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.

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

M. from Century Payments followed up quickly: “Dear Roy, We have received your information via Fee Fighters, and after careful review we are happy to report that we will be able to assist you. Below are the results of our analysis based on the information you provided. Pricing: Interchange Plus: 0.00% + $0.05 per item”.

As charging 5 Cents only (above Interchange) per transaction sounded too good to be true, Roy further investigated: “Can you please provide … exact costs for regular transactions and micropayments”, to which M. responded:

“Certainly, I have included a list of the exact costs associated with different cards below. Since you are quoted at Interchange + 0.00%, you will be getting at-cost wholesale rates for any and all cards. Interchange is the percentage of each transaction that is taken out by Visa, MasterCard, etc. Therefore, we are unable to eliminate all rates. However, the fees associated with these rates are tax deductible.

Your offer also states a $0.05 per item fee, which is very low compared to industry standards (PayPal charges $0.30 per transaction). Your only fixed cost is a $10 monthly fee. Therefore, if you do not run any cards for an entire month, you will only be charged $10. Rates associated with different card types: Debit: 0.94%, Debit (non-swiped): 1.60%, Visa/MC traditional credit card: 1.54%, Visa/MC traditional credit card (non-swiped): 1.80%… To begin processing with Century Payments we will need to complete an application for you, which you will need to sign”.

Though Roy knew that not mentioning a per transaction fee within Interchange (usually 10 Cents) is misleading, surely in the case of micropayments to which Roy related in specific (additional 10% on a $1.00 transaction…!), he still felt that he couldn’t go wrong with a cost of Interchange plus only 5 Cents per transaction, and was ready to sign on the application.

A quick look at the application revealed: an additional 1% for mid qualified, additional 2% for non qualified, the fees do not apply to Amex, AVS – additional 10 Cents, Early termination fee “Please relate to Paragraph 22.1 of the Merchant Services Program Guide” whatever that means…!!! and many other fees, such as Batch, Maintenance, chargeback, high risk fee, and overall opacity with regards to what actually applies…

Merchant account providers do tend to stretch “as low as” to its limits and yet M. from Century Payments has broken a new record! Stating: “at-cost” for “any and all cards” responding to an “exact costs” query is pure, intentional, misleading information provided to a potential buyer.

Roy is no longer certain he found the right way to shop for a merchant account, yet positive he has revealed a new way to SELL…

Guest Author
www.CreditCardProcessing-r-us.com

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

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

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

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

As a merchant accepting credit cards online, you must read the comments Claus got on his superb Credit Card Number Generator post. Ninety Nine percent of the comments were received from potential buyers or sellers of stolen credit card numbers.

Buyers asked for HELP as they truly wanted to buy something on the internet and NEEDED a credit card number (that works…) and sellers were just trying to make a living… A potential buyer (playing it safe) wrote: “I need genuine credit cards with all the details. If you give valid credit cards, I will pay you once I try it and it worked”…

Sellers, trying to “make a living”, testified regarding the quality of data provided: “fresh”, “valid”, “today”, “that works”, etc., had Tariffs for different card brands, types and geographical issuing locations, and offered packages (prices for minimum of 5 cards…).

I strongly recommend reading the comments Claus received. It’s a wakeup call! Once you do, you feel the danger and must ask yourself what are the measures you have taken to fight the fraud attempts coming your way…

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

When you receive the notice: “card not supported” on your credit card machine, it means just that – the specific card brand (or type) you are attempting to charge is not supported by your processor (or you are yet to register for processing that card brand).

99.99% of credit card processing providers will enable Visa and MasterCard processing, yet for processing American Express and Discover you almost always need to apply separately. If you failed to do so, or was not approved for processing these brands, trying to charge Amex or Discover will generate the notice you received.

There are plenty of other card brands: Diners Club, JCB, China UnionPay, BC, Maestro (Switch, Solo), Visa Debit, Carte Bleue, Girocard and many others… Check what card brands and types are supported by your processor, so you’ll know in advance which cards you can charge.

If your processor can only accept Visa and MasterCard, it might be the right time to look for alternatives… I personally switched to iPhone credit card processing, yet this has to be reported on a separate post.

