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

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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.

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Using Smoke & Mirrors on the Merchant Account Application

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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.

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How to Avoid Your Money Being Held By Your Non-Cash Transaction Processing Company

or (“My Money For Credit Card Orders Never Reached My Bank Account!”)

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What happens when you process credit cards for approval and then find out later the money never reached your bank account? This can be a very frustrating experience and can be avoided with a little knowledge.

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Many business owners don’t realize that the credit card processing company is at considrable risk for credit card orders that are processed. Imagine this scenario...

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A fraudulent business owner (Mr. Crook) applies for a Merchant Account to accept credit cards and tells the salesperson that he sells “vitamins” over the phone, through the mail, or on the internet. The Salesperson is very happy because it is easy sale. Mr. Crook takes orders for about six months and he even sells the vitamins at his cost. This results in getting a lot of orders. After six months Mr. Crook “pretends” everyone who placed an order has re-ordered and keys in thousands of orders into his software or terminal; but Mr. Crook “forgets” to send the vitamins. People start calling Mr. Crook but Mr. Crook just tells them that the vitamins are on back order in order to buy some time to process more fake orders.

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The credit card processing company deposits all the money for credit card orders taken in Mr. Crook’s bank account 24 to 48 hours after each daily batch of orders. After Mr. Crook processes a few thousand orders over the next couple of weeks Mr. Crook empties his checking account and leaves town; never to be seen again (until he calls the next eager Merchant Services Sales Representative with another company...)

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So what happens? All the honest customers who paid Mr. Crook start calling Mr. Crook’s company only to find out the phone number has been disconnected. The next call most customers will make is to the bank that issued them the credit card that they used to place the order. The bank typically tells the customer that if they didn’t get the vitamins then they will get a credit on their next credit card statement. The Bank then contacts the credit card processing company that processed the order to alert the company of a “dispute”. The credit card processing company tries to contact Mr. Crook and gets the same disconnected phone number! Guess what? The Merchant Account Provider probably takes the hit and has to reimburse the thousands of customers who didn’t get their vitamins. This can be devastating to the credit card processing company.

 

This is just one scenario but the exact same thing can happen even if Mr. Crook is honest and simply mismanages his business and declares bankruptcy as example.

 

These situations and others result in credit card processing companies always being on the lookout for the next Mr. Crook. One of the ways they do this is by approving each Merchant with a monthly estimate of volume and an average order size or ticket (like a credit line) and assessing risk factors to the type of business, etc. It’s easier for Mr. Crook to get a Merchant Account with a lower monthly volume approved and a low average ticket approved but Mr. Crook will try for the highest monthly volume that he can get approved and the highest average order size that he can get approved.

 

The credit card processing company looks for “spikes” in processing volume or a series of one or more large orders that are much higher then the average order size approved. Large average order size businesses are particularly scrutinized. When these “spikes” occur the bank of computer monitors at the Merchant Account Provider alert the “Loss Prevention” department. Imagine, if you will, the overhead monitors in the movie “War Games” ;-).

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When a suspect transaction (or suspect transactions) occurs the credit card processing company will typically want to check it out. They will want to protect themselves by possibly not sending the money to the business owner’s bank account. Wouldn’t you do the same thing if Mr. Crook was YOUR last experience? They may want to call the customer to make sure the customer placed a legitimate order. You, the Merchant, may be looked at as guilty until proven innocent.

 

So how do you, the business owner, prevent this from happening?

 

Make sure you know what the monthly volume and average order size are that the credit card company has approved you for and stay within these limits on a prorate daily basis – particularly at first. Remember, the credit card processing company looks at this as sort of a credit line. Do NOT stack up a bunch of orders by accepting credit cards before you are approved for a Merchant Account and then key all the orders in the day you go live. This is exactly what Mr. Crook might do and you are asking for trouble. DO call the credit card processing company with large orders that are much higher then your average approved order size and tell them you would like to process the larger order. It probably helps if you have a signed invoice. DO let the credit card processing company know about increases in business do to your success, the season, or special promotions, etc. Keep the credit card processing company informed. Again, this is especially true early in your Merchant Account relationship.

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Make sure you are dealing with a competent Sales Representative who is properly advising you. That “cheap deal” may become very expensive later when you find out your account was incompetently set up. As a final caution, make sure you are doing business with a financially sound credit card processing company. Check them out. It’s YOUR money that the credit card processing company has their fingers on. This is far more important then ordering office supplies as example from the cheapest source. It doesn’t take very many botched orders or “lost money in the system” to make you quickly forget that “give away” up front pricing.

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Banking Terms You Need To Know

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Acquiring Processor – The processor provides credit card processing, billing, reporting and settlement and operational services to acquiring and issuing banks. Many financial institutions don’t do their own bankcard processing because it’s more cost-effective to let someone like First Data invest in the equipment and people and do it for them.

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Address Verification Service (AVS) – Since 1996 MasterCard / Visa has made available a fraud prevention measure available for taking credit card orders over the phone, mail, fax, or on the internet. The credit card processing company checks the billing address the customer tells you with the billing address on file with the bank that issued the card. If the addresses match, then the card is approved at your basic discount rate. If the addresses don’t match, then typically the card will still be approved but a code in your reporting will tell you that AVS was not a match.

