Today, having a merchant account is more of a necessity than a luxury geared toward your customers making impulsive versus need based purchasing decisions. Businesses, small to large, traditional or virtual are all eager customers of banks and processors the world over; the banking industry has changed regarding merchants and their credit card processing capabilities over the last few years. Due to the dominance of online storefronts merchants, banks and processors have been inundated with requests for merchant accounts for mainstream as well as specialty industries.

Banks generally classify merchant accounts into two risk categories, high and low; as there is really no in between, the only variance are terms, volume and the merchant’s discount rate. As a capitalist society, the US and even western European countries perceive ideas as opportunities and tend to mount an all out attack on industries and markets. The internet has enabled hungry businesses to achieve high volume, both in terms of sales volume and net and gross profit. As this isn’t a, “which came first, the chicken or the egg,” discussion, the reality lies in the timeline which shows that the internet has made possible a new consumer and a new merchant. With high volume sales in a virtual setting or even over the phone sales, it comes as no surprise that banks and processors place these merchants in the high risk category. There are a lot of reasons for this; lets cover the most obvious reasons that a merchant might be considered high risk. Risk factor depends on the likelihood that a chargeback might occur. As chargebacks are less likely in traditional storefronts due to customer signatures and the ability to verify the cardholder’s identity, those businesses tend to receive lower rates and be less restrictive. Ecommerce ventures and situations where card not present transactions occur pose more of a risk to banks and processors not only because of obvious consumer fraud and identity risks, but because of product and service quality, authenticity and fulfillment hazards as well. The fate most of these businesses endure is high rates, security deposits held for impending chargebacks and lower processing volume than they would like.

Merchant service providers or brokers have a foothold in these sub-markets as the rates aren’t going down and the banks and processors aren’t seem to be tightening their hold on merchants. A merchant service provider’s role is simple; find the best deal for their customer. What this means is different for each merchant and even certain industries. What it typically entails is sourcing banks and even specific processors for those industries and businesses; geographic location even plays a role. The refreshing part about dealing with a merchant service provider is the ability to custom tailor their processing. What that means for a merchant is the ability to monitor their accounts online or have a virtual terminal that can organize and batch daily or weekly submissions easily. For online merchants, whose entire business may be ran on a laptop computer, this type of flexibility is priceless. Going off shore and having an international merchant account is more popular today than it was in years past. Many merchant’s markets span the globe and the influx of currency transcends a simple geographic location. Basically, it doesn’t matter where the bank is, as the money is converted, taxes are paid and the money is available anytime. The costs for doing business internationally are not as high as you might think, but there are costs. For more information, contact a merchant service provider.

by Dr. Ralph F. Wilson

On July 18, 2001, I answered a question in my weekly Doctor Ebiz column that precipitated a strong but reasoned response from a reader who helps set up merchants with merchant credit card accounts. I’ve edited his letter a bit, but you’ll get the idea:

“In your last newsletter I noticed that someone had a question on downloading softgoods, and you mentioned that ClickBank and PayPal had no set up fee, no monthly fee, etc. Basically that means that you do not recommend a Merchant Account to anyone….

Not only you, but ALL the successful Internet marketers have a Merchant Account because it is much better than paying 7.5% per sale. It would cost you a lot more. A Merchant Account also has the advantage that you are in total control of your business.

I see a lot of marketers like you who recommend services where the merchant pays 7.5% per sale, but you forget to tell them that beyond $500 in sales, they’d better get a Merchant Account. If not they are going to lose big bucks.

Anybody who does not have $50 per month in monthly fees (to cover a $25 monthly minimum, $10 statement fee, and $15 monthly gateway fee) should not be in business. If you do not have $60 for your e-commerce web hosting package and choose free web hosting, you should not be in business.

You know as much as I do that $100 monthly overhead is NOTHING.

If you do not have $300 per month to invest in your business what are your chances to succeed? NONE, ABSOLUTELY NONE. Going into business with no money means that you have a 99% chance of going out of business.” — Andre Plessis, www.PayQuickly.com

I disagree with my reader that you can’t start an e-business on a shoestring. I did it, and so have many others. But he raises a vital question: How important is a merchant account? When is PayPal or CCNow enough, and when does investing in a merchant account and payment gateway make business sense?

First, let’s look at typical charges for doing business with a merchant account and payment gateway. Fees vary a lot, but I think these are typical. Then we’ll compare the costs of some of the popular e-cash and service bureau alternatives in the US.

I put all this on a spreadsheet and calculated the purchasing costs above as a percentage of the sale for three average purchase amounts: $25, $50, and $100. I prorated the set-up costs, if any, over 12 months and averaged CCNow to 8.5% (since for many consumer products, the bulk of sales are made in November and December). (Note: If your merchant account/gateway costs are higher or lower, results will be different.)
Several things become rather clear:

PayPal costs look very, very good on paper. In direct costs, the merchant account/gateway route is only cheaper at monthly sales of $50,000 or more.