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

MasterCard SecureCode, was, surprisingly enough, initially developed by Visa, and offered as a service to Visa customers under the commercial name: “Verified by Visa” (also known as VBV). Nowadays “3-D Secure” or in short “3-D” is a generic term which relates to: VBV, MasterCard SecureCode and J/Secure (JCB International 3-D commercial name).

3-D Secure adds, through an XML based protocol, another authentication step for online processing solutions. Shoppers generate a code (the “SecureCode”…) known only to them and their issuing bank, which must be entered to finalize an online transaction on sites which implemented this additional security step.

Merchants implementing 3-D Secure, benefit from chargebacks reduction (chargebacks previously initiated due to: “unauthorized transaction”), yet might see a volume decrease due to transaction failures, or simply lower conversion, directly related to the additional step required…

At the end of the day, at least until 3-D Secure will be imposed by the associations, every merchant needs to make the decision, whether to implement 3-D Secure or not. It has a lot to do with the nature of your online business and the chargeback rate you are facing today.

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

Most merchant account seekers get ‘temporary blind’ and concentrate on the ‘lowest discount rate’ figure presented by most of the providers. This rate will almost always reflect a transaction in which a signature debit card is physically swiped. Will this apply to most of your transactions? Probably not… Therefore, you must get the provider’s mid qualified and non qualified rates. For the average online merchant, processing cost is somewhere between those two rates.

Your merchant account providers are here to make money. Discount rates are not the only fees charged… Are you familiar with the fee structure? Will you be charged for: customer support, monthly statements, annual renewal fee, gateway fees, batch fees, and if and when you’re not happy with the package – termination fees? Ask for a sample monthly statement and go over the different line items to understand the fee structure.

OK – you checked all fees and everything sounds reasonable. Do you know how much you will be charged for the credit card terminal? While many providers use free terminal packages to well hide other fees, some do it the other way around…

Who is it that you are doing business with? Get to know your provider. Search the provider’s business name on Google and read what other merchants have to say, ask the provider for referrals and call them. Call the acquiring bank the provider is using and ask for a reference on the provider or reseller offering you the account.

What will be the customer service and technical support you will receive? Can’t say? Check it out – call the provider’s customer support line and get a first impression: how long were you on hold, what did you have to go through to get to a real person and was the representative friendly, knowledgeable & helpful.

Are you going for a direct merchant account or a third party processing solution? Though that’s a big enough issue for a standalone post, regardless of the direction you take, you must verify that your business name appears on your customers’ statements. If you’re using a third party solution, make sure they have a ‘soft descriptor’ that will add your business name to any transaction processed on your behalf. If you fail to do that, you are one step from high chargeback rates, and that, my friend, is the end…

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

As the online micropayment industry grows, people are working on alternative solutions, to bypass the credit card associations and enable a true support for a single purchase of online micropayment products.

The solution should have been provided by the credit card associations long ago. A simple micropayment pricing, could solve all of the micropayment industry needs in a second. As of today the associations charge (on most transactions) a fixed 10 Cents per transaction fee. This fee, first calculated and forced long ago, was justified when processing, encoding, saving and backing up transactions was cost consuming. In today’s world the cost of processing a single transaction is insignificant and surely runs below 1 Cent.

The risk embedded in online micropayment transactions is minimal. Micropayment transactions’ amount is immaterial, which automatically lowers the inherent risk embedded in a micropayment transaction to a ridiculous threshold. The nature of an online micropayment transaction lowers the risk even further. 99.99% of online micropayment transactions are digital goods with zero cost and no market value fraudsters can gain for re-selling the downloaded content.

That said, there’s no doubt that the cost structure set by the associations as of today, simply does not meet the micropayment criteria, and must change.

So why does it not? Once showing that the act of processing has long gone below the 10 cents currently charged, the associations will have a hard time explaining why such is charged on non micropayment transactions… Believe it or not, this is the true obstacle currently putting at hold the micropayment industry.

Instead of waiting for the associations to come to their senses – use PayPal. They offer a micropayment solution for 5% plus $0.05 per transaction. Open a PayPal Business (or premier) account, then search at PayPal search box for “micropayments”. Press on “PayPal Micropayments Website” and then “Signup”. Now request to change the Business (or Premier) account you just opened to a micropayment account. Congratulations – you just opened the best micropayment card solution currently available!

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