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You should know what this rate is whether you are “keying” an order into a terminal, accepting an order over the phone, or receiving an order over the internet. Important: If your credit card terminal, PC based software, or Internet based software is NOT prompting your customers to give you their “billing address” then you may be paying what you think is a good rate but in fact all of your transactions are much higher because AVS is not even attempted.

 

Authorization – The act of ensuring that the cardholder has adequate funds available against their line of credit. A positive authorization (when an authorization code is generated) results in those funds being set aside. The cardholder’s available credit limit is reduced by the authorized amount. You are typically charged an authorization fee (transaction fee) even if you void the transaction before you batch out.

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Batch – The accumulation of captured transactions waiting to be settled. Multiple batches may be settled throughout the day. Make sure you know if your sales are automatically batched out at the end of the day or if you need to manually batch out. Do not find yourself waiting for your money to hit your bank account because you never batched out your terminal or software.

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Capture – Converting the authorization amount into a billable transaction record within a Batch. Transactions cannot be captured unless previously authorized, and authorizations cannot be captured until the goods or services have been shipped or transmitted to the consumer.

 

Cardholder – Any person who opens a credit card account and makes purchases using a credit card.

 

Credit Deposit – The value of a merchant’s credit card purchases that are credited to its bank account after the acquirer buys the merchant’s sales slips. The deposit is credited. It is not funded until the acquirer gets the monetary value from the issuer during settlement.

 

Discount Rate – The fee a merchant pays its acquiring bank/merchant bank for the privilege to deposit the value of each day’s credit purchases. The fee is usually a small percentage of the purchase value.

 

Interchange – The exchange of information, transaction data and money among banks. Interchange systems are managed by Visa and MasterCard associations and are very standardized so banks and merchants worldwide can use them.

 

Interchange Fee – A fee paid by the acquiring bank/merchant bank to the issuing bank. The fee compensates the issuer for the time after settlement with the acquiring bank/merchant bank and before it recoups the settlement value from the cardholder. Interchange fees are roughly 1.4% and ten cents per transaction for a typical swiped business and 1.8% and ten cents per transaction for a Mail Order / Telephone Order (MOTO or internet business. This is the money that for the most part goes to the bank that issued the credit card. You could say this is the Merchant Account Provider’s cost of sales.

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Issuer – The bank that extends credit to customers through bankcard accounts. The bank issues the credit card and receives the cardholder’s payment at the end of the billing period. Also call the issuing bank or the cardholder bank.

 

Merchant Bank – The bank that does business with merchants who accept credit cards. A merchant has an account with this bank and each day deposits the value of the day’s credit card sales. Acquiring Processors through the Merchant Account Provider buy (acquire) the merchant’s sales slips and credit the tickets’ value to the merchant’s account.

 

Settlement – As the sales transaction value moves from the merchant to the acquiring bank, to the issuer, each party buys and sells the sales ticket. Settlement is what occurs when the acquiring bank and the issuer exchange data or funds during that function.

 

Ticket – Another name for the sales slip or its monetary value that results when a credit card purchase is made.

 

Transaction – One example of transaction is the process that takes place when a cardholder makes a purchase with a credit card.

 

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

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Benefits of Debit as a Payment Option

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Q: The terms “PIN-based” and “signature-based” often come up in discussions about debit card acceptance. What do these expressions mean? And how do the payment options differ?

 

A: The terms refer to the two distinct ways in which debit payments are processed: online and offline. Online debit transactions call for customers to endorse payments by submitting their personal identification numbers (PINs) at the point of sale, while offline transactions require shoppers to sign sales receipts. The following information can help you understand more about PIN-based and signature based debit transactions, and how each payment option can benefit your business.

 

Online (PIN-based) Debit

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PIN-based debit transactions are fast, convenient and secure. In brick-and-mortar environments, shoppers initiate online debit payments by swiping their debit cards through magnetic card readers. The customers then key their secret codes into encryption devices called PIN pads. The transactions are authorized in real time, funds in the customers’ accounts are captured immediately, and money is transferred into store owners’ account s in two to three business days. Merchants pay a nominal transaction fee. And because the customers authorize their purchases with PINs, the risk to merchants of chargebacks is virtually nonexistent.

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To accept online debit payments, you must have a merchant account, debit processing service, a payment terminal, a receipt printer and a PIN pad. Many payment processing companies offer both credit and debit card services, but you must be approved for them separately. You can obtain a terminal and printer with an integrated PIN pad or purchase a discrete (free-standing) PIN entry

device and connect it to your payment system. Just remember that your customers must be able to access the device and enter their codes in private.

 

Practically speaking, this type of debit transaction is currently available in the physical world only, not the Internet. A number of financial institutions have introduced technology that may advance the development of PIN-based debit processing on the Web, such as digital certificates, smartcard solutions and compact disk-based systems. But no widely-accepted operating standards have yet been established.

