Merchant Account Buyer's Guide

With very little time investment you can come up to speed and make intelligent choices selecting the best Merchant Account solution for your business. This guide will help you save time, save money, and control your destiny in the world of credit and debit card processing.

Here are some of the things you will learn from this book:

  • Avoid those hidden surprise fees on your monthly statements.

  • Save weeks of valuable time searching for the best rates.

  • Estimate the total costs as a percent of your monthly sales.

  • Find a knowledgeable e-commerce sales specialist who you can trust.

  • Find safe & reliable providers for gateway and internet accounts.

  • Avoid the 10 Costliest Chargebacks.

  • Make sure your customers will be able to submit online orders to you with confidence.

  • Make sure orders are encrypted and screened for possible fraud.

  • Save time with recurring orders.

  • Avoid multi-year contract commitments.

  • Make sure you have an “out clause” in your agreement.

  • Learn how to get your Merchant Account started right away.

Table of Contents


About the Author

A Word about Our Joint Venture Partners



Frank Merchant Knows How to Get the Best Price

The Internet Marketplace


Part I:


Understanding Merchant Accounts

Benefits of Accepting Credit Cards

Disadvantages of Accepting Credit and Debit Cards

Who Are the Players? How Does the Money Get In Your Bank Account?

Credit Card Transactions Step By Step

Should I Go Visit My Banker For My Merchant Account?

How Can I Tell If I Will Get Good Customer Service?

Be On the Lookout for Deceptive Sales Practices

How to Avoid Your Money Being Held By Your Merchant Account Provider................................................................. 20

Banking Terms You Need To Know.................................... 22

Benefits of Debit as a Payment Option ........................... 24

What You Need To Know About Leasing a Credit Card Terminal................................................................................ 26

Fraud Protection 101........................................................... 29


Part II:


Four Key Components to Conduct Ecommerce Successfully

1.) Website............................................................................ 32

2.) Merchant Account.......................................................... 32

3.) Secure Payment Gateway / Payment Transaction Software .............................................................................. 32

4.) Shopping Cart and Catalog........................................... 32

Should I Use a Third Party Processor Like PayPal?........... 35


Part III:


Building a Risk Estimate Worksheet

Quick Summary of Costs..................................................... 36

Detailed Summary of Setup Fees, Recurring Fees, and Risk Estimate ................................................................................ 36

Total Risk Estimate............................................................... 38


Part IV:


About Cardservice International

How First Data Independent Sales, Services by Cardservice International Works – An Agency’s Perspective............... 41



Appendix A: Loss Prevention Tips ..................................... 43

Appendix B: Have You Ever Felt Betrayed By Your Credit Card Processing Company? ................................................ 44

Appendix C: Your Customer’s Credit Card Numbers at Risk ................................................................................................ 46

Appendix D: PayPal ............................................................. 47

Appendix E: Marketing 101: Gift and Loyalty Smart Card Technology ........................................................................... 49

Appendix F: Check Warranty and Check Acceptance Policies ................................................................................................ 51

Appendix G: How Can I Prevent Credit Card Fraud?........ 53

Appendix H: identity Theft ................................................. 55

Appendix I: Total Risk Estimate Worksheet ...................... 56

Appendix J: Sample Merchant Account Comparison Worksheet  ........................................................................... 58


Glossary................................................................................. 63


The purpose of this guide is to educate you about the issues involved in accepting credit cards, debit cards, and other non-cash forms of payment for your business. A quick read of this guide could save you thousands of dollars – and even tens of thousands – over the life of your current business and any future businesses you are involved with.

About the Author

You most likely don’t know me yet, but I own an Independent Agency for Cardservice International, Inc. doing business as First Data Independent Sales (FDIS). FDIS is known as a credit card processing company among other things. In fact Cardservice International was the largest privately owned “non-cash transaction processing company” in the US until bought out by First Data Corporation (a public company) in 2002. Independent Agencies are the selling arm of FDIS while FDIS corporate does the day to day servicing for our clients. I bought and opened an Agency for Cardservice International in 1998. Since then, through a lot of hard work and help from excellent employees that I was lucky enough to find, our Agency has grown to being one of the largest FDIS Agencies in the US. I knew very little about the Merchant Account world when I started back in 1998. I did have a small business at that time with a Merchant Account that accepted credit cards. Believe me when I say that I wish I could have read a guide like this back then. I would have saved time, money, and considerable headaches.


