Archive for the ‘Credit Card Processing’ Category

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Rolling Reserve – the fine print

Wednesday, November 16th, 2011

Acquirers and third party processors need to guarantee a portion of the volume processed to cover for potential business risks mainly related to chargebacks.

Some processors require a deposit when setting up the account, others pay in delay, yet most acquirers set a rolling reserve mechanism. In principle it should have been easy. A standard rolling reserve mechanism, with a single negotiable parameter – the rolling reserve percentage.

Rolling Reserve - the fine print

Reality shows that this is not the case. Surprisingly enough acquirers are much creative and tend to set different rolling reserve mechanisms, using in-house algorithms, generating unexpected outcomes.

Just recently I came across a very creative international acquirer with a weekly based rolling reserve algorithm that could only go up. The sophisticated algorithm was supported with an extensive blocking period disabling funds release on account termination.

Negotiating the rolling reserve terms, the acquirer agreed that the mechanism used resulted with a higher reserve percentage than the industry standard, and yet pushed back due to the fact that changing the algorithm will be highly problematic, due to further development needed for implementation of a new replacement mechanism.

The solution was changing the percentage stated on the commercial terms – a point the acquirer had a hard time arguing, once agreeing that the algorithm used resulted with a higher effective rolling reserve rate. On the same opportunity additional provisions causing delays of funds release on account termination were deleted.

Most merchants do not believe that rolling reserves are negotiable and tend to agree to the terms offered. Others try negotiating the rolling reserve percentage, yet fail to read the fine prints… Walk the extra mile – understand the algorithm behind reserve creation and funds release – it isn’t complicated and can do wonders to your cash flow!

Gidi Argov, Founder and CEO
www.CreditCardProcessing-r-us.com

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Posted in Credit Card Processing, Domestic Merchant Account, Intl Merchant Account | 13 Comments »

Online PIN-only debit card processing

Tuesday, June 14th, 2011

Until recently no PIN-only debit cardholder could use his card online. The online checkout flow, originally designed to support signature debit and credit card processing, simply did not support a PIN-only scenario and related to a PIN-only debit card as to any other debit/credit signature card. No online payment page enabled entering a PIN code and the checkout flow did not pass the PIN code to the debit card issuer. As a result, online PIN-only debit card transactions were declined, as the PIN needed to authenticate the deal was missing.

While most online merchants still do not accept PIN-only debit cards, first online PIN-only solutions are finally being developed. PIN-only debit card processing

PULSE has recently introduced PULSE® Internet PIN debit solution, which enables merchants to accept PIN-only debit cards issued by the PULSE issuers network. The solution enables shoppers to enter their PIN using a graphical, scrambling, PIN pad, which changes each time a digit is entered.

The upcoming Durbin Bill is expected to accelerate the adoption of online PIN-only debit card processing methods. Though the Bill does not apply to PIN-only debit cards, it targets an issuer interchange cap of $0.12 for an online signature debit card transaction.

As issuers will have to find a way to gain the lost interchange back, and as suggested cap only applies to signature debit cards yet does not apply to PIN-only debit cards, issuers’ one course of action would be aggressively marketing PIN-only debit cards over signature debit cards and changing the debit card market. Such a change will provide merchants a higher incentive to accept PIN-only debit cards to maintain their market share.

Gidi Argov, Founder and CEO
www.CreditCardProcessing-r-us.com

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Posted in Credit Card Processing, Domestic Merchant Account | 7 Comments »

Credit Card Processing – The right to know

Monday, March 14th, 2011

One could have expected, that in March 2011, when US most embarrassing secrets are all in the open, getting access to Visa and MasterCard rules would be an easy task. Surprisingly as it may sound, this is not the case.

Visa and MasterCard both, disable the general public, as well as merchants, ISOs and IPSPs access to the rules which are only shared with Members. This lack of transparency generates an incoherent processing market, in which, each acquirer, comes up with its own set of processing “rules”, all based, believe it or not, on same rules set by the associations…

From a simple MCC definition, up to complex aggregation models, each acquirer will present its own interpretation and enable a different processing flow.

While most acquirers will enable FX merchants to report under MCC 6211, others will demand same activity to be reported under the notorious MCC 7995.

Same would apply to different aggregation models – some acquirers would religiously argue that aggregation or IPSP models are not supported by the associations, while others would happily enable different models to run through them.

Regional processing is also interpreted differently by different acquirers. Some would request a real entity, within their region, to enable a merchant to process through them. Others would accept a shell entity, or a subsidiary which is not directly related to the processing flow, up to acquirers that believe that merchants coming from different geographies can process through them.

It’s about time the associations publicize the rules, and eliminate the need to use “experts” that have “first hand access” to “the rules” as well as “experience” with different processing “Schemes”.

