Tuesday, March 27. 2007
Merchant Account Providers Must Listen to Their Customers
Every businessperson wants to sell goods, tangible or intangible. All marketing strategies revolve around how to sell the goods most effectively, with least cost, and at the maximum profit. Deming's TQM (Total Quality Management) made Japan revive from its economic poverty to being one of the economic superpowers. No wonder then, that quality is given prime importance. Besides quality, many other factors like large and efficient distribution chain, access to timely capital, trained staff, and an aggressive marketing plan is required. One also needs to judge, comprehend, and predict customer buying patterns, customer tastes, and customer needs.
Every business tries to find out customer needs. Once the needs have been identified, the business starts working towards the fulfillment of those needs. This way the customer is satisfied, since the needs are fulfilled, and the business is happy since profit has been made from it. This logically explains the demand-supply matrix of sound business policy. The demand is created by the market or by aggressive advertising, and it is adequately met by supplying the requisite goods for the fulfillment of the demand.
The best way of finding out what the customer wants is to find out directly from the customer. This can be done either by simply asking the customer or by listening to their requirements. Listening to the customer needs is a better way of finding out than asking. This is because when asked, customers usually do not always respond correctly, due to numerous factors, like lack of time, presence of other people, peer pressure, unsuitable environment, and inefficient method of asking. This is the major reason why surveys and questionnaires prove to be only rough guides towards customer needs. However, when a business starts to listen to their customers, they respond proactively to their requests and complaints. By satisfactorily and successfully complying with customer requests and complaints, a business understands and fulfills customer needs in a positive and profitable manner. Brand image is boosted and customer loyalty is increased. This snowballs in more business, increased profit and the company gets a sound footing towards being the market leader in its field of operations.
Merchant account providers, like other businesses, should also listen to their customer needs. There was a time when the customers purchased POS units so that they could swipe the credit cards of the customers. Now many merchant account providers offer them free and they have witnessed increased sales. This proves that they listened to the customer need of not buying these credit card swiping machines.
Many other such areas need to be addressed positively in order to gain more business. Unadvertised costs, which are known as "hidden costs", should not be encouraged. Merchant account providers should state all the costs that a customer is liable to pay. Setup fees, gateway fees, discount rates, monthly minimums, monthly fees, statement fees, chargeback fees, annual charges, and any other charges should be clearly stated in a transparent manner. The customers have a logical need of wanting to know how much it would cost by using the services of a merchant account provider, before entering into a contract. Thus, if all the charges are listed and presented to the customer in a clear manner, then the customers feel satisfied and take an informed decision to sign the contract.
Customers especially need to know how the merchant account provider handles chargebacks. This saves the merchant account provider and the customer from entering into disputes. Giving all the relevant information, before entering into a contract with the customer, works towards a smooth, profitable, and a long-lasting relationship with the customer.
The competition in the market is growing by leaps and bounds with every passing day. Numerous new merchant account providers are making their forays in this market. To earn their piece of the customer pie, they are willing to provide many incentives in the form of introductory low discount rates, no setup fees, no gateway fees, and no statement fees. With the entry of every new merchant account provider, the incentives are being increased. However, the loss sustained by giving the incentives is adjusted by taking "hidden fees", which are revealed to the customer only at a later stage. These merchant account providers spoil the reputation of the market in general, besides losing the trust of the customers.
To build a healthy relationship with the customers, merchant account providers must learn to listen to their customer needs. They should not focus on providing them with supposedly "free" goodies, whose costs are adjusted somewhere else. If they offer something free, then it should be actually free, that is the cost should not be adjusted in other increased charges. They should neither encourage nor practice the way of taking "hidden" charges from customers. Transparency in all respects should be vigorously followed. They should promptly address customer complaints and requests, trying their utmost to provide 100% customer satisfaction. All merchant account providers should adopt the "can't fail" business model of listening to their customers.
Tuesday, March 20. 2007
Interchange: How Will it Change?
