account is going to cost around $80. If we increase that to $20 per transaction at 50 transactions, that is $44 going to Paypal and about $39.00 with a merchant account through Mile High Merchant Accounts. And then increasing that to 100 transactions, Paypal is going to be about $90 while a merchant account provider will be about $50.00.  With a merchant account, you will receive your money faster and you do not need to have to worry about going through a third party processor.

So why $1,000? Or where does it actually become beneficial? Well the thing with Paypal is you need to sign in and get your money. And this can take a about five business days. And with a merchant account - the money is automatically deposited into your bank account in two - three business days. So now you are also looking at time and money.

Create a simple spreadsheet to compare - you can use this as an example. It has the basic charges to get you started. Once you go through and figure out where your cutting point is, now you know what might be better for you in the long run. Keep in mind that most gateways charge for a transaction fee - Quantum Gateway does not - the do not even charge a monthly fee, something you will not find in any other electronic payment gateway. So you might need to add $.10 to this as well if you are going to use Authorizenet.com as your electronic payment gateway. Verisign's Payflow is a bit more expensive but gives you 1,000 free transactions, so that is cheaper that Authorizenet.com. Authorizenet.com can make your costs increase your costs probably by at least $10 or so each month since you might have to pay $25 or so a month for their gateway, while Quantum Gateway is free with no extra transaction or monthly costs and includes fraud prevention tools to help protect you from chargebacks.

What Makes a Good Receipt

Wednesday, July 05, 2006

A good receipt can help to prevent a chargeback. There are a lot of shopping carts that send out a order summary before the credit card is charged. This potentially can increase sales. If the customer decides not to buy the products for some reason, the customer still might have your email.

Once the customer enters the credit card information and is approved, a receipt should be generated. This email should be in text format to the consumer to help bypass any spam filtering. On the checkout page, your domain name should be there asking the consumer to whitelist your domain name. Your receipt should thank the customer from buying from http://www.example.com and then state that is a a part of (Your DBA here). A lot of times this is very different and can be confusing for the customer (Some Ways to Help Internet Merchants Reduce Fraud and Chargebacks). You should also have there the total the credit card was charged. As well as an order number from your company. If you have a order number or tracking number from the electronic payment gateway, provide that at the end of this email.

And then you should have a break down of each item purchased. Show a sales tax and shipping line - even if you do not charge for it. This way everything is there.

And then provide your web address again, a contact email address, your physical address, and phone number(s), preferably both toll free and a local number for your customers to contact you.

When the order is shipped, send them an email letting them know the order is shipped. If you have a tracking number with UPS, USPS, Federal Express, DHL, etc., give that to them as well.

Consider also of taking advantage of this email (receipt) by adding upcoming sales, giving the customer a discount on the next purchase, asking him to complete a survey, etc.  This way, you adding a bit more to your communication with your customer.  And then maybe follow up on the sale a week or two after the delivery of the item(s).  Since you will probably also ask the customer to confirm he wants to receive emails from your company, offer a discount or a sales code in the email - this will help to ensure the customer will continue receiving emails from your company.  Most people like to save money and if he sees the company as a money saver, this offer will usually make the customer reluctant to stop emails from your company.

What is the TMF List or better known as MATCH

Wednesday, June 07, 2006

If you have had your merchant account terminated by the merchant account processor, your business name might end up on this list. Visa and MasterCard members both contribute to the combined MATCH list (Member Alert to Control High-risk (Merchants) system); however, MasterCard hosts and regulates the use and access of the system.

The system works by manually entering or batching data through MasterCard's online system for inquiry. When a merchant is identified on the system, there is one of two replies: Exact Match or Partial Match.

• Exact Match: Business Name, Tax ID#, Phone Number, Owner Name, SS#.
• Partial Match: Business Address, Owner Address

Merchant account providers are not prohibited from accepting a merchant that has matched or partially macthed. It is discouraged though and it is considered an unnecessary risk.

The merchant account provider / acquirer who places a merchant on the file has the sole ability to remove the merchant. This is uncommon yet happens more than one would expect. Placing a merchant on MATCH may seem excessive in some circumstances, but it is mandated that a merchant terminated for one of the reason codes listed below is placed on the MATCH file. If the acquirer fails to do so, and the merchant causes another member bank monetary losses, the original member can be liable for those damages.