Until such occurs, the associations’ policy to maintain opacity with regards to credit card processing rules effectively generates a ‘black market’ environment, where neither rules nor logic applies. Inventive solutions can always be reached with the right acquirer.

Gidi Argov, Founder and CEO
www.CreditCardProcessing-r-us.com

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Posted in Credit Card Processing | 17 Comments »

iPhone might bypass the credit card associations

Tuesday, January 25th, 2011

Rumors say iPhone 5 may include Near Field Communication (NFC) technology. If Apple will indeed equip its next iPhone generation with NFC technology, it can change the way we pay.

NFC technology enables easy data authentication and therefore facilitates safely transmission of financial transaction data. iPhone 5 could easily replace the physical plastic card and communicate directly with retailers’ terminals.

Looking one step forward, Apple can turn the iPhone 5 into a fully functioning eWallet, bypassing the credit card associations altogether! As Apple already holds balances on iTunes gift cards, it can connect same balances, as well as pre-set bank checking accounts, to an iPhone 5 device and user, enabling same user to perform purchases using nothing but his new iPhone 5 device.

It’s still not clear if the upcoming iPhone 5 will indeed include NFC technology, nor if Apple is to take that extra step generating a new way of pay, yet assuming it does, with the current adoption pace of new iPhone apps, we might see the change coming our way sooner than we think.

Gidi Argov, Founder and CEO
www.CreditCardProcessing-r-us.com

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Posted in Credit Card Processing, iPhone credit card app | 6 Comments »

Credit Card Processing Tokenization

Monday, December 13th, 2010

There’s a lot of buzz around Tokenization lately and for a good reason. Format Preserving Tokenization™ is a rising data security model that can be used alone or to augment strong encryption to benefit companies that accept credit card numbers, including credit card processors.

Here’s how it works: Tokens are meaningless surrogate values that replace credit card numbers in systems, applications and databases, while the encrypted values they represent remain locked in a central repository, called a data vault.

This provides a number of benefits for companies that need to protect credit card information, including: safe internal and external tokens mobility, credit card data format preservation and taking data, applications and systems out of scope for Payment Card Industry Data Security Standard (PCI DSS) compliance and audits.

Several industry organizations are working on tokenization definitions, standards and guidelines. The PCI SSC Scoping Special Interest Group (SIG) is working on definitions and the application of tokens as it relates to PCI DSS and the Accredited Standards Committee X9 is working on a standard to define tokenization requirements related to credit card data in the financial services industry.

Format preserving tokens enable practical applications, such as: post authorization sales and marketing analysis, analytics, loss prevention and fraud detection. For example, a data warehouse program can use format preserving tokens to determine what type of credit card – standard, private label or gift card – was used for a purchase. In this scenario, the data warehouse contains only tokens, not the actual card numbers.

A word of caution for merchants: There is no such thing as token portability between credit card processors. Because of this, companies need to be cautious of vendor lock-in when outsourcing tokenization to protect cardholder data to their payment processor. This becomes a problem when the company decides to change processors, because the tokenized values are not transferrable. The new credit card processing company has no way to determine what credit card number is linked to each token, so the data is effectively lost.

The solution: In-house tokenization: The way to avoid this problem is for merchants to tokenize credit card data in-house using a commercial off-the-shelf tokenization solution that’s properly maintained by the vendor.

Gary Palgon,
CISSP, Vice President, Product Management, nuBridges
www.nubridges.com

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Posted in Credit Card Processing | 21 Comments »

Merchant Compliance – The Deadly Sins

Tuesday, November 16th, 2010

MasterCard runs a Business Risk Assessment and Mitigation (BRAM) program which restricts merchants posing significant fraud, regulatory or legal risk from using the MasterCard system. In other words, any violation of the BRAM categories, will most likely terminate your merchant account… ouch!

MasterCard Deadly Sins

The BRAM merchant categories include ‘Deadly Sins’, such as: child pornography, violence/hate and extreme sexual violence, Illegal prescription drugs, copyright infringing merchandise, illegal tobacco product sales, Bestiality and other MasterCard ‘Sins’.

As determining if merchants providing ‘problematic’ products and services are operating legally or not isn’t easy, some acquirers are avoiding acquiring certain industries altogether, such as: gaming, adult, pharma, tobacco and alike.

MasterCard and the acquirers perform web crawling, monitoring merchants’ online content, as part of a continues effort to shut down merchants which are caught violating any BRAM category.

Gidi Argov, Founder and CEO
www.CreditCardProcessing-r-us.com

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Posted in Credit Card Processing, High Risk Merchant Account | 7 Comments »

How bad is third party processing?