It is unwise to set up a merchant account/gateway if you anticipate gross revenues under $650 per month. Beyond $650 in revenues per month, a merchant account/gateway option begins to become cost effective compared to the alternatives.

At $1,500 gross revenues per month and greater, the monthly difference between a merchant account/gateway and PayPal becomes incrementally less. The curve is fairly flat beyond $1,500. By the time you get to $4,000 monthly gross revenue the difference between the two is about $45 to $50 per month.

CCNow, ClickBank and DigiBuy are suitable only for products that have a fairly high mark-up that can absorb the substantial purchase costs of 8% to 14%.

But this analysis only examines direct purchase costs. The hidden costs are in time and ease-of-use. Observe that:

Several of the service bureaus don’t remit receipts immediately to the merchant. There is a delay of several weeks.

None of the service bureau solutions nor PayPal allow the merchant access to the customer’s credit card number.

PayPal’s shopping cart is pretty rudimentary, figuring shipping only crudely and taxes not at all.

DigiBuy provides a sophisticated digital download and registration system, but takes about 14% — a significant chunk of the total sales price.

CCNow’s shopping cart is better than PayPal’s, but their shipping calculation is crude. Since they are a Delaware corporation, state sales tax need not be calculated.

ClickBank has no shopping cart at all.

An affiliate program is included in ClickBank, possible with DigiBuy and CCNow, and totally frustrated by PayPal.

A merchant account/gateway (the merchant-hosted API variety, not necessarily the gateway-hosted order form) allows you to integrate credit card purchases into sophisticated off-the-shelf shopping carts or custom applications that:

Provide an easy-to-use, easy-to-understand interface for your customers.

Allow you to tailor the selling approach and ordering process for maximum sales.

Facilitate calculation of shipping costs and taxes.

Enable you to put all customer data into a single unified database for better customer service.

Disclose the customer’s credit card number for easier tracing of chargebacks and returns.

Free you to select the affiliate program most suitable for your business.

Permit you to automate your online business.

In short, a merchant account/gateway allows the flexibility needed to make it easier for both the customer and storeowner. For the customer, ease-of-use translates into more sales. For the storeowner, ease-of-use and automation translate into time (and therefore money) saved.

Here are my recommendations:

If you are just starting out and can’t afford a merchant account/gateway approach, by all means use PayPal, CCNow, or ClickBank, depending upon what you are selling and how much profit margin you can afford to spend on purchasing costs.

Between $650 and $1500 in monthly sales (for DigiBuy, ClickBank, and CCNow) — and certainly if you are reaching $4000 or more in monthly sales (or anticipate these in your business plan projections) — move to a merchant account/merchant-hosted API payment gateway system in order to save purchasing costs and reduce processing time and costs.

Don’t “lease” e-commerce services. Borrow the set-up fees from your great aunt if you have to, but don’t get caught in an unbreakable lease that will pounce upon you if your business happens to fail. Online businesses are too risky in the early stages to sign such foolish “lease” agreements. If you can’t afford to pay e-commerce set-up fees up front, don’t order them.

Choosing the wrong merchant services provider
may cost you thousands of dollars a year

by Janet Attard

Although we may never see a cashless society, many businesses today could not stay in business without accepting credit cards. In fact, credit cards are so commonly used by consumers, businesses and government agencies, that credit card purchases may account for 65 to 100% of many companies’ sales.

For the most part, that’s good news for merchants and services providers. Credit card customers often spend more than their cash-wielding counterparts, and merchants can capture sales from internet and mail order customers immediately — instead of hoping the customer actually does mail in a check to make a purchase.

But like all solutions, the ability to accept credit cards has its price. Besides the initial installation of software, Internet storefront (for online merchants) and equipment for bricks and mortar stores, there are the ongoing fees a business has to pay on every credit card transaction they process. These fees can vary by hundreds of dollars a month — or more – depending on sales volume and which merchant services provider the merchant chooses to provide their credit card processing services.

How Credit Card Processing Works, and Why Fees Vary

The credit card processing industry is complex, with several parties making money on each transaction your business processes. On a very simplified level, you pay two sets of fees:

An Interchange fee, which is the fee the credit card companies charge for each transaction. This fee is set by the credit card networks and split between the networks and the credit card issuing banks. It consists of a percentage of the transaction plus a per-transaction fee. The exact percentage of the transaction varies according to a wide range of specific criteria such as what type of credit card it is, what is being purchased, who issued the card, and many other factors.

An additional fee charged by your merchant service provider, which may be the merchant bank (the bank that provides the merchant account that allows you to accept credit cards) or an authorized independent sales organization (ISO) of the merchant bank. This fee is also a percentage of the transaction and may also include a per-transaction amount.

