Merchant Account Blog for Business Merchants

Out of a given 100 calls that I receive regarding our credit card processing service, only one person is likely to inquire about the potential for level 2 or level 3 processing.  This is surprising as there is a proliferation of merchants who accept credit cards where such levels of processing would actually lower their costs.

However, like many facets of the merchant account field, levels 2 and 3 processing remain unknown entities, and not typically broached in a discussion when one is investigating merchant account providers.  But the topic is apropos for those business owners who accept government, business, and/or corporate cards.  Simply by providing more “levels of information” during the payment input process, such companies will benefit from a reduction in credit card processing expenses.

Consider a California-based steel firm that is under contract with the United States government.  I spoke with their CFO earlier in the week.  As the business accepts government GSA or purchase cards (p-cards), they qualify for level 2 or level 3 processing – a fortuitous happenstance as the CFO contends that her current merchant account provider’s rates are “too high.”

Now in order to process levels 2 or 3 data, you must have a system that allows you to input the additional required information entries.  Payment gateways or specialized computer software may serve in this capacity.

Almost all payment gateways, including Authorize.net, generally restrict business owners to level 2 processing.  (They are not compatible with level 3 processing.)  To meet the requirements for level 2 processing, the merchant must collect and submit the tax amount to Visa/Mastercard.  While no longer required, it is also advisable for the merchant to input the customer code and even the invoice number.  Of course, the merchant also inputs the standard credit card information, including the number of the card, expiration date, billing address, etc.

While some merchant account providers resell or offer their own proprietary computer software to facilitate level 3 processing, business owners need to understand that such software must be PCI-compliant as to ensure customer privacy.  Unfortunately, many potential options do not safely secure sensitive data, and thus, do not meet regulation standards.

One company, 3Delta Systems, has built a rewarding niche that accommodates level 3 processing, and concomitantly, meets all PCI standards through its EC-Zone product.  Their demo is a must-see for business owners who need secure level 3 processing, highlighting the line items of information that must be included.  The merchant should input the following fields after the standard information is keyed in: Item ID, product/service description, quantity, item amount, unit of measure, customer code, order number, invoice number, freight amount, duty amount, and sales tax. 

Yes, it will be a more time-consuming exercise to key in the required level 3 processing information, but here, time IS money – less money.  EC-Zone points out that a merchant can save as much as 1.3% employing level 3 processing.  On a $5,000 transaction amount (the CFO of the steel company told me that she may easily process a single transaction for this amount), the savings is $65.  An extra $65 for a couple of minutes of work is certainly worth it!

The merchant who uses EC-Zone’s virtual point of sale system should gain reassurance that the customers’ payment information is not stored locally.  The layout of their system is also user-friendly and easy to navigate.  But the cost for this type of gateway must also be weighed as it is an additional expense on top of the assessed merchant account fees.  At present, their fee structure is as follows: Set up fee is about $200, the monthly fee is $15, and the transaction fee is 15 cents.  (Of course, their rates are subject to change.) 

If you decide to purchase EC-Zone separately, ensure that your merchant account provider is compatible with this gateway.  Click here for a list of certified merchant networks. 

Level 3 processing was launched with government purchase cards but may now be used in conjunction with any type of purchase card.  As it expands in scope, it would be foolish for merchants to ignore its cost-reduction benefits. 

Moreover, level 3 processing offers line-item detail on statements just like on a standard invoice.  Customers benefit, too, as transactions are more secure and payment reconciliation is easier.

In the merchant account field, level 2 processing and level 3 processing maybe a savior to your business.  Do I hear level 4 coming over the horizon?  

          _______________________________________________________________ 

Please take a quick two-question quiz:

1. Which is more popular in terms of consumer payment – credit cards or debit cards?
2. Which is more frequently employed – signature-based debit payments or pin based debit?

The exercise is not just meant to help you accrue points in Trivial Pursuit.  The aforementioned questions are important – at least for any merchant who has face-to-face contact with customers – because it underscores consumer payment preferences.  Merchants need to accommodate customers whenever possible – before and after a sale – including how payment will be made.

