Posts filed under 'Merchant Accounts'
A while back, I blogged about Visa’s unembossed card program.
These cards which can be printer at a bank, do not have the raised lettering that credit cards currently have. These cards are much easier to produce and can be done on standard equipment, but it prevents businesses from obtaining an imprint of a credit card either as a backup method or for smaller merchants who still exclusively use an imprinter.
Visa is now pushing their unembossed card program to US markets, starting with debit cards, and consumer credit cards. This allows issuers to create cards on-the-fly which is great for issuing debit cards to new bank members, or immediately issuing a credit card upon approval. Unfortunately, this convenience comes directly at the expense of fraud prevention and processing redundancy (albeit primitive), and effectively destroys many small mobile merchant’s primary processing method.
My recommendation to mobile merchants out there, is that if your only method of processing is a manual imprinter, start looking for a wireless terminal, or start looking for a portable photo copy machine. It’s just a matter of time before these cards are the only cards!
September 23rd, 2008
A few weeks ago I had the opportunity to have lunch with the owner of one of the largest online retailing websites in the world. He was looking for a new company to process with, and brought up some good points that I think can really help business owners looking to accept credit cards.
As far as processing goes, what is important to a business doing $10M+ per month?
- It needs to work, period!
- God forbid something does go wrong, it needs to get fixed, fast!
- A “fair” price!
It needs to work!
There’s no question that cost is not important if your processing system is not working. A processing system needs to work fast, be completely seamless, and should not have problems, ever…
Ideally a business would not even know they have a merchant account would it not be for that monthly statement.
An invisible merchant account is a good merchant account!
If something does go wrong, it needs to get fixed, fast!
When a second of downtime can cost thousands of dollars in missed revenue, any problems in a credit card processing system needs to be fixed without delay. While service availability and processing connectivity issues should not be a problem, nothing is 100% guaranteed.
Businesses need to know that someone is always there to fix any unforeseen issues, immediately.
I am getting a “fair” price!
It’s not important to get the lowest price on earth, but if someone else costs 25% less, there’s a problem. A quality service costs money, but is also competitively priced. Cost should be low enough that a business owner doesn’t immediately consider switching when someone comes along with something a little lower. The quality of service should make up for any minor differences in price.
Conclusion – the perfect merchant account – The perfect merchant account is competitively priced and stays that way. Regardless of the processing method, it does not have problems with connectivity or in getting a business the money that they process. There must be someone on the other end of a phone, ready to correct any problem that should happen to arise, and problems should be rare. Does your merchant account work this way?
A business owner has better things to do than worry about their merchant account!
July 28th, 2008
Right now, there’s a battle waging for the processing industry. On one side is a massive group of retailers including Walmart, Target, the NRF and many others and on the other is Visa, MasterCard, Amex, card issuing and processing banks. This outcome of this battle will ultimately decide whether the government will regulate credit card interchange, or it remains controlled by Visa and MasterCard.
Retailers argue that Visa and MasterCard are using anti-competitive practices to maintain a monopoly on the processing industry. Visa and MasterCard declare that government regulation of interchange will create a non-competitive situation and ultimately cost businesses more than they are currently paying.
In theory this act (H.R. 5546) sounds to be a simple solution to a complex problem. The government gives retailers the ability to negotiate their interchange fees, done… What this resolution doesn’t take into account is that the system is so much more complex than just some simple interchange negotiation. This resolution would be on-par with telling every gas station in the country to negotiate prices with their customers, good luck… It doesn’t in any way address the cause of the interchange prices, it only addresses the result of where interchange is set at.
Why interchange should not be regulated:
Irresponsible: – The current concept of interchange regulation is in reaction to a slowing economy, and massive inflation in oil and food prices, and not the interchange fees themselves. This is an irresponsible and ineffective way to handle a complicated situation. Putting all personal opinion aside, the US Government Accountability Office, the US Justice Department, the American Banking Association, and the Federal Trade Commission have all warned congress against regulating interchange.
“Policymakers should heed the concerns raised by both the FTC and the Justice Department,” said Yingling. “The many benefits merchants receive from accepting payment cards come at a cost and intervening in this properly functioning market by establishing artificial interchange rates will ultimately hurt consumers.”
Congress passing this bill would be a matter of personal politics and not good government. These organizations exist to control and regulate trade and economy. If they are saying not to do it, it’s a good sign that personal issues are overshadowing what’s important in the overall picture.