I hope you will consider using my Agency for your non-cash and credit card processing needs but the purpose of the Merchant Account Buyer’s Guide is to educate you to the advantages and pitfalls of accepting credit and debit cards properly – whether you use my Agency or not. You see, about once a week I get a call from a competing credit card processing company trying to recruit me and my Agency to leave FDIS and come with them. The Merchant Account business is very competitive and people flip around with signing bonuses, offers of better buy rates, and claims of better service all the time. Anyway, they all tell me that I will make more money and they have better service. I still choose to offer First Data Independent Sales products and services. I’ve concluded that FDIS is as good as any competitor – and better then most – balancing price with service. I sincerely hope you will also.



Jack Kimball


PS Cardservice International, Inc. has kindly provided a few articles for this guide, which are designated as ©2002 Cardservice International, Inc. With this exception, the advice, concepts, and ideas are represented by me personally, as an independent Agency Owner, and not Cardservice International, Inc. (FDIS)


A Word About Our Joint Venture Partners


You may have received this Guide through a Joint Venture Partner. Joint Venture Partners promote this Guide in return for a referral share of the ongoing percentage fees that are generated to this Agency directly by their endorsement and promotion of this Guide. I can only pay them if I know that the business they generate was through their efforts. I value these Joint Venture Partners and you should also because it is through their efforts that you may have received this Guide. Yes, they are getting ongoing referral fees that come from my Agency from business they generate. However, there are two reasons you should work though the Joint Venture Partner who introduced you to this Guide. The first is that I know it is very important to protect our Joint Venture Partners and not offer any benefit to a Merchant who is trying to “go direct” – so we don’t. The second reason is more important. I really believe you should treat others like you want to be treated. Should you want to be a Joint Venture Partner or not – and I encourage you to find out more about qualifying for this opportunity – you still would not want business owners trying to go around you – would you?


So should you desire more information on how our Agency can help you with your Merchant Account and non-cash transaction processing needs, please work through the Joint Venture Partner who introduced you to this Guide. Should you be interested in the Joint Venture opportunity, let the Joint Venture Partner know so I can give credit where credit is due.


Thank you.





Frank Merchant knows how to get the best price…

Frank Merchant owns a business called “Widgets Are Us”. It’s his life work. One day, a Credit Card Processing Salesperson enters Frank’s store. Joe Salesman declares that he can get Frank the cheapest rates and fees in town for Frank’s credit card processing. Joe explains that it really doesn’t matter what “Merchant Account Provider” Frank goes with because they all are pretty much the same. “As long as you shop around and get the best rate you are in great shape.” Joe explained that any company that quoted higher than Joe was a rip off. Frank Merchant was skeptical though. Later he made a few calls and got some rates over the phone and found out that Joe did have the best deal on both rates and the monthly payment on the terminal Joe was recommending. No one he talked to was able to really explain why they were higher so Frank, who is always looking for the best price, called Joe back and signed the paperwork. Joe Salesman went to work setting him up.


Joe brought out a terminal and printer that Frank knew was a really good deal based on Joe’s quote. The terminal looked “refurbished” but Joe explained that all the terminals today are refurbished but it was still state of the art. Each day Frank “batched out” his terminal to get the money sent to his bank account. He checked with his bank and the money for each batch of credit card sales were taking about three days to hit his account. Frank called Joe about this delay. Joe told him that the 24 hours he promised was dependent on his bank depositing the money. Joe suggested that Frank consider another bank. Frank liked his current bank though and decided to live with the late deposits.

Frank received his Merchant Account Statement at the end of the month. The first thing he noticed was that the statement reminded him of a telephone company service bill. He couldn’t understand it. The rate was on the statement that Joe quoted him – but when he divided the total amount taken from his bank account into his sales for the month the percentage was higher. Much higher.


Not only that, the statement had a lot of terms and fees that Frank had never heard of before. What’s this “Representment Fee” of $15.00? “Monthly Paper Reporting” of $10.00? “Deposit Fees” looked like 15 cents per day? And what’s this “MC Dues and Assessments”? And what about something called a “Non-Qual” of an extra 2.25% on some transactions? Frank was confused so he called Joe.


Joe told him he wasn’t much good at math and Frank should call customer service. Frank called the non-toll free number and got someone on the phone after being on hold for twenty minutes. The person Frank talked to told him they didn’t understand the terms either. Frank asked to speak with a Supervisor. The person told him that they were a supervisor. Frank asked about closing his account. The person told him this was fine but he had a two year commitment because of the contract he had signed.