Increasingly, in answer to question 1, debit cards are the cards of choice when viewing the American public’s payment habits.  Sure credit cards offer a greater protection to consumers (i.e., customers can call their card-issuing bank and initiate a chargeback or dispute) and provide the means to spend beyond one’s budget (a necessary evil at times) due to the inherent float before remitting payment for purchases.  Credit cards also absolve the card issuer from financial restitution in the event of fraudulent purchases.

But for the huddled masses who continue to see burgeoning debt and yearn to breathe free of collectors, debit cards serve as a safety valve.  Since funds are directly withdrawn from the card holders’ account at the time of a debit card transaction, there is less likelihood for the customer to overspend – even with the existence of overdraft protection.  Indeed, debit card holders are compelled to exercise financial responsibility and due diligence because they don’t want to incur non-sufficient funds penalties.

Debit cards not only foster financial discipline but also provide relief to the cost-conscious consumer.  Most financial institutions do not assess any charge to the card holder for debit card processing capability and levy no percentage cost.  Paying with this plastic can be cheap and mandates that one be frugal with its use.

It also requires attention to detail.  If a debit card holder discovers that his/her card is missing or finds out about unauthorized purchases, he/she must notify the bank immediately.  Reporting time is of the essence because of the following breakdown in liability: $50 if a report is issued to the bank within two days of the given transactions; $500 if a bank is notified before 60 days elapses; full payment (translation: tough luck) if a report is made after two months.

Despite its greater liability (many cardholders are unaware of debit card liability rules), the annual use of debit cards has increased by about 15-20 billion payments in the last three years.  Retail merchants should be privy to that statistic!

Moreover, educated merchants must be cognizant of the fact that (in answer to question 2), more customers embrace the idea of using their pin pad passwords than simply signing a receipt to officially authenticate a transaction.  Recently, I witnessed a store customer who was taken aback when she wanted to process her debit card via a pin pad.  She seemed miffed when the cashier told her that a pin pad was not available.  (Of course, this presented a sales opportunity for me later on.)  While the merchant did not end up losing a sale, there was the potential that the customer would simply abandon her purchase because her payment preference could not be honored.

The savvy retail merchant who wants to capitalize on consumer buying patterns should be aware that a pin pad may serve as an indispensable device.  Of course, any pin pad must comply with the Payment Card Industry (PCI) security requirements.  Those merchants who have older devices will seek compliant replacement units no later than 2010, according to current stipulations.  Please note that many terminals on sale now come equipped with built-in pin pads and already comply with regulations.

In an ever-increasing competitive market, retail business owners who do not want to lose any sales must accommodate the payment needs of the buying public.  Profit margins may be maximized with the realization that debit card processing is booming, and that the too-often ignored pin pad is an integral part of the debit card processing revolution.

          _____________________________________________________________

To learn more about our merchant account services, please visit us at  http://www.intelli-collect.com.

From the standpoint of a merchant or a purchaser, there’s only one number – one price tag, one credit card, and one transaction. But what many of us don’t see is what transpires between financial parties when the transaction is being processed. The buyer sees the price tag as a whole, i.e. $100 while the merchant receives an amount of less than that at the end of the transaction.

As a business owner, it is important for you to know and understand what happens in between the time a transaction gets captured and the time it settles. It won’t make a difference as to the amount that you receive at the end of the day.  However, at the very least, you know what goes on behind the scenes and will thus be in the best position to make decisions regarding your merchant account, your products/services, and the price that you have set.

There are two parties in a credit card transaction that are not visible. One of them is what we call the card-issuing bank. This bank is the bank that has issued the credit card to the customer. And then we have the acquiring bank that serves, what I would like to call, as the middleman in an online transaction. Commonly, they’re known as merchant banks that go on to process the payments and then take a fee from the amount.

