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.

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.

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

Sophisticated international merchants should add BIN check within their processing workflow. The BIN check result should be used both for acquirer routing as well as for anti fraud score set.

And how will that increase the credit card processing volume at a lower risk? One question at a time… Credit card processing volume will increase as different cards, issued by different issuers will be routed, through different merchant accounts to different acquirers for processing. As different acquirers have different capabilities, risk mechanisms and preferences, some will decline 100% of a certain issuer, while others will have his cards passed with flying colors…

Regarding lower risk – use the BIN check to match issuing bank country with customer’s country address. Whenever those two don’t match, show a higher score and perform additional anti fraud checks prior to charging the card.

As funny as it may sound you don’t need to invest in sales and marketing or penetrate new markets to show an immediate improvement in your bottom line. Optimizing your credit card processing flow will immediately have the same effect – an effect you can work with on years to come!

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

Does the provider support digital goods transactions? Can he manage international fraud? Will he enable multi-currency processing? Does he provide help with import/export limitations as well as EU VAT or other international taxation?

Expanding internationally is different than being an ‘international merchant’ (i.e. – operating out of the US). Most of the US merchant account providers will decline an international merchant, yet will enable a US merchant to accept international cards. Many US merchants may choose what looks like the easiest way out and start accepting international cards using their domestic merchant account, soon to discover their decision was somewhat problematic, mainly due to: cross border transaction fees, limping international fraud management and lack of multi-currency processing capabilities.

You can read all about cross border transaction fees and how to avoid them. The bottom line is that establishing one insignificant local presence in Cyprus (and an EU merchant account) can do wonders to you and your European customers, decreasing chargeback rates as an additional bonus.

Optimizing fraud management is another big issue a merchant should consider. Whether you manage the risk internally, or outsource the decision making process, you must realize by now that prior to accepting a card you assess the fraud risk embedded in that transaction. Accepting the wrong cards increases your chargeback rate, causes losses and puts at risk your credit card processing future. Declining honest shoppers shrinks your business and damages the shopping experience.

International fraud management is much more complicated than domestic. Many of the tools used by US merchant account providers do not work when accepting international cards. For example, the time the shopper entered your site has little meaning if not normalized to shopper’s origin. Address verification methods tend to work differently when out of the US. Different billing and shipping countries, not to mention problematic or forbidden countries are other examples.

Multi-currency management is a standalone issue, affecting both you and your shoppers. The majority of the US merchant account providers are currency clueless. They understand USD only and enable you to process only USD transactions. If you truly want to grow internationally, you need to consider presenting and processing other currencies to improve the global shopping experience and increase international shoppers’ conversion rates.

Most of the international merchant account providers will enable processing in more than one currency, yet only some will be able to settle in different currencies. At the end of the day, the question is who manages the currency risk and how much the conversion from those other currencies to USD costs. Though this should be addressed separately, I’ll summarize by saying that the best result is achieved when your merchant account provider settles the actual currencies and currency management is outsourced to E4X or FXmicropay (depending on acquiring bank).

Many digital goods merchants already made the international leap, yet only few physical goods merchants have successfully made it through. Until recently this was indeed one hell of a task, yet nowadays a physical goods merchant can choose to outsource the international activity all together! FiftyOne offers a comprehensive global ecommerce solution that enables US merchants to easily transact across borders. Some of the top 500 US merchants have already signed up, so it might workout for you as well…

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

Regardless of what you were told, or the ‘as low as’ pricing you were counting on when applying for a merchant account, the actual cost of credit card processing will catch you by surprise each time you will try to figure it out.

Once you start accepting credit and debit cards, you realize that every transaction is unique. There are 123 pages to the MasterCard Worldwide U.S. and Interregional Interchange Rates guide and endless number of rate scenarios. Visa is not much better as can be seen at Visa U.S. Interchange Reimbursement Fees guide, taking into consideration that this guide applies to transactions within the US only.