Merchants can be added to MATCH for any one of the following reason codes:

1. Excessive Counterfeit
2. Unauthorized Cardholder Charges
3. Laundering/Factoring
4. Excessive Chargebacks
5. Excessive Fraud (8% violation rate)
6. Violation of Merchant Agreement
7. Fraud Conviction

Most reason codes are very specific; some leave room for interpretation. The possibility of a good merchant or otherwise not deserving merchant being placed on MATCH cannot be denied. The ratio still makes MATCH a necessary defense for the acquiring industry.

System Features

MATCH uses Member-reported information regarding Merchants and their owners to offer Acquirers the following fraud detection features and options for assessing risk:

• Acquirers may add and search for information regarding up to five principal and associate business owners per Merchant
• Acquirers may designate regions and countries for database searches
• MATCH uses multiple fields to determine possible matches
• MATCH edits specific fields of data and reduces processing delays by notifying inquiring Members of errors as records are processed
• MATCH supports retroactive alert processing of data residing on the database for up to 360 days
• Acquirers determine whether they want to receive inquiry matches, and if so, the type of information the system returns
• MATCH processes data submitted by Acquirers once per day and provides daily detail response files
• Acquirers may access MATCH data online in real time using a PC at the Acquirer's site

This is something very important though.  MasterCard does not verify, otherwise confirm, or ask for confirmation of either the basis for or accuracy of any information that is reported to or listed in MATCH. It is possible that information has been wrongfully reported or inaccurately reported. It is also possible that facts and circumstances giving rise to a MATCH report may be subject to interpretation and dispute.

Most Reasons Why Acquirers Add a Merchant to the MATCH List

1. Account Data Compromise
2. Common Point of Purchase
3. Laundering
4. Excessive Chargebacks
5. Excessive Fraud
6. Fraud Conviction
7. Bankruptcy / Liquidations / Insolvency
8. Violation of Standards
9. Merchant Collusion
10. PCI Data Security Standard (PCI DSS) Noncompliance
11. Illegal Transaction
12. Identity Theft

Being Removed from the MATCH List

MasterCard may remove a Merchant listing from MATCH for the following reasons:

1. The Acquirer reports to MasterCard that the Acquirer added the Merchant to MATCH in error
2. The Merchant listing is for reason code 12 PCI DSS (Payment Card Industry Data Security Standard Noncompliance) and the Acquirer has confirmed that the Merchant has become compliant with the PCI DSS. The Acquirer must submit the request to remove a MATCH reason code 12 Merchant listing from MATCH in writing on the Acquirer’s letterhead to Merchant Fraud Control

Selling Downloadable Goods

Saturday, June 03, 2006

If you are selling downloadable goods, you might consider a third party processor or system instead of a merchant account. The reason being is that these accounts have a higher risk of chargebacks. And you do not want to risk putting your merchant account in jeopardy. If you get too many chargebacks, you might be placed on the TMF list and then it would be very difficult to get a merchant account.

Companies like Share It will do the credit card scrubbing for you. They will process the credit card transaction and give you your money. They take all the risks. You sell your product. It might cost a little more, but in the long run, it will be worth it.

Do your due diligence. Share It is a bit more expensive but they are taking all the risks for that sale. You are selling your product and still making money.

It is My Merchandise and Services Its My Money or Is It

Friday, May 19, 2006

Chargebacks hit merchants on a daily basis. Consumers either did not receive their products or they were not happy with the services or products they did get or one that is coming up even more so now, regret. Or maybe it was fraud - from someone using a stolen credit card to Johnny using his mother's credit card to purchase that new fishing pole.

When applying for a merchant account, the acquirer must consider the credit standing of the merchant. Merchant acquirers will perform a credit analysis but this analysis entirely different from asking a bank for a loan.

For example, for the bank loan, the bank delivers the funds to the borrower. A merchant acquirer advances no funds. It actually indemnifies a third party - the card issuing bank who actually indemnifies the cardholder, in the event that a merchant cannot cover a chargeback. Thus, the acquirer is responsible if a merchant skips out on a merchant account.

If you sign up with a third party processor, you are adding another party to the scenario. Is it worth it? Most third party processors will not do a credit check, so if you are on the TMF list and you think you cannot get a merchant account, this might be an option. Most third party processors charge a bit higher transaction rate and most will hold your money for a certain amount of time or rely on you to request your money. Your account is usually monitored a bit more closely than a merchant account because they realize this.