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Offline (Signature-based) Debit

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Unlike online debit transactions, offline debit payments do not involve PINs. Offline debit cards (aka check cards) are typically issued by credit card companies through their participating banks. The cards may be used everywhere credit cards are accepted, including over the Internet.

 

In the physical world, customers who choose to make offline debit purchases must hand over their check cards. Merchants swipe the cards through their payment terminals and complete the debit sales the same way they process credit card transactions. The customers then sign sales drafts that authorize the merchants to charge their accounts. On the Web, customers enter check card information into browser-based forms, just as they would for credit card purchases. The data is encrypted, captured by transaction processors, and sent to the credit card processing networks for authorization. Transactions normally settle in two to three business days. Because check card transactions are processed through the same networks as credit cards, they often incur the same discount rates and transaction fees. If your business is already equipped to process credit card transactions (i.e., you have a merchant account, credit card processing service, and either a terminal and printer or payment-processing software), you should also be able to process offline debit payments.

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Why PIN Is In

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Both forms of debit acceptance let merchants offer payment flexibility to their customers, which in turn can capture impulse buying, generate higher-ticket purchases and improve customer loyalty. But PIN-based debit transactions offer added advantages, such as:

 

1.   The option to provide cash back to customers, which increases store traffic

2.   A fast way to move shoppers through the checkout line

3.   Virtual elimination of chargebacks and fraud

4.   Lower transaction costs

5.   Higher transaction approval rates

6.   Potential for additional revenue from surcharges

 

The benefits are clear. With minimal investment, brick-and- mortar merchants can use PIN-based debit transactions to help increase their sales and profits. Get yourself a PINPad if you are a storefront merchant and make sure your Merchant Account Provider has properly set you up to accept On-Line (Pin-Based) Debit cards. By recognizing a “check card” as a Debit Card you can convert say a 1.5% discount rated fee – or $1.50 your cost on a $100.00 purchase – to a $0.57 cent transaction fee. This is a savings of almost $1.00 per sale. It doesn’t take long to add up.

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How Debit Card Acceptance Can Help You

 

What does the distinction between signature-based and PIN-based debit mean to your business?

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If you’re an Internet merchant, check card acceptance can give you access to buyers who may not qualify for credit cards, such as teenagers. Plus, you receive funds from approved transactions quickly and securely. Perhaps most important, you can accept signature-based debit payments with relative ease because they’re processed much like credit card sales.

 

If you own a business in the physical world, you enjoy the flexibility to process signature-based debit payments as well as PIN-based transactions, which provide increased security and opportunities to generate additional revenue.

 

Contact a payment service provider with experience in debit processing to learn about the payment options that best suit your business – and discover how debit card acceptance can help improve your company’s bottom line.

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What You Need To Know About Leasing a Credit Card Terminal

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Are you thinking of leasing a credit card terminal/ printer, or credit card processing software? Here’s some of what you need to know to save money and protect yourself.

 

Do not jump to the conclusion that leasing is better then buying just because you do not have to come up with all the money for the purchase price of credit card equipment up front. Do not assume that leasing is a big rip-off either. The decision to lease or buy deserves greater thought then a snap decision and can save you considerable money. Leasing companies will typically require at minimum the first month’s lease payment instead of an outright purchase. As example, you could be choosing between paying $695.00 up front for a terminal/software or making a first month’s lease payment of $39.95. The lease payments however might last 36 to 48 months resulting in an effective interest rate of greater then 20% per year borrowing cost. Be aware that leases don’t have interest rates but “factors”. Convert your payment stream obligation to an annual interest rate.

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In my opinion, this is a clear financial decision. Try to keep your emotions out of it. Although the effective interest rate is high on the lease remember that the leasing company is taking the risk of the default and you are joining a pool of lessees who are typically higher risk. Remember, most business owners will lease when money is tight and this increases the risk of default to the leasing companies. That said, here are some things to think about in the decision making process.

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Try to purchase the equipment or software outright if you have readily available funds or if you have plenty of credit available – you can even use credit on a credit card if necessary. The effective percentage rate of the lease usually exceeds twenty percent annual interest. This is expensive. If you have the money, or even can borrow the money, then buying up front could also give you the power of possibly negotiating the purchase price of the equipment or software.

 

However, if money is tight, or your ability to borrow the sum necessary to purchase the equipment or software outright is limited, then leasing may make the most sense. Using the above example, and again assuming money is tight, by purchasing you are tying up $695.00 which could be used to invest in your business.

 

Investing an extra $695.00 made available by leasing your credit card equipment or software rather then purchasing can return far greater than a 20% annual return. For example, let’s say you invest $695.00 in a better website than you could afford without the $695.00 and this results in getting an extra $210.00 PER YEAR in profit. Well, you are making the right decision because the $210.00 per year is giving you a better than 30% annual return on your investment – which is greater then the 20% annual cost of the lease.

 

The decision to borrow money at 20% annual interest and re-invest it at 30% annual interest makes sense all day long don’t you think? Run your own numbers on your business. Be very conservative on the annual return you will get from what you choose to spend the $695.00 on. I think you will find that if money is tight it is very easy to find an investment for your $695.00 that more then offsets the annual interest expense of leasing.

