Merchant Account Blog for Business Merchants

Before this, I’ve discussed a little about how and why we should bring our attention to chargebacks when we are considering or reviewing online merchant credit card processing accounts.  Here are some ways you can counter or reduce the risk of instances of chargebacks.

The first fraud preventative measure is called the Address Verification System; it’s what we, people in the merchant account industry, call the AVS. The way the AVS works is by comparing the address entered by the ‘customer’ during the ordering process and the address stipulated with the credit card company. If a person was a phony customer, chances are, he or she would not know what the billing address of the credit card holder is … unless it’s someone living under the same roof … for instance, your kids! But if your credit card has been stolen or someone was misusing your credit card info for online purchases, he/she would not know where you lived. Hence, it helps to safeguard against a global widespread of online fraudulent activities quite effectively.

Along the same vein, I propose that you check the mailing and billing address before sending off the order – give them a call or email them for a quick explanation as to why the product should be shipped to an address other than the one validated by the AVS system.  Alternatively, you can automatically decline any transaction if there is an AVS mismatch.  

Another tool that is often used in conjunction with AVS is CVV, the Card Verification Value Code that is indispensable in ensuring that the customer is the rightful cardholder in card not present transactions.  The code (either 3 or 4 digits long) may be found on the signature panel on back of Visa, MasterCard, and Discover cards.  American Express cards place the code on the front of the card, to the top right of the account number.  If CVV matches, the merchant gains reassurance that the credit card is in the possession of the right party.

In addition to employing the anti-fraud tools of AVS and CVV, is to be careful…VERY careful when receiving orders from developing countries. Although the standards by which authorities use to determine whether a country is high risk or not may differ, they generally follow the same primary rule: Based on research and stats, it has been shown that dealings with certain countries result in numerous chargebacks, and thus business owners conducting a global enterprise should thread wearily.  Among the “taboo countries” include Egypt, Malaysia/Singapore, Hungary, Romania, Philippines, and Nigeria (and several other African nations).  This is far from an exhaustive list so perform further investigation.  Alternatively you may decide to decline any international purchase.

However, even domestic purchases present problems, and sometimes, chargebacks occur as a direct result of a huge mistake. For example, the customer might not have recognized the name of your company because it differs from what was stated in your website; you can counter this by indicating the website address in the billing and invoices plus if you have a telephone number they can call, include it so that they can give you a ring if they are in doubt.

Furthermore, many weary online merchants get so fed-up with dealing with (and suffering from the consequences of) fraudulent activities that they refuse to do business with people who use free email services.  This may be advisable, or again, you can ask the customer for his/her telephone or fax number to verify the order. It’s not fool-proof but it’s definitely something that would turn off potential fraudsters.

And if I can share the benefit of experience with you, I will tell you that if you offer some very broadminded terms and conditions about your customer returning your products or exchanging them for something else from your website, there will be significantly fewer chargebacks.

Finally, if you perform a simple search for fraud prevention software that you can use on your website, you’ll come up with a million and one of them. Such software can help validate and investigate minor details relating to the purchase. If it detects reasons for you to worry, it will provide notification. The things that the software looks at are entities such as IP address, email address that the server came from, validity of the email address, zip code and most importantly, comparing the information that they have gathered with previously ‘caught’ fraudsters!  Many online gateways, such as Authorize.net, also include a suite of similar fraud preventative tools.

The aforementioned information should prove helpful in reducing chargebacks and other types of fraud.  But using good old common sense and intuition, I think you will find many other ways to err on the side of caution. Here’s to your prosperous and fraud-free business!

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

If you sell pencils costing $5 each, monitoring chargebacks is probably not at the top of your list of important things to do. But if you’re selling home theatre systems….there are a lot more to chew on. A chargeback, as I’ve mentioned in my earlier posts, is what we call a reverse of a transaction. This happens when a customer (the owner of the credit card; they’re usually the same person) disputes the credit card charge. Now, what happens to you when there’s a chargeback?