A perfect example of an acquirer taking the brunt of responsibility is Global Payments. During four months (October 2005 - January 2006), the acquirer processed $86 million for this merchant. They did actually hold back $47.6 million in cash reserves because they suspected the merchant was not legitimate.

Visa and MasterCard Defined

Monday, May 15, 2006

You probably accept Visa and MasterCard in your business or over the Internet. And you get charged to accept these cards. Not once, but every time.  If you take a look at your merchant account statement, you will see Merchant Account Fees:

• Discount Rate
• Transaction Fee
• Address Service Verification Fee (AVS Fee)
• Batch Fee
• ACH Fee

Most of these fees vary per Merchant Account Providers.  Some providers (like First Data) will charge the merchant extra fees on top of what Visa and MasterCard charge.  Of course, some of these fees help keep the company in business.  However, a lot of the fees (like the batch fee and ACH fee are not usually charged by other merchant account providers.  These fees alone can usually cost a business around $10.00 to $15.00 extra a month.  Most small United States businesses think they are "stuck" with these high fees, when in fact, they are not. 

But Visa and MasterCard are not banks - they are registered and trademarked brands and vast processing networks for credit and debit card transactions. Advertising plays a very big role in promoting the brands so in turn, they promote the use of the cards.

Visa

"Don't leave home without it."  With Visa being what is known as a card association, it is also a global payments technology company that connects consumers, businesses, banks and governments in more than 200 countries and territories, enabling them to use digital currency instead of cash and checks. 

Visa does not issue cards, extend credit or set rates and fees for consumers; rather, Visa provides financial institutions with Visa-branded payment products that they then use to offer credit, debit, prepaid and cash-access programs to their customers.

It is one of the world's most advanced processing networks, capable of handling over 20,000 transactions per second.  To read more about Visa, Visa net, Visa Inc, please check out Visa International Operating Regulations.

MasterCard

"Priceless" - this ad debuted approximately 30 years after a group of banks came together to form this brand.  MasterCard World is a multinational corporation, based in Purchase, New York in the United States.  It is scheduled to become a public company in about 10 days.

MasterCard's customers include approximately 22,000 financial institutions and other entities in more than 210 countries and territories.  Powered by the MasterCard Worldwide Network, MasterCard processes more than 23 billion transactions per second.  The network has a 99.9% reliability rate and an average network response time of 130 milliseconds per transaction.

If you accepts these credit card brands on your website, you will want to read our post Credit Card Logos.  Here, you can download the images needed for these brands, as well as Discover, American Express, and JCB.

Choosing a United States Merchant Account

Friday, April 14, 2006

If you are in the United States and need a merchant account, you have hundreds of merchant account providers to choose from. And the large independent sales organizations (ISO) and merchant services providers (MSP) usually rely on agents / resellers / partners to sell their services and products. This way they do not have to employ people to sell the services and the agent works when he / she wants to.

The first thing to look for in a ISO / MSP is to determine if they are actually an ISO / MSP. An ISO / MSP will usually look something like this :

Copyright© 2004-2011 CDGcommerce, Inc. All Rights Reserved.
CDGcommerce is a registered ISO/MSP for First National Bank of Omaha, 1620 Dodge St., Omaha, NE - Member FDIC.

This tells you who actually owns the company and what acquiring bank is used.

The footer for the agents / resellers / partners's  website of an ISO / MSP will look something like this:

Mile High Merchant Accounts .com is not a merchant processor.
Our Web site is an information resource site that provides information to educate merchants on available payment solutions.
We are a partner of CDGCommerce, who is a registered ISO/MSP for the First National Bank of Omaha.

It tells you who the ISO / MSP is and it tells you they are a partner with CDGCommerce.

Here is another example (Sam's Club):

© 2011 First Data Corporation. All rights reserved. All trademarks, service marks and trade names referenced in this material are the property of their respective owners.
Sam's Club Merchant Payment Processing is a registered ISO/MSP of Wells Fargo Bank, N.A., Walnut Creek, CA.

You always want to make sure it tells you in the footer what company it is, if it is an ISO/MSP or an agent and who the acquiring bank is.  If it does not, chances are that it could be a Internet Payment Service Provider (IPSP) (AKA Third Party Processor (3PP).  This could mean you might not have your own merchant identifier or the bank / company might not be located in the United States.  Using this type of provider can sometimes limit your monthly processing volume, fees costs more, and your money might not be automatically deposited into your checking account.