Impossible Solution: – The resolution for setting interchange prices is by a panel of three appointed “Electronic Payment System Judges” who set interchange rates. How can setting fixed prices possibly allow for a competitive marketplace. If every store owner had to set their prices the same, how would there be any competition.
It also gives merchants “in theory” the ability to negotiate their interchange rates. Since interchange rates are set by Visa and MasterCard and not a business’s merchant account provider, Visa and MasterCard are going to have a lot of work on their hands. There are roughly 25 million businesses in the US. Giving everyone the ability to directly negotiate with Visa/MC is not going to simplify anything. Since interchange will be set based on cost and return, then I can see the cost going up a lot when 25 million people pick up the phone to call Visa.
The market is “not” non-competitive: – Open up a new business and see how many calls you get from merchant account providers. There is fierce competition in the merchant services industry. Putting scams aside, this competition benefits merchants in the form of the lowest possible rates, and best service. This is the definition of a competitive marketplace and is exactly what keeps the market fair. Interchange is extremely complicated, and only recently has become somewhat transparent. The actual problem being described is not the cost, it’s the complexity.
Conclusion:
The bottom line is that this is an extremely complicated situation that is being dealt with through personal emotions and haste instead of facts and understanding in a time of economic instability. Interchange has become a scapegoat for a falling economy and the fallout from rising oil prices and commodities inflation.
Related relevant posts:
An Ugly Regulatory Bill
STOP THE MADNESS!
Congressional Price Fixing
Electronic Payments Coalition Statement on Price Control Legislation (H.R. 5546)
Interchange bill may be dead for ‘08
No Credit to Congress
July 24th, 2008
I hate seeing yearly and other fixed fees with merchant accounts. As if its not enough that a business is being charged for every transaction processed, some companies feel the need to charge yearly, monthly, daily, peak-season, miscellaneous, PCI compliance, and other fees just for using their service.
These fees make short work of any great deal that you were supposed to get. Personally, I recommend avoiding providers with high fixed fees unless there is some extenuating circumstance where you can only get approved with a processor that has them.
Let’s take a look at how fixed fees affect overall processing costs:
Let’s say your end of month cost for $8,000 is sales is $150, of effectively 1.88%.
With a $20 fixed fee, this effective rate jumps to 2.13% which is an increase of almost 15%. Add a few more in and the additional cost can easily make up 50% of you bill.
More than just fixed fees can be factored into this equation. If your transaction fee ends up costing $20 more per month with one service provider, it has the same affect as a fixed fee. When you’re looking to get setup processing, it’s important to understand how certain types of fees and the way they are presented will affect your monthly cost. My recommendation is to work backwards. Start by ignoring the discount rate and look at everything else you will be paying.
June 25th, 2008
Lately I’ve been hearing reports of processors that are starting to charge their customers $19.95 per month for not being PCI compliant. To fix this problem, these processors are requiring their customers to install some PC based scanning software that is supposed to magically make the business PCI compliant, thereby allowing them to avoid the monthly charge.
Let me start out by saying: This is a bunch of crap!
There is nothing that you can just put on your PC that will make your business PCI compliant. This is so far off course that it hardly can be related to PCI. PCI compliance is in reference to networks, computers, hardware and software that play a part in the processing, storage, or transfer of a credit card transaction.
It is now required that every business be PCI compliant, but let me assure you that there is no simple computer program that will do this for any business. Even if only a single computer is used to enter card data, it is unlikely that it is the only piece of the puzzle, and even more unlikely that a single piece of software can guarantee PCI compliance.
Steps to get compliant:
- Determine whether you need to be PCI compliant. (If you accept credit cards, or play any part in the processing of a credit card, you need to be PCI compliant.)
- Determine which Level of compliance is required for your business.
- Level 1: Greater than 6 million credit card transactions per year or any business that has suffered a hack or data breach, or any business deemed Level 1 by card associations.
- Level 2: 1 to 6 Million credit card transactions per year.
- Level 3: 20K to 1 Million credit card transactions per year.
- Level 4: Less than 20K ecommerce, or 1 Million total transactions per year.
- Fill out the self assessment questionaire (SAQ).
- Fix every area that you answered ‘NO’ to on the SAQ.
- Hire an approved scanning vendor (ASV) to perform quarterly scans of any external networks. – All Levels
- Fix and maintain any failed area of the scan.
- Level 1 Only: Complete an annual on-site audit by a Qualified Security Assessor (QSA).
