Merchants may choose to accept various forms of customer payment: Cash, checks, money orders, credit cards, debit cards, electronic payments and new online payment technologies may be welcome, depending on the business owner’s nature of business and policies.  Generally, the more types of payment that are offered to customers, the more profit that a given business owner can accrue.  Merchants try not to lose sales simply because they cannot accommodate their customers’ choice of payment.

Many merchants may now notice that debit card processing is becoming increasingly popular.  In a 2007 financial study, performed by TransUnion and Edgar, Dunn & Co., debit cards are now utilized more by customers than even credit cards.  In fact, for point of sale purchases, debit card use is the preferred method of payment, more than any other payment vehicle. 

As a reminder, when customers use debit cards, their funds are immediately withdrawn from their bank account.  In essence, debit cards necessitate that customers have ample funds in the bank.  Indeed, customers do not get the 30-day (or higher) grace period that credit cards afford.  In this manner, debit cards are similar in function to checks.

Perhaps the trend towards increased debit card use reflects our growing collective concern to reign in our (over) spending and become more financially responsible.  In today’s uncertain economic times, people are becoming more budget-conscience and are striving to reduce or eliminate debt. 

The use of credit cards, alternatively, may prove problematic for many when the monthly statement arrives.  Across America, a common refrain is incredulity when we view our total credit card bill, bewildered as to the amount of spending and perhaps even more mystified as to how to meet payment. 

It appears that debit cards compel us to keep our amount of expenditures “reasonable,” or at least affordable.  This is particularly important during Holiday seasons when we tend to stretch our wallets.  (Interestingly, debit card use is on the rise even during Holiday periods.)

Merchants, especially retail merchants, must be aware that they need to accommodate their customers’ burgeoning use of debit cards.  On a related point, I am often asked by a new retail merchant, whether he/she should purchase a pin pad based credit card terminal or a separate pin pad.  My answer is invariably an unequivocal, “Yes!”  It is important to offer this debit card option as well as many customers will choose to use their pin pad passwords.  An added bonus to the merchant in offering pin-based debit is that many merchant account providers only charge a flat rate for the transaction, and do not access any discount percentage.

As more customers and merchants get on the merchant account debit card processing bandwagon, the Federal Reserve Boards has recently enacted legislation to make debit card use more efficient, practical and cost-effective.  The Fed will no longer require merchants to provide receipts of debit card purchases that are less than $15.  Retail establishment owners can still offer receipts, but it is based on their discretion.  In businesses where no company representative is available (e.g., laundry machine service, vending machines, parking, any coin-operated business, etc.), a receipt will not be issued if the purchase goes under the $15 threshold.

A friend of mine in the merchant account industry just told me a distressing story how his friend, a merchant selling books online, just lost his credit card processing capability.  Apparently, this merchant “lent” his merchant account to his wife who periodically sells jewelry.

The wife had a “no return” policy which infuriated the wife’s customer.  As a result, the customer initiated a chargeback, bringing the transaction under scrutiny by the husband’s merchant account provider. 

Remember, the husband, the merchant selling books online, only has the right to sell books and related items, bound by the merchant account agreement that he signed.  When the merchant account provider discovered that he was selling an unrelated item (jewelry) and for someone else’s business (even for a spouse), he was added to the Member Alert to Control High-Risk Database (the dreaded “MATCH” file).  The merchant lost his merchant account and perhaps any chance to ever obtain one – other than a third party processing account.  The MATCH file is tantamount to a blacklist in the merchant account industry.

Expectedly, the merchant was extremely upset and claimed that he did not even know that he committed any transgression.  But if the merchant read and/or more closely examined the fine print of the merchant account agreement, he would have known that factoring or laundering was against Card Association rules.  A merchant can only process credit cards for himself/herself!  Trouble ensues if the merchant allows any third party to use the account – under any circumstances!

A broader context of credit card processing factoring applies when a given merchant runs credit card transactions for any non-approved business entity – even his/her own, governed by the stipulations set forth in the merchant account agreement.  In the example above, even if the merchant ran the jewelry sale for his own expanding line of businesses, he would have encountered the same problem.  Indeed, he was only approved to sell books/related items – not jewelry.  In order to avoid any difficulty, the merchant needed to set up two different merchant accounts – one allowing him to accept credit cards for books and the other affording him the privilege of accepting credit cards for jewelry.  

I receive at least one phone call a week about this issue (i.e., accepting credit cards for two or more disparate businesses).  Invariably, my response is the same: You cannot process credit cards for businesses that are different, carrying their own distinctive risks, even if the businesses are registered under the same corporate or sole proprietor name.  I am simply trying to help merchants avoid this factoring pitfall – one that can have grave consequences for any business.

This is not to say that certain merchants do not try to circumvent the Card Association rules, surreptitiously accepting credit cards for one or more unapproved businesses.  But such action carries great risk as factoring is considered a form of fraud.  Even one chargeback (and factoring usually is associated with a high frequency of chargebacks) can open “Pandora’s box” and permanently close a business owner’s merchant account.  In addition, the business owner may also incur heavy fines, levied from the merchant account processor and/or their acquiring bank.  Talk about the high cost of doing business!  Just say, "No" to factoring! 

          _____________________________________________________________

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