If you are in the United States, we suggest Mile High Merchant Accounts.  Unlike most other partners, their company is dedicated to helping businesses save money.  Their Executive Team has over thirty years of processing knowledge and has used this knowledge to your advantage.  You can rely on their ISO / MSP to provide you the most reliable processing in today's market.  And if your business has an online presence, their Internet merchant account rates is amove the most competive in the market.  By adding the Quantum Gateway to help process the credit card transactions, you can save money in gateway fees, fraud, and chargebacks.  Unlike most other electronic payment gateways, the Quantum Gateway was built with the e-commerce merchant in mind - providing enriched tools like fraud detection, state-of-the art reliable, flexible, secure recurring billing, a Virtual Terminal (versions for both desktop and mobile secure viewing / processing), batch processing, payment tokenization, IP filtering.  You will not find any other electronic payment gateway like it available in the United States.

Verified By Visa-MasterCard Secure Code-Things You Should Know

Tuesday, April 11, 2006

Verified By Visa (VBV) and MasterCard Secure Code (MSC) are two standards that Visa and MasterCard developed to protect transactions in a card-not-present (CNP) environment.  Two benefits that Visa and MasterCard boast:

• You are not liable for fraud resulting from the unauthorized use of Visa cards.
• Fraud on your site is reduced.

However, there are things that you should know re: VBV / MSC before implementing them on your web site.  They might not reduce the fraud as one would expect.  Yes, they do help with the "I didn't do it" chargeback: it could be the reason code:

75 - Cardholder Does Not Recognize Transaction

However, if you do a lot of recurring billing, VBV / MSC will not help you with these usual chargeback:

41 - Cancelled Recurring Transaction

The reason is simple - VBV / MSC require the cardholder's authentication.  And authentication is only done on the initial charge.  All recurring charges are usually completed by the electronic payment gateway and therefore, no cardholder authorization.

You also might run into problems in which the transaction has to be re-authorized.  Some merchants pre-authorize a credit card transaction for a certain amount until they are ready to ship the merchandise.  When they are ready to ship, they do a post-authorization / sale transaction in their virtual terminal.  Usually this pre-authorization only lasts a few days, depending on the issuing bank.  So if this pre-authorization has passed, you might need to re-do the transaction.  Usually the gateway does this without you even knowing the pre-authorization has passed.  And at this point, you are not protected.

If, by chance, the transaction failed to authenticate, you are not covered.

Sales that use the "one-click buy" technologies are usually not protected either. 

Now what you need to really know is this: If the credit card is Visa, and the cardholder is not enrolled in VBV, you can still be protected (as long as the transaction is not one of the above).  However, if the cardholder is in the United States with a MasterCard and not enrolled, you are not protected.  The MasterCard cardholder in the United States has to be enrolled and authenticated for you to be protected.

Some high risk accounts like adult entertainment and gambling might not be covered.  These rules vary actually per card association, so you would be best to contact your VBV / MSC vendor (not your merchant account provider / electronic payment gateway.)

Multiple Merchant Accounts

Friday, April 07, 2006

I have three websites selling different items. I spoke with a merchant account agent and he told me I needed three separate merchant accounts. Why is this?

Now, on the agent's side: the more merchant accounts he sells, the more money he is going to bring in.  So of course, he wants you to have as many merchant accounts as possible.

You might not need three of them, it depends on what you are selling on all three websites. For example, if you are selling office supplies one and pet supplies on the other, chances are your DBA (Doing Business As) might not understood when the customer gets their credit card statement at the end of the month.  For example, you have applied for a merchant account for your online pet store - Wagg N Purr.  Your business is doing well and you decide you want to open another e-commerce store selling office supplies SortPlus).  You don't think nothing of it, so you add your electronic payment gateway (i.e. Quantum Gateway, Authorize.net) to the checkout process.  However, your customers are purchasing office products and they might not recognize Wagg N Purr.  This could cause you a lot of time explaining to the customer that the Merchant Identifier (MID) - Wagg N Purr - on their statement is for the office supplies they just ordered.  It might be too late also - they might have called their bank to request a chargeback (Non Receipt of Information Chargebacks - Chargeback Reason Code 75).