Let’s take some time to understand what a chargeback is and how it will affect you, your business, your finances and most importantly, your reputation as an online business. When a customer successfully reverses a charge to their credit card, the online merchant will lose not only the sale but you will also be charged approximately $15 to $40 (depends on the credit card processor) for the chargeback. And we’re not even talking about the cost of the product if you are selling tangible goods and also shipping and handling! Is it any wonder, now, why chargebacks are such a horror to online merchants?

What’s worse for online merchants like you is that if you have a long list of chargebacks, the merchant account processor might just decide to ditch your account.  It is even possible that your name may be placed on a Terminated Merchant File (TMF), tantamount to the merchant account field’s “black list,” making it extremely difficult to secure credit card processing capability other than from a third party processor.

Moreover, it’s a hassle to implement the whole thing all over again with a new processor as it is a tedious to go through the application process, and then replacing all existing codes inside of your web pages with the new set.  In the interim, your site will not be operational and there’s a whole lot of explaining to do to your customers.

Whether you have a small or large volume of sales coming in from your website, taking steps to minimize the number of chargebacks is crucial. But to minimize it, we have to understand why and how the customer would dispute the sale. For one, the customer can dispute the sale if he/she did not authorize the transaction, i.e. someone else misused his/her credit card for the sale. Every year, BILLIONS of dollars are lost due to such iniquitous activities.

On the other hand, there could have been a mistake – either on your part or the customer’s. Perhaps the name of your company is not the same as the website URL and the customer did not recognize it therefore, mistakenly disputed it. Or maybe there were some glitches in the system which resulted in the error. And although banks would like its customers to think that they don’t make mistakes, they do. In fact, every year, banks spend a lot of time and effort in sweeping these mistakes under the carpet and rectifying it quickly before their customers find out about them.

I know after reading this information, some of you are thinking that opening a credit card processing account is a dangerous and complicated process – but I assure you it is not. And that’s because there are things that you can do, steps you can take and precautions that you can make in order to prevent these chargebacks from happening too often. For instance, you’ll have to learn about the AVS system (which stands for Address Verification System) and the CVV (Card Verification Value) code.  In addition, you will understand the importance of being circumspect about accepting orders from certain developing countries with high instances of fraudulent transactions, and also become knowledgeable about the subtle signs of fraud.

Next up, I’ll be discussing ways to reduce and minimize the instances of chargebacks, so, stay tuned!

People say that having a wide range of choices to pick and choose from is a blessing. Is it, indeed? I don’t know – when I go to the supermarket, I get a little dizzy if there are more than three brands of detergent or body lotions to choose from. But in cyberspace, having scores of choices to choose from is almost customary. How about having to choose one from half a million Internet merchant account providers for starters?

Let’s say you are a new owner of a website and you’re getting yourself ready for soaring sales. Needless to say, you’ll need to be able to accept credit card payments from your website. Here’s where I remind you that there are countless choices to pick from and it’s important to know how to pick the right one….not the first one that sounds credible enough.

With that, allow me to explain a little bit about how an Internet merchant account works. An Internet merchant account is sort of like the checkout counter in a shopping mall – it’s where people come to pay for the stuff that they want to buy. For your website, it’s sort of like the connecting point between your customers’ wallets and yours.

Security is a big deal on the Internet because credit card fraud is everywhere, so, we need to use a payment gateway to securely transmit the information between the customer and the Internet merchant account provider. The payment gateway will relay the information between two parties using encrypted data … encoded information like credit card number, date, codes, amount and other personal details related to the transaction.  So, check on the security of the account and the service that they provide and this shall be an  important consideration for you to take into account.

And of course, the most difficult part to think about is M.O.N.E.Y. and even I have to admit that trying to understand how to calculate the exact cost of opening an Internet merchant account with the service provider can be like reading hieroglyphics. The obvious ones would be the upfront application fee (which is a one-time fee), annual fee, and a monthly fee.