Frank decided to just live with it. About a month later he got a call from Customer Service. They explained that the terminal he was using was not in compliance with MasterCard Visa’s “truncation regulations”. They explained that he would need a new terminal that met the regulation. Frank asked to speak with Joe Salesperson but Customer Service explained that Joe was no longer with them. They heard Joe was selling mortgage loans.

Frank called the equipment leasing company that Joe had set him up with to lease the terminal. They told him that the lease was non-cancelable unless Frank wanted to pay it off by paying the aggregate of the 42 monthly payments remaining and the “fair market value”. Frank explained that he thought this was a lot of money for a refurbished terminal that was not in compliance with MasterCard. The leasing company told Frank that Joe and now Frank were being investigated for fraud because the terminal is not supposed to be refurbished and it wasn’t in compliance.

About a month later a new salesperson entered Frank’s store. Sallie InternetSpecialist explained to Frank that he was losing a lot of sales by not selling his widgets on the internet. Frank already had a website that generated some calls but Frank wanted customers to order right on his site.

Frank was skeptical about Sallie’s pricing so being a little bit computer-savvy Frank got on the internet and shopped around. It looked like twenty thousand, five hundred, and sixty-two companies did the same thing as Sallie. Most of them not only looked pretty good but were much cheaper than Sallie. So Frank, who is always looking for a great deal, called a few. None of the salespeople he talked to could really explain why they were any better than any of the others so Frank went with the cheapest. Frank liked the Salesperson, Bill, because he explained that their pricing was less than their cost but they made it up in “volume”.


Bill explained that Frank needed a separate Merchant Account from his storefront business. Frank signed all new documents.


Frank’s web designer helped set up a “shopping cart and catalog” and the Merchant Account Provider ( turns out that Bill was a “re-seller”) made sure the information was given to the web designer to set the web site up to accept credit cards. There were some major headaches though. It turned out that the Technical Service Provider actually was a different company than the Merchant Account Provider. Frank’s web designer explained to Frank that the “technical support software provider” was blaming the “Merchant Account Provider” and vice versa. It seems the “ETC Type” got messed up on the Merchant Account Application. There would be extra labor fees from the web designer to figure this out – but no problem.


Two days later Frank got excited. He was getting orders from his internet store! In fact the first week Frank’s sales were about $5,000.00. Frank knew though that a good number of those orders he had “keyed” in because they had stacked up prior to going live due to the delays.


A week later Frank got a call from his banker that Frank’s business checks were bouncing. Frank asked about the $5,000.00 in deposits from his internet orders. The banker knew nothing about it so Frank called non-toll free the Merchant Account Provider Customer Service. After forty-two minutes on hold he was transferred to the “Fraud Department”. Fraud explained that the money was being held up. It seems Frank’s orders were higher than his approved limit. Not only that, but Fraud needed to call Frank’s customers to make sure they had placed the orders. No commitments were made on when the money would be released to Frank.


Just as Frank was getting off the phone a customer called. George BigVolumeAccount was a customer and friend of Franks for a long time. George explained to Frank that he was getting unknown charges on his credit card that he used to buy from Frank online. George was mad. George had checked into it and found out that the Internet

Merchant Account Provider that Frank had used did not even issue a real Merchant Account. They were some kind of “third party”. Worse yet, George had found out that a “hacker” had broken into the computer servers at the company and stolen all the credit card numbers on file. That’s how George’s credit card got into the wrong hands. George asked Frank how he decided on what Merchant Account Provider to use anyway. Frank explained that they all sounded the same so he just chose the cheapest one.


Now YOU don’t have to make a decision about a Merchant Account Provider based on price alone. The Merchant Account Buyer’s Guide is meant to bring you up to speed quickly on all of the issues involved so you can make the best choice.


Please provide feedback though the contact source provided in the Guide. This source could possibly be through the Joint Venture Partner who made the guide available to you – (See “A Word about Our Partners”). I have tried to condense the most important information about Merchant Accounts. If I am wrong about something, off base, too self serving, or totally nuts let me know. Your feedback is appreciated more then you know.

The Internet Marketplace


A good part of this publication is certainly applicable for the business owner who has a storefront and accepts credit and debit cards in a “card present” environment with a credit card terminal or Point of Sale (POS) system. This guide is also applicable for those merchants who are Mail Order/ Telephone Order (MOTO) types of businesses. Almost without exception; however, any business owner should be accepting non-cash forms of payment over an internet website even if they are currently in a storefront location. Because of this, I have also attempted to address many of the questions and concerns related to Internet Merchant Accounts.