Small and midsized merchants are seldom told about the Interchange rate. Instead, they’re presented with a single base rate called the “discount rate,” which includes both the Interchange rate and whatever additional fee the merchant services provider charges for each transaction. Because the Interchange rates aren’t disclosed, the smaller merchant generally has no idea what percent of the “discount rate” goes to the merchant service provider. And that — the fee paid to the merchant service provider — is what accounts for the bulk of the differences when different merchants are charged different rates for otherwise identical transactions.

Qualified Confusion

Adding to the difficulty in determining exactly what’s getting paid to whom on each transaction, is the qualification system that’s used to categorize transactions and determine the underlying Interchange rate on each sale.

“There are over 125 interchange categories that each have different fees based on how card processed, what kind of card is being used, the nature of the merchant’s business, and other factors,” explains Henry Helgeson, CEO of Merchant Warehouse (http://www.merchantwarehouse.com) a merchant services provide located in Boston, MA.

What small to mid-size accounts don’t realize,” Helgeson says, “is that many merchant service providers condense these 125-plus categories into three tiers called Qualified, Mid-Qualified and Non-qualified. They average out the many Interchange rates in each tier, then add a margin.”

Under this kind of system, the averaged tier rate is often higher than the actual Interchange rate would be for an individual transaction. That’s something like putting a dollar bill into a vending machine to buy a $.75 piece of candy and not getting any change.

Sometimes that margin can be quite substantial, resulting in a “discount rate” to the merchant that’s double or more than double the Interchange rate. “The mid and nonqualified Interchange rates may only go up a few basis points on MasterCard, but may increase by 200 basis points on processor side,” explains Helgeson. “So, the merchant might be paying up to 3.5% and 35 cents per transaction.”

Size and Age Matters

The bigger the company and the higher the total dollar amount of transactions processed each month, the more room there is for negotiating fees. Businesses doing about $20,000 or more a month in transactions, should be able to negotiate something known as an Interchange Plus fee. Under this system you pay the actual Interchange rate for the classification of transaction, plus a flat additional fee.

Smaller businesses, and businesses new to processing credit cards, will usually have to settle for some sort of three-tiered pricing structure (qualified, mid-qualified and non-qualified rates), but that doesn’t mean you have to settle for sky-high discount rates. Talk to several merchant services providers and negotiate the best possible rates before making your final decision.

Service is Critically Important, Too

Avoid dealing with independent sales people who know little about the credit card processing industry or your industry. Instead, look for larger organizations that understand your industry and the credit card processing industry and that has the staff available to offer support when you need it.

“Ask questions — and use common sense,” says Helgeson. “Call the contact a couple of times and see if your call gets answered immediately or if you get voice mail. If it’s 5 pm and you have a queue of cars waiting to exit and your terminal goes down, you don’t want voice mail. You need someone to solve the problem right away.”

Avoid Leases for Low-Cost Equipment and Software

The equipment or software to process credit cards for small businesses can usually be purchased for as little as $100 to $400. But some salespeople will try to talk you into leasing the software or equipment. Don’t do it. The only one who benefits from this type of lease is the salesperson who gets a fee for selling you the lease. A lease on a $400 piece of equipment is usually noncancellable and can wind up adding $1,000 or more to the actual price of what you leased.

Read the Small Print

Carefully read all applications, forms and contracts mailed. Read all of the small print. Find out if you’ll have to pay any penalties if you want to change processors or stop accepting credit cards. Many merchant services providers include a penalty clause in their contracts that kicks in if you want out in less than two to three years. Be sure all fees listed in the contract are the same as what you were quoted. If there’s ever a dispute, the issue will be decided on the basis of the printed contract, not what you say the salesman told you on the telephone.

Check to see under what conditions the company can terminate your account, and, whether there are monthly minimums or maximums.

Janet Attard is the founder and owner of BusinessKnowHow.com, a small business website that provides practical advice, tools and resources for starting, running, marketing and managing small businesses.

Internet merchant accounts are a type of bank account for online business owners that have the sole express purpose of receiving credit card payments from credit card companies. They hold these payments for a brief period, usually less than a day, before being transferred to a regular bank account chosen by you, the business owner. Internet merchant accounts work together with your payment gateway or online card processor to handle credit card payments automatically.
To better understand, the process of funds transfer from a consumer’s credit card account to an internet merchant account, a few terms first need defining.

What is a Payment Gateway?
A payment gateway is the online credit card processor, which does exactly what it sounds like: it provides a path between the consumer’s credit card account and the online business owner’s internet merchant account. Specifically, payment gateways take care of the verification of the consumer’s account information and the business owner’s request to transfer the payments. When you choose your shopping cart and the website host, they will offer you a variety of gateway choices. Based on these payment gateway choices, you can choose a compatible internet merchant account.

What is Funds Capture?
Funds capture describes the process by which a transaction deposit is made in your internet merchant account. Funds capture is a request for settlement or payment for a transaction; it does not actually put funds into your internet merchant account.