And then there are others like discount rate, fixed transaction fee and other miscellaneous charges that they can charge to your account. You’ll need to do a little math if you want to find out the approximate amount it would cost you each month for an Internet merchant account with that service provider and don’t worry, there’s a formula for it.

Here’s what you do to find out what is the cost of establishing an Internet merchant account:

TOTAL Monthly Fee + Number of Transactions x (Average Sale x Discount Rate ** + Fixed Transaction Fee) + (Number of Chargebacks x Chargeback Fee)

Total Monthly Fee = Statement Fee + Gateway Fee + Annual Fee/12

Of course, you may have to factor in a monthly minimum fee if you do not reach a certain threshold in processing volume.  Moreover, the batch can increase your processing costs per month.  For example, if you have at least one transaction for 20 days out of the month, and you’re paying a batch fee of 25 cents, your monthly fee has just increased by $5 ($.25 x 20).  AVS fees and Watts fees may come into play, too, and any merchant should know these rates as well. 

** The Discount Rate may change depending on the type of credit card your customer uses.  Many rewards cards downgrade, for example, so it is imperative to know your non-qualified fee.  For mathematical purposes, just take the average between your qualified and non-qualified rates.

Typically, for an average-sized online merchant, it can cost anything between $100 to $300 a month on credit card processing fees alone! Sounds like a lot? But it all depends on your volume and the terms you have with the Internet merchant account provider. On average, Internet merchant account service providers would charge the following: About 2.5% or so for the discount rate; the total monthly fee ranges between $15 - $35; the fixed transaction fee should be $0.20 to $0.40 per transaction; and the chargeback fee averages out to be approximately $15-30 each.

Typically, a reasonable Internet merchant account provider will pocket 10 to 15 percent of what you charge the client. So, remember, pick carefully and never, I repeat, NEVER jump the gun by hopping onto the first bandwagon you find – unless you’re evaluating our company’s offering first.

Some friends who dropped by this blog gave me some feedback the other day and asked me to help them by pointing out the aforesaid 'hidden access fees' veiled behind fine prints in credit card processing account contracts. I understand their anxiousness in finding out where all these visually elusive access fees were and I guess it's important to consistently hightlight them via this venue.

The first type of credit card processing fee that could have escaped your radar is something I would like to call the’ breakup fee’. ‘Breakup fee’ because you need to pay in order to walk away! Yes, folks, I'm talking about the Early Termination Fee which is applicable when you decide to terminate the account before time is up. That is why being too eager to sign-up for a merchant credit card processing account is NEVER a good idea. Some processors will stipulate in their contracts that they will charge you a termination fee in the event that you decide not to use the account anymore before the contractual period is up. Granted, most of them charge a reasonable amount for it; but there are many who would not hesitate to use the backhand when your back is turned. Sadly, if they succeed, it’s only because we take it for granted that all is well. At one time, a processor was sued by some of its customers because of its unreasonable terms relating to the Early Termination Fee which is a pro-rated amount of what they would have received if the contract was allowed to run its course! However, there are plenty of credit card processing companies that either charge absolutely no early termination fee or a low flat rate.

Chargeback….the mere mention of it can give some online merchants heart palpitations, if not heart attacks!  Many merchants refuse to accept credit card transactions from outside of the country or a particular region because they deem it too dangerous to do so in light of the fact that there are too many fraudulen transactions. For those who are unsure as to what a chargeback is, it's what happens when the owner of the credit card disputes the purchase. When this happens the merchant account provider will conduct an investigation to verify the dispute and if found to be fraudulent, the money will be returned to the owner of the credit cad. That spells L.O.S.S to you as a business owner. So, you need to find a processor who is willing to advocate your position in such instances and won't automatically deduct the money from your accounts without consulting with you first.

If you had a choice, pick a credit card processor who will give you a fixed rate guarantee but admittedly, it's not something a lot of processors would do! Most credit card processors will tell you that their rates are subject to change and are dependent on the volume of sales processed. VISA and MasterCard also raise their fees from time to time and processors would sometimes take this opportunity to raise theirs too - occasionally a lot higher than what VISA and MasterCard would so that they can take the chance to pocket extra profits for each transaction!

