The Merchant Processing Guru

The Merchant Processing Guru Tip#20: What is the flow of a credit card processing transaction?

When you process a transaction what really happens in those few seconds that you are waiting for an approval or decline on that card? Well, whether you swipe the card or key it in on some other system the flow is the same. A line of communication is opened up and information is sent to the acquiring bank to say that a transaction for this amount on this card holder’s card is being requested for this merchant account. Then the acquirer’s computer will then contact the issuing bank to verify the account information and that the card holder has enough credit for the transaction to be approved. Then the approval is sent back to the acquirer from the issuing bank and the acquirer issues an approval number for the transaction. A receipt is then generated with this information and the transaction is complete. This is called the “front end” of the process.

The “back end” of this process happens at the end of the day where all the transactions from that day are grouped together “batched” and settled through the acquiring bank for deposit into your account. The Acquirer also sends transaction information to MasterCard and Visa on a daily basis, which will reconcile the incoming information and route them to the appropriate card issuers overnight. The card issuer will then post the transaction to the cardholder’s account for payment.

The Merchant Processing Guru Tip#19 Continued: The Players in the Credit Card Processing Industry.

To be approved to accept credit cards a merchant will approach a “Member Service Provider” or MSP who are approved & registered entities with Visa & MasterCard to offer processing services. Behind them is the “Acquirer” or “Acquiring bank”. The Merchant Acquirer basically coordinates the flow of information and money between the different players, namely the cardholder and their bank and the merchant and their bank. On the front end they use a “payment network” to processes the individual transactions between the cardholder and the merchant (also known as a payment platform). I will get into the actual flow of the transaction in a later post. On the back end network they settle the transactions into a lump sum to be deposited into the merchants account. This is referred to a settlement or batch. A card issuer cannot be an acquirer even though they are both banks, This is why you cannot go “direct” with your bank! This is also how the two separate interests of the cardholder and the merchant are kept apart.

Where do I fit into all this? I represent the Merchant and the Member Service Provider. I am a merchant advocate and it is my job is to make sure that you have the right solution for your particular business needs and to represent you in a dispute between you and the MSP. This is not to be confused with a dispute between you and the cardholder, that is the MSP who then represents you.

Russell Harverson has over 6 years experience in the card processing industry and has build a reputation for “being there” for all his merchants! His goal is to provide you with the right, cost effective processing solution for your individual business needs, no matter how large, small or different, he has done it all. He is your Guru of the Merchant Processing industry, shedding light on the credit card processing industry. To contact him via email theGuru@theMerchantProcessingGuru.com
Or call him at: 1-888-368-GURU (4878)

The Merchant Processing Guru Tip#19: So who are all the players in the Credit card processing industry? – More than meets the eye!

First of all you have the “card issuers” who are in most cases the banks but there are many forms of cards which I will go over in another post here shortly. For our purposes in this post I will refer to the banks as the card issuers. Visa and MasterCard are the associations who are recognized as the entities who stand behind the credit cards that are issued by the banks and offer the fraud protection we all enjoy so much and any other benefit that they give us through the cards that carry their emblem. The banks issue a credit card, with either a Visa or MasterCard logo on it to the “cardholder” who then goes about using that card to purchase goods and services from “the merchant”.

The merchant needs to set up a merchant account in order to accept credit cards from the card holder. A merchant must be approved under Visa & MasterCard regulations to accept credit cards as a form of payment, this limits the risk to the cardholder and helps to create some regulation and prevent fraud. So far so good right? I haven’t told you anything you don’t know yet. In my next post I will explain about the players on the processing side of this industry which is a little more of an unknown.