Despite all the bad press in recent year with the companies, e-commerce sales for the retail industry boomed in Q2 2002. According to a new eMarketer report, the number of internet users worldwide will rise from 445.9 million in 2001 to 709.1 million in 2004.

The Commerce Department said total U.S. online retail sales for 2001 reached $32.6 billion, an increase of 19.3% from 2000. This number is expected to exceed $150 billion by 2004.


More than $700 million in online sales were lost to fraud in 2001, representing 1.14 percent of total annual online sales of $61.8 billion, according to a recent GartnerG2 research report. Online fraud losses for 2001 were 19 times as high, dollar for dollar, as fraud losses resulting from offline sales.


Today, we know a great deal more about what the Internet can and can’t do, what creates an acceptable return on investment, and what customers are looking for. It is not a magic road to riches. It is a marketplace to do business. As the economy continues to be challenged, I believe successful companies will expand their marketplace by intelligent and effective use of Internet technologies.


Smart business people are always looking for ways to increase sales, introduce new profit centers, reduce costs, and create market awareness. The Internet medium is by far the easiest and most economical vehicle to achieve those goals if you understand how to use it and have the right e-commerce partners.


Perhaps the best reason for accepting non-cash forms of payment including electronic checks over the internet is giving you more time to do what you do best. If you are spending significant time each month processing paper checks as example, this is taking away from your valuable sales or production time. Every day you spend processing small checks is an opportunity cost that reduces your sales or production. If you are like most small business owners, you are having more fun in sales or production, not in accounting. There comes a time for every small or medium size business owner to say “enough is enough”. While starting a Merchant Account does cost you some time & money up front, the long term increase in sales & production may be what you need to launch your business to the next level – and have some more fun.

Understanding Merchant Accounts


What are the advantages (and disadvantages) of accepting credit cards for your business?

Today there are hundreds of thousands of small & medium size businesses in this country who take orders via credit cards. In addition, every day in this country, there are hundreds of companies entering the world of e-commerce. They come from many industries including retail, internet, mail order, home based businesses, B2B, professional services, wholesale and mobile businesses. In many cases they are “taking the plunge” to accept credit and debit cards for the first time. Some are successful and some are not. As with any other business venture, the companies that do their homework typically have a better chance at being successful. To help you start your homework, let’s look at the advantages of accepting credit cards for your business.


6 Benefits of Accepting Credit Cards


  1. Convenience – You probably already know that accepting alternative forms of payment like credit and debit cards helps make it more convenient for people to pay you. This will increase your sales and profits. Some studies say by 30 -100% or more (Visa International).

  2. Increases Your Credibility – Did you also know that advertising your acceptance of credit and debit cards increases your credibility? It’s true. The public knows that a Merchant Account status is not always easy to get and will look at you as more of a solid company - here to stay. “Hmmm ... doesn’t accept credit cards? Is there some kind of credit problem I should know about this company?”

  3. Increases Your Average Sales Order – Were you aware that your AVERAGE SALE AMOUNT GOES UP when you accept credit cards? Studies prove (and I am sure it’s true of most of us) that when we are ready to make a purchase and we are paying with a credit card we are more inclined to purchase the “upgrade” product or service. Human nature seems to cause most of us to be inclined to purchase the “better model or service upgrade” when we can finance the purchase with a credit card.

  4. Impulse Purchases Go Up – Did you also know that your willingness to accept credit cards also causes impulse purchases to go up? Customers are more likely to purchase when they can use a credit card versus paying with cash or a check. For some reason human nature – especially in the US – causes us to think paying on credit is easier.

  5. Increases Cash Sales – I bet you didn’t know that the mere presence of credit card logos at your business location increases CASH sales. A fascinating study was explained in the book Influence by Robert Cialdini. This scientific experiment documented that the mere presence of Master Card/ Visa logos will increase cash sales by as much as 29% in controlled studies – even though credit cards were not used! If your business accepts cash, this is an extra bonus of accepting credit cards and advertising that you do.

  6. Cuts Back on Bad Checks and Collection Costs. – By accepting credit and debit cards through a reputable Merchant Account Provider, credit cards orders will be screened for fraudulent transactions. Some providers, like Cardservice International, will take extra steps on address verification, verifying the extra four digits on credit card, and blocking selected credit card numbers, internet protocols, names or addresses. These are extra safety measures you can take to find peace of mind that the orders you are receiving – particularly on the internet – are legitimate. When a customer is a “slow pay”, a common collection technique is to call the customer and suggest they give you their credit card information over the phone right then to clear up the default. Without this option you would typically have to wait to see if the customer sends you a check like they said they would.

