Merchant Accounts – Credit Card Processing

Internet shoppers naturally favor business websites that accept all credit card payments, hence the increasing need for easy to operate, low-cost merchant accounts. On their part, merchant account providers are constantly re-inventing themselves to provide complete security for credit card processing.

A merchant account is essentially a contract or an arrangement between a bank and a merchant, or a merchant account provider and a merchant. The merchant wishes to accept payments for his services/merchandise through card transactions of a particular credit card brand. The acquiring bank extends credit to the merchant, processes the customer’s credit card information and approves the transaction. In addition to such direct dealing, merchant accounts may also operate through intermediaries, called service providers. In this instance, the intermediary, for example Paypal, provides payment services to its clients, who have merchant accounts with them. Paypal, in turn, has a merchant account with a bank.

The payment takes place through a payment gateway. A payment gateway is simply a place where you pay, like the cash counter in a retail unit. Only here it is virtual. The difference, though, is that each shop might have its own cash counter, but in this system, several virtual shops (e-commerce sites) use the same payment gateway whose sole purpose is to channel the details of the customer’s credit card. Merchant account providers log in and key in credit card numbers (which are encrypted). Alternatively, the payment gateway, may be linked to the shopping cart on the merchant account provider’s site. Either way, this part of the online payment processing hardly takes a minute.

The customer places an order along with credit card information, the information is forwarded to the payment gateway, which further sends it to the merchant’s acquiring bank. The bank sends the information to the card association, which in turn sends it to the issuing bank of the card, which checks that balance available with the customer. The issuing bank then approves or rejects the transaction, providing a reason for rejection.

Several merchant account providers offer free credit card terminals and internet payment gateways and free payment gateway software when you open merchant accounts with them. There are others that allow free merchant accounts with low transaction fees. The transaction fee and the discount rate (both together make up the total processing fee charged by the account service provider) are lower for credit card terminal swipes. Then there are discount merchant accounts that charge a very low fee for the bouquet of credit card options you provide to your customers.

For these reasons and more, choose Ace Merchant Processing for your merchant accounts. For one, our ISO/MSP certified merchant services are truly low cost – free set up and free terminals and a monthly service fee of only 1.64% +19 cents. Also, we are proud to offer a fraud -proof system and cheerful 24*365 service, to every kind of business. And, the reason why you simply must set up your account with us is that we you same day approval!

17 Ways To Reduce Chargebacks In Your Business

For merchants, chargebacks can be costly for a business. You lose both the dollar amount of the transaction and the related merchandise. You also incur your own internal costs for processing the chargeback which can range from $10 – $35 per chargeback. If chargebacks become a regular occurrence for your business, you could seriously risk losing your merchant account.

A chargeback reverses a sales transaction in three steps. First, the card issuer subtracts the transaction dollar amount from the cardholder’s credit card account, receives a credit and is no longer financially responsible for the dollar amount of the transaction. Next, the card issuer debits the merchant bank for the dollar amount of the transaction. Lastly, the merchant bank deducts the transaction dollar amount from the merchant’s account. The merchant loses the dollar amount of the transaction.

Let’s say for example, you sold your product to 5 customers online or offline in two days for $300 each. A month goes by and after two months, you receive an email from your credit card processor saying that you received 3 chargeback’s, reason FRAUD. You just received the money transferred to your bank checking account from the credit card processor and now you have to pay it all back in the following fees:

1. Original fee: $300 x 3 = $900

2. Transaction fee: 5% of $300) x 3 = $45.

3. Chargeback Penalty fee: $25 x 3 = $75
TOTAL: $1020

To avoid that from happening to you, implement the following 17 strategies in your business to reduce chargebacks against your merchant account:

1. Purchase merchant chargeback insurance. Chargeback insurance can provide protection against cardholder fraud on “Card Not Present” credit card transactions when: A lost or stolen credit card is used before the card owner detects it is missing; Identity theft takes place and is assumed by thieves; A valid transaction has been made by the real card owner, but thieves hack into a site’s customer service screen to gain access to that customer’s information necessary to have products shipped directly to them instead of the real customer. It will reimburse the merchant for the cost of the stolen product or services, the loss of profit, and the charge back processing cost.