What is Settlement?
A settlement actually puts the funds from a funds capture into your internet merchant account. Settlement is the funds transfer from the consumer’s credit account into your internet merchant account. A refund settlement reverses the flow of funds from your internet merchant account to the credit account of the consumer.

How Does The Process Work?
The process by which money is transferred from the consumer’s credit account to your internet merchant account is relatively simple. It is not unlike the credit card payment process that happens with a brick and mortar establishment. Broken down into a step by step description, the payment process to your internet merchant account looks something like this:

1. The first step actually begins when you open your business, purchase your product, advertise your wares, and attract your first customer to your online shop. Through a secure web page on your site, your customer makes a purchase using your shopping cart and payment gateway, creating an order.
2. The order information including credit card information, shipping information, and product information is gathered and compiled through your web host/shopping cart, creating a form for the credit card processing company.
3. The payment gateway takes over, and the form is sent from your online store to your credit card processing company. The company double checks the information for completeness and accuracy, figures out which company owns the consumer’s credit card, and then sends a request for funds to cover the consumer’s purchase.
4. Now, the process is in the hands of the company that owns the consumer’s credit card. They validate the consumer’s card and account, verifying that there are enough funds to cover the payment request. If everything checks out, the credit card company sends word back to the credit card processing company that the funds, in fact, are available for transfer. If there’s a problem, the credit card company lets the credit card processing company know what the problem is.
5. The credit card processing company relates the information back to the web host and shopping cart program. The shopping program lets the consumer know whether or not to expect her order and also tells you, the business owner, whether or not to ship the goods.
6. The credit card processing company initiates the funds capture, the process by which the funds will be sent from the consumer’s account to your internet merchant account.
7. The settlement occurs when your internet merchant account receives the funds from the consumer’s credit card company. And voila! The transaction is complete.

Setting up an affiliate program with Clickbank has a variety of limitations.

The first of those is that commissions can be “poached” from your hard working affiliates.

The first rule of success when operating an affiliate program is to view your affiliates as real business partners; you both grow your businesses together.

The days of 5% commissions only if the customer buys then and there is unfair to affiliates and doesn’t lead to a long-lasting and profitable relationship.

Looking after the interests of your affiliates could be the smartest decision you’ll make all year.

Fortunately, one benefit of using Clickbank is that all visitors sent to your site by your affiliates have a 3 month window in which to buy, during which your affiliates will still get credit.

That is to say, if someone is sent to your site, then decides to think about it. And they then come back a few weeks later, after they’ve got paid, to buy your product, the affiliate that sent them to you the first time will still get their commission.

A further limitation of Clickbank along the same lines is that using Clickbank you don’t know who your affiliates are.

What happens when you decide to change the commission rate for a special “affiliate promotion” or when you bring out a new product that fits your affiliate’s business model perfectly?

One that they can make some easy money with because they’re perfectly placed?

The answer is simply that it’s too bad. You have to start again getting affiliates for your new product, and your current affiliates lose out because you’ve got a product that would be perfect for them to offer to their visitors.

Lastly, using Clickbank you can only send referrals to one page on your site. So what if you’ve got 10 products on your site? Or what about if you’ve got 10 different websites with a different product on each?

Again, too bad. You either need to send referrals to a “generic” page listing all the products you sell so they can click through to the specific product they’re interested in or set up a new $50 account for each product.

And that starts to get rather expensive!

In contrast, Clickbank does make running an affiliate program Childs play – they work out all the commissions and send out the checks to all your affiliates.

Mulling over this reality, and wondering if there was any way around it for one of our new websites I decided to do some research and came across a piece of software called easyClickGuard.

The software solves all the problems I’ve already mentioned to create a powerful and professional affiliate program very easily indeed.

It allows you to require all your affiliates to register with you before you provide them with their affiliate code. You can then, if you choose, receive an automatic email notification of every new affiliate with all their details.

You can sell unlimited numbers of products using just one Clickbank account and so save yourself a huge amount of money.

And using advanced link strategies, it becomes near on impossible for your affiliates to be robbed of their commissions. Great stuff, eh?!

The only requirement for the use of the software is that you have PHP access on your domain server. If you have a website currently, it’s easy to find out and luckily our webhost does offer it.

The software is programmed in PHP and contains a batch of scripts.

I have to admit to begin with that I was wondering if I’d over estimated my technical skills. I’m not a techie. I know HTML and can get by with Perl and JavaScript, so long as I can have a few books to hand, but I’d never touched a line of PHP in my life so was a bit apprehensive.

Heck, I thought, if the worst comes to the worst, the author of the software (Adrian Ling – who incidentally is a really nice and helpful guy) offers an installation service at a very reasonable $30 so what have I got to lose?

As it turns out I needn’t have worried. The software is very easy to set up – and I mean very easy – even for me – a nontechie.