Commercial transactions represent two sides, a buyer and a seller. If a third side is included, then it is three-party transaction. If a fourth side is included then it is a four-party transaction and so on. Sale of goods by cash or check involves two-party transactions. With the introduction of credit, a third party - the bank is also involved and the transaction becomes a three-party transaction. Credit cards issued by a bank (issuer) and honored by a merchant who has an account with the same bank (acquirer) is a three-party transaction. For example, American Express Bank usually signs up both customers and merchants, dealing with both of them directly. Here a single financial institution is both the issuer and the acquirer as it deals directly with the buyer and the seller. This enables them to determine what fees to charge to both of them. American Express usually charges merchant fees to the merchant and card fees to the cardholders. Diner's International Network also follows the same three-party model.
However, with the inclusion of a fourth party, the scenario changes. The fourth parties are card associations like MasterCard and VISA. They offer an established branded network to its members (issuers and acquirers), who can utilize the network to provide card services to their customers. The card association deals with the issuing bank and the acquiring bank. The issuing bank is different and the acquiring bank is different. If every issuer and every acquirer determine their own charges, then no uniformity is attained. The cardholder does not know how much he has to pay as card charges whenever he makes a purchase. The merchant also does not know how much he will have to pay as merchant fees. This leads to confusion. The question then arises, that how can the card associations determine prices, which can be a common platform for the two sides to meet on and transact business. The answer is by setting of a structure of rates known as interchange rates. The interchange rate is thus the rate fixed by MasterCard and VISA. Both these card associations do not take any percentage of the interchange fees. Their revenue comes from assessment fees that are charged to the issuers and the acquirers. VISA takes 9.25 basis points (0.0925%) and MasterCard takes 9.5 basis points (0.0950%) on processed volume, as assessment fee. In some countries, besides the card associations, other regulatory members are also involved in the fixation of the interchange rates.
The interchange rates have declined in some countries and have risen in some. Industry developments along with the card associations, rulings of the regulatory and central banks of the respective countries, play prominent roles in the determination of these interchange rates. The interchange rate varies across countries. It is constantly evolving and thus presents the scenario of constant fluctuation. To examine a change in the interchange rate, let us assume a transaction between a customer having a VISA/ MasterCard credit/ debit card, and a merchant who accepts both. Here, in most of the cases, the merchant's and the customer's bank is not the same. (If they are the same, like American Express, then no interchange fee is levied.) In this case, based on the interchange rate, the interchange fee is the payment realized from the acquirer (the merchant's bank) by the issuer (the customer's bank). In case of credit cards, it is usually a percentage of the amount of the transaction and in case of debit cards, it is usually charged on a flat rate.
From the acquirer's point, the interchange fee represents the cost of providing their services to the merchants. Therefore, an increase in the interchange rate will mean an increased interchange fee, and the merchants will have to pay more for honoring these cards. Similarly, from the issuer's point of view, the interchange fee represents the cost of providing their services to the cardholders. Therefore, an increase in the interchange rate will mean an increased interchange fee and the cardholders will have to pay more to the issuers for every transaction that they make via their cards. This reduces the sale of these cards, and so acquirers ultimately respond to this increased interchange rate by way of giving benefits to cardholders, like rebates, decreasing their card fees, etc. Since, an increase in the interchange rates means more profits for the issuers, it may lead to promotion of the particular card network, and thereby its greater acceptance, resulting in more transactions for the issuers, thereby, leading to more profits.
If the general thrust is given on increasing the cardholding base with respect to increased merchant acceptance, the interchange rates are likely to go up. In this respect, the interchange rate may be used as an instrument to achieve a balance. If the increase in the interchange rate is directly proportional to the decrease in the card fee, then the fee structure changes, but a balance is achieved. This two-sided market presents the most complex calculations regarding the risks and benefits of increasing or decreasing the interchange rates. Several analysts are of the opinion that due to an increase in interchange rates, the merchants will simply raise their merchandise cost, and therefore pass the cost to the customer, who will then not benefit in any way by reduction of the card fees. Moreover, the degree of competition amongst acquirers and issuers shall also play a significant role in the fluctuation of the interchange rate.