2. Refunds. Whenever a claim for a refund is made, and it has any merit – give the customer the refund. This will significantly reduce chargebacks.

3. Make sure your system uses the Address Verification System. This system is designed for fraud protection. It compares the billing information provided to the address and zip code on file at the issuing bank.

4. Verify CVC2 and CVV2. VISA reported that making customers supply the CVC2 and CVV2 verification numbers (the 3 digits on the back of the credit card) reduced charge backs by 26%.

5. A 30 day money back guarantee or return policy will significantly minimize disputes and charge backs.

6. Ask to see a customer’s id when accepting a credit card. When the customer presents the card to you, make it a habit to look at the expiry date and ask for id.

7. Describe your business clearly and make sure your customers know what business name will appear on their credit card statement. For example, if you have an online business, on the payment form it should read: “This charge will appear as ABC Widgets, Inc.”

8. Obtain cardholder signature. Card present transactions require the cardholder’s signature. Train your employees not to give the customer their credit card or goods before the receipt is signed.

9. Don’t deposit transactions before you ship the merchandise. If a customer reviews their credit card statement and notices a transaction for product they have yet to receive, in most cases they will dispute it.

10. Keep your customers informed. If merchandise to be provided to the cardholder will be delayed, advise the customer in writing of the delay and the new delivery date. You may even supply the tracking number.

11. Check the IP Address. If you are an online merchant, it is very important that each order processed through your website keeps track of the IP address of the person placing the order. The IP address is a unique network identification issued by an Internet Service Provider.

12. If your business delivers products, use a carrier that requires a signature on delivery, and allows you to have a copy of the signature. Keep it for your records in case of a chargeback dispute.

13. Be wary of International orders. These are very high risk transactions because there is no system in place for verifying international orders. The Address Verification Service is limited to credit card transactions within the United States.

14. Deposit sales receipts as soon as possible. 1 – 5 days is standard. A chargeback can occur due to a late deposit.

15. Be careful not to deposit duplicate transactions. Do not run the same transaction through the POS terminal more than once or deposit the same transaction more than once.

16. For websites, make sure you provide a toll free phone number for customers to call, so they can hopefully resolve problems prior to instituting a dispute via the card company. On your website you should create a ‘frequently asked questions’ section to further clarify issues that might otherwise lead to a complaint.

17. When selling over the Internet, place a warning on your transaction webpage stating that your site employs safeguards against fraud.

Most chargebacks occur because of fraudulent transactions. The 17 strategies are ideal solutions for protecting your business and customers from fraud. Most importantly they will help merchants to reduce chargebacks from occurring.

Cost Plus Versus Tiered Pricing: What Merchant Account Type Is Right For You?

If you’ve ever scouted for better credit card processing rates, you may have been asked by competing merchant account providers to present your previous months’ processing statements for them to analyze. When you get back quotes from these companies, you could see differences in cost from just a few tenths of a percentage point to hundreds of dollars a month in potential savings. If the rate you’re being quoted is approximately the same as the one you have right now, how is there such a discrepancy in numbers?

Enter one of the most misunderstood and potentially confusing parts of the payment industry: merchant account pricing and its various forms, most commonly appearing as Interchange or Cost Plus Pricing versus Tiered Pricing structures.

Before we get into comparing and contrasting why one is better than the other, it should first be understood that one reason why there could be such a huge difference in cost from one account provider to the next is the way they have your company set up to process. If you’ve been with the same account provider for a number of years and your company has grown or changed substantially in your product offerings, location, or whatever, you should contact them first to review whether or not your processing is even set up to fit your business’s needs anymore. There are a lot of different factors that can influence the rate you are given by your merchant account provider:

  • Type of card being used (a no-frills Visa card versus a Visa Rewards Card will process at different rate “buckets” or “tiers;” the interchange on a rewards card will be higher)
  • The way a transaction is processed (swipe in-person, over-the-phone orders, keying in card number in-person, accepting payments online)
  • The type of business accepting the card (are you selling high-risk, high ticket items? Is your business type historically prone to troublesome charge backs?)

