It appears that companies that are engaging in ‘negative billing’ and/or ‘continuation billing’ have finally started annoying more than just the consumers. The credit card companies are finally getting aggravated by it as well. Perhaps this is because of the sheer amount of complaints or return requests they receive. But whatever the reason, it’s a step in the right direction for everybody who has had to suffer from these types of underhanded billing procedures in the past.

It has come to the attention of the major credit card companies such as Visa and MasterCard, that these billing practices are giving just about everybody a bad name, including them. And this of course won’t do. If Visa and MasterCard are to be given bad names in any shape or form, they would rather be responsible for it themselves, not because of some small third-party outfit.

In many of these negative billing cases, a customer agrees to purchase an item or service and unknowingly also agrees to an ongoing charge with their credit card. A prime example of this would be getting a free trial of an anti spyware software and then not cancelling it after the trial runs out. Your card is then charged automatically for the software even though you have not specifically ordered it.

A similar type of transaction is known as forced continuity where customers are charged on a regular basis for one specific good or service if they want to receive another offer. This of course, is great for the business, but not for the consumer.

MasterCard has already warned businesses about ‘negative option’ enrolment tactics and has considered them to be ‘brand damaging.’ This term is actually quite broad in meaning, but I think most people get the idea of what it means. It seems that MasterCard will soon be trying to put an end to any type of negative billing transaction on their credit cards. Visa has also enlisted some policy changes regarding various types of direct response offers as they are trying to eliminate it too.

They are taking aim at companies which like to offer things such as free trials, deferred billing and/or shipping-only charges. The credit card companies want to make sure the customers are actually receiving a tangible good or a service in exchange for their credit card payment. Discount offers are considered fine as long as an exchange of goods or services takes place. But what won’t be accepted are instances in which credit card customers are receiving unexpected hidden or delayed charges further down the road and ‘free’ offers that aren’t really free at all. They basically want card holders to authorize each and every transaction that takes place and everything to be done according to guidelines.

And speaking of guidelines, the FTC recently came out with a set of them concerning negative option enrolment programs and is taking an aggressive stance against merchants that are involved in this business practice. The FTC recently fined two firms for a total of more than $9,000,000 due to their negative option marketing practices.

The FTC has deemed that all material terms should be displayed in a clear, concise manner and that any unnecessarily long or inconsistent terms are seen as an attempt to mislead consumers.

The terms should be clearly placed, labelled, and easy to read on merchant websites in an area that indicates their importance and relevance to the pending transaction.

All material terms of the transaction must be displayed before the consumer has committed themselves to a financial obligation.

The consumer must also give their consent to any transaction by clicking a mandatory “I Agree…” statement checkbox. This means the consumer has read and understands all of the terms and conditions of the offer. However, pre-checked boxes on the website are not considered to reflect a customer’s consent.

Merchants must also make it perfectly clear how consumers are able to cancel their transactions. 

A prospective client recently contacted us and mentioned that he was not looking for an Authorize.net merchant account as he already had the credit card processing piece.  He requested our rates for the "Authorize.net gateway only."  I explained that we bundle this payment gateway with our merchant account program.  Although we could not accommodate his request to provide Auth.net by itself, I decided to investigate standard pricing quoted for only Auth.net.

Upon my research, I was surprised to learn that most gateway providers charge a set-up fee, typically $99.  Some quote a sales price of $49 which while it won't break the bank, may be $49 more than necessary.  Monthly fees vary, generally fluctuating between $10 and $30 -- the same price range that merchants should be able to get for both a payment gateway and credit card processing capability.  Per transaction costs, often quoted between 5 and 10 cents, should be obtainable whether you purchase Authroize.net by itself or with cc processing.

Online business owners need to understand that aside from an Internet site, a shopping cart or order page, they need to acquire a gateway with the means to accept credit cards.  In the course of my work, I've spoken with folks who had the payment gateway component without a merchant account, and vice versa.  Such business owners would have saved money had they purchased the two simultaneously.

This is analogous to any package deal.  Consider a standard vacation package where discounts are provided if one opts to get air flight tickets, hotel accommodations, passes to attractions, car rental, etc. at the same time.  It typically is more cost-effective to bundle all necessary components than to purchase separately.

At the risk of self-aggrandizement, our Auth.net fees are $5 per month and 5 cents per transaction with no set-up fee.  (Other companies offer similar low rates) for Auth.net ... provided you use their credit card processing package.  In the scope of research, I did not find one provider who offers Auth.net by itself at this affordable rate or lower.  Subsequently, factoring in the fixed monthly cost associated with a merchant account, the TOTAL monthly fee becomes unnecessarily inflated.

All in all, it makes sense to look for an Authorize.net merchant account -- a program that can simultaneously provide Authorize.net with an Internet merchant account.  In this way, you can more quickly and conveniently get the entire means to accept credit cards online while keeping more cash in your pocket.  Here, "not sold separately" should prove advantageous.

Secure, reliable, and affordable credit card processing (including payment gateway) is readily available so perform your due diligence when examining the myriad choices when seeking a full-service Authorize.net merchant account.     .     

A retail merchant once called our firm and after I outlined all the rates, she jokingly remarked that she shouldn’t have to pay any fees because she was “taking all the risk.”  While I appreciated the joke, it’s not funny to many retail merchants who must apportion part of their hard earned profit to credit card processing companies.  The credit cards swipe, and each time, money figuratively goes out of the cash register.