Adrian provides you with 30 or so pages of instructions and guidelines which literally take you by the hand in a step-by-step fashion.

It literally says “open this up in Notepad, then find this line. Then just add your own email address. Next find this line, and enter your website address here.”

He even tells you how to upload it to your server and trouble-shoot the script incase of problems. He even provides points for coffee-breaks during the tutorial!

Despite all the different scripts provided you actually only need to modify one of them, save it, then uploads the whole lot to your server and you’re done.

Basically, if you have a website and have uploaded the pages to your server, I’d bet you can install this software.

Well I uploaded the software and hesitantly carried out the test Adrian suggests to ensure it’s all working perfectly.

With baited breath I typed in the website address, just waiting for the “parse error” or “script not found” message. And you know what? Not a sausage!

From initial purchase to downloading the software, to modifying it for my site then uploading and testing it took me a few minutes under an hour.

I was honestly expecting it to take a day or two (as it really has with some other pieces of software I’ve bought over the net) so I was very pleasantly surprised.

It’s the exact affiliate-management software I use to sell my own ebook known as Ebook Sales Assistant so you know I’m serious when I recommend it to you. You can even join my affiliate program there if you like to see it from the affiliate’s point of view.

Important Update: Adrian has recently updated this software and added a new feature I love so much you wouldn’t believe it. As part of it now your affiliates can log into their own password-protected “affiliate admin” section to see how much traffic they’ve sent you, how many bought and more. It’s an amazing tool!

As described in our article An Introduction to Merchant Accounts, there are two forms of ecommerce payment acceptance – the merchant account and the third party processor.

In order to operate with your own merchant account, you need your own merchant account license. Using a third party processor means you’re utilizing someone else’s in a legal and legitimate way.

Having the ability to charge people’s credit cards is a huge responsibility – after all you’ve heard all the scare stories of stolen and misused credit cards.

Whilst I believe that these stories are generally over-rated, and due to current legislation and technological security features, using your credit card online is as safe, if not safer, than using it offline, I have still experienced credit card fraud once myself in the past.

Someone stole my credit card details and managed to rack up $600 worth of adult site subscriptions before I received my bill and noticed the problem.

This was four years ago and despite using my credit card online almost every week, I have never experienced another problem.

These days, online merchant account gateways can check where about in the world a transaction is taking place from and compare it to the registered address of the card to reduce fraud.

Card security numbers are used extensively (they’re the last three digits on the signature strip of a Visa or Mastercard) which means even if someone has your credit card number and expiry date, it’s still difficult to make fraudulent purchases.

Furthermore, most online merchant accounts won’t divulge the customer’s credit card details to the website they’re buying from.

And then there’s always the chargeback – the process of your bank refusing to make a payment to a company because either your card was used fraudulently or your purchase wasn’t satisfactory – even after the charge has been made. It was in this way that I managed to get all my money back when my card was used fraudulently – all’s well that ends well.

But all this goes to illustrate my point that if you’re looking for a merchant account license – it’s a big responsibility – hence all the paperwork involved.

So don’t be fearful of a five or ten page application form. The merchant account providers are weighing up your business – trying to weed out those businesses they feel would be unsuitable for this kind of responsibility.

The good news is that in my opinion, with all the recent developments in fraud prevention, plus the competition in the market (and it is fierce – some providers are paying over $5 per visitor in the pay per click search engines!) means that it’s easier than ever to get a merchant account license.

The licenses are non-transferrable – you can’t gain one then sell it on as the process involves checks on your own business. Much like you couldn’t do a driving test then sell your license on to someone else.

And don’t forget, if you get refused, or simply don’t fancy all the paperwork – you can always use a third party processor – with whom you don’t require a merchant account license of your own.

By: Scott Burke

Is your business considered high risk? And can you still get a merchant account?

In credit card processing, there are many different reasons why a business may be considered high risk.

- First, it may be the actual business industry that has been tagged “high risk”, such as travel, multi-level marketing (MLM), e-commerce, aggregators or collection agencies.

- Second, the reason may simply be the business volume that places a business in the high risk category.

- And third, it may be a reflection of the business or the business owner’s credit history.

The question still arises: Can High Risk Merchants Obtain a Merchant Account?

The answer is YES. But you have to know where to go for the expert advice and guidance needed so you and your business are safe from excessive expenses often associated with high risk merchant accounts.

Working with an expert in high risk merchant accounts is critical to the success of obtaining the best merchant account solution for your business.