The credit card associations explain that this pricing structure is a direct result of merchants and regulators demand for transparent pricing. These demands forced the associations to reveal the complexity behind credit card processing. No one doubts the end result – no merchant can see the forest through so many trees.

What could possibly be so complicated, that requires such a complex pricing structure? The complexity exists at ‘both sides of the equation’. Merchants and shoppers (or cards) both carry different sets of risks and rewards, to which the associations relate. Fraudulent transactions are more common online than at the local grocery store. Debit cards lack the credit risk embedded within each credit card transaction. Different card types have different sets of benefits. All these, and much more, are taken into consideration when pricing the cost of processing a single transaction.

Processing a regular Visa card will cost less than processing a Gold MasterCard, which will still cost less than processing an American Express card. Merchants that process in a single step (do the authorization and capture together) will process for less than merchants who are forced to split the authorization and capture, due to physical merchandise location and delivery regulations, making them capture in delay.

And the funniest part – all of the above is the least of your concerns. As long as your merchant account provider uses an “interchange plus” basis, you’re on safe ground. The plus is the element you should negotiate and feel comfortable with. No one is big enough to get a better deal from the associations

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

As credit card processing comes with a cost, this question should trigger a serious decision making process, featuring costing and marketing exercises, making sure accepting credit cards is indeed feasible.

Let’s say for a minute you already decided to accept credit cards. Your second question would probably be, ‘where do I find the cheapest merchant account around?’

Now, that is a tricky question. Obviously, as a merchant, you need to minimize your costs. But when it comes to merchant accounts there is no straight forward way to make sure that what you see is what you get.

In the world of online payment solutions there are many factors you need to take into account when you try to figure out how much you will pay and what would be the quality of the services you get.

A partial list of factors will contain discount rate, other fees, the need to use a gateway, contract terms and customer services.

Discount rate

Your very first task would be to try and figure how your discount rate might behave. The discount rate is the fee that will apply to each and every transaction you process. It is comprised of several fees and dues such as network fees, assessment fees and interchange fee (the largest portion).

Your basic –qualified- discount rate will be set by your merchant account provider and should cover  most of your transactions (i.e., for instance,  all transactions that will come from a basic, non rewards, credit cards and that will be swiped in your terminal – in other words a ‘Card present transaction’). You have to bear in mind the discount rate might eventually become higher and turn into a Mid-qualified rate (for instance, in cases where you would key in the credit card details, instead of swiping the card- otherwise known as ’Card not present transaction’) or even turn into a Non-qualified (incase a certain reward card is accepted).

You really need to try and make few assumptions on how your credit card transactions will split between the different types of discount rates. Your potential merchant account provider might help you with statistics he gathered, based on his experience with merchant from the same line of business.

 Other fees (look for them in the contract or even better, ask the provider!)

• Per transaction fee

Will apply to each and every transaction you process

• Batch fee

Charged for ‘batching ‘ transactions and sending into the network, to start the settling process (should happen at least once a day)

• Chargeback fee

Your merchant account provider will help you fight (represent) chargebacks and will expect to be rewarded for it. The fee can be charged even if the representation process failed and your customer got away with all his money.

• Set up fee

Charged upon the setting of the account.

• Statement fee/ monthly fee

Covering the activity statement you will receive each month.

• Quarterly/Annual fee

Paid for the maintenance of the account.

• Monthly minimum fee

Assuring the provider receives a minimum of processing fees each month. You will not have to pay it if you will process transactions above a certain amount (if you processed to some extant, yet did not reach the required level, you will usually be requested to pay the difference only).

• Customer Service fee

 Covering the support services you get from your provider.

• Early Termination fee

 Will apply should you elect to terminate your contract earlier than expected.

• Gateway fees

If you are an e-commerce merchant you will have to pay for gateway services that will enable your secure connectivity with the credit card processing network. These fees might be paid to a different provider (if services are not bundled by your merchant account provider into one package), and might include, among others, a set up fee, authorization fee (per transaction), monthly fee, virtual terminal fee and reporting system fees.