Disadvantages of Accepting Credit and Debit Cards


Like anything else, the benefits of increasing sales and profits by accepting credit and debit cards do not come without some risks. Sure, one disadvantage is that you have to pay a percentage of the sales that are paid to you with a credit or debit card in rates and fees. You also have to wait from one to three days for your money to post to your checking account. You should be aware of other issues also.

  1. Chargeback Risk – The customer who paid you with a credit card has up to six months to dispute the charge. Should they not be happy with the product or service, they would typically call you and negotiate a resolution. Should you decide to give the customer a credit than you will typically pay your Merchant Account Provider the same rates and fees that you paid when you accepted the charge – even though the money is flowing OUT of your account. Worse yet, the customer may still be dissatisfied after calling you because you felt a credit was not justified. The customer may not call you at all. In any event, the customer has the right to dispute the charge and write a letter to the bank that issued them the credit card they paid you with. The bank will contact the Merchant Account Provider who will then contact you to “retrieve” the signed receipt or possibly other evidence of the sale. This is called a “retrieval request” and usually costs $10 or more. The Merchant Account Provider may “chargeback” the amount which also has a fee of $10 or more. Consumer Protection Law will usually side with the consumer and not you.

    Should the order be a Mail Order / Telephone Order (MOTO) or an Internet order than your defense is very weak because you may not have a signed receipt. Make sure your “Descriptor” includes your phone number. This is the name of your business which the customer sees on the credit card statement they get showing the charge. If your phone number is included the customer will have a greater likelihood of calling you first to resolve the dispute. This could save you both a Retrieval Request fee and a potential Chargeback fee.

  2. Your Money Can Be Held Back By the Merchant Account Provider – An ounce of prevention may be worth a ton of headaches. When you filled out your Merchant Account Application you were asked the type of business you have, the monthly volume of sales you anticipate, and the average order size you anticipate. The reason Merchant Account Providers run a credit report on you and are concerned about your business type and sales volume is because ultimately the Merchant Account Provider has to make good your chargebacks if you are not able to.

    Should you declare bankruptcy, not ship your product, provide your service inadequately or even be running fraudulent credit card orders the Merchant Account Provider could really be hurt. Because of this, a “Loss Prevention” department will watch your processing activities and has a good idea of the types of businesses that have greater risk to the Merchant Account Provider. A Merchant (or the sales rep) may describe the business differently than it really is in order to get the Merchant Account Application approved more quickly. Once the Merchant Account Provider finds this out, they may hold your funds until everything is straightened out.

    Spikes in your processing above your average daily approved sales volume estimate and much larger average order sizes than you were approved for will also concern the Merchant Account Provider. Trouble sometimes arises when a Merchant is stacking up credit card orders waiting for their Merchant Account to both be approved and setup properly. The Merchant finally goes live and keys in a bunch of orders the very first day. Alarm bells go off...

    The lesson learned is to make sure your business description, monthly volume estimate, and average order size (or average ticket), are all correct. If you have more than one business make sure you set up each business properly and separately. The expense to do this is not great compared to the risk. The right kind of credit card terminal, as example, permits multiple Merchant Accounts.

The Bottom Line

Make sure you keep your Merchant Account Provider informed. Are your sales seasonal – which could cause a spike? Did you make a large sale that you keyed into your terminal or software that is well above your estimate of average order size? Are you getting into another business all together? Save yourself some headaches and call first for advice from your Merchant Account Provider.

You also may want to look at the cost of NOT accepting credit and debit cards. Never mind all the hype about “My sales increased 500% because I started accepting credit cards” (although in some cases I have seen this to be true). DO think about the likelihood of getting even just a few “extra” orders for your product or service because you accept credit and debit cards. Based on your average order size, how much profit will you make on each of these “extra” orders. Add to that the savings on labor by possibly not having to send out invoices. What about the labor savings by converting to an electronic check service so you just enter the check information on the internet. Add to that using credit and debit cards as a collection technique for your slow pays. I know it sounds self serving because I am in the business but it is hard for me to imagine ANY business not choosing to offer as many payment methods as possible to their clients and customers. The question becomes one of choosing the best method of accepting credit and debit cards – not whether to accept debit and credit cards for your business or not.

What this guide is all about is giving you the education to make a decision on a Merchant Account Provider, a bank, or even a third party processor based on a cost benefit analysis and your service needs.

Who are the players? How does the money get in your bank account?