 

In addition, if you are leasing equipment or software to provide your business with the ability to accept credit and debit cards then the decision becomes fairly easy either way. Run the numbers on an up front investment of $695.00 OR a lease. Factor in the additional profit from just a few extra sales each month that you would not have unless you accepted credit cards. Be very conservative in your estimates. Subtract your monthly investment to accept credit cards from the extra profit. In most cases the net profit after accounting for the upfront investment and the ongoing monthly investment even with a lease payment clearly provides a greater return on investment whether you purchase OR lease.

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There are two other advantages to leasing to be aware of and that may factor in your decision-making process. Your accountant will probably tell you that the lease payment is 100% deductible for the full amount of the payments you made that year which will lower your tax liability. On the other hand, when you purchase outright you may not be able to deduct the entire amount of the purchase that year. This is true because even though you paid for the equipment or software up front the investment may be “depreciated” over some years.

 

Even though the lease is a financing tool you may not have to list the lease as a liability for your remaining payments. This is an advantage to check on with your accountant but if you purchase the equipment or software outright with a credit card, the liability for the remaining balance due will show up on your financial statement as a liability. If you lease then your income statement will simply have a lease payment expense with not necessarily a liability on your balance sheet. Leasing typically will not use up your available credit lines. Banks; however, will sometimes ask about lease liability also.

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Conclusion on Leasing

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Purchase your terminal/printer or software outright if you can possibly afford it. You are usually better off to negotiate price and pay for the terminal with a credit card if you have to – than entering into a long term lease. Try to negotiate the price. A great technique is to negotiate with your salesperson for a very short financing period. $695.00 divided over four months is $173.75 per month. $39.95 over 48 months is $1,917.60. You get the idea. If you still need to lease than know the answers to the below questions before you decide on the best leasing source.

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1.   What is my lease payment? Try to negotiate a lower payment. Even a $5.00 per month difference can add up over 48 months.

 

2.   How many months do I have payments? A terminal lease may be $39.95 per month for 48 months as example. Try to negotiate a lower term – like 36 months. Ask the salesperson to calculate their funding on a 48 month lease versus a 36 month lease. The salesperson may be surprised to learn that the funding to them is nearly the same – so they won’t care too much about lowering the term.

 

3.   What do I have to pay in addition to the lease payment such as monthly sales tax or “Loss and Destruction Insurance”? Sales tax is usually added depending on your state. Avoid “Loss and Destruction Insurance” if at all possible by having your insurance agent provide a “rider” for the equipment leasing company making them the loss beneficiary of the terminal. If you don’t do this right away, remember to do it when you get business insurance that can provide a “rider”.

 

4.   Is the lease cancellable? Leasing companies have been in the game for a long time and don’t like to cancel leases. Your best bet is to possibly find someone to take your terminal for the remainder of the payments. If your salesperson is paid solely in upfront commissions they usually won’t help you.

 

5.   Are there penalties to cancel? The leasing company wants the lease to continue through the term.

 

6.   What happens if I default on the payments? The leasing company WILL go after you.

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7.   What happens at the end of the lease? Usually the lease is not “lease to own” but will require you to pay the “fair market value” at the end of the lease. If your lease is 48 months as example this fair market buyout would typically be 10% of the aggregate of the payments over the 48 months. (48 times $39.95) times 10%) = $159.60.

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8.   What happens if I want to pay the lease off early? Again, the leasing company will charge you the “aggregate” of the remaining payments plus typically “fair market value”.

 

9.   What happens if I want to sell my terminal/ printer or software for any reason including selling my business? There is not much of an after market for the resale of terminals. In the event of a sale of your business, the new business owner can pick up the lease payments with the permission of the leasing company – but you remain on as guarantor in case of default.

 

10. What are the hidden fees to look out for? Sales tax, loss and destruction insurance, and the payoff at the end of the lease of “Fair Market Value”

 

11. What is the difference between leasing and renting? Renting can be a good option depending on your cancellation rights. Be careful about long term rental agreements.

 

12. Can I rent a terminal/printer or software? Yes, but they are harder to find.

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Fraud Protection 101

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The Internet age and fast, new methods of communication have caused credit card fraud to rise. Make sure your Merchant Account Provider is keeping you up to date with the latest developments in credit card technology and information. Awareness of steps you can take to reduce fraud for your business can save you considerable money.

 

The advent of secure online payment gateways and new encryption technology will make credit card fraud increasingly difficult. Yet despite efforts to protect merchants, we still need your cooperation to combat fraudulent transactions. Teamwork between merchants and credit card processors is required if we are to stay one step ahead of the criminals.

 

Waging War on Fraud

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Make sure your Merchant Account Provider has a first line of defense against losses due to fraudulent or unauthorized transaction processing. A Loss Prevention staff should monitor daily merchant processing activity and investigate potential financial crimes – on the fly while it is happening.

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Make sure your Merchant Account Provider enables you to use Address Verification Service (AVS) to merchants, giving you the ability to verify a cardholder’s street number and zip code before shipping the customer’s merchandise.