- ** Continue to maintain security of networks and card information! **
Once you complete all of those requirements, and maintain a secure network and business environment, you are PCI compliant. Most of the details of PCI compliance can be found in the SAQ, and on the PCI Security Standards website.
If you’re trying to determine whether PCI compliance is worth it to you, consider this: A security breach will result in a business requiring Level 1 compliance. The cost for level 2, 3, and 4 compliance can be as low as a few hundred dollars per year. The cost of Level 1 compliance can easily reach into the 6 and 7 figures per year.
Some Good PCI Resources:
PCI Answers Blog
PCI Security Standards website
Visa Cardholder Information Security Program
MasterCard SDP Program
May 6th, 2008
Check out the Do’s and Dont’s of credit card processing if you need to get setup any time soon.
Please feel free to contact me if you know of something that should be on there.
March 19th, 2008
Slamming is a situation in the credit card processing industry where a sales agent or an ISO will steal a merchant account from another processor.
This deceitful tactic has been observed in every area of credit card processing, from the retail to ecommerce. It is most common with smaller retail shops and restaurants, and seems to be especially prevalent in rural areas where business owners often have a first name relationship with their merchant account rep. Slamming has a negative impact of both the business that switched, the company whom they switched from, and the processing industry in general.
How slamming happens:
Picture this scenario. You own a clothing shop in a small town in Colorado. One day a person calls or walks into your business claiming he is with your credit card processing company and needs to update your terminal because of new security regulations. He tells you he works with your rep, Sam, who set up your merchant account initially. You know Sam and assume that he must have sent this person to correct your terminal. He has you sign some paperwork, he makes a few phone calls, messes around with your credit card terminal, thanks you and leaves… You’ve just been slammed!
At the end of the month, you get two bills for your credit card processing. One from the company you originally signed up with which is basically blank, and the other that has all of your transactions on it, but you don’t quite recognize the name on it.
What you didn’t realize when that person was reprogramming your terminal was that he worked for a different company, and he just switched you to his service. He knew your sales rep Sam’s name because most of the businesses in the area process through the same company and Sam is their rep. You may not have even signed an actual contract with him, but he got your signature and your terminal is programmed with his company. Although what he did was illegal, you now have two merchant accounts, and the second one is a complete mystery as to what you are actually paying, or who you are processing with. Unlike switching providers on your own, you didn’t need or want to switch, and you don’t know anything at all about the new company or what you’re going to get with them. Hopefully, they actually did setup you up with a real merchant account, but for all you know, this may have been some criminal that installed something to skim all of the credit card numbers that go through your terminal. Some ex-bankcard technician may be routing your money into their bank through a stolen merchant account. Just about anything is possible.
How slamming can hurt your business:
- You are now processing through a deceptive company!
- You almost always have extra fees, due to two accounts being open!
- You will most certainly have a termination fee!
- You can possibly be put on the TMF / Match file if you end your relationship with either company in a bad manner!
- There is a now huge potential for fraud and credit card theft through your business!
Simply put, any company that would con a business into using their service is not someone you want to be doing business with. This company just doubled any fixed fees you had because you have two accounts open now, and you most certainly have has an early termination fee that you will be required to pay when you realize you just got scammed. They have a termination fee, because there is a good chance your going to dump them once you realize what just happened. Apart from that, who knows what your fees are, what this company’s reputation is, if they are even a legal business, if you are going to get all of your money, etc. This is just a bad position to be in for a business.
Of course this is illegal and you can take recourse against this deceptive company, but lawyers are expensive, and this could become an enormous burden to fight. Additionally, it may be hard to track down who is actually responsible for doing this to you. Many businesses do fight and they usually win, but it takes time and money, which is why slammed businesses often stay with the new company.
How this hurts the merchant services industry:
Reputable service providers spend a lot of money to gain your business, and they spend a lot of money on staff, training, and equipment to support your business. It takes months and sometimes years for a processor to regain the cost of establishing a single customer. When merchants are stolen, it has the same affect on a processor that shoplifting has on a retail businesses. Profit margin’s sink, and it becomes harder to keep prices and fees where they are. On an industry wide level, it ends up costing all businesses more, because the lost revenue has to be accounted for somewhere.
Companies that slam are scum!