5 Points to Consider When Selecting the Best Merchant Account for Your High Risk Business:

- Your application needs to be handled by a high risk professional expert
- Your high risk merchant account processor should have experience with merchants in your business industry
- The high risk merchant account processor needs to have access to numerous credit sources – including more liberal banks and offshore options
- If your business does have to be taken offshore, your high risk experts need to work on getting the lowest rate available
- All rates should be disclosed prior to contract with the high risk credit card processing company

3 Insider Tips To Ensure Approval for a High Risk Business Merchant Account:

- Do you have a poor credit rating? Be honest about disclosing any past financial challenges. Acknowledging previous liens, bankruptcies, judgments, etc. will only improve your credibility and alleviate one more barrier.
- Be open to offshore options as sometimes they can offer your business the best merchant account solution.
- Shop around for a credit card processor that has expert knowledge in high risk merchant account approval – and don’t be afraid to ask questions. The more you educate yourself in the process, the more you will recognize a good high risk merchant account processor giving you intelligent, experienced answers to your questions.

Operating a high-risk business does not exclude you from being able to process credit cards. Like any business, you want to provide your customers with as many non-cash payment options as possible. It is statistically proven that accepting credit cards help generate revenues and stimulate impulse purchases.

Owning a high risk business doesn’t mean you won’t be able to open a merchant account. It does mean, however, that you may have to do a little more in setting one up that is right for your business. Do your “due diligence”, shop around and ask questions to find a credit card processing company that specializes in high risk and offshore merchant accounts and will offer their expertise to businesses who fall into the high risk category.

Managing your business finances is your responsibility. This applies to every aspect of the business and one often-overlooked area is the payment processing that your company pays for every month.

It is very common for a business to accept the first or second offer they receive when initially setting up your business’ merchant account. It is even more common for a business to stay with a company even though they could be saving money, often in the thousands of dollars a year, by occasionally shopping around or calling their provider to see if their rates can be lowered.

Setup right from the start:
Chances are that when you first registered your business you were barraged with a multitude of calls from merchant service providers offering you the ability to accept credit cards and other electronic payments. If you took one of these offers without investigating your other options, you are probably paying much more than you need to be for credit card processing. The best solution for any business, existing or startup, is to shop around for the best deal possible. The best place to start shopping is the internet. With so many payment processing providers in direct visible competition of each other, you are sure to find several good companies, and the best rates available.

Don’t lease Processing Equipment:
Purchase your processing equipment outright. Despite beliefs, processing equipment isn’t as expensive as many people think, and you will pay many times more for leasing than you will for purchasing. Many businesses have been sold very expensive equipment by the same companies that solicited to their businesses over the phone when they started up. Equipment costs from about $200 for a basic terminal up to $1000 for a high-end wireless terminal, with most common terminals falling into the $250 – $350 range. If you are offered a much higher price, then you are essentially being scammed. Look around on the internet for prices on the terminal you are being offered, you will probably find a better deal and a better company.

Find out if your rates can be lowered:
I don’t suggest to immediately go out and find a new merchant service company. It takes work on your part and on your provider’s part to setup your merchant account. Most of the time your provider will review your current rates and try their best to lower them if you request it. If they refuse to review your rates, you should find another provider. It is not always possible to get your rates lowered, but a company that will not even do a rate review, is doing bad business.

Be wary of too good to be true offers:
So many times, merchants are pulled away from their existing providers by rates that seem so much better that what they currently have. Later they find hidden and extra fees riddled throughout their merchant account contract. If the rate you are being offered is considerably lower than any others you have hear, or you are offered no transaction fees, you should be wary of the offer. Merchant account providers all have a very similar buy cost on merchant account fees. If one provider seems to be much lower than the others, then they are going to make the money up somewhere else. Why would a provider loose money to have your business using their services?

Know your business accountant:
It is very common for accountants to have personal relationships with payment processing companies, especially if the accountant manages multiple businesses. Often accountants are given bonuses for referring new merchants and for keeping their businesses with the merchant service company. Your business may be paying more because your accountant is getting a kickback from a merchant service provider.

Stay away from the bank:
Banks provide merchant services. Yes, this is true but all but a few very large banks sign their customers with a private merchant service provider. Banks that do not provide their own merchant services, mark up fees from a merchant service provider, so they can also make money on your business. You are basically paying extra for a middle person when you don’t have to be. Those banks that do provide their own merchant accounts have much higher fees and poor customer service when compared to merchant service providers. They also have much higher equipment prices and will almost always try and push or force equipment leases on their customers. Let your bank handle your checking account, but keep your merchant account separate.

If you are a retail business, get setup with signature and pin debit:
Signature debit is a relatively new system that gives a much lower processing fee to debit transactions verses credit transactions. A signature debit transaction is when a customer runs their check card like a credit card. Pin debit is where a customer enters their pin number into a pinpad to process the transaction. You will need a pinpad or credit card terminal with an internal pinpad to use pin debit, but you will eliminate your processing fee completely and have a flat rate transaction fee for every pin debit transaction. Studies have shown that about 50% of all plastic transaction are Pin or Signature debit. This means that you can save on 50% of your customer’s transactions. The price of a pinpad can be quickly paid for in the fees that you save using pin debit.