The interchange rates are set differently in different countries. In some, a collective set of members fix the interchange rates, may be subject to regulation limits; whereas, in other countries, they may be set by the management of the card network. For example, in Sweden the rates are fixed bilaterally, while in Mexico, the rate is determined by the Mexican Bankers Association, and in Denmark, the interchange rate is adjusted in tune with the merchant service charges, which are subject to regulatory ceilings. Due to regulation being enforced, in countries like Australia, Mexico, and the EU countries, the interchange rate is declining. In Spain, due to a 1999 agreement between banks, merchants, networks, and the Ministry of the Economy, the interchange rate is witnessing a steady decline. A notable exception in this regard is the U.S. where the interchange rate has witnessed a rise in recent years. Comparing with Australia, EU, and UK, the interchange rate is almost double in the U.S.
It has been seen that in the countries where the interchange rates have declined, there has been an increase in the annual fees, a curtailment of the rewards programs, and shortening of the interest-free periods. In the UK, the interchange rates have fallen without corresponding increase in the annual-fee, and in the introductory rates. However, in the U.S., the interchange rate has risen, the reward programs are not curtailed (in fact, they have become more generous), the annual fees have taken a nosedive, and zero introductory interest rates have become the norm.
Debit and credit cards have come to stay, and thus the interchange market will continue to evolve. The interchange rates and the issues related to it with debit and credit card markets have witnessed much attention. The academia is investigating the market economy, the sociologists are trying to determine the credit card usage patterns, and the public officials are trying to address the developments of these markets as reflected in the policies. The developments will be at different levels in different countries. Academicians, members of the regulatory committee, central bankers, industry participants, and other interested parties need to study the changes, and analyze the changes, in an attempt to forecast the movement of the interchange rate.
Nevertheless, if history can be taken as a guide, then it does not seem likely that the interchange rate will decline in the U.S. in the coming future. It seems more likely to increase with corresponding increase in providing greater benefits to customers.
Thursday, March 15. 2007
One Merchant Account with Multiple Websites - A Tough Balancing Act
You can certainly have one merchant account which caters to multiple websites. It is legal. However, most of the merchant account providers will usually not provide you this facility, because the disadvantages are many. All your entries shall be at one place and this will make the transaction volume potentially huge. If some of your websites experience very high traffic then the transaction volume could be almost unmanageable. Segregating the individual entries into different item components for different websites is a nightmare for any accounting professional, especially if each website sells numerous different kinds of items. The rates charged are different for each item in each website, and therefore, the taxes that you will have to pay on each item shall be different, for each website. Calculation of the taxes may be erroneous due to the complicity and volume of the entries. Matters will be further complicated as the shipping details are also different for each customer for each item in each website. Keeping a reliable track of all the shipped goods may not be economical, since due to the large volume of transactions, you may have to keep additional work force.
However, the biggest disadvantage of having one merchant account with multiple websites comes from your customers. When your customers purchase from your website, they remember the website name and they do not remember your company name, which owns the website. Instead of your website name, your company name will be reflected on their credit card statements, which they will fail to identify. Even if you write a thousand times on your website that the website belongs to your company, and your company name will be reflected on their credit cards, they are not going to remember it. Hence, they will think that some company with whom they never had any transaction has fraudulently charged them. They will immediately claim a chargeback. And a chargeback can only be reversed if the person who demanded the chargeback withdraws it, which is very rare. So almost every sale will result in a chargeback and your company's reserves will be wiped out simply paying the chargebacks. You will lose the goods that you had shipped and you will also lose the money that you will have to pay for the chargebacks.
This situation is further complicated if a single customer purchases different items from different websites that all belong to your company. The credit card statement of that customer will reflect your company name for all the different purchases and the customer will not know which website has charged how much. The customer will not take the trouble of asking you for all the details; he or she will simply demand chargebacks on all the purchases. This produces a loss for your company not only in monetary terms but also in terms of company image. In view of all these numerous chargebacks, your merchant account provider may stop providing you the service and may even blacklist your company. If your company is blacklisted, then no merchant account provider shall provide you their service. Then you may have to look for third party processors over whom you may have no control and they may prove extremely expensive, if your transaction volume is high. Due to these numerous disadvantages, it is not practical to have a single merchant account for multiple websites.