Slamming exists because some providers and reps find it easier to steal hard earned customers from honest companies than to provide a service worthy of gaining their own customers. The people doing the slamming are criminals and should not be trusted on any level. Businesses have gone bankrupt, been put on the TMF, have been locked into horrible contracts and paid thousands of dollars because of thieves that do this. There is so much risk to a business that gets slammed, only a true criminal would put an honest business into a risky situation that could cost them their business.
What to do if you’re slammed:
First off, do some research to find out who did it to you and when it was done. Usually someone showed up and either switched out your terminal, or reprogrammed your terminal claiming to be with your processor. More than likely an outside agent slammed you and not the company they work for. Luckily, this is the best case scenario for your business, because you can easily bypass the agent and deal directly with the company you are now processing through. Additionally, a sales agent that is out slamming businesses is a huge liability for a processor so they will be more likely to sympathize with your situation. You need to make sure that if you close this new account, you will not be charged a termination fee, and you will not be put on any sort of TMF/Match list. Depending on what you actually signed, it’s possible that it was a complete application. Whatever the case, you are the victim of fraud, and you shouldn’t have to compromise, even a penny! You also need to figure out what you want the outcome of this to be. You can go back to your original company, you can find a new company, or you can stay with the current one. Based on how your relationship got started with this new company, it’s probably a good idea to go somewhere else out of principal. If you do decide to leave your original provider, make sure you know if you are required to pay any sort of termination fee. Most likely your account with them is still open, so going back to them should be simple and painless, maybe taking only a few minutes to get your terminal reprogrammed.
If a provider slammed you themselves, you are in a stickier situation. Going straight to the bank they are registered to, or to Visa and MasterCard may be the best resolution. If you find that the cost is significantly higher, you may need to consult a lawyer or file a report with your police department. If you do decide to call them, go up the chain of command as high as you can. Even if the company is responsible, it was still most likely a rogue sales person that carried out the slam. Filling reports with the BBB can go a long way to getting their attention and getting out of their grip. Ripoff Report is another company you can file a complaint with.
(My Ripoff Report Advice: Only file a Ripoff Report after all other options have been exhausted! You should be 100% certain that you are filing against the correct organization, there is no chance of an amicable resolution, and you do not expect anything positive to further come from the company. Unlike a BBB report, a Ripoff Report cannot be undone, even by you, and they can be so damaging that there is little chance the company will deal with you any more at all. If you commit libel or slander, you should be prepared for for the full legal wrath of the company you reported. Enough said!)
Prevent it!
Don’t let anyone reprogram your terminal unless you are certain that they are supposed to and that they work with your current processor. Whether it is over the phone or face-to-face, make sure you know who is changing your terminal, because you just can’t know what they may be changing on it. Your money and your business’s very existence could be at stake.
March 18th, 2008
I come across horror stories all the time about people not getting money from their credit card transactions, or that they are being overcharged for long periods of time after something was supposed to have been canceled.
It’s a certainty that at some point most companies are going to need something changed with their merchant account. This could be a change of address, change of service, new equipment, and almost inevitably a bank account change. For some reason, bank account changes cause business owners more problems than any other action that affects their credit card processing. I recently heard a story from a business that had not been receiving their transaction deposits for nine months. Even more disturbing, that it isn’t the first time I have heard of this happening to a business. Personally, I don’t know how you could not notice your money was missing for nine months, but obviously this does happen.
As a business owner, if you change your bank account, or anything else that may affect your business’s ability to receive money, make sure you get your merchant account updated, and check to make sure it got updated. Additionally, every time that you call your provider, write down and archive exactly what the expected outcome is supposed to be and how long it’s supposed to take (Even if it’s just on a sticky note). Whether it’s your provider’s fault or not that something got messed up is irrelevant, it’s your money that is not getting to where it should be. Call them every day to check up on it if you have to, but don’t be that person who finds out six months later that you haven’t received a single deposit since you made the bank change request. Don’t be that person who finds out you were being charged $10 per month for something you canceled four years ago. Your provider needs to follow through with the changes, and it is irresponsible when they neglect to or just mess something up, but again it’s your money, make sure that it is going where it should be going.
February 21st, 2008
Next day deposits are something that many processors claim to have, but few if any actually do.
Hangup #1.) When a business processes transactions on any given day, those transactions must be reviewed before they are authorized to go to a bank account. This process, called risk management, is the final check to stop potential fraud before the money is deposited into a business’s bank account. While there is some automation to this, generally a human must look at the day’s settlement, and decide whether to let the transactions through, or to put a hold on that day’s funds. Processors are normally allowed 48 hours from the settlement date to analyze that days transactions and release them. The earliest that those transactions are available for review is the morning following the day the transactions were settled.