Another type of fee that is just as elusive as the early termination fee is the 'minimum processing fee'. Most small businesses or start-ups don't have a huge volume of sales and sometimes there could be nothing the whole month. What some processors do to make sure that they make money out of your account is to charge you a minimum processing fee every month in the event that there's no sale or low volume. That’s like paying the house rent when you’re not even staying in the house. Look that up in the fine prints and see if your budget can take the beating during the initial stages of your business.

Finally, be aware of credit card processing discount percentage downgrades.  Many merchant account companies will quote a very low qualified fee, but neglect to mention their mid-qualified and/or non-qualified fees.  Certain cards, particularly rewards cards, necessitate a processing downgrade and you will frequently be paying a higher percentage when customers use such cards.  Please note that you can cause downgrades through your actions, too (e.g., not batching out promptly so transactions will not be settled within 48 hours, not keying in the customers’ billing address or at least their zipcode, etc.)  Perform your due diligence and know all applicable tiered rates, including the qualified, mid and non-qualified fees.

I'm naming just a few of them here and since the industry is consistently evolving, it's not possible to name them all.  But the one thing that you can do is to thread as cautiously as you can before signing the agreement.  And remember, some credit card processing companies will do everything within their power to pass the cost over to you and profit at your expense.  Consequently, your job is to acquaint yourself with the sundry fees that merchant account providers charge and know what is reasonable by industry standards to prevent your wallet from shrinking.   

My boss recently asked me to scour over our company's cell phone bill as we just switched providers and the owed amount seemed rather on the high side.  We were assured that the new plan would save hundreds!

At first I was confident that I would assume the "hero role," and discover an obvious mistake in the bill.  Five minutes later, I realized that this was an exercise in futility as the statement was rather cryptic -- and worse so many fees were listed, some of which were not disclosed before signing up with the new provider.  Tired of viewing a slew of taxes, surcharges, and my favorite, "hidden access fees," I stopped what I was doing and began a search for a book that I wanted to buy in the past, Gotcha Capitalism by Bob Sullivan.

Sullivan outlines the myriad hidden fees that lurk in every business field and instructs the reader what he/she can do about it.  I want to be the Bob Sullivan in the merchant account field.  With this in mind ...

Look Before You Leap Into a Credit Card Processing Terminal Lease Contract

The trouble with getting a merchant credit card processing terminal is that it is often the case of ‘more than meets the eye’. It deeply troubles me when people tell me stories about being duped into a arrangement that they cannot find a way out of simply because they did not know better. Therefore, as friendly advice, I would like to ask you to pay heed to every single detail of the leasing contract that you’re getting into, don’t be hasty; consult with others who have been through it before signing on the dotted line.

Fees That Seem So Little in the Beginning Can Add Up to a Lot in the End

A lot of merchants have asked me this question, “Should I lease, buy or get a merchant credit card processing terminal for free?” So, let me start by asking you this very question because I want you to dig a little deeper. A lot of you would have answered ‘lease’ and ‘free’, I am assuming because it’s natural to think that leasing a credit card processing merchant terminal is more conducive to your business! And there’s absolutely nothing, I repeat, NOTHING wrong with getting the terminal for free….IF it’s actually free and ends up cheaper at the end of the day, of course.

But here’s another question. Why not pay for the terminal outright and be done with it? Remember, sales people are trained in making the deals that they are selling look better than they actually are and if you are not careful, you’ll be sucked into a contract that you won’t be proud of in the end. My recommendation is to look at the details properly and read between the lines. In the contract, it should be clear about whether you’re leasing, renting, buying or getting the terminal for free. How long is it for? How much? Ask and find these answers inside the contract – and if you can’t find it, get the sales person to point them out to you before signing.