Here’s what the process looks like. When a customer surfs onto your website and agrees to make a purchase using his/her credit card, he releases his/her credit card information to you, the merchant, via your website. The online shopping cart system that you use will send the data along to the acquiring bank. At this point, the acquiring bank will process the information, and updates and coordinates the information within a short span of time. Within this time, you’ll be amazed at how much information is being passed back and forth between the acquiring bank and the issuing bank.

The issuing bank is the very bank that holds all the personal details to the customer’s credit card account. So, the bank’s going to check the credit line and if everything’s OK, the bank will approve the transaction.  Subsequently, the bank passes this information down to the acquiring bank.

Both banks take a fee out of the transaction deal and the fees taken usually depend on the pact that the banks have tied up. So, if the customer pays $100 for a product, what the merchant would get is, perhaps, something along the lines of $86.21. I’m just pulling a figure out from the sky, so, there’s no need to panic…yet!  (Actually, the amount a merchant eventually receives for a given online transaction should be 96.5% to 98% of the total amount of the transaction – assuming the merchant is employing the services of a reputable merchant account provider.)

The relationship between the acquiring bank and issuing bank is bound by a contract whereby they have both agreed to an exchange of funds and between them, they have agreed to the rate of Interchange Fee which is set by the credit card association, i.e. VISA, MasterCard, Diners, etc.

In essence, the acquiring bank remits an Interchange payment to the card-issuing bank for every transaction.  How does the acquiring bank then get reimbursed, or even profit, from its role?  It charges an acquirer fee – the fee it assesses to the merchant (either directly or indirectly) for facilitating payment of the transaction.

Please note that some acquiring banks have a direct processing relationship with the major cardholding companies, such as Visa and MasterCard, and can provide processing capability to merchants.   Other acquiring banks work in concert with Independent Service Organizations (ISOs) or Merchant Service Providers (MSPs) to enable merchants to obtain credit card processing capability.

In general, banks that offer direct credit card processing to merchants employ more rigorous underwriting criteria, and charge relatively higher rates for a merchant account than ISOs and MSPs.  Although it is counterintuitive, it is generally cheaper to go with a merchant account provider that has a sponsorship with an acquiring bank than going directly with a bank to accept credit cards.

So, you see, there’s a lot more going on than meets the eye. Knowing what goes on behind the merchant account scene – by becoming familiar with the actors in the play (i.e., the card issuing and acquiring banks) – you’ll better direct the choices that you make, including the merchant account provider and the prices that you set for your products or services.

          __________________________________________________________

To learn more about our merchant account services, please visit us at  http://www.intelli-collect.com.

An owner of a new restaurant, fastidious about understanding all aspects of the merchant account application, initially recoiled when she discovered that she had to sign a Personal Guarantee.  “I’m not going to assume any liability if things don’t work out with the business.  If the business is unsuccessful, I won’t be in a position to pay back anything anyway.  That I can personally guarantee.”

Two points immediately came to mind.  First, the merchant’s financial responsibility towards any merchant account provider is ongoing – not just at the termination of a contract or at the denouement of a business entity.  For example, a merchant cannot just close his/her bank account to avoid annual, monthly, termination and/or chargeback related fees.

Secondly, if a merchant is not going to assume financial obligation for processing related fees, then who is?  Let’s highlight the ominous chargeback scenario.  Imagine a merchant gets issued a chargeback in the amount of $1,000 for a particular transaction.  Upon a withdrawal attempt to retrieve the sum of money back from the merchant’s account, it appears that the account is closed.  It turns out that the merchant has closed the bank account and now the $1k cannot be issued back to the customer.  (Please note that merchants can win chargebacks, but for the point of the example, the merchant in question has done something untoward.)  Who is going to return the funds if the merchant is not willing and/or able to do so?   

Consider a merchant who simply goes out of business.  Is the merchant absolved from future chargebacks simply because their business is no longer in operation?  If so, in such situations, the merchant account provider is left holding the proverbial bag and must refund the funds back to the customer.  Quite frankly, merchant account providers are not in the business of assuming another party’s debt and thus require a business owner’s “Personal Guarentee.”