The retail merchant community is growing increasingly disenchanted with the card holding associations, the banks, and their merchant account counterparts.  Among their litany of complaints include the following:

- The rates are consistently increasing – Visa and MasterCard typically adjust their interchange rates (in essence, the rates charged to merchant account providers) in April and October.  In turn, the vast majority of credit card processing companies pass through these rate increases.  Merchants receive seemingly cryptic notices about the increases but the new pricing matrixes may be complex.

Intermittently, there may be new surcharges.  Two that were implemented over the past year include Visa’s “Acquirer Processing Fee” (APF) and MasterCard’s “Network Access and Brand Usage” (NABU).  These surcharges amounted to an approximate 2 cent charge for all sales and credit/refund transactions.  Many merchants would in turn like to give Visa and MasterCard their 2 cents about this quite “imaginative” fee, assessed just for the cardholder using Visa and MasterCard cards.

Large retail superstores, such as Walmart, pay less for credit cards that swipe.  More and more small and mid-sized businesses are complaining about the discrepancy.  While volume dictates pricing in many areas of our economy, many merchants are rankled by any perceived “preferential treatment” and concomitant price breaks.

- The rates paid by US business owners/consumers are the highest world – purportedly up to five times higher than some countries.  Indeed, Visa and MasterCard collect billions and billions of dollars as a result of Interchange fees.

- While the card holding associations assert that the fees are justified, merchants are clamoring for congress to demand greater transparency regarding the costs incurred by issuing institutions from processing transactions.  Similar to insurance companies, the profits realized by Visa and MasterCard are astronomical and someone is paying for it.   

- The costs are not fully disclosed – In the past seven years, I’ve spoken with countless merchants who were dissatisfied with their present providers because of their deliberate attempt to either obfuscate fees or neglect providing full disclosure.  Merchant account companies (all types of companies) need to embrace a consumer perspective and understand how upsetting and frustrating it is to discover that one’s rates are much higher than anticipated.

I’m starting to see more and more information and petition sites, clamoring for retail (and Internet) processing costs to go down.  Many assert that the card holding associations are engaging in price fixing and that merchants and consumers alike are paying an unfair, inordinate amount.  The “lower swipe credit card fees” camp asserts that the money saved on processing would be pumped back into the economy, increasing consumer spending and confidence.

So merchants, the next time you swipe a credit card, realize how important it is to secure an affordable merchant account -- particularly important as rates go up and not down.  

I received an inquiry last week pertaining to the Authorize.net Customer Information Manager so I thought it would be beneficial to all Auth.net merchants by presenting info about this option.

Quite a few merchants do business with repeat customers and to make things a lot easier they want to store credit card information so they can use it again. Storing the data will let the merchants bill their customers for recurring orders. It also makes it easier for repeat consumers to checkout while buying items and/or services online.

However, if the merchant wants to store credit card numbers, they have to adhere to stricter PCI-DSS standards. Aside from PCI, it’s actually pretty hard to store credit card information safely and securely as there are a variety of technical aspects to doing it properly.  It takes a lot of work and ongoing management time to store credit card numbers safely.

But if you’ve got your mind set on storing card numbers and data, make sure you do it the right way. The simplest method is actually letting somebody else take care of it. If merchants outsource their credit card information storage task to a  customer information management system, then they aren’t legally liable for that data. The merchant’s reputation may take a beating, but they won’t take a hit financially.

If you’re looking for somebody to store the data, your payment gateway may offer a customer service manager.  This service will store the credit card numbers and data in the payment gateway’s secure database. If you do repeat business with a customer, all you need to do is reference their customer number and the amount you are going to charge them. This can be done manually via the administrative virtual terminal of the payment gateway company, or you may be able to do it directly online by utilizing an API.  This will allow merchants to setup recurring payments, void, credit and refund the stored cards of customers.

There are several gateways that can support data storage and retrieval,  including Authorize.net, which has a service named “Customer Information Manager.” There are also other gateways that utilize some type of custom vault type systems which can be incorporated with a website, charged manually, or included with a desktop application.

 Authorize.Net’s customer information manager has several features that make it a good option at $20 a month.

Because they store all of the customers’ credit card data for you on their own servers, you don’t have to worry about encrypting and protecting the information yourself. You also don’t have to worry about PCI compliance and potential hackers.

Authorize.Net has an automated recurring billing system that’s ideal for merchants who charge a fixed amount during each billing period. However, it doesn’t work if you charge a different amount each billing period.  The system allows your website to take care of any varying billing amounts and it will also store the billing information and processing of any recurring transactions.

If you need to charge consumers on a recurring basis, but it’s not on a regular schedule, the Authorize.net customer service manager can store the credit card and billing data you just have to take care of the payment scheduling. This process lets merchants use an entirely automated system which cuts down on costs and time.

The system also lets return customers store their information when shopping online. They won’t have to enter the data every time they reach the checkout page.  This is a feature that frequent online shoppers will definitely appreciate.

The landscape of payment processing continues to change.  We always knew that 'Big Brother' was watching, and I'm sure it's not really a surprise to find out the IRS will soon be keeping a closer eye on things as well. Starting in 2011, the government will be keeping tabs on business owners who have merchant accounts which allow them to accept credit and/or debit cards.