Russell Harverson has over 6 years experience in the card processing industry and has build a reputation for “being there” for all his merchants! His goal is to provide you with the right, cost effective processing solution for your individual business needs, no matter how large, small or different, he has done it all. He is your Guru of the Merchant Processing industry, shedding light on the credit card processing industry. To contact him via email theGuru@theMerchantProcessingGuru.com
Or call him at: 1-888-368-GURU (4878)

The Merchant Processing Guru Tip#17: High Risk – What is High Risk in the credit card processing industry

First of all, let’s explain why a business might be considered a “High Risk” to a processor. One of the most common misconceptions about the credit card processing industry is that people assume that there is no risk to the processor and that they should, without any question, be able to open a merchant account. Well, this is not always the case and I will attempt to cover some of the reasons why a business not only needs to qualify for a merchant account but also why they may not.

Qualifying for a merchant account is somewhat like qualifying for a bank loan or a line of credit. A merchant account is not very different, in as much as the processor is extending the funds that you have processed through your merchant account and may not themselves see that money for up to 30 or even 60 days in some cases. But even worse is the fact that they are liable for every dime that is processed through your account for up to 18 months. If a business were to go out of business and chargebacks (See my post about “Chargebacks”) started to occur the processor is obligated to Visa & MasterCard for that money and under Visa & MasterCard regulations they will have to refund any money that is disputed and cannot be proven to be a legitimate charge.

So when underwriting a new merchant a processor will look at the stability of the business and many other factors. If you are a retail store or restaurant then there is very low risk in most cases and any traditional processor will just look at the major areas of concern and approve your account 99 times out of 100 but if you are an online business or have any type of future delivery business model then they will look closer at the business and its owners to make sure that the risk is low before approving this type of account. They will also require more backup documentation about the business such as a few months of banking statements and perhaps a year or two of the businesses tax returns. This again is to determine the financial stability of the business that is applying for a merchant account.

In my next post I will go into some other reasons a business might be considered a high risk to a traditional credit card processor. Stay tuned!

The Merchant processing guru Tip#14 Continued: PCI Compliance.

Continuing to process your credit cards through your POS system will also require you to have your network scanned periodically by a PCI SSC third party approved vendor, about 4 times a year, and incur a cost of approximately $200-$300 per year. You will be required to have all your new hires undergo a background check, cost approx. $25 per hire (not a bad idea in itself…), Increased password security on your POS systems with lockout access after 6 attempts & a 7 digit password rotated every 90 days. Aggregation files maintained on a separate computer from the network as well as a security log aggregation & retention for a minimum of 90 days to a max of 1 year. Have a headache yet? You will if you decide to continue processing through the POS system on your computer network, and it doesn’t stop there.

If you miss any of these steps and any others that I may have missed then let’s talk about the consequences and penalties should a breach occur and you are not 100% compliant! As things stand right now the details about penalties for non compliance are still very vague, what we know is that an acquiring bank can be fined anywhere from $5,000 – $100,000 per month for compliance violations and you can guess who the banks will pass those penalties onto!

My suggestion is, do not continue to process through your computer’s POS system but separate your computer networks from your cardholder environment. This will make your life that much more simple and make things a whole lot more secure for your customers who you want to protect as much as Visa & MasterCard do, as they are your life blood. If you have any further questions about getting a standalone credit card processing terminal for your business to replace your PC based card processing and how you can get one free of charge, then feel free to get in touch with me at: theGuru@theMerchantProcessingGuru.com

The Merchant Processing Guru Tip#13 continued: Credit card processing “Chargebacks” What are they and how to avoid them!

“Chargebacks” not only cost you the money you should have made from the sale but the processor has to charge you for the involvement they have in dealing with the issue, the processor will charge you anywhere from $15.00 to $35.00 as what is called a “chargeback fee”. Whether you win or lose the dispute then there is still that chargeback fee to cover the costs of the processor getting involved to handle this issue. So treat your customers right and you will avoid chargebacks!