In essence, a Personal Guarantee is a legal pledge or promise that the merchant recognizes all fiduciary accountability and liabilities with a processing bank for all fees incurred as a result of their credit card processing.  This guarantee serves as a safety net for merchant account providers, who, due to the inherent risk of their business, must ensure that they are not held legally responsible for any merchant’s possible mismanagement of funds, deliberate fraudulent actions, and/or inability to assume their own debt.

I have spoken to merchants who are concerned that merchant account providers will “go after them for everything they’ve got” if the business relationship does not work out.  However, again, the personal guarantee only pertains to the relevant rates charged for the merchant account and the credit card processing fees (including chargeback fees) that result from the acceptance of credit cards.  Generally, the merchant needs to be concerned with the following: Monthly fees, Monthly minimum fees, termination fees, and chargeback fees, with particular attention to the dollar figure for actual chargebacks lost.  Many business owners may not have incurred chargebacks and have no monthly minimum or termination fees, so the reluctance to sign a Personal Guarantee may be much to do about nothing.

Those who are highly suspicious or cynical may still buck signing any sort of personal guarantee.  Is there any way that these merchants can circumvent this requirement?  The following lists a couple of options:

-         Run a non-profit business – Many merchant account providers will waive the Personal Guarantee requirement for non profits or charitable organizations.  Those who are perceived to do good work on behalf of others may be considered less of a risk to engage in any type of deception – including financial.

-         Use your company’s strong financial standing – Of course, this option will not be applicable to new businesses that have not developed any financial history.  But for existing businesses, the balance sheet, including profit and loss statements, may appear very favorable to underwriters.  Why not use your assets, so to speak, to convince underwriters that your business is a sound risk even without any signed personal guarantee.

-         Establish a reserve – Merchants may have the option to provide an initial reserve amount and/or percentage of ongoing sales to the merchant’s acquiring bank as collateral against any possible chargebacks or other credit card processing related expenses.  With a reserve, a merchant account provider has disposable funds to use to pay back any debt amassed by the merchant.  Business owners must truly consider the pros vs. cons of a reserve because it impedes cash flow, and may not be recovered until 6 months after the reserve is established, including a half of a year after the merchant account has been terminated.

-         Offer a letter of credit – This is tantamount to a loan from the merchant’s bank.  This credit letter reassures the merchant account provider that they have access to funds, drawn from the merchant’s bank, should funds be owed to the processor.  Of course, the letter is considered a legal document and specifies the criteria that must be met for payment to be issued.  (Some merchant account providers may not accept such a letter of credit as they wonder about the rationale of merchants getting a third party involved in the process.)

Any of the aforementioned options may be broached with the merchant account provider.  Some are usually amenable to at least one serving as a substitute for a signed guarantee.  Others are more steadfast in their insistence that the personal guaranty be signed. 

Any responsible, ethical merchant account provider need not necessarily be overly concerned with this underwriting requirement.  Often, it never comes into play.  Providing one’s social security number may be more of a concern – but I’ll open that Pandora’s box in another article/blog entry.

          __________________________________________________________

To learn more about our merchant account services, please visit us at  http://www.intelli-collect.com.

The e-business world is a highly competitive one.  Even brick-and-mortar businesses, including those who initially considered doing business online as ‘crazy’, are beginning to take an interest in joining us on the Internet bandwagon. Indeed, the appeal of running an online business is so across the board that maybe even the seven-year-old down the road has his or her own blog or website. Or maybe there’s a prepubescent kid who used to knock on your door selling cookies now has a Facebook-like thing going and is well on his or her way to being the next Internet Billionaire! Who knows?

But the point is this. Many people know how to start an online business and it has reached a point where the competition is so rife that you’re practically elbowing your way through a crowd every time you try to find a client. So what does a bunch of desperate online business owners do? They do this (at least too many) ….they either bend the truth or they opt for the ‘what they don’t know won’t hurt them’ tactic.