 

Stopping Chargeback in Their Tracks

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Occasionally, merchants are approached by criminals pretending to be legitimate cardholders. If everything about a purchase appears too good to be true, it probably isn’t true. Before shipping a customer’s merchandise, merchants should always attempt to verify the cardholder’s information by using the fraud-prevention services/features available to them. Tools such as AVS help verify street numbers, and contacting the cardholder and/or the cardholder’s bank can also minimize chargebacks. The customer service number for the cardholder’s bank is printed on the back of his or her credit card, and the bank should be able to verify a billing address and the cardholder’s name. If the two don’t match, you should discuss the matter with the customer and resolve the issue before shipping him or her any products. Using common sense and obtaining a little extra information from the customer can go a long way toward reducing chargebacks and protecting your business.

 

The Dangers of Factoring

 

“Factoring” means letting someone use your merchant account (and/or point-of-sale device) to process transactions for his or her business. Merchants run the risk of losing their Merchant Account when they agree to factor for another party. This type of transaction processing violates Visa and MasterCard guidelines. The greatest problem with factoring is that cardholders may not recognize the charges on their billing statements and, although you have no control over what services are being provided, you will be liable for any chargebacks. Remember: It’s your merchant account, and you are liable for all sales that are processed. Factoring is a risk merchants should not take.

 

Common AVS Response Codes

 

An Address Verification Service (AVS) confirms numerical address information with the cardholder’s bank and works only with domestic (United States) credit cards. If, for example, the cardholder lives at 123 Oak Street, you would enter 123 into the system, then input the customer’s five-digit ZIP code. After completing the AVS and sales process, you will be given an authorization code and an AVS response. Some AVS response codes are:

• A – the system recognizes the cardholder’s street number, but not the ZIP code.

• Z – the system recognizes the cardholder’s ZIP code, but not the street number.

• Y(yes) – the cardholder’s street number and ZIP code match.

• N (no) – the cardholder’s street number and ZIP code do not match.

 

If you receive an “N” response, understand that the transaction was authorized, but none of the billing data matched the bank information. If this occurs, you must use your discretion whether or not to ship the merchandise to the cardholder. You may elect to call the cardholder or even the cardholder’s bank. Common sense is your best resource at this point. Ask yourself the following questions: Is this a new customer? Do the reasons given by the cardholder seem feasible, and do you believe them?

 

Credit Card Security Features

 

Here are some of the most important security features found on credit cards:

 

• The hologram on the credit card changes color in the light.

• The image of the hologram is visible in a larger scale under fluorescent (black) light.

• The signature line resists erasure and protects the cardholder’s signature.

• The magnetic stripe transmits special coded information that is recognized by your bank only, making duplication of the stripe nearly impossible.

• The embossed credit card number on the front and back of the card should match.

• The card number on the terminal ticket should match the terminal ticket should match the number on the credit card.

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State of the Art Security Features

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CVV2 is a fairly new verification method to be aware of designed to minimize Internet and mail-order fraud. This system allows greater security when processing transactions in which the customer’s credit card is not present. It works as follows:

 

The customer will find a printed three-digit number on the back of the credit card near his or her name. That information, along with the credit card number, is transmitted to the processor.

 

If all of the information matches at the cardholder’s bank, the bank sends back a response code of “M.” The CVV2 system prevents a cardholder’s bank from processing “fraudulent mail/telephone order transactions”

 

 

Ask for Identification

 

It is your right as a merchant to ask for identification any time a credit card is presented to you. In fact, many cardholders actually write “Ask for ID” on their credit cards to prevent unauthorized use. Customers should always have identification when presenting a credit card to a merchant, and you should use diligence when accepting cards. Here are some tips to aid you when requesting identification:

 

If the back of the customer’s credit card is unsigned, say, “I see your card is not signed. Could I check your ID to verify your signature?”

 

Try calling the customer by the name on the card. If the cardholder does not respond, you should definitely ask for identification. Or you might purposely mispronounce the customer’s name so that he or she will correct you. If the cardholder ignores the mispronunciation, you should definitely ask for identification.

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It is clearly stated on the back of all credit cards that a card is not valid unless signed. You can point this out to customers who have unsigned cards and no ID in an effort to get them to sign their cards.

 

Code 10 Security Authorizations

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If you determine that a transaction is “suspicious,” you should call your Merchant Account Provider “Toll Free Hotline” (Make sure they have one). If they are doing it right an automated system will guide you through the Code 10 call by asking you to enter the customer’s card number and the transaction information.

 

Request for Further Assistance

 

From time to time, the Loss Prevention Department of your Merchant Account Provider may contact you to help them identify a specific transaction. If this occurs, please understand the following:

 

The transaction authorization code verifies only that a cardholder has funds available for that particular inquiry. The transaction authorization code does not guarantee that security work has been done to confirm the sale with the cardholder.

Be aware that Merchant Account Providers typically do not have access to a cardholder’s information and, occasionally, they may contact you to assist us in verifying a charge. They may request an invoice or shipping documents to help them verify that a charge is legitimate. They may even call to let you know that your business has been so successful you have exceeded your initial approved volume. A good Loss Prevention Department should be there to prevent not just the Merchant Account Provider’s losses, but YOUR losses as well.