• Fraud detection fees

Should you decide to use fraud detection services (and unless you will be doing the fraud prevention internally, you should), either through your gateway or by other sources, you will have to pay fees. Some of the fees are per transaction, other fixed, depending on the depth and volume of services rendered.

The fees above (and other fees) come in different ‘shapes and sizes’ and in different combinations. You will find that some fees are completely waived by some merchant account providers, while between others, that do charge them, there are substantial differences. One thing you should bear in mind, there are no free lunches in the credit card processing industry. Merchant account providers need to earn their living, exactly as you do. They render services and charge fees based on risk management models and this industry has substantial embedded risks.
As an informed merchant you need to understand that there is a tradeoff between the different pricing models offered by the different providers. The best you can do is make sure the merchant account you signup with provides you with the combination of fees and level of services that suits you most. For instance, you might decide to work with a merchant that offers 24/7 customer support, and charge for it, rather than choosing one that waives the fee but maintains office hour’s support. You may decide to prefer working with a merchant that charge a bit more in the discount rate or in the per transaction fee, just because he waived the termination fee (and right now you don’t feel you can make a long term commitment).
An important thing you should remember is that there is always some place for negotiation. A merchant account deal should leave both you and your merchant account provider satisfied, otherwise, it will not last long.
Use http://www.creditcardprocessing-r-us.com to learn more about the industry, get acquainted with the providers, compare, and pick the provider that suits you most. 

Dan Pirogovsky, Co-Founder and SVP Business Development
www.CreditCardProcessing-r-us.com

Many on-line merchants make their best effort to enhance the shopping experience. By Geolocation they identify the shopper’s location and offer a local shopping experience, including local currency pricing. This is now supported by acquirers enabling multi-currency processing.

In such international transactions, no conversion occurs and the merchant receives the foreign currency paid by the shopper. The merchant can either manage the FX in-house, use third parties which specialize in this field and can guarantee the USD amount, such as E4X or FXmicropay or use direct cross currency processing offered by acquirers, such as ChasePaymentech.

One way or another, due to these many bypass solutions, Visa and MasterCard added the new cross border transaction fee. The fee applies when a shopper makes a single-currency purchase at a foreign country merchant, or in other words, when the issuing bank of the shopper is located at a different region than the merchant account of the seller.

Many travelers and on-line shoppers are already familiar with this fee, yet only few merchants are aware of the higher discount rates associated with such transactions, as well.

The workaround is relatively simple and should be applied when possible. Merchants may open local merchant accounts once establishing a local presence. Many of the merchants operating internationally already have international presence and those who do not can easily obtain one. Now that Europe is one big region, researches show that most US merchants can cover over 80% of their international sales by opening one Canadian entity and one EU entity only.

As shoppers origin is already identified (Geolocation – remember?), any international transaction is automatically routed to the relevant local merchant account. Issuer and Acquirer are now in the same region and no cross border transaction fee applies.

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

Credit cards were invented less than a hundred years ago, and initially only used by individual firms and their customers. The first ones adopting this technique were the big oil companies. Still, the cards were only accepted by the issuing company and in very limited locations.

The first break through occurred around half a century ago, when the first bank card was issued. This ‘bank card’ could only be used by customers who had an account with the first issuing bank. These fortunate people could purchase goods from merchants maintaining an account with same bank. A very limited and local use, no doubt, yet the first break through enabling one to ’shop around’ using credit card processing.

We’ve gone a long way, and today each and every one of us has opened an account with an issuing bank and got that piece of plastic. All the merchants you can think of, around the world, have signed up for merchant accounts with acquiring banks and know what to do when presented with same cards.

All of us, though most of us tend not to think about it, are connected with binding legal agreements, which enable us to pull out our card, basically everywhere around the globe, in person or on the internet, and purchase any product we can think of, as long as our credit limit enables it… 

When you think about it – credit card processing is magic! 

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