Next day depositing would typically require the removal of the risk management step from the process of a credit card transaction. Most processors are not going to relinquish this necessary step in the transaction process. Since the processor is liable for all of a business’s transactions in the event that the business commits fraud, it would take a great degree of trust and a long and positive processing history for a processor to do this.
Next day deposits are typically seen and work when a business processes directly through a bank, and also maintains a bank account with them. Because the bank has complete control over their account, they can front the money before formal risk management takes place, and go back into the bank account in the case that something is wrong. There are only a few banks that can actually deliver on this but in reality a bank’s endless spool of red tape often offsets the benefit of next day deposits. There are also some processor / bank account combinations that allow next day deposits, but again, this isn’t a service that every business can qualify for because there is too much risk in many situations.
Hangup #2.) Banks have a tendency of holding funds before allowing them to clear, and this can delay transactions from being deposited into a business’s bank account.
Depending on the amount and the situation, banks can hold funds for several weeks before allowing them to be deposited into an account. While it is much more uncommon for this to happen with a business account, some banks still hold funds for transaction deposits. If you find yourself in this situation, you should see if you bank will immediately clear transaction deposits of just find a new bank. For most small businesses, it’s not worth the hassle waiting for deposits because your bank is being picky. The bank is taking no risk on these deposits if you have a legally setup merchant account, so there is no reason they should be holding them for more than a day.
A few tips:
Sometimes something as simple as changing your daily batch time can reduce the time for your deposits by a day or more.
A charge card can be a great tool for small businesses with inconsistent cash-flow because it allows purchasing as needed, but does not carry a month-to-month balance like a credit card. American Express and MasterCard both offer some good charge card programs designed specifically for small and medium businesses.
January 21st, 2008
Let me start off by saying that I am not a fan of early termination fees. I believe that if service providers were are as good as they claim, then there would be absolutely no need to lock someone into a two or three year contract with a several hundred dollar termination fee. Early termination fees make the processing industry look like the cellular industry, which I can honestly say is a bad thing.
If every provider is as good as they claim, then why three year contracts?
There are a few reasons why service providers have early termination fees.
First there is fraud prevention. When a business has to sign a three year contract, there is a much lower chance that they will commit fraud and run. Services like Paypal are plagued by fraud, in part because anyone can sign up and instantly activate an account. Your provider is also taking on a lot of liability to accept your business (They are liable for every penny that you process!) and a termination fee is a way they can protect themselves a little.
Secondly, it actually takes a lot of work to setup a business for credit card processing. There are multiple steps that take place behind the scenes, involving multiple people and departments. It normally takes several hours of work just to process an application. Whether the business ever processes or not, the provider has spent several hours of manpower before anything is even finalized. Add another hour or more for programming a terminal, and then a few more for training and deployment, and the time really adds up just to get someone setup.
Up until about six years ago in the US, and still in some other countries, it was common if not standard for business owners to pay several hundred dollars just to apply for a merchant account. At the time it was seemingly a good idea, and it reduced the number if frivolous account requests and price shopping. That money was normally set to cover the cost of manpower to get a business approved, programmed, deployed and fully processing. Since it is rare to ever see an application fee anymore, that money is often made up with a termination fee.
Lastly, providers just want to keep their customers. Whether a termination fee is the right way to do it is debatable, but as a provider, when you see a customer switch to another company because they offered a much lower rate, which in reality saves them about two cents per month, it’s more than frustrating. Often a new provider comes along with creative rates, and the customer ends up paying more.
Many service providers simply don’t have a choice:
Many of the back-end companies that underwrite merchant accounts require minimum contract terms. There are a lot of providers that have no choice but to require a contract with their customers. It doesn’t make them a bad company as long as they are providing a service worth the contract.
Just because there is a contract, doesn’t mean the company is bad:
As a business owner, you can still get a great service from a company with a termination fee. But, you should do extra research to ensure that the company you are going to be processing with now, is the one you want to be with in a few years. Having a contract does not necessarily mean you are dealing with a bad company, but it does mean that you need to make a commitment, so make an educated commitment to avoid any surprises.
If you are in the market to start accepting credit cards, I recommend reading these before you start shopping:
The processing fee is the least important one on your application!
Avoiding a Bad Merchant Service Provider
January 16th, 2008
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