Monday, October 11th, 2010

According to Wikipedia third party processing has “been responsible for the worst horror stories”. Indeed… and yet some third party processing pros are worth mentioning.

If you wish to accept credit cards, you can either open a direct merchant account, or use third party processing.

In order to know what you’re offered, take a look at the footer of the site you consider using. If you see an ISO/MSP indication, you are going after a direct merchant account. Otherwise – third party processing.

Direct merchant account

Visa, MasterCard, American Express and Discover – all have programs that enable sales agents to market merchant accounts. As always, no standardization exist and each association has named its program differently. Visa has chosen Independent Sales Organization (ISO), MasterCard – Member Service Provider (MSP), American Express – External Sales Agent (ESA) and Discover – Referral Agent Program (RAP). Putting aside closed loop/open loop systems, the essence is identical. Your application will be submitted the an acquirer, for approval, in order to open you a merchant account with same acquirer.

Third party processing

Direct merchant account agents accuse third party processors for:

1. High processing fees – 5% plus;
2. Long and delayed payment schedules;
3. Funds delayed are not FDIC insured;
4. Merchant’s name missing on credit card statements.

Not all accusations are accurate, for example, many IPSPs are now capable of adding through ‘soft descriptors’ the (real) merchant’s name. Moreover, there are cases third party processing is your only choice…

Many startups get rejected when applying for a direct merchant account and lack the knowhow needed to manage direct online credit card processing. Using third party processing functions as an incubating stage, through which volume reaches a point starting a direct merchant account makes sense. Other high risk businesses find it easier to operate under a third party processing umbrella. In many cases working behind a third party processor sets a ‘fire wall’ between the merchant and the associations, which saves the merchant the risk associated with owning a direct merchant account.

Once you are familiar with the different options and better understand each pros and cons you are more likely to make the decision that suits you best.

Gidi Argov, Founder and CEO
www.CreditCardProcessing-r-us.com

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Posted in Credit Card Processing, Domestic Merchant Account, High Risk Merchant Account, Intl Merchant Account | 22 Comments »

How will FX 50:1 limit effect the credit card processing industry?

Tuesday, September 28th, 2010

The U.S. Commodity Futures Trading Commission (CFTC) announced on August 30, 2010 its final FX rule fact sheet.

This new rule, effective as of October 18, 2010, allows a leverage of up to 50:1 on major currencies (minimum 2% security deposit) and 20:1 (minimum 5% of the notional value of the transaction) for all other currencies.

The U.S. FX industry will have to accommodate, while worldwide FX brokers could continue offering higher ratios (IBfx enables 400:1). US individuals already trading globally are expected to try maintaining their global trading accounts. Those who don’t might try taking their trading elsewhere.

As with gambling, the U.S. authorities will most likely try blocking Americans from trading out of the U.S. This can be accomplished by assigning the 7995 MCC to foreign forex brokers.

Should this happen, global FX brokers, IPSPs providing credit card processing services to such and their acquiring banks will have to, once again, distinguish Americans from the rest of the world.

Gidi Argov, Founder and CEO
www.CreditCardProcessing-r-us.com

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Posted in Credit Card Processing, Domestic Merchant Account, High Risk Merchant Account, Intl Merchant Account | 17 Comments »

Can high risk merchants process cards in the US?

Monday, August 30th, 2010

and assuming they can’t, when did this suddenly happen?

Though opening a high risk merchant account today, sure looks like a mission impossible, in no way did this suddenly happen.

Hardening the banking industry in general and the credit card processing industry in specific is an on-going process which started with the MSB witch hunt, causing hundreds of Money Services Businesses to seek none US banking solutions, continued with illegalizing online gaming to its current pick, caused by the Subprime Crisis from which America is yet to recover.

US Banks

As online gaming (happily processed out of the US) had to find none US alternatives, it opened the door for new offshore merchant account initiatives and offerings. Once hit by the Subprime Crisis, reducing bank capital and eliminating large part of America’s credit availability, banks had to carefully pick, or occasionally stop extending, lines of credit.

As providing acquiring services is another mean of credit line, acquirers were forced to adjust to new industry standards and started implementing same hardening restrictions, getting US high risk processing to where it is today.

Offshore merchant account providers were only waiting for this opportunity, to gain control over an additional portion of US businesses processed out of the US.

offshore merchant account providers

As merchants are left with no other choice, they apply for offshore credit card processing, and get their processing needs elsewhere. It is perfectly legal and practically, for some high risk merchants, the only way to sustain their online business.

The US ends up losing higher processing fees paid by local merchants to offshore merchant account providers.

Gidi Argov, Founder and CEO
www.CreditCardProcessing-r-us.com

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Posted in Credit Card Processing, High Risk Merchant Account, Offshore Merchant Account | 14 Comments »

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