An Internet Merchant Account is not that expensive.  You will probably pay around $10.00 a month for the merchant account itself.  The electronic payment gateway (i.e. Quantum Gateway, Authorize.net) could be free to more than $100.00 a month.  The Quantum Gateway does not charge a monthly fee, no set-up fee, and no transaction fees.  The Discount Rate for an Internet Merchant Account is usually around 2.14%.  This rate could be lower if your volume is higher.  The merchant account provider will probably charge around 30¢ per transaction.  For this, we recommend Mile High Merchant Accounts - even if you do not process anything that month, you will be charged $8.00.  Most other companies will charge you a monthly fee, a monthly gateway fee, and maybe even a monthly minimum - this could cost you anywhere from $50.00 and up. 

Merchant account providers have different lists of products they consider high risk. This varies per provider greatly. So if you were selling two products and one was high risk you would want a separate merchant account for this. This way, if something happens and you experience a lot of chargebacks and the account is terminated, you other merchant account should be fine.

Another reason for two merchant accounts is to help your accounting department.  This way, money from Wagg N Purr will go into that checking account and money from SortPlus will go into that checking account.  This can easily allow the accounting department to pay bills appropriately.

Having two merchant accounts will help them know what money is what. If you are processing over $1,000 a month for each, there is really no reason not to have more merchant accounts.  Your money will get into your checking account faster than an Internet Payment Service Provider and as your business grows, it is a lot easier with a merchant account as your businesss grows.

This goes back again to what we have said about salespeople.  They might tell you it is OK to have one merchant account, but if you tell your merchant account provider (on your signed contract) that you are selling pet supplies but also start selling office products, the merchant account provider can suspend or terminate your merchant account.  They could even put you on the TMF or MATCH List. 

Here is another example, when you sign a merchant account agreement, the provider will ask you how much you expect to process each month, what do you think will be your average transaction, and what would be your highest transaction?  This merchant had been processing with the same provider for over a year.  He called the agent and asked if he could sell furniture.  The agent said that would not be an issue.  About a week later, instead of an expect high transaction of $500.00, the merchant ran a transaction of $3,000.00.  The batch was suspended until the merchant account provider could verify the transactions.  When the merchant account provider found out the merchant was doing another business, instead of opening a new merchant account, that provider terminated his account, and refunded that batch.  Unfortunately, the merchant had already shipped the goods.

If you happen to be on the TMF or MATCH List, this does not mean you cannot get another merchant account.  You might be required to pay a deposit, maybe a higher discount rate, or instead of getting your money within a couple of days, the provider might only pay out once or twice a week.  If you are honest with your merchant account provider, they might open a new merchant account for you.  Fortunately, Mile High Merchant Accounts was able to help this merchant account.  Of course, this is on a case by case basis.

Who Is the Worst Merchant Account Provider

Sunday, April 02, 2006

There is really no such thing as the worst merchant account provider.  There are some very large merchant account providers with a large client base.  There are some really bad agents though.  Keep in mind that these agents are salespeople.  They make money selling you an account.

Some of the larger merchant account providers (Chase / Paymentech, Cardservice, First Data Merchant Services, Ipayment) boast a huge client base.  With these merchant account providers, they do a significant amount of business per year.  For example in 2004, Cardservice, who is owned by First Data processed $10,270,500,000 in 123,800,000 transactions alone.  (update: First Data now owns Cardservice and operates as First Data Independent Sales).  The majority of these merchants use the LinkPoint gateway.  This is the same for Chase / Paymentech who First Data owns 50% in. (Update, Paymentech split from First Data).  They processed $254,949,800,000 in 3,448,800,000 transactions and $189,782,500,000 in 3,353,300,000 transactions respectively.

Cardservice has a very lax policy in their merchants.  They will approve merchants usually within 24 hours.  However, once all the background information has been obtained by that merchant (and it is not good: e.g. maybe the merchant is on the TMF list), the company will suspend or terminate the merchant account.  This increase Cardservice's statistics of course of hanving unhappy merchants.  And then of course when Cardservice suspends / terminates an account because of chargebacks or potential fraud, people tend to complain.  Whenever a merchant account provider says you will be approved within 24 hours, be cautious - complete vetting of the merchant cannot be done within this time period.    The MATCH list checks the business thoroughly, including the address.  So if your address happens to match an address on this list, your merchant account will be suspended until things get sorted out.