I suppose a lot of business owners rationalize that their customers will not be harmed if they don’t know the full details.  However, in my industry, the merchant account business, it’s impossible for the customer to not know something and not be hurt by it. That’s my basic principle: In the merchant account industry, whatever they don’t know now might cost them dearly later on! That is why, for me, being honest and transparent is crucial … my integrity as a (business) man is inevitably enhanced when I am blunt beyond belief. And besides, I’m not really good at lying … not to my kids, not to my customers.

Others might think that being too transparent would chase the clients away and that if the hard facts, sloshed-up mistakes they’ve made earlier on were revealed, the clients would run for their lives in the other direction. But the strange thing is that in all the time that I’ve been working for this online enterprise, being transparent works like a magnet!

The more truths I tell prospective clients, the more drawn they are to me. Every time I tell them that I made a mistake and some rates might be higher than others, it’s as if they’ve suddenly grown closer to me and become understanding about it all. It’s amazing and it’s not even a psychological trick! It’s just me being me … being read like an open book about the merchant account services that we offer. In fact, because of the honesty that I’ve shown them, many of my existing clients started pointing their friends and family members my way.

Sure … being honest doesn’t pay all the time and sometimes, I lose a client here, a client there. But at the end of the day, when you total everything up, you end up winning because you’ve been upfront about it, you can look yourself in the eye in the morning without cringing and you’ve got repeat customers who keep coming back and with referrals too!

Honestly speaking, being brutally honest about things can be tough. But if you’re an online business owner, take it from me … you’d rather be read like an open book instead of being anxious about showing others your weak side. When you try to protect too many ‘hidden truths’ in your online business, people might start thinking, ‘where’s the catch?’.

For me, if there’s a catch, I’ll show you the catch. If there isn’t one, I’ll tell you there isn’t one.

It makes my merchant account business a much simpler and more profitable one.

          ___________________________________________________________

Prospective clients who investigate our services are, in essence, looking to find the best merchant account provider to serve their business’s credit card processing needs.  But their quest to find an exemplary company only motivates us to fulfill their mission – to provide clients with the best payment processing services and solutions in a framework encompassing pillars of excellence.

One such pillar of excellence is to truly listen to a prospective client.  There are many options that may be offered in the merchant account field, and the suggested program must be tailored to meet the needs of the customer, and not designed to maximize profit of the merchant account provider. 

At times, this may even mean to convince a client that he/she needs no services.  Last week, a prospective client called us about our check guarantee program.  Upon investigation, this business owner only receives 1-2 bounced checks a year.  While his recent loss of $200 in an NSF check is very upsetting, particularly in light of the fact that the customer is not returning phone calls, the merchant must understand that he should not engage in a kneejerk reaction, ultimately spending much more than what he will probably save.

Similarly, I received a call yesterday from someone who has a side hobby business where she anticipates accepting about $100-$200 per month in credit card sales via the Internet.  (She appreciated the fact that we have no monthly minimum.)  While I welcome any new account – regardless of processing volume (after all, she may refer business associates and friends who may have large processing volumes) – I just did not believe that she needed to obtain credit card processing capability at this time.  We spoke at length and she agreed that she would table the matter, and see how things progress with her business. 

As important as listening to the prospective client, it is crucial to treat others with respect and dignity.  In business, it is so vital to abandon the “What’s in it for me?” mindset.  Business owners must realize that they are in the “helping field” regardless of the product or service they market.  Obviously, looking for win-win solutions is always desirable but the chances that a mutually beneficial relationship will materialize becomes greater when the other party feels attended to, cared about, and treated to the truth.

Too many merchant account providers do not believe that they need to be honest and ethical.  Some will rationalize that “buyers are liars,” and must resort to dissembling motives or engage in blatant misrepresentation to even the score.  For example, merchant account providers may deliberately omit fees and/or make promises that they have no intention of keeping.  I have heard so many horror stories, for instance, where merchants were told that they would not incur any termination fee only to be assessed the equivalent of a king’s ransom when canceling the account.

