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.