Internet Payment Service Providers or Third Party Payors

While Internet Payment Service Providers (IPSP) or Third Party Payors (3PP) allow you to basically use their merchant account, this can cause problems as well.  They have more rules and regulations to follow.  One individual even created their own site because he / she was very upset with Paypal: Paypal Sucks. There is also Screw Paypal (warning adult content). It also goes to prove what I just said above - lax policies with Paypal and Cardservice can actually cause more problems for them.  They try to help merchants start their business, but some merchants take advantage of that help and they try to actually rip off Paypal and Cardservice as well as their merchants.  And remember, you will always hear more complaints about a company than you will compliments.  It is human nature to complain more unfortunately.

Paypal is a pretty large aggregator.  Currently, on their site today they say they have over 96.2 million members.  With that size of client base, you are always going to find problems.  The longer you are with a company and the more you do business with a company, you will increase your chances of problems.

Some of the larger problems with Paypal is the verification process, almost similar to First Data Indepent Sales.  To get a Paypal account takes just a few minutes.  However, you need to be 18 years old and a lot of individuals seem to miss this in their Terms of Service.  Once Paypal finds out, your account can be suspended or terminated.  Your funds can be held for up to six months.

What To Look For Then

It seems like this post has been a bit negative, but it is what it is.  First, look for a merchant account provider that does not approve you in 24 hours.  To properly vet a merchant account, it usually takes three to four business days.  With this process, the merchant account provider is actually saving money. 

Most merchant account providers rely on resellers, agents, or partners (salespeople) to offer their products and services.  Some agents will overcharge a merchant in order to make money.  For example, more than a decade ago, it was not unheard of to be charged $1,000 for a set-up fee.  Now, you should not be charged a set-up fee for the merchant account.  Some electronic payment gateways will have a set-up fee.  For an Internet Merchant Account, we recommend the Quantum Payment Gateway - there is no set-up, month, or no transaction fees associated with the gateway.  Don't take for granted the salesperson will tell you the truth.  You will be asked to sign a contract.  See if this contract has a term (for example, one year, two years, or three years).  You should not agree to this.  If your business happens to fail and you sign a three-year agreement, you are still on the hook for these fees.  If you do not pay these fees, the merchant account provider can put you on the MATCH list and they are the only ones who can remove it.

Don't be afraid to ask questions.  While you are reviewing the merchant account, if you come across anything that you do not understand - email the reseller.  If the reseller gave you misinformation, you might be able to get out of your contract (if any).  It is always better to have things in writing.

How Does a Credit Card Transaction Get Processed

Sunday, February 12, 2006

It all begins when a Cardholder, your customer, presents their credit card to you to pay for the goods or services you are selling. In a retail or "card present" environment, the customer hands you their credit card. In an e-Commerce environment or "card-not-present" environment, the customer presents their credit card to you on the secure checkout page of your online shopping cart.

There are basically seven steps in the life of a transaction:

1. Authorization: The first step is called the Authorization which is the process of requesting an authorization from the bank or company that issued the customer's credit card. For Internet Merchants, the shopping cart is connected to or integrated with a Payment Gateway. For Retail Merchants, the card is swiped through a magnetic reader on the Point of Sale (POS) Terminal. The Payment Gateway and POS Terminal then connects to a Front-End Processor. If the credit card used is a Visa or MasterCard (V/MC), the Front-End Processor transmits the authorization to the Visa or MasterCard Associations who then rout it to the appropriate Issuing Bank. Otherwise, the authorization is transmitted to the appropriate Card Issuer (Amex, Discover, Diners, JCB) for approval. The Issuing Bank or Card Issuer authenticates the Cardholder and approves or declines the transaction amount. It is important to note that no money changes hands during the Authorization. Merchants must re-present the transaction to receive payment. For Retail Merchants, the transaction is stored on the POS Terminal. For Internet Merchants the transaction is stored on the Payment Gateway.
2. Merchant Balancing: The second step is called Merchant Balancing which is the process of totaling the transactions and balances by card type and transmitting them to the Front-End Processor. This is also known as Batching Out. Most POS Terminals and all Payment Gateways perform an auto close function at the end of the day and batch out automatically.
3. Capture: The third step is called the Capture which is the process of requesting payment from the Issuing Bank or Card Issuer. The Front-End Processor matches the Authorization data to the settlement data and transmits the card capture file to a Back-End Processor for V/MC transactions or to the appropriate Card Issuer for other card types.
4. Clearing: The fourth step is called Clearing. During this stage the Back-End Processor performs compliance checks and risk management procedures and transmits the transaction to V/MC or to the appropriate Card Issuer for other card types.
5. Interchange (V/MC Only): The fifth step is called Interchange. During this stage the V/MC Associations sort the transactions by Issuing Bank and transmit them to the appropriate Issuing Banks for settlement.
6. Settlement: The sixth step is called Settlement. During this stage the Issuing Bank calculates fees and deductions (i.e., chargebacks) and routs the net funds to the V/MC Associations who then sort them by Acquiring Bank and transmit them to the appropriate Acquiring Bank for payment to the merchant. For other card types, the appropriate Card Issuer determines the daily deposit for the merchant.
7. Merchant ACH: The final step is the Merchant ACH. During this stage the Acquiring Bank or Card Issuer transmits the merchant deposit to the merchant's checking account.