Fixed Rates:
Make sure when you sign up that your provider will not raise your rates. The only time that you should see a rate change is when Visa or MasterCard raises the processing interchange rate. This means that Visa or MasterCard raises the amount that they collect from each transaction. Your rate will go up proportionally because the entire industry has to pay this extra amount. No company anywhere is excluded from an interchange increase.

Bundled Rates:
Another very common pitfall is for a business to accept a bundled rate offer. These offers have a very low or zero transaction fee, and an increased processing percentage. If you have a history of processing and statements, a bundled rate ‘can’ save you money, but if you are a new business you will almost always pay more with a bundled rate. Bundled rates are based solely from your average ticket size. If you have a highly variable ticket size or you are a new business stay away from bundled rates.

Trust your own feelings:
If a company makes you feel uneasy or you feel like they aren’t being honest with you, you should trust your instinct. Shop around and investigate the company. There are hundreds of providers out there, so if a company brings up questions, find someone else.

by: Jim Conley II

Merchant concern about online credit card fraud and chargebacks is rising at a significant rate. According to the 2001 Online Fraud Report, conducted by Mindwave Research, it revealed that, “41% of merchants say the issue of online credit card fraud is ‘very serious’ to their business.” As e-commerce continues to flourish the number of instances of credit card fraud and chargebacks will continue to mount higher. It should go without saying that the need to take certain measures to reduce and virtually eliminate chargebacks and fraud is certainly paramount.

Chargeback, the word that Internet merchants fear. A chargeback is what it’s called when a transaction is reversed. In other words, rather than adding money to your account it is deducted. Chargebacks can occur for a wide variety of reasons, such as double-charging, credit card expiration, bank error and customer disputes. If you get too many chargebacks against you, there is a possibility that you will lose your merchant account. Once you’ve lost your merchant account you are placed on the Visa/MasterCard Terminated Merchant File (TMF/MATCH list) for several years which all Merchant Account Providers have access to, and if they find you on the list they won’t reissue a merchant account to you. If you are one of those merchants who have lost their merchant account, there is still hope. Bank Card Law specializes in helping companies who’ve lost their merchant account because of excessive chargebacks.

Here are some ways you can greatly reduce the instances of chargebacks and fraud, even potentially eliminate the risk altogether:

#10 If the customer is present examine the card carefully

One common sense method to fight chargebacks is to examine the customer’s card.  Look at the expiration date and the signature panel for good measure.  If the card does not have a signature you are free to check the customer’s ID.  You may also request that the customer signs the card and if the customer refuses, you may decline to accept the customer’s credit card.

#9 Verify CVC2 and CVV2 Verification Numbers

This tactic alone can not only reduce instances of chargebacks by 26%, according to Visa, but also reduce any pass-through fees that may be charged when a credit card order is conducted. On the back of MasterCard, most Visa and Discover credit cards is a 3-digit security code located right after your credit card number. Requiring customers to give the 3-digit code acts as an additional verification measure. American Express cards also have a similar security code that is located on the front of the card right above the cardholder’s account number and is usually 4-digits long. Most online payment processors support entering the security codes when processing credit card orders. Check with your payment gateway provider (i.e. Verisign, Authorize.Net, ECHO Inc., etc) for details.

#8 Use Address Verification System (AVS)

AVS checks to ensure the address entered on the order form matches the address to where the cardholder’s billing statements are mailed to. People ordering products and/or services using a stolen card number will never use the real cardholder’s billing address, so this is your chance to stop the order before it’s too late. AVS only works with orders conducted in the US. Failure to use AVS when processing credit card transactions will always result in paying higher credit card processing fees.

#7 Scrutinize orders from developing foreign countries

A large percentage of fraudulent Internet purchases are made from Indonesia, Russia, and other eastern block or developing countries. Accept orders from such countries at your own risk until a worldwide AVS system is developed.

#6 Let customers know what name will appear on statements

Many merchants who use 3rd Party Processing companies have run into problems because the company name that appears on cardholder’s monthly statements is usually the name of the 3rd party processing company and not the company name of the site the cardholder made their purchase from. This isn’t always the case, but in many cases it is. If you use a 3rd party processor, and even if you don’t, make sure the customer knows what name will appear on their credit card statement at the end of the month. This will help to reduce any confusion that might would otherwise occur.

#5 Handle suspicious orders accordingly

If an order seems suspicious the best way to handle the situation is to either call or e-mail the customer and attempt to verify that they placed the order. As a rule of thumb, if in doubt, check things out. It may be a good idea that if a customer makes an unusually large volume purchase from your site to follow-up with a verification call. This is where a system like VoiceStamps, previously mentioned above, can come in very handy.

#4 Watch out for orders using free e-mail addresses

Be wary of accepting orders from people who used a free e-mail address when ordering (i.e. Hotmail, Yahoo, etc.). Tracking people who used a free e-mail address is almost impossible, it’s much easier for them to get away then if they used their Internet Service Provider (ISP) or their own company web site e-mail address. To check whether an e-mail address is a freebie or not just take the part of the address after the “@” symbol, add “www” to the front of it and see what website it brings up (i.e. joe@yahoo.com = www.yahoo.com).