It all stems back to a law that was quietly passed in 2008 by President Bush. The new rules state that business which use merchant accounts will be required to file a new form with the IRS that indicates the exact sales figures generated by credit and debit card transactions.

Of course, there are quite a few unhappy people, as credit card payment processors say this means costs will go up and others assert it's an invasion of privacy and a money grab.

The whole system of payment processing can seem pretty complicated.  But basically, a consumer receives a bank-issued credit card and a merchant who accepts credit cards needs to be "sponsored" into the payment processing field by a bank. The consumer's and merchant's banks exchange transaction information via a processing system that is operated by companies such as MasterCard, Visa, Discover, and American Express. Either bank can have a third party business carry out the payment processing job.

The latest law means the banks or private party processors will have to collect and report the total payment card transactions to the government.  It's somewhat similar to a W9 form, which is sent in by businesses when total payments to contractors go over $600 a year. Uncle Sam wants these transactions reported because it's a well-known fact that more and more business is conducted with credit cards these days and some merchants aren't reporting their gross incomes.

While the law has several people up in arms, some merchants will get a break. If their total credit and debit card sales are less than $20,000 or 200 transactions, then they don't have to send in a report. Merchants who do send in reports will now have to be very accurate when reporting credit card income. The Treasury Department believes the new bill could generate an extra $9.8 billion in taxes over the first 10 years!

The law was originally a stand-alone bill which was part of the 2007 budget proposal. However, some people consider it to be confusing to merchant customers and there's a concern that some business owners might stop taking credit and debit cards as payment in the future. It's also believed some businesses will find loopholes in the system and that new, unsecured databases of merchants' private information could be created and pose a security risk.

It could also be hard to keep accurate track of payments as several merchants may share a single credit card merchant account. In this case, the card processor won't know exactly how much money each individual has charged to the payment processing system. If there are any discrepancies, they will have to be looked after so accurate tax returns can be filed.

All merchants should research this topic more and find out exactly who is responsible for doing the reporting, and how gross amounts are calculated. The IRS has released the new 1099K form and all business owners and their accountants should study it before the big day arrives on January 1, 2011.

One point is certain, the banks have to report gross receipts. But because merchants deal with refunds and chargebacks, and can also give cash back on debit card transactions, the banks and other payment transaction services will only report the gross monthly and annual payments. Any fees and refunds, etc. won't be counted against the gross amounts. It would be a sound idea for merchants to keep track of these items separately when performing payment processing duties.

The new system also means merchants will have to supply their payment processor with the full legal name of the company along with the address and taxpayer identification number. Any business that doesn't supply their taxpayer identification number may be subject to backup withholding at a rate of 28 per cent on their payments.

It's also possible that credit card transactions might be subject to backup withholding or garnishment if a merchant misses a tax payment as the IRS stated this could happen on gross card payments.

The year 2011 will be here before you know it, so it's advisable that you look into the new law and make sure you're well prepared for it as you navigate the field of payment processing.      

I received a phone call today from a prospective client who was looking for a Pay Pal alternative, irate that PayPal instituted a rolling reserve as a condition for credit card processing.  Although he did not understand the particulars of the rolling reserve, he balked as soon as he heard that some of his funds would be held.  “I’m not letting anyone tamper with my cash flow,” the merchant declared.”  He added, “Just how much profit do they think I’m making?”

This merchant’s sentiment is widely embraced by the business community.  Rolling reserves are viewed in a disdainful, distasteful manner – something to be avoided at all costs.  Here, the processor chooses not to fund the total amount of the transaction (minus processing related costs) in its entirety.  Indeed, a percentage of the amount due the merchant is held at the processor’s bank and will only be reunited with the merchant at a later time

Let’s take an example.  Suppose a credit card processing company requires a 60-day, 20% rolling reserve.  The first day the merchant processes $100; the second day the merchant processes $200; and the third day the merchant’s credit card processing transaction amount is $500.  On the 61^st day, the merchant will get back 20% of the $100 or $20.  On the 62^nd day, the merchant is entitled to receive 20% of $200 or $40.  On the 63^rd day, the merchant is due 20% of $500 or $100.

In essence, the merchant has to wait 60 days after a given day’s transaction to collect on the 20% that was placed in a reserve account.  In the example above, the merchant “lost” $20 + $40 + $100 = $160 for the first three days of processing and only recouped this amount two months later.  (I did not factor in processing costs in order to demonstrate this rolling reserve principle.)

Some merchant account providers institute a minimum reserve that is not necessarily time-based.  For example, a $5,000 minimum reserve means that the merchant may have, say, 20% of his funds held after each day’s batch until the reserve figure reaches $5k

The question arises: Why do merchant account providers sometimes demand rolling reserves?  Don’t just say, “Because they can.”  Risk analysts impose a reserve condition because they are concerned about potential chargebacks.  If the merchant’s customers dispute charges, the credit card processors want to ensure that the merchant has ample funds in his/her account to cover chargebacks and reversals.  If the merchant does not have enough money in the account, guess who has to pay back the customer? – yes, the processor.  (Of course, the processor may then take collection and/or legal action against the merchant.)

Fortunately, the vast majority of merchants will not be affected by a rolling reserve.  PayPal even estimates that less than 1 percent of its customers will have to deal with this stipulation.  The next question then arises: Whose funds will be held?