The typical timeline for the transaction processing is as follows:

Day 1: Authorization
Day 2: Merchant Balancing/Capture/Clearing/Interchange/Settlement
Day 3: Merchant ACH

Some Ways to Help Internet Merchants Reduce Fraud and Chargebacks

Sunday, January 15, 2006

Chargeback can occur for a variety of reasons. From the simple "I didn't do it", to the package was not received, or maybe it was not what I expected. Ten common reasons that chargebacks happen:

1. Failure of merchant to respond to retrieval request.
2. Cardholder was billed more than once for the same transaction.
3. Cardholder denies making or authorizing a transaction.
4. Failure of merchant to follow correct procedures in completing the sales slip at the point-of-sale.
5. Account numbers don't match.
6. A credit or refund was not properly processed.
7. Failure to obtain proper authorization.
8. A card was used either before or after its valid date.
9. Merchandise or service not received by cardholder.
10. Cardholder disputes quality of merchandise or services.

The key to preventing most chargebacks is communication. Keep the lines of communication open between you and your customer. When the customer is on your check out page, put the name of your business by the submit button. This name should be the same as what will appear on the consumer statement from the issuing credit card company. Since most credit card companies offer online access and people can review this at any time, it is important to know what company is charging their credit card.


If your phone number does not appear on the credit card statement, contact your agent or your merchant account provider today and request it be placed on there. This way, the customer sees your number and this will increase your chances of them calling you - whether the call might be "What company is this" or "It was not what I expected".

Depending on the reason of the chargeback, you might get a retrieval request. This request is from the issuing bank. Some merchant account providers will charge you for this retrieval request on top of chargeback fees. This retrieval request is your first step in preventing a chargeback. As you can see above, failure of merchant to respond to a retrieval request will cause a chargeback to be issued. Once again, communication. You need to respond to the request immediately. Most merchant account providers will allow online access to your account or maybe even email you. Check this daily and to help you properly respond to the request.

Usually each gateway will send you an email for all transactions completed. If you receive two emails that look like the same order, review your shopping cart and then cancel the order through your virtual terminal. Doing this before batching out, can possibly even prevent the customer from knowing what happened.

If a cardholder denies making the authorization or transaction, this can potentially be fraud. There are a variety of things that you can do to prevent fraud. The first step is AVS (address verification service). This is an archaic method that Visa and MasterCard used to rely on quite heavily to prevent fraud. With so many problems though, they came out with a CVV (Card Verification Value) or CVC (Card Verification Code). Most Visa and MasterCards in the market today will have one of these numbers on the back. Electronic payment gateways will send you a transaction / order ID on your completed transaction. In this ID, you will be able to tell if the address and the CVV matched. If there was a problem., you need to scrub the transaction even further. And be very diligent in this - especially if you are allowing electronic downloads. A few other red flags could be:

1. Free email address
2. Phone number does not match the GeoIP or not entering a phone number
3. Do a GeoIP look-up (this will help to verify that the IP matches near the address of the consumer)
4. Purchasing quite a few of the same products

These are just a few reasons to scrub the transaction, I would guess that 99% of all consumers will not mind being called to verify the transaction.