#3 Signatures on delivery

If your business delivers products use a carrier that requires a signature on delivery, and allows you to have a copy of the signature. Retain these for your records.

#2 Request fax copies of ID and credit card

You may want to request your customer to fax a copy of both sides of their credit card and driver’s license. This tactic usually works best in a B-to-B (business to business) sales environment. While this is not a defense under Visa or MasterCard rules, it is yet another way to deter fraud.

#1 Posting a warning message

Taking the time to post a warning message on your order page to those who may attempt to make a fraudulent order will greatly deter the number of instances of fraud. Be sure to mention that IP (Internet Protocol) addresses are being logged. IP addresses can come in handy when locating people about fraudulent orders.

Taking measures to deter and eliminate fraud and chargebacks from occurring are a necessity in order to operate a successful online business. Each day companies dedicated to risk management are developing solutions to provide merchants, like yourself, with extra protection because of the financial burdens chargebacks and fraud can bestow if ignored.

This article is to help Internet merchants to prevent credit card chargebacks. Many of these are common sense but they are often overlooked, and review never hurts.

Always use the AVS and CVV systems for online orders.
AVS is absolutely necessary, for online orders, and if available, CVV should always be used for online orders. These two methods combined greatly reduce the chance of a merchant accepting a fraudulent transaction.

Fully investigate any abnormally large orders or large orders requesting overnight shipping before shipping the product out.
Call the customer to verify their information. Don’t ship any product until you have spoken to the card holder, and verified their address and personal information.

If you see that a card had declined several times, verify the order by calling the purchaser before shipping any product.
Call the customer to verify their information. Don’t ship any product until you have spoken to the card holder, and verified their address and personal information.

Fully describe your refund and return policies on your website.
This may not prevent a chargeback, but it will help you fight a chargeback. With a clear refund and return policy on a website, it makes it hard for a customer to win a chargeback if they are going around your stated policies.

Provide accurate descriptions and images of your products on your website.
By providing accurate descriptions and images on your website, you can help prevent a chargeback due to a customer ordering the wrong product.

If your business name does not exactly match the name that appears on credit card transaction statements, make sure your customers are aware of this.
When a customer reads a credit card statement, if the name of a business does not sound familiar, then they may do a chargeback for an unauthorized charge. While, these charges are often won, it is still an inconvenience to the merchant, that can be avoided.

Be very cautious of any foreign orders, especially if originating from Nigeria, or Indonesia.
The majority of credit card fraud comes from these countries. While it is not a good practice to turn down orders, we don’t suggest accepting any order from these countries even if they call in for the order. A good policy is to accept only a money order, and then wait 9 – 10 days for the money order to clear the bank before sending out any product. Its not worth the risk.

Be cautious of any order with a foreign shipping address.
If it is a domestic order with a foreign shipping address, it is very likely to be a fraudulent transaction. We don’t suggest accepting any transaction that matches this type. Only ship to the card holders address, and investigate the order before shipping.

Only ship to the billing address, or verify the order if the shipping address is different for the billing address.
Most fraudulent transaction will have a different shipping address than the billing address. By only allowing shipping to the billing address, or verifying the order by calling the customer you can greatly reduce the chance of a processing a fraudulent transaction.

Do not process any order where a customer is willing to pay more for the item for no apparent reason, or for an expedited order process.
This is another very common sign of fraud. If the card is stolen, the buyer wants to get the product as fast as possible, and will pay more for the product or will pay more for expedited shipping. This will usually come in an offer such as “What if I pay you more for the product? Can you get it to me faster then?”. Or, the merchant offers to pay more than the advertised price. Why would anyone want to pay more than the listed price?

Internet Credit Card Fraud is on the rise, and online merchants have to protect themselves to avoid excessive charges due to chargeback’s and potentially being shut down. It takes a little extra effort on the merchant’s part, but in the end, the extra attention pays off.

One of the most common scams comes from foreign countries where a person will order with a stolen card, and have the products delivered to an American forwarding address. Once the products leave the country, there is little that a merchant can do to reclaim their lost goods. An unusually large order, or very uncommon products being ordered can usually classify these orders. Other signs are an incorrect billing address, or the customer wanting expedited shipping.

For any suspicious orders, we recommend calling the customer to verify their information, and possibly requiring a signature and copy of drivers license on the invoice. This can be easily accomplished through a fax machine, and while not the perfect solution, it will prevent the majority of fraudulent transactions. This is a small inconvenience to customers, but it is well worth the extra effort to prevent fraud. Many customers will be pleased that you are so adamant in preventing fraud, and will be happy to oblige. Security is your responsibility, and you are responsible for any fraudulent transaction that you process.