In general, any business owner who presents a high risk may be hit.  For example, new business owners, those with a very high processing volume or high ticket amount, individuals who run certain types of high risk businesses, those who have “borderline” credit, etc. may all have a percentage of funds held.  While this is not a happy circumstance, it may be preferable than having no merchant account at all.

In an effort to alleviate any concern, the decision to withhold funds varies from processor to processor.  For example, I’ve been working for IntelliCollect for years, and I only remember a handful of merchants who received conditional approval, based on their decision to allow their funds to be held.  New business owners are not necessarily subject to any reserve as well.

Therefore, perform your due diligence and try to find a credit card processing company that will not compel you to have a reserve or rolling reserve.                      

It seems there is an acronym for just about everything these days and one of the most common is POS, which stands for point of sale.

In the past, point of sale generally referred to plain old cash registers. These trusty machines provided merchants with a place to keep their money and checks along with their sales receipts. However, POS cash registers are programmed to do a lot more than that nowadays.

Computer-age POS systems allow you to keep accurate track of inventory levels. They will do a good job of letting you know what’s coming in and what’s going out on an instant basis. This way you will know exactly what you have on hand, what items will need to be ordered, and provide insightful information, such as listing your top-selling items. The POS cash register will scan the bar code that is on each item and the item’s data will be instantly and automatically entered into the inventory control system.

This system will also alert you to any discrepancies in your inventory and let you know if anything is missing or unaccounted for. If you’re a victim of employee theft and/or shoplifting, you’ll be sure to know about it.

A modern POS system also lets merchants process a variety of payment transactions such as credit cards, debit cards, and checks. All of the information entered into the register will be recorded and verified before confirming that the debit card or credit card is legitimate and can cover the amount of the purchase.

When a check is scanned, it may not be possible to verify the funds in the account, but the POS cash register will let you know if the account actually exists and if it’s in good standing. While it’s not a foolproof way to stop checks from bouncing, it will help reduce fraudulent checks.

The term ‘traveling salesman’ has a completely different meaning to it these days as people are able to conduct business on planes, trains, and automobiles and just about anywhere else you can imagine because of  iPhone credit card processing.

Because of a variety of iPhone applications, merchants are able to conduct credit card transactions wherever they may be, as long as they have their IPhone with them. They are basically mobile credit card processing terminals.

It’s as easy as it sounds really and the most difficult thing might just be choosing the right iPhone application for you as there are several types on the market that do the trick. Some of the more popular ones on the market are: Innerfence, Transactions, Credit Card Terminal, and ProcessAway. The prices vary, with some applications that are available for free and the higher cost ones hitting about $50.

After choosing and installing the application that suits you best, you can utilize Authorize.net, which is a credit card authorization gateway for merchants. It doesn’t matter which brand of application you choose as long as it is compatible with Authorize.net.  You can obtain the Auth.net gateway by establishing ties with a credit card processing company that resells this gateway. 

In other words, you only need to complete two steps.   You have to open an “Authorize.net merchant account” and then just select an iPhone application.  Once you accomplish these tasks, your handy-dandy telephone transforms into the equivalent of a “cash register.”  Can you hear the ka-ching, ka-ching sound?       

As there are pros to accepting credit cards using the IPhone, there are also costs involved.  Be prepared to dish out about $15-30 a month in merchant account fixed costs. You will also have to pay a per-transaction fee to Authorize.net as well as a percentage of the credit card charge to the credit card company.  In order to contain processing-related costs, itt’s important to look for merchant account providers that waive fees, such as the monthly minimum, batch, and termination/cancellation fees.

While the fees may put you off of the idea initially, you should know that iPhone applications are able to: ring up standard charges, void transactions, make refunds, place holds on credit cards to reserve a specific amount of money to be charged later.

iPhone applications are easy to use as you just key in the number of the credit card, the expiration date and the dollar amount to be charged. It’s also a good idea to take the credit card security code for verification purposes, along with the customer's billing ZIP code.

Once you have entered the data, all you need to do is press the "charge" button in the iPhone software and the credit card process will take place. The information is then sent to Authorize.net servers, which will let you know if the card has sufficient funds for the transaction. Some iPhones will let you print a paper receipt or e-mail one to the customer.

The applications are ideal for merchants as they can result in additional sales and lower the transaction risks. iPhone processing is common with people who perform work on the fly, such as repair companies, cleaners, plumbers, carpenters, electricians, limo drivers, and photographers, etc.

The iPhone is able to work anywhere you have data connectivity and some applications can be used on Internet wi-fi.   

In today’s modern world, many merchants are finding iPhone applications to be an extremely valuable piece of equipment when doing business away from the office.  The costs are affordable, but make sure you do some research and compare brands before laying out the cash for one, as you need to make sure you choose the one that best suits your business needs.

Many people have an aversion to filling out forms, finding the process tedious, time-consuming, and perhaps difficult.  Therefore, I understand when business owners lament that they have to fill out a merchant account application as they are concerned about its potential to leave them with cramped fingers, weary eyes, or dulled brains.

Please take a deep sign as the standard merchant account application should not prove to be a formidable enemy.  In fact, getting through an "app." should be a relative breeze as long as the kids are playing quietly in another room and that one still has clarity of mind.

Applying for a merchant account necessitates disclosure -- about the business owner and his/her business.  Many of the required fields are self-explanatory: Name, address, telephone number, fax, and email are some of the requested fields of information that you have to complete.  Some "sensitive" information will also need to be provided, including your federal EIN number and/or social security number.  (Your s.s. number will be used to run a personal credit check and its this score that can greatly influence whether your merchant account application will be accepted or rejected.)