 

Fraud-Stopping Tips

 

Stopping fraud begins with the merchant. You are the first line of defense against potential losses. Here is a summary of some of the security measures available to you that could help prevent fraudulent credit card purchases:

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• Use AVS to its fullest potential by inputting all of the numerical address and ZIP code information.

• Check the AVS response codes.

• Check the security features on the credit card. Compare the signed credit card to the signed sales receipt.

• Do not hesitate to call the toll-free customer service number on the back of the card to verify a cardholder’s information.

• Ask for identification, or ask the cardholder to fax you a photocopy of his or her driver’s license and credit card for first time mail/telephone purchases and Internet orders

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Four Key Components to Conduct eCommerce Successfully: What They Are, and How They Work

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Full-service credit card processors and their catalog and shopping cart partners provide merchants with valuable technology resources and services to assist them with utilizing the best Internet tools to grow their online businesses. However, it is important to understand that there are four key components to conduct e-commerce successfully over the Internet:

 

• Your Web site

• Your merchant account

• Shopping cart

• Secure payment gateway / payment transaction software

• Your Web Site

 

Website

 

Your Website is your online connection to your prospects and customers. You can host your own or work with an Internet service provider (ISP) or a commerce service provider (CSP), such as EarthLink. Your Web site design is essential to the success of your e-business. It must look appealing, attractive and be very easy to navigate. Most important, it must appear professional to ensure that customers and prospects perceive you as a legitimate, credible business. The appearance of your Website is crucial-it is the first experience that customers and prospects have with your business. It forms a long-lasting impression of the type of business you are.

 

Your Merchant Account

 

This is your bank-authorized transaction processing account, which allows you to accept major credit cards and electronic checks online. Many banks avoid Internet merchant accounts, which they classify as high risk. Look for a transaction processor with experience in both traditional and Internet commerce, one that has made Internet accounts an important part of its business model. Find a processor with high approval rates and relationships with many different shopping cart vendors.

 

Secure Payment Gateway / Payment Transaction Software

 

This is the software that actually processes your customer order information, address verification, credit card number, etc. The software or gateway sends the data to a credit card authorization network, which verifies that the customer’s credit card is valid and verifies that the shipping address matches the billing address. This software helps reduce fraud, because a card where the billing and shipping addresses do not match could be stolen.

 

Your secure payment gateway is your link to a special computer that encrypts confidential ordering data and protects you and your customers. Your customers know they are on a secure server connection when the uniform resource locator (URL) in their browser reads https://. The “s” stands for “secure.” If your customer’s ordering information is not sent via a secure payment gateway, it can be intercepted by computer hackers.

 

Shopping Cart and Catalog

 

Online shopping carts are electronic order forms for a merchant’s business. Customers access the order form via a hyperlink placed on the merchant’s Web site. Similar in concept to a physical supermarket shopping cart, customers can put in as many or as few items as

they wish, selected from the merchant’s Web site catalog.

 

Shopping cart software allows merchants to accept product orders for multiple products from their Web sites. Shopping cart software automatically calculates and totals your customers’ orders, including tax and shipping.

 

Some setup is required to make your shopping cart operate on your Web site. The shopping cart software must be installed on the server that hosts your Web site or on the secure server that accepts sensitive ordering information. A credit card processor that is considered a one stop shop for e-commerce can get you started with all five of these essential Internet business components.

 

Which Shopping Cart Is Best for Your Business?

 

Whether you are a startup or established business, there are certain shopping cart criteria that should be available to your Web site. These criteria include:

 

• Customizable – Your shopping cart should be able to manage the size of your business today, as well as grow with you as your business expands and evolves.

• Real-time shopping – Your customers want to place their orders when they are ready to check out, and they want to know the status of those orders. Is the product they ordered in stock? Did the credit card authorization go through?

• Multiple-store management – Can your shopping cart manage your business if you have more than one store? Some carts can, but others cannot.

• Security – Does your shopping cart offer state-of-the-art security and encryption capabilities (e.g., 1024-bit encryption; Secure Sockets Layer [SSL] security)?

• Professional appearance – Will your shopping cart allow you to generate a professional-looking storefront for your business, customized and personalized with your logo, products, categories and shipping methods.

• Does your shopping cart feature back-end browser-based administration that helps ensure quality service and customer satisfaction, including:

1. Automatic tax and shipping calculation capabilities

2. Live customer inquiry or customer service email capabilities

3. Immediate order confirmation to customers

4. Invoice and inventory management

5. Site-wide discount capabilities

6. Integrated search capabilities

7. Product variations (e.g., sizes and colors) and product personalization

8. A drill-down menu system

9. Minimum product quantities

10. Statistics reporting for merchant data-mining capabilities

11. Product group and cross-selling opportunities

12. Customer-friendly navigation

•  International capabilities – Do you conduct business in other languages, in other countries, in other currencies? Your shopping cart partner should be able to accommodate these needs with true multi – currency capabilities.

