Charging surcharges on credit card transactions

September 27th, 2010

Name it any way you want: surcharge, convenience fee, credit card acceptance fee or checkout fee – Visa and MasterCard do not allow retailers to charge an additional fee on top of a credit card transaction.

Charging surcharges on credit card transactions

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

Credit card processing flow – the transactions

July 16th, 2010

The online credit card processing flow is triggered by an online shopper initiating a purchase attempt on a merchant’s website.

Credit Card Processing Flow

Authorization transaction

    Merchant – submits an Authorization request transaction for approval.
    Payment processor – passes the request through the associations to the issuing bank and awaits response to be presented to merchant.
    Issuing Bank:

  • approves or declines the authorization request.
  • puts a hold on cardholder funds – the “Authorization hold”.
    Merchant – receives the approved or declined authorization transaction via the associations and payment processor and decides on next steps (usually according to further fraud checks and stock availability).

Capture transaction

    Merchant – submits a Capture transaction. Capture transactions are usually batched after being stored on merchant’s computer or POS machine and sent for processing once a day in order to minimize costs.
    Payment Processor – process batch and send capture transactions to issuing banks via the credit card associations.
    Issuing Bank

  • sends money to Acquiring Bank via the credit card associations.
  • bills card holder for shopping online.
    Acquiring Bank – funds the Merchant Account with net proceeds of the transaction.
    Payment Processor – provides detailed reporting on each capture transaction, including all fees deducted by all parties involved.

Gidi Argov, Founder and CEO

Credit card processing flow – the participants

July 5th, 2010

Surprising as it may sound participants and flow somewhat changes depending on credit card association. While Visa and MasterCard use open-loop networks to connect between issuing banks and acquiring banks, American Express and Discover use closed-loop systems, as issuing bank, merchant bank and association are in fact one in the same.

Credit Card Processing Flow

The associations develop, maintain, monitor and regulate the networks that enable: authorization, capture, refund and chargeback data and money transactions. Issuing banks and acquiring banks are members of the associations, to which they pay fees for the smooth operation of the network.

Issuing banks issue individuals credit cards and take full responsibility on a person’s ability to fulfill a financial obligation. When a transaction is “Authorized” by an issuing bank, same bank will have to fund the transaction regardless if it is able to collect authorized funds from cardholder or not. This fundamental obligation is the basis on which the credit card processing flow is based. It is the reason merchants are willing to accept credit cards and also explains why majority of fees end up being paid to the issuing banks.

Acquiring banks take the commercial risk of merchants going out of business which means they have to fund all chargeback transactions they can’t collect from a merchant. This is why acquiring banks are picky accepting a merchant, split the market and relate to merchants according to pre-set risk categories and set mechanisms, such as “rolling reserve”, to ensure at least a partial recovery of a potential loss.

Payment processors grew into the ‘operating arm’ of the acquiring banks, providing merchants with both technological and financial infrastructure needed to operate the merchant’s site.

Gidi Argov, Founder and CEO

Innerfence and AppNinjas entering the Card Present world

June 2nd, 2010

Innerfence and AppNinjas are about to make a giant leap into hardware devices and physical processing environment.
According to the practical ecommerce, both applications will support, within 60 days, a “hardware device” that will enable merchants to swipe cards instead of keying in transactions (no hint regarding the card reader type that will be used).

Derek further implies that such swipe transactions will be considered as Card Present (“running cards at a Swipe’s rate”) and will also enable merchants to enjoy “both online and in-person transactions” using the same one solution/merchant account.

Getting a Card Present approval from Visa and MasterCard isn’t easy. Verifone decided to disable the CNP scenario on their PAYware Mobile solution when they applied for a CP acknowledgment… Assuming such is achieved, it is still far from the vision of one solution for both scenarios: Card Present and CNP.

As both Innerfence and AppNinjas are using as a Payment Gateway, they cannot offer an ‘all in one’ account unless same is offered by Other major Gateways and Processors are in the very same place and currently do not support such one account, so “hold your horses” on that vision for the time being…

Compare different iPhone Credit Card Processing solutions and go with the one that suits you best!

Gidi Argov, Founder and CEO

Is it safe to accept credit cards with an iPhone?

March 3rd, 2010

The real question is: “Is it safe to accept credit cards?” with or without an iPhone…

If you read the previous post you are well aware of the motivation and monthly numbers of web searches for stolen/faked/or otherwise hacked credit card numbers.

Accepting credit cards with an iPhone using an iPhone credit card app, is identical to accepting credit cards via any other computer web connected virtual terminal. As most virtual terminal users run a MOTO business, in which they never actually see the card, in most cases, when you accept a credit card with an iPhone, you’re probably on a safer ground, as unlike those MOTO businesses, you, at least occasionally, do see the actual credit card.

All iPhone credit card applications (included on our site…) are PCI compliance, as restricted credit card info is never saved on your smart phone. The second you process a credit card transaction, the info is securely sent to your payment gateway, and transaction details no longer include credit card information you are not supposed to maintain.

As a merchant accepting credit cards you need to make sure you use anti fraud measures, just like any other merchant. Many iPhone merchants, like other small merchants, use their payment gateway and merchant account provider to fully run the fraud management on their behalf. The real risk in this kind of an arrangement is a business loss, as your provider, might decide to decline a transaction you could have decided to take…

Gidi Argov, Founder and CEO

iPhone credit card processing – isn’t the card always present?

February 22nd, 2010

Linda doesn’t get it! When she accepts credit cards using her iPhone, card is always present! Gadgets or no gadgets – as Linda sees it, it’s a Card Present transaction…

Linda has a point – she charges actual cards presented to her using her iPhone, yet if the card is not swiped and Linda has failed to open a card present merchant account, no one (but Linda) knows…

At the end of the day it makes very little difference what Linda thinks about the transaction – it’s what the associations think that matters.

As using an iPhone app to accept credit cards is similar to accepting cards over the net using a Virtual Terminal, the associations relate to these transactions as they would to any other MOTO order processed online – a Card Not Present transaction.

If you wish to accept credit cards using your smart phone, visit: iPhone credit card processing.

Gidi Argov, Founder and CEO