You will also list your legal entity's name and its Doing Business As (DBA) name.  The indicated DBA is the name which will appear on your customers' bank statements.  You will also need to fill in the number of years that your business has been in existence, the nature of your business, where you run and operate your business (e.g., residence, office building, storefront, etc.), and when you intend to charge customers' credit cards and the time frame that you will deliver your products.  Most apps. also ask you to disclose your return policy.

One section of the merchant account application that can lead some to scratch their heads involves trade references.  Typically, merchants are asked to list one or two businesses they work in concert with -- companies that can vouch for their entity's existence.  For example, an Internet-based merchant may list his/her product suppliers.  Business owners (particularly true for service business owners) may not work with other businesses and can list one or two customers as a substitute.  In the absence of any customers or connections to other businesses, listing the name of one's accountant or attorney may serve as a viable option.    

In essence, you are creating an information-rich depiction of your business operation.  Underwriters need to have a conception of your business model and about "who" you are before they can grant permission for you to obtain credit card processing capability.  Remember, underwriting and risk analysts incessantly worry about potential chargebacks and must feel confident that the merchant can sustain such chargebacks.  This is why one of the most important sections of the merchant account application concerns the projected processing amounts.

On the app., you will have to indicate the following figures: The anticipated monthly volume, average ticket, and highest ticket.  The monthly volume is the amount in credit card processing sales that you anticipate; the average ticket is the amount that a typical customer will charge on their credit for a given transaction; and the highest ticket is the highest amount that a customer will spend for your product or service.

Of course, it is extremely difficult for a new business owner (or even a veteran business owner who has never accepted credit cards) to project such figures.  However, it is always best to OVERestimate these amounts than underestimate as they serve as your limits.  Exceeding any of these limits may red flag a transaction.  Suppose, for example, a customer charges $500 on their credit card but your highest ticket allowed is $250.  Such a transaction will be held until the risk department assures that the transaction is valid and that the merchant has adequate funds in his/her bank account should the customer dispute the charge in the future.  In order to avoid this type of scenario, ask for higher limits than you anticipate.  (On the flip side, the greater the limits that you request, the more due diligence the underwriters perform.)

Once you complete the required fields, do not forgot to scrutinize the rates page.  Ensure that the fee structure quoted is properly listed on the application.  There should be no discrepancies so that you can sign your name without buyer's remorse.  (Please note that you may be asked to sign your name several times -- one for the Personal Guarantee section, one acknowledging that you have seen the terms and conditions, and one perhaps acknowledging that you are aware of the merchant account provider's acquiring bank.)

Although you don't want to rush through the app., even a methodical approach will not require you to devote more than an hour's time to finish it.  Most customers report that it takes them about 30-40 minutes to complete it (without interruptions) -- a small time allocation to allot in order to secure a very important service.  The process is very straightforward and easy, and no nightmares should be induced by any merchant account application.        

You've just opened a new merchant account, ready to swipe your first credit card, but chances are you just skimmed your processor's terms and conditions and only have a rudimentary knowledge of the cardholding association's policies and procedures.  The following "do not" guidelines should assist you en route to collecting your customer's payment via the swipe credit card, conforming to acceptable practices:

- Do not refuse to accept credit cards when a customer is averse to presenting personal identification - It may be understandable and permissible to ask a customer for personal identification, such as a driver's license, but you cannot deny use of plastic if a customer does not accommodate your request.  Many states have laws prohibiting merchants to base their decision whether to swipe a card on whether the customer presents suitable ID.

The only exception to this rule is if the swiped credit card to be is unsigned.  Here, the business owner can ask for government ID and then compare the signature on the government ID with the signature that the customer will now have to provide on the back of the credit card.

- Do not require that the sale has to be a certain minimum amount to swipe the credit card.  This is in violation of the cardholding association rules.  Moreover, imposing maximum transaction amounts as a condition to accept plastic is also taboo.

- Do not charge a surcharge to your customers for using their plastic.  While it makes sense / cents for business owners to recoup credit card processing fees, customers are not supposed to foot the bill for this expense.  Of course, merchants can build such expenses into their pricing model, but they are not supposed to itemize an invoice, for example, where the customer is charged for using their credit cards.

Of interest, merchants can offer “cash discounts” to customers who pay with cash, but again, cannot penalize credit card wielding customers.  (Some institutions, such as utility companies, may be able to charge a “convenience fee” to customers for using plastic if such businesses do not ordinarily accept credit cards.  The rules and loopholes to charge convenience fees are murky so proceed with caution if this is your intent.

- Do not place a hold for the estimated tip when swiping a credit card.  The practice to authorize tips used to be habitually done by many restaurant, hotel, and hospitality businesses and is now against Visa regulations.  Too many customers became upset when their actual bill did not match the total price reflected by the merchant’s charge because it has factored in an estimated tip.

- Do not, under any circumstance, provide a refund in cash for a credit card purchase.  You can easily imagine how this practice can leave you susceptible to fraud.  It’s also against the cardholding associations’ stipulations.  

- Do not refuse to accept rewards cards.  Although there may be an additional cost to accept rewards cards, you cannot prohibit customers from using them, as long as you accept that brand.  For example, if you already accept Visa and MasterCard cards, you cannot tell customers to refrain from using Visa and MasterCard rewards cards.