 

How Can a Shopping Cart Benefit My Business?

 

The right shopping cart relationship can facilitate building and managing your consumer and e-business catalogs, as well as making online shopping as easy as point, click and fill in the blanks. Browser-based shopping cart management lets merchants control all aspects of their storefronts, from product maintenance to category management to order and credit card processing.

 

Your customers want shopping and payment options. The right credit card processor and shopping cart relationships ensure that you make it easy and pleasant for customers to shop on your Web site. The right shopping cart ensures that your e-commerce platform is easy to implement, use and customize. This makes your business a full-service e-commerce solution for your customers. It encourages them to buy from you and to return to your Web site again and again.

 

How Much Do Shopping Carts Cost?

 

Prices vary widely depending on a number of considerations:

 

• Who will do the site hosting?

• Is the secure server or secure payment gateway included in the cost?

• How long is the contract?

• Do you pay yearly or monthly?

• Is there a maintenance fee after the first year?

• Is there a real-time credit card processing interface? (That component usually costs extra.)

• What kind of backup program is available?

 

Your best bet to select the right shopping cart is to develop a relationship with a trusted, one-stop credit card processor, which can help you conduct e-commerce securely, safely, quickly and effectively over the Internet.

 

Shopping Cart Primer

 

Imagine how frustrated you would be if you walked into your local grocery store to gather your family dinner and they had no shopping carts and would not allow you to go down the aisles to grab any food. This is what life is like for your customers if they come to your website and cannot select and purchase the products or services they want. (Unless you have only one or a few product choices) This should help you see why having a robust shopping cart and catalog is essential to your future in e-commerce.

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When searching for a shopping cart solution, you are looking for a package to transform your Web site into a shopping environment without extensive effort, complicated programming or high-cost support. Here are some of the key things you should look for in your quest for an online shopping cart:

1. Compatibility with reputable gateways

2. Easy setup-simply cut and paste

3. Online user guide

4. Secure Sockets Layer data protection

5. Real-time, offline ordering

6. No need for common gateway interface programming

7. Scalable to any business-unlimited products and orders

8. Fully customizable – order form /shopping cart with background image, logo and test-color input

9. Calculates all shipping, handling and sales tax charges.

10. Supports UPS, Federal Express and U.S. Postal Service shipping.

 

Secure Gateway Primer

 

Just like telephone lines allow storefront merchants to send in a credit card order, the internet Gateway will send in your customer’s online credit card order to your Merchant Account processor. To protect your customer’s credit card data, make sure your Gateway provider has a Secure Sockets Layer (SSL) protocol with cryptographic tools. With SSL, transaction data sent by the merchant to the payment Gateway server can only be read and used by that server.

 

Your Gateway provider should also have a secure communication channel to minimize message handling errors and allow an uninterrupted data stream between the gateway server and merchant account processing bank. With today’s Gateway technology, your transaction response time should be in seconds.

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You also want to look for scalability in your Gateway system. As your business grows from hundreds to thousands of transactions per month, your Gateway provider’s server must be able to handle this. The last thing you want is a Gateway provider with a history of extensive downtime. Make sure your gateway provider has a track record of at least 99.9% uptime and support teams that can get the servers back online at any time — 24 hours a day, 7 days per week.

 

SHOULD I USE A THIRD PARTY PROCESSOR LIKE PAYPAL?

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PayPal and services of that nature, in my view, serve a true need. If you are selling products on Ebay as example, a Third Party Processor can get the job done. These work best when you are in touch with the person who wants to pay you and you can direct them properly to the steps to join the Third Party Processor service if necessary – which may be required in order to transfer funds to you. If they don’t make it through the process you can contact them to follow up and make sure you get your funds.

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If your monthly volume of sales is low (considerably less than US$ 1,000.00) then you may be able to save on monthly servicing fees and find that a solution such as this works just fine. As soon as you approach US$ 1,000.00 per month in credit card volume it’s time to consider your own Merchant Account because the Third Party Processor is typically not saving you any money at this level of sales.

 

A few things to be aware of...

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Some Third Party Processors hold your money as long as possible in order to benefit from the “float”. Make sure you know the time it will take to receive your money and you may find that as your sales grow getting your money more quickly is more important to you.

 

Make sure you know the process that a paying customer will need to go through in order to pay you. As your sales grow, will you lose orders because of the extra steps necessary to join your service, deposit funds, and then transfer funds? This can be inconvenient to a paying customer who just wants to give you their credit card information and be done with it. Maybe this is not a problem if your number of transactions is low but doesn’t it make sense that you could lose orders if you are adding extra steps? It doesn’t take very many orders to lose to justify investing in your own Merchant Account and maximizing the convenience of your customers to pay you.

 

Appendix D has a more in depth look at some of the concerns.