For example, if your business started out as an online store and you’re now open for business at your local shopping center processing face-to-face, you will save an incredible amount of money if you simply inform your merchant account provider of this change. Essentially, each transaction will cost you less because processing a card face-to-face via card swipe is a lot safer and less prone to error than typing in digits manually. So before you start shopping for new rates, make sure your business is set up to process the right way.

Let’s first look at how tiered pricing works. The word “tiered” indicates that the merchant account provider splits all card transactions into separate “tiers” or “buckets.” The most common tiered pricing structure includes three tiers of pricing: Qualified, Mid-Qualified and Non-Qualified. Less frequently, you’ll see a six tier system which includes special pricing for PIN-entered and PIN-not-entered debit card transactions. Three tier pricing is much more common, so for the sake of brevity, we’ll focus on that system only. The major credit card networks post something called a Qualification Matrix which dictates what interchange category a transaction will post to based on:

1) How the transaction is entered (swiped, keyed in, etc.) and

2) What type of card is used (rewards, non-rewards, corporate cards)

Once the card is swiped or keyed in, the credit card terminal talks to the cardholder’s bank to identify the card type and then places the transaction into one of the three tiers. It’s easiest to understand this system if we run through an example:

Qualified Rate: 1.79% (regular card, swiped face-to-face transactions)

Mid-Qualified Rate: 2.09% (rewards card swiped, keyed in)

Non-Qualified Rate: 2.39% (corporate card, ZIP code verification incorrect)

Example: A rewards card is swiped at your terminal. You pay Qualified 1.79% + Mid-Qualified 2.09%, equaling 3.88% for that transaction.

Example 2: A corporate card is swiped at your terminal. You pay Qualified 1.79% + Non-Qualified 2.39%, equaling 4.18% for that transaction.

When speaking to a merchant account representative and they quote you “their rate” of X% and if you know they’re based on a tiered system, be aware that X% is the QUALIFIED RATE only. You’re bound to process cards that fall under the mid and non-qualified tiers, so be aware of that fact when considering merchant service providers.

The second and equally common pricing structure offered by merchant account providers is cost plus pricing. This structure is somewhat easier to understand. When a card is processed, it doesn’t fall into a “tier” or “bucket.” Rather, each card has its own interchange rate attached to it, and then your MSP adds on its own interchange markup fee (a percentage) plus a flat-rate transaction fee (the transaction fee is usually $0.10-$0.20). For example, let’s say you process a run-of-the-mill Visa card via swiped transaction. That specific credit card is looked up on a standardized rate table that breaks card types into over 400 categories and assigns each card a percentage based off that table. Your merchant services provider then adds their own fixed percentage plus $0.10-$0.20, and that total of percentages and cents is your processing cost for that transaction.

Example: Merchant account provider charges you 1.59% + $0.15 per transaction (their flat rate fee). You accept a run-of-the-mill MasterCard with an interchange rate of 1.89%. Your cost for that transaction is 1.89% + 1.59% + $0.15 = 3.48% and $0.15.

After reviewing the differences between cost plus versus tiered pricing, you probably want to know which pricing model is best for your company. The answer is: it depends on your business type, processing volume, and type of cards you encounter most frequently. I would suggest gathering at least three previous months of processing statements or, if you’re opening a new business, make some educated guesses about the aforementioned questions, and send them on to several merchant account providers. Most will analyze your statements (or the information you’ve provided them) and be able to quote you how much they would charge you based on your transaction history. Some will be able to come in much lower than others based on either their flat cost plus fee or the way they have their tier “buckets” set up. It pays to look at several offers from competing service providers while trying to secure the best rate and price structure for your company.

(c) 2011 Lorraine Wolfe