Transaction Processing & Electronic Payment Solutions

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Merchant Solutions for your business.

Merchant Accounts

What is a Merchant Account?

A merchant account is a special account that is setup for a business to accept and process credit/debit card orders. After processing a customer’s credit card the transaction goes through a series of complex stages. The money transferred through the merchant account is then deposited into the merchant's checking account within 2 to 3 business days.

Requirements for Merchant Accounts

Getting important information together ahead of time will ensure that you breeze right through your merchant account application process. Here's what you may or may not (depending on the provider) need in order to obtain your merchant account:

• Business checking account
• A copy of a voided check
• Articles of incorporation, business license or reseller license
• Pictures of business, both interior and exterior
• Photocopy of your return policy information
• Provide trade references
• Photocopy of recent tax returns
• Site inspection
• A photocopy of your drivers license
• Have a web site

Explanation of Credit Card Processing Solutions

In order to process credit and debit cards through your merchant account, you need to decide which processing solution is right for you.

Retail Swipe Terminal - This particular solution is for retail and storefront merchants who see their customers face-to-face. This type of solution incurs the lowest merchant account processing fees since you actually are able to swipe the customer’s credit card through the terminal. It is believed that orders that are swiped have a lower fraud risk, hence the reason for the lower processing fees.

Real-Time Processing - This is the solution for businesses on the Internet. Real-Time allows you to automatically process credit card orders through your merchant account with no assistance needed on your end. Everything is automated, and the funds transferred into the merchant account, from the cardholder, are deposited into your business checking account within a few days. All Real-Time solutions are secure and the purchase of a secure certificate is not usually required.

Virtual Terminal - If you are a merchant on the Internet and expect to receive orders via phone, fax or mail then getting a Virtual Terminal solution (along with a Real-Time processing solution) is the best solution. The Virtual Terminal is a secure website that provides a mechanism for you to login and manually type in a customer’s credit card information. Once the information is submitted, it is securely processed and funds are then deposited into your merchant account within a few days. A Virtual Terminal can be accessed securely from any computer connected to the Internet. Most all Real-Time processing solutions also come with a Virtual Terminal at little or no additional cost. Virtual Terminals can also double as good mobile processing solutions.

Merchant Accounts Rates & Fees

These are the typical fees you will see associated with a merchant account. Rates will vary from one provider to the other

Application/Setup: $0 - $100+ (one time fee)

Most providers have an application fee. Some charge it at the beginning, while others add it into the solution purchase/lease costs.

Hardware/Software: Purchase or Lease

Merchants have the choice to either purchase or lease equipment. There are pros and cons to each method. The merchant will need to gather the particulars of each and work with the service provider to determine the method that best suits their business. Leasing provides payment flexibility, reduces upfront costs, and provides the opportunity to stay with the most current technology. Most leases require a personal guarantee from the owner. Merchants are obligated to pay the entire lease term. If for some reason a business is sold or business ceases operation before the end of the lease term, merchants still have to pay on the hardware/software costs until the lease term has expired. Some leases are transferable and assumable so if you sell your business it is possible to transfer the lease to the new owners. If you lease, always understand the lease's buyout clause and end of lease terms.

Equipment purchases require a significant upfront investment and, should technologies change you may own a piece of outdated equipment.

Programming: $0 - $100+ (one time fee)

This charge typically applies only to retail merchants who have changed from one provider to another. Many times merchant service providers do not charge fees to reprogram equipment. However, if you use a specialized retail or restaurant POS system, many time the VAR or vendor controlling the equipment will charge to reprogram the system.

Discount Rate: 1.49% - 4% per transaction

This is the fixed percentage amount that is deducted from the purchase cost. Lower discount rates are set for retail establishments while the higher rates are charged for Mail Order/Telephone Order (MOTO) and Internet-based businesses. Why the lower cost for retail? The face-to-face transaction makes the instances of credit card fraud much lower. Thus, banks charge lower discount rates for these types of businesses.

Don't let a few tenths of a percentage point be the deciding factor between two providers. For example, if Provider "A" charges 2.29% and Provider "B" charges 2.49% you'll only save $0.20 for every $100 processed through your merchant account.

Transaction: $0.20 - $0.50 per transaction

In addition to the discount rate a transaction fee is also deducted from the purchase cost. Just as with discount rates, transaction fees are lower for retail businesses while slightly higher amounts are charged for MOTO and Internet establishments. Address Verification (AVS) may or may not be included in the base transaction fee. Make sure your provide discloses this to you.

Monthly Minimum: $0 - $25 per month

The fee is based on your transaction and discount rate fees from your credit card sales each month. For instance, say your bank charged $25 as a monthly minimum, the transaction and discount rate fees collected by the bank must equal or go over $25 each month. If this is the case no monthly minimum will be charged. However, if the fees collected for that month do not meet the $25 minimum, you will then be charged the difference. Not all processors have a monthly minimum fee, however most do.

Gateway Access: $0 - $25+ per month

In most cases, the Secure Payment Gateway provider (e.g. Authorize.Net, VeriSign, etc.) is a separate company from the Merchant Processor, they charge extra fees. For every month that you are on their system, you pay an access fee. The usual fee to pay for gateway access is around $10.