The solution here is to have a single dedicated merchant account for a single specified website. Likewise, you can have any number of merchant accounts for any number of websites. Thus, you will be having multiple merchant accounts for multiple websites. This ensures that your merchant account name corresponds with the name of the website, and so the customers recognize it when it is reflected in their credit card statements. Hence, they do not ask for a chargeback, unless they have a valid reason like the product fails to be as advertised. Your accounting procedure is also much simplified as you will be able to track shipments, view income and expense, and calculate the taxes on a single website basis, for each of your websites. You will have time on your hands to concentrate on the expansion of your ecommerce business, rather than wasting that time on fighting chargebacks.
Nevertheless, having a single merchant account with multiple websites is possible, only if you have a single product or virtually the same products being sold on all the different websites. You can funnel the payment through one merchant account and payment gateway. This way, the customer may purchase from any of the websites but the payment is redirected to a single merchant account and payment gateway, thereby, avoiding confusion and maintaining a uniformity in the transactions.
To summarize, it is legal but not practical to go for a single merchant account with multiple websites. One merchant account with multiple websites is a tough balancing act, which is prone to a high degree of risk in terms of chargebacks, accounting difficulties, tax calculations, and shipment tracking. It is much more practical and economical to go for multiple merchant accounts with multiple websites.
Friday, March 9. 2007
Google Checkout: Worthwhile Checking Out for Some
Google Checkout checks in, not as a Payment Gateway like Authorize.net and Verisign or as a Merchant Service Provider (MSP) like banks and financial institutions, but as a third party merchant account provider, an online payment processing service, just like PayPal, Clickbank, 2checkout.com, CCnow, and many others.
Google Checkout promises convenience for online shoppers. For shoppers, the procedure is that you have to first open a free Google account, if you do not already have one. Thereafter, you store your credit or debit card (any major credit or debit card including American Express, VISA, MasterCard, and Discover) information, along with your shipping details in your Google account. Now, you can purchase from any number of Google Checkout merchants' online stores, without entering your username, password, and shipping details for every purchase. The history of all your purchases is assembled in a single page where you can view them and keep track of their status. The disadvantage here is that you can shop with only such online stores, which display the symbol of a shopping cart known as a Google Checkout badge, and have a Google Checkout button on their shopping cart. Therefore, your purchasing choices may be limited until the Google Checkout merchant network expands further.
The procedure for merchants is that the Google Checkout badge has to be displayed on their websites to let visitors know that they accept Google Checkout payments. The Google Checkout badge also appears besides the merchant's entry in the Google search pages to help in identifying them as reliable and safe merchants. Google Checkout merchants can sell all tangible goods only. The disadvantage is that Google Checkout merchants cannot sell intangible goods like digital or downloadable products, services, donations, and subscriptions, if their organization is not certified as a 501c3 tax-exempt organization.
To become a Google Checkout merchant, you must have a US address and a US bank account, in addition to a Social Security number and a valid credit card, or a Federal Tax ID/Employer Identification Number (EIN). Non-US based merchants cannot obtain the Google Checkout service, as of now. Another disadvantage is that Google Checkout is currently available only in US English language and the payments are billed only in US dollars.
Google Checkout merchants are charged with a standard charge of 2.0% of the sales amount plus $0.20 USD per transaction. No monthly, setup, or gateway service fees are being charged from Google Checkout merchants. However, Google has decided to provide free transactions to Google Checkout merchants from November 8, 2006 through December 31, 2007.
Google Checkout has a proprietary built-in unique fraud detection technology that can protect Google Checkout merchants from unasked chargebacks. However, if a chargeback is justified, the merchant has to refund the full amount of the chargeback and pay an additional chargeback fee of $10. Google Checkout also offers to reauthorize an order after an initial 7-day period at a charge of $0.20 for every reauthorization.
Google AdWords advertisers can greatly benefit by using Google Checkout. For every $1 spent on AdWords each month, they will be able to process $10 in sales the subsequent month, for free. For sales exceeding ten times their AdWords spend, they will be charged the standard charge. Non-AdWords advertisers can also sign up for Google Checkout.