You may also be charged what is called a “retrieval fee” of approx. $5.00 – $25.00 for the processor to “retrieve” the funds from your account that were disputed should you lose the dispute. It gets worse! Should you have excessive “chargebacks” of more than 1% of the transactions you process then according to Visa & MasterCard’s terms you are an unacceptable risk to them and their card members and will most likely be dropped by your credit card processor. A processor can also be penalized for having anyone on their books who has more than a 1% “chargeback” history and you will find it very hard for any processor to accept you as a merchant after being dropped for this reason. As you can see, you want to avoid this unpleasant occurrence at all costs, so always have proof and signature for every transaction. The good news is that “chargebacks” in most traditional industries are a rare occurrence, so as long as you stick to the guidelines of accepting credit cards you won’t have anything to worry about. If you have questions or concerns just get in touch with me and I will be happy to help.

Contact me at: theGuru@theMerchantProcessingGuru.com

The Merchant Processing Guru Tip#13: Credit card processing “Chargebacks” What are they and how to avoid them!

A “chargeback” is where a card holder calls up their credit card company to dispute a charge on their card. This will start the process where you as the merchant who placed this charge will have to prove that it was a legitimate transaction. Should you have a signed credit card receipt then you are probably home free but should you not have this very important little bit of information then you have a battle on your hands that you are not very likely to win.

Visa & MasterCard are most interested in protecting their card holders more than the merchants who process the transactions and they will always side on the card holders side whenever possible. Only when you can prove beyond a doubt that a transaction was legitimately made by the card holder will you prevail.

ALWAYS HAVE PROOF OF THE SALE AND THAT THE PERSON WHO’S CARD YOUR PROCESSED MADE THE ORDER! If you are meeting your client in person and not swiping the card on a terminal but entering the card information manually then always get an imprint of the card with an old fashioned manual imprinter, affectionately known as a “Knuckle buster”, with their signature on the slip and filled out completely. If you do not see them in person and you get their credit card information given to you in some other way then this is the riskiest type of transaction and to make it a whole lot safer, you will want to make sure you have something signed by the client, which you can email them and have them sign and fax or scan & email it back to you. This will help eliminate the risk of a “chargeback”. If you don’t have a form to send or aren’t sure how to draft one, I can provide you with a form to send your clients, every time they want to use a credit card, that will cover you in case of a dispute.

If you can’t or don’t want to do this part then the next best thing would be to have an email or some sort of order with the person’s name and as much information about them as possible. Again, this can be risky and the higher the amount of the sale the more you stand to lose if the client disputes the transaction. It is always better to take the extra precautions to cover yourself from a potential, costly dispute. To be continued in my next post.

The Merchant Processing Guru Tip#10: E-Commerce – How does it all work? Processing credit cards online is very simple really. First of all you build a site with a shopping cart, then, when it is nearing completion you contact me for a merchant account. You must have privacy policies as well as return and cancellation policies on your site before even considering applying. This is something that is very important to any self-respecting processor and a requirement of Visa & MasterCard.

The processor will provide a web portal for the processing as well as the processing itself, this is called the “secure gateway”. The gateway is where your customers will go for the final phase of their checkout, to fill out their credit card info and complete their purchase. This portion is the most critical part of your web site and is encrypted so your customer’s information is safe. This gateway/portal is connected on the end of your web site’s shopping cart using codes provided by the processors tech team and your web designer will be able to plug those codes into your web site’s shopping cart to “marry” them up seamlessly.

The cost to set up the gateway is anywhere between, nothing & $250.00. Personally, I like nothing! Monthly maintenance fees for the gateway range between $15.00 & $25.00 for the most part. Again, you really have to be very careful with how high the rates are. Your basic e-commerce rate should be less than 2.20% but I see most up around 2.49% on average not to mention the downgrades (non-qualified rates).