- Do not try to compel customers to waive their chargeback rights.  According to the cardholding associations, customers have the right to dispute any given charge.  You may have a customer sign and acknowledge that there are no refunds, for example, but you cannot try to convince customers that they cannot initiate chargebacks.  (Of course, you would probably win a chargeback when presenting this “no refund” acknowledgement, for instance, but customers still have the right to challenge the authenticity of any transaction.

The aforementioned “do not” rules are not exhaustive but should provide a framework for retail merchants to comply with standard regulations, and safely and properly accept any swipe credit card.

I just received a call from a merchant who asked, "What is PCI compliance?"  The "PCI compliance" question is becoming more and more common so I thought that I should address it again.  

While we all enjoy the benefits and convenience of living and working in a high-tech era, unfortunately we must realize high tech crime comes with it. Computers and phone lines around the world are being hacked into on a daily basis and this has the major credit card companies more than just a little concerned as they’re suffering huge losses due to fraud. This is why PCI compliance was introduced to all merchants who accept credit cards as a form of payment.

PCI stands for Payment Card Industry and you will often see the letters DSS after it, which means Data Security Standard.  This is a set of standards financial institutions and credit card processing companies have to comply with when facilitating credit card processing. The goal is to protect personal information and to make sure all transactions and data storage are handled securely by using a common security standard. Basically, it’s a way for the industry to regulate itself.

If banks and merchant account providers don’t comply with these standards they may be fined or could even have their credit card-selling privilege taken away. Merchants themselves must also meet the PCI compliance standards.

There are four different levels of standards that must be met, and these depend on how many annual sales you process. Level one is for merchants who handle over 6,000,000 transactions a year and level four refers to those that handle less than 20,000. The more transactions you process, the more security measures you must meet.

You should start off by filling out a Self-Assessment Questionnaire (SAQ) which will be sent to you with your merchant account statement.  Your answers will be scrutinized by security departments and they will decide if you need to implement any further security measures.

If you process transactions via an Internet connection, then the system must undergo a security scan to make sure it can’t be compromised or hacked into.  An auditor may also show up at level one merchants to make sure everything is being done according to PCI compliance.

There are several categories of PCI standards that need to be met for you to be considered as compliant.

• Your network has to be secure and the proper firewalls and other security measures need to be installed.
• Credit Card holder data must be protected when it’s stored and transmitted. This means limiting access to it and possibly encrypting the information.  Encryption is essential for internet transactions and information must be encrypted with at minimum 128 bit SSL certificate to meet the standard.
• A vulnerability management program should be in place. This basically means that you must ensure that you're using updated hardware, software, and operating systems. Be sure to install anti-virus software and run virus scans on a regular basis.
• Strong access control measures need to be implemented.  Meeting PCI compliance means you should only give cardholder information access to employees who need it.
• Networks should be tested and monitored on a regular basis to meet the standard. Make sure you identify and immediately fix all possible security leaks.
• An information security policy needs to be maintained.  This means you should make sure all employees fully understand and know what their responsibilities are when it comes to cardholder information.

If you can meet these standards above, you’re well on the way to PCI compliance.  However, things don’t usually get that involved for level four merchants and they often meet standards by using a payment gateway or merchant account provider that offer compliant services. And remember, if you don't store, transmit or process any credit card data at all, then you don’t have to meet PCI compliance.

While adhering to PCI compliance makes credit card transactions more secure for you and your customers, it doesn’t’ come without a cost. Because all of the security measures have been implemented by financial institutions and merchant account providers, the costs are naturally passed down to the merchants. However, you can shop around to see who offers the best deal as the price varies.  Some credit card processing companies are currently waiving any PCI compliance fee.  

Since PCI compliance is now a standard industry requirement for accepting credit card payments, there’s no two ways about it, you must become compliant. If you’re not sure you are, then contact your credit card processor to get all of the details as the monetary fines for not meeting the standards can be astronomical.  You don't want to find out the answer to the question, "What is PCI compliance" after you're fined. 

There are a plethora of sites that compare business services, including those that provide merchant account reviews, placing a microscope on credit card processing companies for business folks who need to accept credit cards.  Educated consumers are voracious in their appetite to read about the firms in a “top 10” list of credit card processing companies (even a “top 100” list) in an effort to streamline their efforts in finding the diamond in the rough.

Merchant account review sites are popular and may provide value to the reader.  The following lists several inherent benefits of this type of site: 

• Provides convenience and perhaps a one-stop analysis - Merchant account reviews may be thorough and all-encompassing, and include a diverse group of credit card processing companies.  It should prove very time-efficient for merchants to simultaneously compare various offerings.
• Highlights attention on the advantages (and perhaps disadvantages) of certain merchant account vendors.
• Helps to synthesize and summarize a lot of Internet-based information on the selected merchant account providers.
• Contributes to a greater understanding of the merchant account field, and may target important rates that merchants may not have previously known about.  

