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

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

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

Aren’t all websites connected? No. Many websites lack the technology needed for such integration. Some lack a payment page altogether and use mail, phone or fax orders to close the transaction. Others collect the info on their “Payment Page”, yet if such is not automatically connected to a payment gateway the end result is the same – manual submission of these transactions to a payment gateway through a virtual terminal.

And those that are automatically connected – do they process credit card transactions on-line in real-time? Some do and some don’t yet the more sophisticated ones usually wouldn’t. What they do is perform an on-line real-time authorization check with the issuing bank. Should such fail they return in real-time to the buyer and suggest rechecking the billing address or the use of another card.

Why don’t they immediately process the card? For numerous reasons: to begin with, according to Visa and MasterCard regulations, when physical goods are purchased, they are not entitled to charge a credit card until items are actually shipped to the buyer. Some still do… yet the more respectable sites would follow the instructions and charge the card only upon shipping, using the shipping event as a trigger, sending a notification to the shopper that his card was charged, stating all order information including shipping tracking code.

Even if digital goods are purchased, in today’s world, due to the nasty implications of chargebacks, the real-time authorization check is usually not enough and most merchants (either in-house or outsource) use other fraud checks prior to actually charging a card.

A transaction may pass through on flying colors and should it reflect a digital purchase can be processed in real time, yet in many cases, it is not a clear cut and requires a human eye and a decision maker to clear a transaction for processing. This is why, usually when purchasing on-line you receive (on the “thank you page”) a notification stating that your transaction is “in process”. It does not mean that you’ve purchased the item nor that your card’s been charged – item may not be on stock or you might still fail their fraud checks.

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