Even though it may seem a big deal to switch your merchant account once your web site is up and running, if you are losing a huge amount of money due to the fact that you didn’t really know what you were getting when you first set up the account, does it make sense not to reign in those costs? If you have a good web person to make the switch over once everything is ready, then it is very simple and easy. Don’t wait, get a comparison today and make sure that you are not passing your profits on to the wrong people any longer! Contact me at: theGuru@theMerchantProcessingGuru.com

The Merchant Processing Guru Tip#7: Know your “effective rate”! What is an “effective rate” you ask? Quite simply, it is the percentage of your monthly credit card processing volume that is actually paid to the credit card processing company. Say for instance you had a volume of $10,000.00 for one month and your total fees were $325.00 for that month. Then you would take $325.00 divided by $10,000.00 which would be 0.0325 which is 3.25% of your total income from your Visa & MasterCard sales income. Discover is now part of MasterCard and may be included in those sales if you are not receiving a separate discover statement any longer. Do not include your AMEX sales, you can work that out separately on the AMEX statement.

What to look out for: Make sure you have your exact total of sales and exact total of charges. Some statements are harder to figure out than others, especially if they are showing last months charges with this months processing statement. If you would like help with this, just let me know. Even I have had to look closer to make sure that I got all the details and I have been doing this for years.

Why is this important? Well, first of all you will know what accepting credit cards is actually costing you. Always a good thing! Secondly, if you are between 2.25% & 2.5% then chances are you are set up fairly well. There may be some savings still to be had and it is worth looking into with the right person who will give you a truthful answer. If your effective rate is any higher than 2.5% – 2.75% , then you can be sure that the likelihood that you are paying too much for your credit card processing service is probably quite high. To find out how high fax your statement to me at: 888-729-9267 for a comprehensive analysis.

The Merchant Processing Guru Tip#5: How Interchange works… The foundation of the credit card processing industry is Interchange. Understanding Interchange is the first step to truly grasping how this industry works. As I mentioned in my last post, Interchange is set by the Associations; Visa & MasterCard. It is comprised of the fees that the issuing bank (the bank who issues the credit card) and Visa or MasterCard charge the merchant for taking that card. It is from here that the processor marks up those fees, how they do that is what makes all the difference to you, the business owner.

When you run a transaction in your business you probably have no idea what card type you are running, you just run it. It could be any number of the 70+ rates that Visa or MasterCard have in the interchange system. The key is not to pay too much for any of these card types. In a tiered rate account, as an example, you could run a card that costs 2.39% to the processor but because they treat it as a Non-qualified transaction you will actually pay 3.29% a whole 0.9% more than their cost. This adds up fast and is far more important to reign in than any of the miscellaneous fees associated with a merchant account. By using a processor who gives you a true pass-through of interchange, with a standard “across the board” markup you can guarantee that you will not pay too much for your processing. Take for instance a markup of 0.2% across the board on interchange. On $10,000 you know that 0.2% of that is $20.00 that you will pay to the processor on top of interchange. You have to pay interchange no matter what! It is how much you pay above interchange that matters.

A typical 3 tiered rate structure could look something like this for example:

Qualified rate: 1.63% + $0.25
Mid-qualified rate: 2.49% + $0.25
Non-qualified rate: 3.29% + $0.25

This means, anything that falls between the 1.63% & 2.49% will be charged the 2.49%. I call these buckets. As another example of this and to demonstrate this point a “Rewards 1” level credit card is 1.74% cost but you will pay 2.49% because it falls between the qualified and mid-qualified rate tiers.

If you paid an average of 0.50% – 0.75% on $10,000 with a tiered rate structure because of the constant downgrading to a higher “bucket” called mid-qualified and non-qualified you would pay $50.00 – $75.00 instead of the $20.00 with a true interchange system. That is $30.00 – $55.00 more than you should be paying in this area alone. This of course is only an example but used to demonstrate the difference having the right set-up can make to the fees that you will pay for processing cards. It is also only one of the areas that make a difference to those fees. Stay tuned and I will share more tomorrow, or call me if you are ready to see a true analysis of your merchant statement: 888–368-4878