If you sell a lot of high ticket items, consider faxing a credit card authorization slip over to the consumer. This can be as (link to authorization form).If you have some pretty strict return policies, consider adding some of those on this simple page. This way, If the consumer does a chargeback (and depending on the reason), you might be able to beat the chargeback. MyChoiceFax will provide a toll-free phone number with 100 free minutes for $9.95 a month if you need one.

Also, have you shopping cart verify the expiration date as well as the credit card number using the Lunh's method before submitting it to the gateway. This will help prevent a consumer using an expired card. Sometimes, the gateway or the platform will not check the expiration date.

Whenever possible, use a carrier that will provide you with proof of delivery. Having this on file will also help in some chargebacks.

And when you think the merchandise has been received by the consumer, send them a follow-up email. This will help to maintain the communication between you and your customer. This way in case something is wrong with the order, your chances will be increased that he / she will actually contact you.

Merchant Account Fees

Wednesday, December 28, 2005

Getting a merchant account is very easy - understanding it is a different story. There can be a lot of different fees associated with a merchant account:

• Discount Rate (Visa / MasterCard / Discover Card):  2:15% - 2.39%  
• Transaction Fee -  20¢ - 50¢ per transaction)  
• Batch Fee - Free to 30¢ per batch
• ACH Fee - Free to 25¢ per deposit
• Address Verification Service (AVS) - Free to 15¢ per transaction
• Electronic Gateway Fee  - $10.00 - $100.00 a month
• Statement Fee  - $0.00 - $20.00 a month
• Customer Service Fee  - $0.00 - $20.00 a month
• Monthly Minimum  - $0.00- $50.00 – for example, if your discount rate is 2.5% and you sell $1,000 that month, your charge is $25.00. If you monthly minimum is $25.00, you have met that requirement, and should not be responsible for that amount)
• Application Fee - $0.00 - $1,000.00
• Merchant Account Set-Up Fee  - $0.00 - $1,000.00
• Electronic Payment Gateway Set-Up Fee  - $0.00 - $1,000.00
• Membership or Annual Fee - $0.00 - $1,000.00
• Virtual Terminal  - $0.00 - $25.00 monthly

As you can see, there can be a lot of charges. The two basic components of an Internet merchant account are a credit card processor and an electronic payment gateway. The electronic payment gateway is similar to the point-of-sale (POS) terminal in the grocery store. The main U.S. gateways are Quantum Payment Gateway, Authorize.net, Payflow (owned by Paypal) and LinkPoint (aka YourPay or First Data Global Gateway - no longer support by us due to overcharging). All four of these companies cannot process credit cards without the aid of a credit card processor.

Questions to Ask a Merchant Account Provider:

• Do they provider 24 hour customer support?
• What are the charges of a transaction and monthly charges?
• How much will I be charged if I do not process anything?  (Usually this fee could be anywhere from $15.00 - $100.00)
• What will make the transaction downgrade to a non-qualified rate?
• What is your non-qualified rate?
• If you are a retail business, are you leasing to own or buying your POS terminal?  This lease can be from a third party and even if you cancel your merchant account, you will still need to paying the leasing company.
• Is there a contract or can you cancel at anytime?
• What about the electronic payment gateway and its fees?  (Most payment gateways will charge a monthly fee and maybe a transaction fee.  The Quantum Gateway does not have a monthly fee or a transaction fee.)

 

Whatever they tell you on the charges - when you sign the contract, make sure that those charges are spelled out on the contract. This is what matters. Also read the print to see how long the contract is good for. They are either usually 6 months, 12 months, 24 months, or 36 months.

Do your due diligence. Let’s say you sign up with a 2.39% discount rate, 25¢ transaction fee / batch fee, 5¢ AVS, $15.00 monthly electronic gateway fee, and $10.00 customer service fee. With the above contract, let’s say you have 40 transactions at $100.00.

• The transaction fees will be $10.00
• The AVS fees will be $2.00
• The discount rate charge is going to be about $95.60
• Now let’s say that you have nightly batches each night - so for one month, that is about $8.00
• If your provider charges an ACH fee, that will be about $8.00 a month
• Your electronic payment gateway fee is probably $15.00
• Your customer service / statement fee is probably $10.00
• Now, your total is $148.60 for the $4,000 in sales, which is about 3.7%

Third party processing has some advantages over a merchant account.  If your merchant account provider though does not charge as much, then your monthly fees will be less and that means more money in your pocket.