It’s really quite simple. The customer wants to make a purchase with a Merchant (M) who has entered an agreement with a Merchant Bank (MB) to accept credit cards. The Merchant Bank though actually contracts with an Acquiring Processor (AP) to route the transaction. The merchant’s service contact however is not with the Acquiring Processor directly or the Merchant Bank but the Merchant Service Provider (MSP) who really is an Independent Sales Organization (ISO). The ISO however does not want to be called an ISO and prefers to be called a Non-Cash Transaction Provider (NCTP). The NCTP also routes the transaction data to the Acquiring Processor and may or may not take the chargeback risk depending on what they have worked out with the ISO, the Acquiring Processor (AP) and the MSP (who can really be themselves) So... the M has a problem and calls the ISO who calls the MSP home office who checks with the AP. The AP calls the Issuing Bank (they get most of the money) who blames the ISO for the problem. The ISO blames the MP who blames the AP. It all, of course, ends up being YOUR fault. Simple, huh? There can be as many as six parties participating in every credit card transaction.


The Issuing Bank – The issuing bank extends a credit card account to a customer after verifying the applicant’s creditworthiness and “issues” the consumer a credit card (bankcard). The merchant’s payment will eventually come from this bank. The Issuing Bank who gave (issued) the consumer a credit card actually ends up with a good part of the discount fee that the Merchant pays for the privilege of accepting credit cards. See “Interchange Fee” in the Glossary. This is why we get calls during our dinner hour to sell us another consumer credit card.

The Consumer – The consumer makes the purchase by presenting their credit card at the Merchant location. They use a bankcard (credit card) from an issuing bank and provide this information to the Merchant by the Merchant swiping the card on a credit card terminal, or in the case of a phone / mail order by the Merchant keying the transaction.


The Merchant – The Merchant offers goods or services for sale. A Merchant needs both a Merchant Account (which means they have been approved for the chargeback risk) and a method of communicating the credit card information with a credit card terminal, PC based software, or internet based software. The days of taking batched credit card slips to your bank are essentially over.


The Merchant Bank – The merchant bank provides merchants with an online Merchant Account (to accept “card present” transactions with a terminal or “card not present” transactions). This bank may contract with an Acquiring Processor to move the credit card transaction through the payment process, or it may function in this capacity itself. The Merchant Bank and the Acquiring Processor may also contract with an Independent Sales Organization (ISO) to find the Merchant in exchange for a part of the processing fees.


ISO (Independent Service Organization) – An ISO is a firm or organization which solicits offers to process non-cash and credit card transactions, usually in exchange for transaction fees or a percentage of sales.


The Acquiring Processor – The Acquiring Processor routes the transaction through the electronic financial networks for processing and settlement, delivering the payment to the merchant’s online account once it has been obtained from the credit-card holder’s account with the issuing bank.


(For a complete listing of all the terms relevant to the Merchant Account Industry including internet terms go to the Glossary of this Guide.)

Credit Card Transactions Step By Step


You may be surprised at the number of steps involved – and at the critical role played by an Acquiring Processor such as First Data. Credit card sales that are processed through a terminal also complete the same process as described below for an internet transaction but the security issues are not as detailed.

  1. A consumer decides to buy something – On the internet the merchant’s commerce-enabled Web site prompts the customer for credit card information as well as “bill-to” and “shipping” addresses.

    (At the storefront location the Merchant simply swipes the credit card on the POS system magnetic stripe card reader or credit card terminal for an authorization that the funds are good.)

  2. On the internet the customer enters the information into a form secured by the SSL (Secure Sockets Layer) protocol – SSL encrypts the transaction data and sends the secured form over the Internet to the merchant. The form should appear on a webpage with HTTPS. The “S” means the page is secure. If there is no “S” in the HTTP, then the consumer should NOT enter any private information including credit card information. In addition, email is not a secure method of sending credit card information. If a form is being sent to the Merchant via email to obtain the credit card information then this is a huge red flag. Credit card information should also not be stored on the server of the Merchant as this opens the Merchant to both hackers and employee theft.

  3. Using the payment software incorporated into the merchant’s Web server, the encrypted transaction data is now sent to the acquiring processor, (i.e. First Data Merchant Services), for authorization – The merchant can send the data via an Internet gateway service, which will reformat the information so that it is compatible with the acquiring processor’s systems. Alternatively, in cases where the merchant has installed software on its Web server, which is compatible with and approved by the acquiring processor, the transaction data can be sent directly to the processor via a private dial or leased line. 

    (At the storefront location the POS system or credit card terminal communicates through a dial up phone line connection. More and more Merchants are moving to an internet connection.)

