Recently, a prospective client called, indicating that he was uncertain as to which program would best suit his business’ needs.  Apologetically, he said that he anticipated only accepting one or two credit cards per month.  (Of course, there was no need for him to express any regret about a low monthly volume.  We welcome any business, regardless of size.)

At the beginning of the conversation, I was not even certain if he needed a merchant account and voiced this concern.  Upon reflection, he told me that his biggest client now demands that he be able to pay with a credit card.  The owner felt he needed to accommodate his client’s requirement.

I immediately thought of our “dial pay” program – a low budget processing method, geared for merchants who anticipate a rather low volume of credit card processing or those that own seasonal businesses.  With a dial pay program, a business owner does not need to purchase a physical or virtual credit card terminal.  Merchants can simply accept credit cards from their customers by letting their fingers do the walking – through the instrument of a regular touch-tone or mobile cell phone.

The merchant must first dial an 800 toll-free phone number and connect with an interactive voice response unit.  This authorization phone number is provided after the merchant’s application is accepted.  The merchant is then prompted to use the telephone keypad and key in the following information: their merchant identification number (also provided by the merchant account processor), the customer’s credit card number with expiration date and the sale amount of the transaction.  Other optional key in codes exist such as the merchant processor’s bank ID (again provided by the merchant account processor), the customer code of the card holder and the sales tax.  It is advisable, although not required, to expand the dial pay program and key in the customer’s address (so that you can perform an address verification match) and the CVV2 code.  The CVV2 is a security feature of the credit card, found in the signature panel on the back of Visa, MasterCard and Discover cards, three digits long; American Express cards reveal the CVV2 code on the upper right hand side of the card, above the credit card number, and contains four digits.

While keying in more information will lengthen the time to complete the transaction, it is better to include more information than less so that a given transaction will not downgrade to a non-qualified status, the highest rate a merchant will be assessed.  Once all the information is inputted, a merchant must wait for the response and document the response.  For example, the merchant may hear the following concluding message, “Approved 123456.”  The merchant must write down this dial pay confirmation number should any problem transpire with the transaction.  (The merchant can then always call their merchant account processor if, for instance, a dial pay transaction has not been funded on a timely basis.)

Merchants can input many different transactions at one time.  The system will indicate that it is ready to accept another transaction, and provides the instruction to press a given button, such as *.  A new transaction may then be entered.  The funds are deposited into the business owner’s checking account, and funding time should not be greater than any Internet credit card transaction, generally from 2-3 business days.  With dial pay, a merchant can obtain a complete transactional history, too, with the assistance of their telephone – now a device that can serve the needs of any merchant who needs credit card processing capability.

Dial pay offers inherent advantages, including the following:

a)      It is relatively inexpensive to setup and use.  While the discount and transaction fees are typically higher per transaction, the monthly fee is lower than just about any other method to accept credit cards;

b)      The learning curve to use Dial pay is not steep.  Merchants can figure out the process within a couple of minutes.  (I advise all merchants to TEST the dial pay system with their own credit card first so that they can become comfortable with the dial pay process.);

c)      It can be employed just about anywhere you are – as long as you have a working phone;

d)      Record-keeping is relatively easy.  Monthly statements will be mailed to the merchant, listing all dial pay transactions for the month;

e)      Transaction information is easily accessible.  A merchant can track batch totals and daily activity by dialing the dial pay authorization number and getting back into the system.  Of course, any merchant account provider will also have a history of the merchant’s transactions; and

f)        Dial pay offers credit card processing capability to merchants that do not have a storefront or Internet presence, particularly helpful for merchants who expect to have a low monthly credit card processing volume. 

My brother called me recently, asking my opinion on which reward card he should  secure: one that offers 6% rebate on gasoline purchases for the first 90 days (3% thereafter) and 1% rebate on all other purchases or a travel-based reward card, issuing frequent flyer miles plus hotel accommodations, the specifics I don’t even remember.  (I don’t know why my brother called me about this issue as I am on the credit card processing end of the spectrum … not on the card issuing side … and certainly ill-informed about the best customer reward cards available among the hundreds of such credit card programs in existence.

Of course, one’s choice of reward card reflects one’s needs.  Someone who flies frequently, for example, may be apt to look at reward cards offering travel perks.  But one truism must be issued: In today’s economic climate, reward cards are a hot commodity, where perks and incentives are handed to a consumer, albeit with a few catches (e.g., in general, a higher interest rate, annual fee, etc.).  Still, for those who pay off their credit card debt in full, month to month, reward cards are well … rewarding and offer exceptional benefits. 

So I have no excuse to offer as to why my credit cards are not designated reward cards.  I have lost a golden opportunity, up until the present moment, to reduce my overall expenses.  While my wife is not happy with this oversight (“You should have known better because you’re in the field,” she asserts), the merchants whose businesses I have patronized are very content to have me as a customer because they pay more when reward cards are used.  And more and more merchants are expressing their displeasure with the major card companies, such as Visa and MasterCard, due to the increased costs for processing reward cards.  Alas, the backlash from merchants has not dampered the powers that be from dispensing an ever-increasing amount of these trendy premium or reward cards.

Case in point: I received a phone call from an Internet-based merchant who happened to notice a lot of non-qualified transactions on several of his previous statements.  Upon closer inspection, we discovered that many of his clients were paying with Visa Signature and MasterCard World Cards, both which automatically downgrade to a non-qualified transaction, the highest processing rate a merchant is assessed.  This downgrade automatically transpires because of Visa and MasterCard stipulations, regardless of the merchant account processor used.  The merchant protested, “Is it fair that I have to pay more for these reward cards?”  The simple answer is: No, but someone has to ultimately pay for the goodies that reward cards provide.

Think of it: It costs a lot of money to give card holders frequent flyer miles, hotel rooms, gas and other cash rebates, restaurant meal discounts, entertainment perks, etc.  While consumers are hit with higher credit card interest rates, the rate hikes will not affect those who pay their bills in full, on time.  The money has to be raised somehow to ensure that card holders receive their largesse and preserve, if not inflate, the profitability of Visa, MasterCard, American Express and Discover.  Let’s go to the merchants, the major card companies decide, and they will have little option but to fund our rewards.  We will classify the processing of such cards in higher “interchange” buckets, and merchants can rationalize that it is the cost of doing business.

Some merchants seek credit card processing cost relief by encouraging their clients to pay with check or cash.  (Of course, checks pose their own inherent risks.)  But we have grown accustomed to credit card use and our society is more “plastic” than ever.  Merchants have little recourse but to accept credit cards (if they didn’t, we would be out of a job) and must assume their relevant costs.

But the circle is not complete yet.  Many merchants will defray their credit card processing expenses by raising their prices.  This will affect their customers in the wallet … the same customers who may be fattening their wallets through reward credit card use. 

Perhaps the only one who gains with the advent of reward cards are the major credit card companies and the card issuing banks who are paid the higher interchange rates.  Merchant account providers, such as IntelliCollect / United Bank Card, must pay “higher buy rates” for reward card transactions, and may not make much profit (e.g., “basis points,”) in merchant account vernacular, from their use.  But while reward cards may have limited impact on me professionally, they will certainly help me from a personal standpoint.  I’m ready to sign up.