If you were to lease the merchant credit card processing terminal for $49 a month for 4 years, it would cost you $2,352 at the end! That’s a whole lot of money compared to purchasing a terminal for $259 or maybe if you chance upon a promotion, you might get a terminal for $99! That’s a far cry from $2,352! At this point in time, you’ll start thinking about terminating the contract – but hang on a minute. Take a good, long look at the contract to see if you can find the termination or cancellation clause.

Most companies offering merchant credit card processing terminals for lease would try to tie you up for a while and let’s assume it’s 4 years, as per above example. For 4 years, you will have to continue paying the $49 monthly fee until expiration of the contract. Which means that even if you find a better deal in the future, you won’t be able to get yourself out of it. End of story.

I strongly urge business people like you to think very carefully about this because it makes a world of difference. I want to remind you to think about long term benefits, as opposed to what-is-it-going-to-cost-me-NOW. Using your business acumen to think beyond the ‘now’ will help you save a lot of money in the long run.

Well, even if you decide to lease a terminal, at the very least, make sure that you’re getting the best deal you can get and that the cancellation/termination terms are not too absurd. This is important for your business because you might have a change of direction and plans for your company, or maybe the company’s partnered up with others and there’s a change with arrangements….who knows?

The most important thing for you to do is to look before you leap.

Cheap Rates to Start the Ball Rolling

One of the scarier aspects of getting a merchant account is that some people will go to great lengths just to hook you in.  They’ll BOLD PRINT the word ‘free’ or offer you great promotional rates that would, on the surface, look fabulous. But if you care to read on towards the end of the contract or terms and conditions, you will see that once the ‘promotional period’ is up, so would the rates. If you’re lucky, the rate offered would be a competitive one, otherwise, you will be stuck in a contract with an exorbitant fee with no way of worming out of unless you pay to free yourself.

The Minimum Volume Dilemma

Some merchant account providers offer good rates on a certain condition. For instance, they might offer you a lower rate if your monthly volume is at a certain level. But if your monthly volume is low, the rates go up. Some companies will claim that Mastercard or VISA imposes such a rule. This is not true at all! Mastercard and VISA charges based on transaction and the type of card and is not dependent on the volume of sales.

Beware of "Introductory Rates"

Beware of rates that sound too good to be true.  They may be a hook to sign up merchants to a contract, then the rates go up because, they claim, the “monthly volume” wasn’t what they were looking for.  Visa and MasterCard do not set rates based on volume, but on transaction type and card type.  Period.  (Of course, there exist merchant account providers that do offer outstanding, merchant-friendly fees.)  

Be on the Lookout for Hidden Fees

Many times, for example, a merchant account provider will disclose its qualified discount percentage rate and hide its higher non-qualified discount rate.  (More and more credit cards, including the ubiquitous rewards cards, are falling to the non-qualified bucket.)  Other companies will cite a monthly fee but “forget” to tell you about its gateway fee.  Many Internet merchants soon learn what a gateway fee is – usually after they have signed up.

Do your homework and know the standard fee components, including the batch, AVS, chargeback, Watts, dues and assessments, and voice authorization fees.  This is not an exhaustive list so please perform more due diligence. 

Early Termination Fees May Apply (and bite you big time)

Beware of extremely high early termination fees.  Currently one processor is being sued by a number of merchants, because their policy for early termination was a pro-rated amount of the fees they would have received until the contract was set to expire.  Most processors have a flat fee, or no termination fee at all.

In summary, you don’t want to play the game of hide and seek with any merchant account provider's list of fees – a game that you cannot possibly win.  Learn the ropes from the onset and you will not get tangled in a web of exorbitant expenses.  I hope that Bob Sullivan is proud of me!

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Self-Serving Caveats – Our company does post that we offer free machines but we highlight all the conditions.  Indeed, I generally dissuade merchants from opting to obtain any free terminal, and again, pay it outright.

Moreover, “our too good to be true” rates are actually that good and are not teaser rates, either.  We always want to offer the best quote available.