  4. Whether a storefront or over the internet, the acquiring processor then communicates the transaction data to the consumer’s (issuing) bank – The issuing bank now authorizes a certain amount of money and issues an authorization code, or declines the transaction. The authorization decreases the customer’s available credit, but does not yet put a charge on his bill or move the money to the Merchant. At this point, the Acquiring Processor will communicate with the Merchant’s Web site, which will notify the consumer that the purchase has been approved. 

    (At the storefront location the POS system or credit card terminal receives an approval code back from the Acquiring Processor that the funds are good.)

  5. Once the transaction has been authorized, the next step is a captureAfter authorization and prior to capture, the Merchant is still able to “void” a transaction without paying discount fees. The capture uses the information from the successful authorization to charge the authorized amount of money to the consumer’s credit card. In line with bank card (VISA®/MasterCard®) association rules, a merchant may not capture a transaction until the goods have been shipped. So there may be a lag time between authorization and capture.

  6. The last step in the process is to settle the transaction between the merchant and the acquiring processor – As captures and credits come in, the merchant accumulates them into a batch, which will then be settled as a group. When submitting a batch, the merchant’s payment-enabled Web server connects with the acquiring processor (i.e., First Data) to finalize the transactions. If the merchant is using an Internet gateway service, such as Cardservice International’s LinkPoint Secure Payment Gateway, it will decrypt the transaction and reformat it for the acquiring processor. When the acquiring processor receives the information and settles the batch, it sends payment instructions to the issuing and merchant banks, which will result in monies being transferred to the merchant’s bank account. (If the consumer should return the goods after the transaction has been captured, a “credit” should be generated which typically will have the same discount and transaction fees as the original captured transaction. This means the Merchant pays double for credits.)



When you start looking for a Merchant Account, many people get input from their local banker. However, you should be aware that there are over 45,000 banks in the US and less than 1% of them are able to actually process credit card transactions themselves. Most contract with a third party to do it. Then the bank becomes a middleman passing on additional cost to the merchant. Here are some more facts & figures you need to know about banks:


Banks decline more Merchant Account applications for credit card processing than Merchant Account Providers. In addition, the application process is usually much less intensive with a full service Merchant Account Provider.


Banks are in the banking business, Merchant Account Providers are in the credit and ATM/debit card processing business.


Banks outsource credit card processing and focus on lending and deposits.


Banks often have conservative pricing with higher transaction rates & fees because the Merchant Account business is an ancillary service. Merchant Account Providers have to offer competitive pricing because this is the only business they are in.


Banks are less likely to risk chargebacks and fraud. Because banks typically farm out their credit card business if there is any additional maintenance like administrative costs from chargebacks, you are in greater danger of losing your Merchant Account. Merchant Account Providers are much better prepared to take on risk through loss prevention and chargeback departments.

Should you be interested in accepting credit cards over the internet you will find there is a greater likelihood most bankers will have no idea about shopping cart rates, secure gateways, and internet credit card processing fees – particularly when something goes wrong. Due to the conservative nature of banks, they are many times unable to place high-risk merchants and/or start-up companies with merchant accounts. Full service Merchant Account Providers do this every day. Since this is their main business, they have the operations in place that cater to small & medium start-up companies who need Merchant Accounts, higher risk or not.


When you are entrusting the collection of your funds to other parties, you need to make sure you will be getting excellent service before and after the sale. You should be aware that many discount house Merchant Account Providers are hiring low salary or commission sales reps who know very little about banking or credit card processing. In many cases these inexperienced sales reps are not properly trained to understand your business. You should beware of fast talking sales reps that don’t take the time to learn about your business. Here are some of the things you can look for to rate the provider’s service before and after the sale.

Service Before the Sale


When shopping for your Merchant Account Provider, you want to find a sales rep who will be your advocate through the sales process and beyond. This means answering all your questions and advising you during the application process. You should expect a prompt, accurate and professional response to your questions within 24 hours. If the sales rep is not asking you questions to learn about your business, he is less likely to be your advocate during the application process (this is typical of discount houses with low salary sales reps). The application should be fully prepared by the sales rep and delivered to you quickly, by hand delivery, e-mail or fax. When you read the application there should be no surprises on start-up fees & recurring fees. After your application is submitted, the provider will do a background & credit check on your company. This could take a matter of hours or 1-2 days. During this time, you should be able to call for a status on your application approval. If you are not getting this type of service before the sale, this is not a good sign.