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Building a Risk Estimate Worksheet

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Quick Summary of Costs

 

Depending on the Merchant Account Provider you may have some startup costs like setup fees and application fees. Unless you are leasing or purchasing a credit card terminal, your Startup Fees (Setup Fees) should be free or very low. The Merchant Account industry has become very competitive. Do NOT find yourself paying setup fees, application fees, or “site visit” fees. These fees are all profit excuses for the Merchant Account Provider. Should you be an internet Merchant, you may run into a “licensing fee” but do not expect to pay more than a one-time licensing fee. You should not be “leasing” anything related to “software”.

 

Your next step is to look at Monthly Recurring Fees. Depending on your actual monthly sales, your monthly cost as a percent of sales will vary. If your business is accepting MasterCard and Visa cards in a “card present” environment you can expect to pay 1.4% or higher of your credit card sales. Should you be accepting orders over the phone, through the mail (MOTO), or over the internet, you should expect to pay 2.0% to 2.5% at most. Transaction fees vary but can be “bundled” meaning you pay NO transaction fees. Transaction fees range from a nickel to up to thirty cents, or more. Make sure that your percentage rate or “discount rate” is all inclusive – meaning you should not be paying a Merchant Account Provider AND someone else, like a bank or a software provider. You should be paying all your fees to one entity.

 

 

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

 

When comparing the cost of internet merchant accounts there are three major areas you need to evaluate – Set-Up Fees, Monthly Recurring Fees and Total Risk Estimate (TRE). After reading and fully understanding this section of the guide, you can use the worksheet in Appendix A to help you compare the fees and risks from various providers. This worksheet is also available in an Excel spreadsheet. If you did not get the spreadsheet just use the contact information at the bottom of this page to have one emailed to you.

 

Setup Fees

 

Setup fees are the costs associated with starting the account and “going-live.” Note that setup fees are normally non-refundable, (except through our Independently Owned Agency of Cardservice International) Our Agency offers a 100% Money Back Guarantee of any upfront fees. While searching for a Merchant Account Provider you may find companies which advertise free setup fees. As shown in other sections of this guide, totally free start-up often means poor service and hidden fees down the road – but not always. Setup fees should be very reasonable but if you see free setup fees, proceed with caution. The following is a summary of setup fee terms you may hear.

 

Application or Setup Fee – A one-time charge for processing a merchant application and activating the new merchant account.

 

Re-programming/Programming Fee – A charge assessed for reprogramming your existing terminal, software, or Point of Sale (POS) equipment. You know that you are talking with a commission sales person when he or she insists on a “reprogramming fee”. You should negotiate this. If you are anticipating any kind of credit card sales volume at all than you can probably get this fee reduced or waived.

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Site Inspection Visit – A Merchant Account Application sometimes requires a “site visit” of your place of business to make sure you are legitimate.

 

Installation or Training Fee – If the company has good customer support, this is just an excuse to add fees. Don’t pay any.

 

Activation Fee – If in addition to an application or set up fee, it’s probably just an excuse to add fees. Don’t pay any.

 

Software Licensing Fee (Internet) – You may run into this, particularly if you are licensing software to do business over the internet.

 

Shopping Cart and Catalog Setup Fee (Internet) – A shopping cart and catalog is a tool to both total the amount of money a customer wants to pay you on the internet and a system to organize your products prior to ordering on the internet by the person viewing your website. Setup fees vary depending on the sophistication of your needs and your number of products. If your needs are very sophisticated – which is rare – you may pay much more because you need a customized solution.

 

Recurring Fees

 

Recurring Fees are primarily the monthly fees to process and track transactions and pay the Merchant Account Provider.

 

Discount Rate – A percentage charged on the volume of a sale or a returned (credit) transaction. This can be from 1.4% on up depending on your transaction fee and whether you use a terminal and “swipe” the credit card in a “card Present” environment; or key the credit card information into a terminal, software, or on the internet. Generally swiped rates are about 1.5% to 1.85% and keyed rates are 2.25 to 2.75%.

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Transaction Fee – A charge assessed per each type of authorization submitted by a merchant. Try to “bundle” your discount rate so you do not have a transaction fee. Your rate will be higher but by doing this you may be able to save on the transaction fee for authorizing a transaction which you later void; and also save on the transaction fee when you batch out your transactions – typically each day. A transaction fee usually ranges from a dime to thirty cents per transaction.

 

Monthly Customer Support Fee – A charge that should ensure quality customer service 24 hours a day, 365 days a year. Customer support should be Toll Free and you should not have to stay on hold to speak with someone. Should English not be your language of choice then customer support should be available in your language. Call at variable times – including weekends – before you commit to a Merchant Account Provider. You will need good customer service which is available for no additional charges.

 

Monthly Statement Fee (hardcopy) – Should be available online.

 

Monthly Minimum Fee – A fee charged if the total monthly discount rate amount for MasterCard and Visa does not reach a threshold. Usually you do not need to worry about this if you are expecting MasterCard Visa sales to be more than $1,000.00 per month.

 

Daily Batch Fee – Monthly fee paid for processing each daily batch. Batches are typically processed each day the merchant has transactions. This should be no more than your actual transaction fee per batch. Merchants typically batch out each day.

 

Annual Fee – This is a “gotcha fee”. Make sure you know if you have one. Annual fees, if any, usually range from $50.00 to $150.00.