Google Checkout can be seamlessly integrated into existing websites. It offers three integration options of Buy Now buttons (requires working knowledge of HTML), Off-the-shelf shopping cart (requires no technical skills, only a Merchant Key and Merchant ID) and Custom-built shopping cart (requires strong technical skills). The disadvantage is that a Custom-built shopping cart (having first option of integrating with shopping cart only, and second option of integrating with shopping cart plus order processing system) is complex to integrate and takes more time. The second option especially requires the programmer to have a strong working knowledge of PHP, Classic ASP, ASP.NET, VB.NET, Java, Perl, Python, or equivalent web application technology, XML, HTML, HTTP, along with the existing shopping cart application, order processing and inventory management systems, and business process flows. Hiring a programmer or a group of programmers with these skills may prove expensive.
Before its launch, it was widely rumored that Google was making a product to compete with PayPal. However, with the launch of Google Checkout, the rumors have been proved wrong. Google Checkout is unable to make payments from person to person and thus, it can in no way, at least now, compete with PayPal. To reach the number of subscribers that PayPal has and to offer equivalent services may take Google Checkout a lot of time. Moreover, eBay - owner of PayPal, does not actively support Google Checkout at its popular auction site eBay. This is a major disadvantage as eBay is the largest online auction site.
For merchants who have high volume transactions, having their own merchant account proves to be much more economical then going along with any third party processor. But for US based businesses with low volume transactions, selling only within the USA, Google Checkout is a nice addition to their existing payment processor. Given time, Google Checkout may be available in all countries, in many languages, and may accept multiple currencies. Until then, Google Checkout may be worthwhile for some but not for many.
Wednesday, March 7. 2007
Free Merchant Account? Merchant Accounts Don't Grow on Trees
But then, even fruits and flowers are not free nowadays! Come to think of it, besides sunlight, air, and water nothing is free. In this materialistic world, we humans would even sell sunlight, if given a way. Air we sell by way of oxygen cylinders, and water is packaged. So no wonder if merchant accounts don't come free! Free merchant accounts don't exist! But yes, there are merchant accounts, which can be obtained almost free; they come with an extremely low charge. This is about as near you can get to the concept of a free merchant account.
One type of low-charge merchant accounts are known as third party merchant accounts. Here, you hire the services of using the third party's merchant account and payment gateway. In return, you pay a relatively small charge. There may be some modest annual/monthly maintenance charges and they usually charge a predetermined percentage of the sale (also known as a discount rate). There is usually no minimum monthly balance required, no set up fee, no cancellation fee, no statement fee, and no hidden fee.
There are also direct merchant account providers that also waive many standard fees, including a set up fee, and charge low rates – enough to rival any third party merchant account provider. (Such direct merchant account providers assess a lower discount rate than the third party providers so that as a merchant’s volume increases, the costs associated with credit card processing are corresponding lower than if a merchant opts for a third party.)
Some merchant account providers also give away free POS (Point Of Sale) terminals that facilitate on-site credit card acceptance. The caveat of obtaining these “free” machines is that a merchant generally pays a batch fee, monthly minimum and/or perhaps an annual fee. Some merchant account providers also provide the facility of accepting credit cards over any touch-tone phone at no initial charge. This eliminates the need for POS terminals.
Generally, you have four options when selecting a nominally charged merchant account. You can have a traditional retail merchant account also known as a credit card swipe account. Here you are supplied with a POS unit by which you can swipe the credit cards of the customers. This is ideal for department stores, medical stores, grocery stores, etc. Then you can have a phone based merchant account, popularly known as a DialPay account. Here you can accept credit cards from any touch-tone phone like mobile phones. You can also process direct mail orders so that your customers can purchase from the comfort of their homes. Here the discount rate is usually higher as the risk is higher. You can also have an electronic commerce or E-commerce merchant account. This is Internet based and gives you the facility of accepting credit cards from your website. This account gives you access to a global market. Such accounts are suitable for manufacturers and exporters. However, anybody with a niche product can also benefit from such an account. You can also have a mobile or wireless merchant account where the payment is instantly credited to your account even if you are constantly traveling. This type of account is suited to lawyers, contractors, landscapers, etc.