However, although merchant account reviews offer the aforementioned benefits, it is necessary to put them into proper perspective and note some of the drawbacks:

• Are these sites truly objective?  Is the webmaster someone who works directly with a merchant account company, ostensibly providing unbiased information?  Does the webmaster receive an affiliate commission from the highlighted group of sites?  It may be impossible to know the answers to these questions but the reader should weight the possibility that the creator of the site may have ulterior, self-serving motives.
• The merchant account reviewer may limit the number of credit card processing company comparisons.  There are a multitude of providers and only a handful of vendors may be featured.  (I have written to several review site webmasters, requesting our payment processing service to be evaluated -- typically to no avail.)
• The contrasted fee structure may not be up-to-date and current.  Fees fluctuate in the merchant account field, and any worthwhile comparison consistenly needs to be updated and revised.
• The fee structure is usually not all-encompassing.  Many rates may not be included so it is very difficult to note which merchant account provider is best.  For example, many merchant account reviews compare the qualified discount rate but omit a non-qualified discount rate compoarison.
• It is very hard to gauge the level of standard of customer and technical support available.  Review sites focus on rates (and rightfully so) but cannot provide much feedback regarding the quality of service or lack thereof.  

Credit card processing review sites may be considered another research tool but it is imperative for merchants not to rely solely on the information provided.  Similarly, business owners should not be jaded and dismiss such sites, even if, for instance, webmasters receive an affiliate commission from the highlighted companies.  (Such webmasters may very well believe that the featured credit card processors rank among the best in the merchant account field, even if they receive compensation from their picks.)  Again, it is crucial for any merchant to go through a number of possible vendors, narrow the list, and eventually select one provider using a myriad of resources, including merchant account reviews.

While many business owners are not aware of the full spectrum of credit card processing costs, many are cognizant of the fact that each transaction will be assessed a merchant account discount rate – a percentage fee which will be taken out of the sale, kept by the merchant account provider or bank.

Alas, per transaction profit will be comprised by the costs incurred by credit card processing but overall profit should increase as customers tend to spend more and engage in greater impulse buying when paying by plastic.  Still, it is so vital to know one’s merchant account discount rate, and it’s perhaps the first question I am greeted with when I speak with a prospective client.  (I wish I had a dime for each time someone asked me, “What’s your discount rate?”)

It is important to note that the percentage rate that the merchant is assessed depends on how the payment is received.  For example, it always costs business folks less when they open a retail merchant account as opposed to a mail order telephone order (MOTO) account or an Internet account.  Indeed, swiped transactions are considered safer than keyed in ones – less prone to fraud – and such transactions are cheaper for merchant account vendors to process.  The savings are then passed on to merchants.  (Seeing the glass half empty, one can also assert that the additional cost for keyed in transactions will be passed on to merchants.)

A typical retail account merchant may be quoted a 1.79% merchant account discount rate.  If a $100 transaction is initiated, this means that the merchant account vendor will apportion $1.79 out of the $100 sale for processing.  (Of course, there are other applicable fees, such as the transaction cost or a per item fee – the number of cents that the merchant will be assessed per transaction.)

In contrast, a standard keyed in or Internet-based rate can be 2.39%.  Here, it costs the merchant $2.39 per $100 as a result of the discount rate.  As you can see, the retail merchant saves $.60 per $100 than his/her MOTO or Internet merchant account counterpart in the example above.  However, the merchant account discount rate needs to be further scrutinized.

A vast majority of merchant account providers charge a tiered model.  The discount percentage can easily increase, depending on several factors.  For example, if a merchant does not batch out within 24 hours or if the customer’s billing address/zip code does not match the one associated with the customer’s credit card, the discount rate will increase.  Moreover, if a customer uses a special rewards card, the merchant may easily be defraying the cost of the rewards in the form of a higher discount percentage.

Too many credit card processing companies only quote the lowest qualified discount rate and decide not to highlight their mid or non-qualified rates.  Indeed, there is not just one discount percentage rate but several tiers.   When researching companies, a more appropriate question should be posed: “What are your discount rates?” – plural, with an “s” at the end.

With the proliferation of rewards cards, more transactions are downgrading to the mid or non-qualified rates, or special category rate, so it important to know the surcharges for these downgrades.  Remember to add the surcharges to the qualified discount rate or ask the vendor what is your TOTAL mid-qualified rate and TOTAL non-qualified rate.

Other credit card processing companies may charge you based on an Interchange plus cost model.  Here, your merchant account rate will fluctuate, dependent on the type of credit card that you receive from your customer.  For example, rewards cards will be at a higher Interchange rate than debit cards.  However, merchants who receive Interchange pricing usually benefit from the price structure as long as the merchant account provider does not add too great a cost beyond Interchange.  (There are vendors who assess Interchange + .3%, and even lower – particularly for high volume merchants who do a large volume of credit card processing.)

In summary, it is necessary to perform your due diligence when evaluating competing offers.  Become familiar with all the relevant rates, and particularly hone in on ALL applicable merchant account discount rates.  

A few days ago, I received a call from a merchant who was thinking about switching to our merchant account program.  She was unhappy about her seemingly high rate structure, and just as upset about her confusing credit card processing statement.  Her complaint strikes a responsive chord within me because,  I ,  too, have a lot of difficulty figuring out the fees on the statements that I receive.  (I suppose that I should know about regulatory and administrative charges, and how they can increase my phone bill, for example.)  

People always say the only two things you can be guaranteed of in life are “death and taxes,” but you might as well add bills to that short list too.  We rarely get anything for free these days.

The problem with most bills is you need to be a descendant of Albert Einstein to decipher them as they come with numbers and various types of charges and hidden fees all over the place. I’m sure you’ve heard the saying, “It’s all Greek to me.”  Well that’s how bills appear to the average person.

