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

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

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

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

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

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

MasterCard states that “A Merchant must not directly or indirectly require any Cardholder to pay a surcharge … in connection with a Transaction” (Page 114, 5.11.2 Charges to Cardholders, to date – document is constantly updated and therefore pages and paragraph numbers keep changing). If this is not clear enough: “MasterCard rules specifically prohibit merchants from adding a fee for acceptance of MasterCard cards. This is considered surcharging”.

Visa are saying the very same thing: “Visa rules do not allow retailers to charge cardholders a checkout fee for using their cards” and going a further step advising card holders to “report retailers that are charging checkout fees”.

Both Visa and MasterCard base their rules on discrimination laws, as surcharging a shopper paying with a credit card is, in a way, a shopper discrimination based on type of payment. Several US states have accepted the associations’ ruling and outlawed surcharges on credit card payments. These states are: California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma & Texas.

So what does this mean? Do the associations and state regulators expect retailers to finance processing fees out of their own pockets? No. Retailers should have their processing fees embedded within their final prices and therefore are allowed to offer discounts for cash and check purchases, as well as for PIN debit cards, as long as such offers are made to all buyers.

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