All and any type of merchant account performs the same task of accepting payments, either through electronic checks or credit cards. The difference is in the discount rates and the monthly/annual fees. Many merchant account providers also charge additional fees like transaction fees, authorization fees, statement fees, minimum monthly fees, cancellation fees, and batch fees. The credit card payment is settled according to the interchange rates, which are multiple tiered rates charged by Visa, MasterCard, etc., for providing the merchants with the facility of payment processing. The merchant account provider in turn extends this facility to you against different types of fees. You should thoroughly understand the charges that you may have to pay for utilizing your own or the third party's merchant account. You may opt for any merchant account that suits your business needs; however, be careful to read and understand all the terms and conditions, especially the fine print, before committing yourself. In view of all these fees, you definitely now understand that a free merchant account doesn't exist in reality.
However, just by a stroke of good luck, in case you do get a free merchant account, please forward the provider's contact details to me, as I would also love to open a free merchant account. I would even pass 100% of my first sale as a referral fee to you. Think about it. We can together make not millions or billions, but zillions of dollars by simply referring this free merchant account to others. Our referral fees would simply grow and grow by each passing second. By the way, this process of referring is also known as affiliate marketing, where you earn commissions by referring people to different partners or affiliates. And even affiliate marketing is not free as it costs in terms of website space and maintenance. But then I sincerely do wish that someone should provide a free merchant account. It would greatly benefit not only the individual but the society-at-large. Charitable and philanthropic persons like Mr. Bill Gates and others may take up this socially beneficial cause of providing a free merchant account. Given their large brave hearts, who knows they might really be working on it! If a free merchant account does ever materialize, God bless the providers! I sincerely mean it. Yes, from the bottom of my heart!Friday, March 2. 2007
Can I Trust You? Merchant Account Providers Must Earn Trust to Earn Account
You go to sleep in the night trusting that you will not die in your sleep and eventually wake up the next morning. You wake up trusting that your day will go as smoothly as a knife goes through butter. You have breakfast trusting that the milk and bread are free from harmful minerals. You leave your wife at home trusting that she will remain faithful to you. You drive to work trusting that the jerk in the nearby car will not bump into you. You go up the elevator trusting that the cables will hold and you will not fall down. You sit down at your desk trusting that you will close the deal today. You do your work trusting that the boss will be pleased and give you a raise. You go to the cafetaria trusting that the gorgeous newcomer will smile and share lunch with you. You drive back home trusting again that the jerk in the nearby car will not bump into you. On your way, you buy medicines from the pharmacy trusting that the drugs will be safe. You enter your house trusting that your wife will receive you with open arms and take you to straight to a candle-lit dinner. You lecture your children to start studying and stop watching TV, trusting that they will listen to you. You eat your dinner trusting that the chicken did not have bird flu. You talk to your wife trusting that she will not inform you of looming household repairs and expenses. You try to sleep trusting that when you have reached counting a thousand sheep you will definitely fall asleep. Finally, you sleep trusting again that you will not die in your sleep and eventually wake up again the next morning.
In all the above ordinary everyday situations, the common denominator is trust. Life runs on trust. For example, you trust the doctor that while removing your appendix, your kidney will not be removed. You trust the pilot that while you are up in the air, he will not suddenly fall in love with the Law of gravity. Many more such incidents of trust happen everyday, regularly, where you have no other option but to trust. Trust is the one decisive factor that affects decisions, especially consumer buying decisions. To ensure continued business survival, every company's topmost priority is to earn the trust of their customers. A recent study elucidated that trust can be earned by fulfilling promises, providing efficient customer service, consistently delivering high quality, resolving complaints smoothly, giving value for money, honestly admitting mistakes, ensuring that the product is safe, trying to meet individual needs as far as possible, always listening to customers, and following a transparent policy of clear pricing. Merchant account providers are no exception and you as a merchant account provider, may follow the below mentioned guidelines to earn the trust of your customers.