When the credit card processing statement comes in the mail, or you read it online, you want to be able to understand exactly what you’re paying for.  This is especially true with the discount rate, which is the processing fee you must pay the credit card company for transferring funds.

1.-Check your rate

Most monthly credit card processing statements you receive will outline the daily total of credit card sales as well as the various fees charged to process them.  This will show you the amount it cost to process the sales.  For example, you may have been charged $5.50 for the processing of Visa card sales of $450 on August 3^rd.  This means you were charged a discount rate of 1.22 per cent.  This rate should match the one you were offered when you signed up with the processing company. If you find the rate you’re being charged is higher than promised, make sure to ask questions about it. The credit card processor uses this money to pay the fees they are in turn charged by the cardholding associations and banks.   Of course if there’s anything left over, it’s profit for the credit card processor.  Beware that not all credit card transactions cost the same though, as various types of rewards cards and online transactions come with higher interchange fees assessed by the likes of Visa and MasterCard, which translate into higher processing fees.

2. Beware billbacks

When some credit card processors are charged higher Interchange rates they use billbacks to cope with them.  In this case, the processor will charge a low discount rate on all of your transactions in a given month and then bill back surcharges on specific transactions the next month. These Billbacks will be coded on your credit card processing statement with a BB. This line of the statement will show a total number of transactions for the month that were charged higher Interchange fees.  Since it cost the processor more, it’s going to cost you more. The problem is you can’t see the actual rate you’re paying as you can only see the number of transactions and not their dollar amount.

 3. Calculate the markup

However, it’s not too difficult to figure out the actual rate you’re being charged.  You just have to take the average sales value and multiply it by the amount of transactions for a given billback. Next, divide the surcharge by that amount and you will know the rate you have been charged for these sales. For instance, if your average sales value is $50, multiply that by the amount of transactions, say 1,000, and you get $50,000. Then divide the billback surcharge, say $1,200 by that amount, and you end up with 0.024 or 2.4 per cent.  The difference between what the credit card processor is paying to the powers that be and what you’re being charged is again pocketed by the processor.

Make sure to ask your credit card processor for information on your billbacks as some of the transactions might not qualify for the discount rate you were quoted. If you find out you’re being charged steep billbacks, it might be a good idea to find a processor with better rates on billbacks to save yourself some money.   Better yet, find a merchant account provider that does not use a bilback pricing system which some experts claim will cost you a lot more to accept credit cards.

4. Qualified versus mid-qualified versus nonqualified

The credit card companies’ Interchange fees can be very confusing as transactions are often categorized as qualified, mid-qualified, and nonqualified and each category will have its own rate.

For example, if a customer pays with a generic Visa card, Visa will charge a set Interchange fee. The credit card processor will categorize that as a qualified transaction and will also charge a set discount rate, which is generally a little higher than the interchange fee.  But if a customer pays with a Visa rewards card, the Interchange fee will be higher. The processor may categorize this as a mid-qualified transaction and will also charge a higher fee. Each processing company sets its own levels of pricing, which means one type of transaction may be categorized as mid-qualified by one processor and qualified by another. Make sure you inquire how your processor categorizes the transactions.

5. No deal on debit

Most credit card companies such as Visa and MasterCard will charge the processor lower Interchange fees for debit card transactions as opposed to credit cards. However, the processors might not charge you a lower rate.  It’s a good idea to ask about the difference between debit and credit card rates and ask for the lower debit card fee.

6. Watch out for skimming

Some credit card processors will take a percentage of their fees when they settle your account at the conclusion of each business day.  This will show up on your credit card processing statement as "total card fees."  However, the figure isn’t a true total. To figure out your actual costs, you need to find a line on the statement called "less discount paid." This figure will show how much your processor has skimmed from your sales during the month. If you add this amount to your "total card fees" you will be able to see how high your fees really are.

7. Hidden fee No. 1

As with most bills these days, you will find there are some hidden fees. One of them on a credit card processing statement is AVS, which means address verification service.  Most merchant account providers will charge you 5 to 15 cents per transaction for AVS where your customer’s billing address and the address listed on the customer’s credit card is compared.  These extra cents can soon turn into dollars!   

Also, when you make a credit card sale online or on the phone the transaction is charged a lower Interchange if you key in the buyer’s address (at least the zip code and it matches). This rate is generally lower because most credit card companies consider AVS / matching address a proficient method to fight against fraud. Check with your processor to see if you can get a better rate on AVS fees.

8. Hidden fee No. 2

Some processors charge a set rate for each credit card sale, refund, and authorization which may be higher than the norm. For merchants that have only a few, high-priced transactions in a month, this fee won’t affect them too much. However, it can sure add up if you have a large amount of smaller transactions.

The easiest method to find out what your actual rates are is to divide the total fees by your total monthly credit card sales. You may be shocked to find out you’re paying quite a bit higher than the low discount rate you were quoted by the credit card processor. If this is the case, be sure to shop around for a less expensive processor.

If you’re able to understand credit card processing statements properly, you‘ll then be able to evaluate the true fees and make an educated decision regarding your processing company. You may be satisfied with them or it could be time for a change, like the merchant who first called me decided after she gave up translating her old credit card processing statement.  

To learn more about our merchant services, please see http://www.intelli-collect.com