This is no way to conduct business – especially if a long term partnership is to be established.  But a pillar of excellence that will lead to a lasting, committed alliance is if a company takes fast measures when difficulties arise.  Consider a client who has a problem that needs to be remedied.  Swift attention to the matter can only serve to strengthen the bond of trust.  Indifference or inattention to the matter will only lead to the client’s disillusionment.

Fortunately, I’m in a field where merchant account providers forget this principle – attending to the clients that they already have.  They are so numbers driven in search of new clients that they don’t do an effective job retaining the old ones.  They conveniently forget to address problems that have been shared and are not conscientious looking for solutions.  Such clients look elsewhere and they are not only fixated on low credit card processing rates; they expect and demand outstanding service from the best merchant account provider that they can find.

Another pillar of excellence that is paramount to success is to be responsive.  Answering emails and returning phone calls in a prompt matter easily separates one company from its rivals.  All of us like our questions answered in a timely matter; merchants, who are very busy themselves, need to find quick answers.

Of course, the manner in which company representatives communicate may ultimately affect a prospective client’s decision as to which vendor to use.  A friendly, caring, and supportive demeanor makes a favorable impact.  Conversely, a voice or dialogue manifesting disinterest, arrogance, and impatience will put the kibosh on any possible future account.

Our merchant account company continues to refine and expand the aforementioned pillars of excellence.  We benchmark our progress, keeping an eye on what our competitors do.  We try to be proactive and look out for any potential problems that our clients may experience.  We ask for honest feedback from our customers and pass cost savings onto them whenever possible.

Last Friday, I received a copy of a merchant’s recent credit card statement, and he encouraged me to perform a merchant account comparison, outlining the amount of money that our company could save him if he utilizes our service.  Apparently, he asked a group of our competitors to participate in this merchant account comparison exercise as he neatly created a chart listing the rates that were quoted.

But while a fee structure was listed for each company that was vying for his account, ALL the rates were not listed.  Of great importance, for example, was a missing non-qualified transaction quote.  Transactions, particularly ones that transpire over the Internet, are downgrading to the non-qualified category with greater frequency.  The increasing use of rewards cards are largely responsible for the proliferation of non-qualified transactions so this fee is crucial to know when weighing competitive offers.

I was not sure if the merchant did not list it becomes he thought it was unimportant or because the other merchant account providers did not disclose it.  But the absence of such information makes any merchant account comparison meaningless.  Similarly, other fees were conspicuously not present as well: The batch, AVS, Watts, and voice authorization fees should be taken into account but were not indicated on the chart.  Even the chargeback and retrieval request rates were missing, although it’s possible that such fees may never be assessed.

Still, a merchant account comparison is not complete unless all associated merchant account rates are compared.  It is impossible to draw an intelligent conclusion if one is only seeing a partial picture.  I just read a book with my youngest son where the main character does not know that the end drawing is an elephant because when he looks at it from different vantage points, the picture looks like something else.  So, as you look around at various merchant account providers, consider the entire fee structure and not just part of it.  This is the only way to participate in an “elephant sale” and find a true bargain.

Another question comes to mind when conducting a merchant account comparison: Should rates be the only determining factor?  This is a question that each merchant must ask himself/herself.  Perhaps finding an ethical merchant account provider – one that engages in a full disclosure of rates and its company’s policies and procedures -- needs to be part of the quest.  Of course, one is doubly fortunate if such an ethical merchant account provider also offers the lowest rates.

Merchants may have other criteria when performing a merchant account comparison: Email and/or telephone responsiveness, reputation of the company, number of years that they’ve been in the merchant account field, etc. may all be factors that are assessed.  But the #1 criterion of most merchants concerns rates so it’s best to compare ALL rates, and make a fair and prudent “apples to apples” decision.

          _________________________________________________________