Service After the Sale

  • Chargebacks

  • Funds Not Transferred To Your Account

  • Orders Put on Hold by the Processor’s Bank

  • Gateway Server Down

In addition to helping you with roadblocks, here are eight other things you should look for to assure good service after the sale:

8 Key Indicators for Good Service After the Sale

  1. 24x7 tech support, toll free, multi lingual

  2. 100% Money Back Guarantee on upfront costs (if any)

  3. Members in Good Standing with the Better Business Bureau

  4. No High Pressure Sales Reps (not commission driven)

  5. Sale Rep takes the time to fully learn & understand your business

  6. Free lifetime software upgrades for fraud control

  7. Ability to call Sales Rep as your advocate if you are not satisfied with tech support

  8. New storefront and internet marketing Ideas.

It’s in your best interest to test the customer service response before you sign up with the Merchant Account Provider. Try calling tech support on a Saturday and see how quickly they respond. If you are not confident with their expertise and responsiveness before you sign up, you need to keep on shopping.


Be on the Lookout for Deceptive Sales Practices


“There is no such thing as a free lunch.” Remember hearing this phrase when you were growing up? While the internet has certainly changed the way we live and conduct our business, there are some rules of business that have not changed. One rule is to be cautious when the offer looks “too good to be true.” Another rule is that you should not engage with companies that use deceptive practices to win your business. Here are some of the practices you need to watch out for:


Start Your Own Merchant Account today for FREE!


As you gather information from Merchant Account Providers, you will likely find Providers luring you with “everything is free” type offers. If you call these Providers and start asking questions about what fees will appear on your monthly statements, you will quickly see that everything is NOT free. While starting a merchant account can be fairly quick & easy for you, the reliable Providers are expending significant resources to get you up and running. They must recover the costs for software engineering and hardware depreciation just like any other business. If they say start-up is free, they have to recover the costs elsewhere in higher discount rates and/or transaction fees. As an astute business owner you should know the old saying: “There is no such thing as a free lunch.” The same applies here.


Suspiciously Low Discount Rates & Fees

Be careful about entering into a Merchant Agreement with a company based on rates & fees alone. Some Providers offer a really low discount rate to start and begin bumping it up a few months after you have enrolled in the program. Others make it up in surprise fees – ouch! Sometimes calling tech support is like playing Russian Roulette – on first shift you get fully capable support, and second shift it’s total incompetence.


If the Provider’s rates & fees are significantly lower than the others you should ask for references. Make sure to read the back of the Merchant Agreement before you sign and see if they have expensive exit penalties. If the provider’s rates are really that low, why do they need an unfair exit penalty to retain customers? Did you know that every 0.1% difference in discount rate translates to only $1 per month for every $1,000 of orders processed? How much is reliable tech support worth to the success of your business? Again, ask for the customer service number and call it a few times to see how long you get put on hold. Ask if that really low discount rate is guaranteed in writing and if so, for how long.


Remember – many Merchant Account Providers and Third Party Processors will offer a “great deal” on discount rates and fees only to make it up later by raising your rates and fees a few months down the line. History proves these to be “bait and switch” tactics. Don’t take the bait.

Using Smoke & Mirrors on the Merchant Account Application

Have you noticed that some merchants are easier to get approved for a Merchant Accounts than others? Merchants who sell risk-sensitive products such as multilevel marketing, pyramid schemes, sexually oriented materials, military firearms, and pyrotechnic devices are harder to get approved – especially when they are not honest up front. If you are in this type of business you may have some trouble getting approval the proper way. Yet, you know there are companies online selling sexually oriented products while accepting Visa, MasterCard and American Express. How are they able to do this?


There are Merchant Account Providers who accommodate these types of businesses the right way and the wrong way. Remember that sales rep in the Introduction to this Guide that used different wording on the application to hide what the company really did in order to get the Merchant Account Application approved more quickly. It gets worse. While this may help the merchant get started in the short term, this could have devastating effects in the long term. As soon as there is a problem with a chargeback or cancelled order the processing bank will find out and your merchant account will be closed. Your funds will be frozen until the bank believes it is safe to release them. Also, you may end up on the Visa Certified Terminated Merchants File (CTMF) which means you may never be approved for another Merchant Account. If your funds are frozen, you could lose your business. While smoke and mirrors work well for magicians, your sales rep should not be using this type of magic on your merchant account application. If he is, find a new sales rep and a reputable company. Your approval process may take a little longer but your business will not be destroyed. The risk of a “too quick” approval is too high.

Published by:


Jack L. Kimball

207 Fayetteville Street

Raleigh, North Carolina 27601


(800) 634-7221

(919) 510-9488