Statement: $0 - $15 per month

The statement fee is charged because at the end of each month you will receive a statement from your processing bank that will list all the transactions that went through for that particular month. It's very much like your credit card or telephone bills.

Daily Close-Out: $0 - $0.15 each day

Associated with software and terminal processing solutions where at the end of every business day you close-out all your transactions. Most providers no longer charge this fee.

Address Verification System (AVS): $0 - $0.05 per transaction

The AVS service checks to see that the billing address given by the customer matches the credit card. If you opt not to use AVS, VISA and MasterCard will not support your transactions and will charge you an additional 0.17% to 1.25% on those sales. Most merchant accounts come with AVS at no extra charge. If there is a charge, in most cases it is combined in with the per-transaction fee. The AVS service works only with US credit card holders.

Chargeback: $5 - $25 per instance

A chargeback occurs when the cardholder disputes a charge that they found on their monthly credit card statement. A large number of chargebacks can cause your merchant account to be dropped totally and leave you in a bind when trying to get another merchant account for your business. If this is the case you may not be able to get another merchant account for several years. As a merchant it is important that you take the necessary steps to reduce and potentially eliminate the instances of chargebacks.

Reserve: Varies, ask the provider for details

Some providers will require you to have a reserve account where the amount is determined by your businesses estimated sales receipts. Most often a reserve is charged to a Non-US based merchant who is trying to obtain a merchant account. Also, businesses that do a high volume of sales each month may be charged a reserve fee. Otherwise, there usually isn't a charge. In most cases the reserve fee is used to cover for any chargebacks on the merchants account. A reserve should be avoided if all possible.

Annual Fee or Annual Technology Fee: $0 to $100 per year

Some credit card processors will charge a fee to cover maintenance and system upgrades. VISA and MasterCard often require system upgrades and this fee helps defray the costs associated in complying with these requirements. Ask your merchant account sales representative for information and to disclose if there is such a fee upfront.

Tips for Merchant Account Holders

Once you have your merchant account you will need to take necessary precautions to avoid chargebacks and fraud. Here are some tips to follow:

1. Collect CVC2 and CVV2 Verification Numbers
   
   This tactic alone can not only reduce instances of chargebacks by 26%, according to VISA, but also reduce any pass-through fees that may be charged when a credit card order is conducted. On the back of MasterCard, most VISA and Discover credit cards is a 3-digit security code located right after your credit card number. Requiring customers to give the 3-digit code acts as an additional verification measure. American Express cards also have a similar security code that is located on the front of the card right above the cardholder's account number and is usually 4-digits long. Most online payment processors support entering the security codes when processing credit card orders. Check with your payment gateway provider (i.e. Verisign, Authorize.Net, etc.) for details.
   
   
2. Use Address Verification System (AVS)
   
   AVS checks to ensure the address entered on the order form matches the address to where the cardholder's billing statements are mailed to. People ordering products and/or services using a stolen card number will never use the real cardholder's billing address, so this is your chance to stop the order before it's too late. AVS only works with orders conducted in the US. Failure to use AVS when processing credit card transactions will always result in paying higher credit card processing fees.
   
   
3. Scrutinize orders from developing foreign countries
   
   A large percentage of fraudulent Internet purchases are made from Indonesia, Russia, and other eastern block or developing countries. Accept orders from such countries at your own risk until a worldwide AVS system is developed.
   
   
4. Let customers know what name will appear on statements
   
   Many merchants who use 3rd Party Processing companies have run into problems because the company name that appears on cardholder's monthly statements is usually the name of the 3rd party processing company and not the company name of the site the cardholder made their purchase from. This isn't always the case, but in many cases it is. If you use a 3rd party processor, and even if you don't, make sure the customer knows what name will appear on their credit card statement at the end of the month. This will help to reduce any confusion that might otherwise occur.
   
   
5. Handle suspicious orders accordingly
   
   If an order seems suspicious the best way to handle the situation is to either call or e-mail the customer and attempt to verify that they placed the order. As a rule of thumb, if in doubt, check things out. It may be a good idea if a customer makes an unusually large volume purchase from your site, follow-up with a verification call.
   
   
6. Watch out for orders using free e-mail addresses
   
   Be wary of accepting orders from people who use a free e-mail address when ordering (i.e. Hotmail, Yahoo, etc.). Tracking people who used a free e-mail address is almost impossible. It's much easier for them to get away than if they used their Internet Service Provider (ISP) or their own company web site e-mail address. To check whether an e-mail address is a freebie or not just take the part of the address after the "@" symbol, add "www" to the front of it and see what website it brings up (i.e. joe@yahoo.com = www.yahoo.com).
   
   
7. Signatures on delivery
   
   If your business delivers products use a carrier that requires a signature on delivery, and allows you to have a copy of the signature. Retain these for your records.
   
   
8. Request fax copies of ID and credit card
   
   You may want to request your customer to fax a copy of both sides of their credit card and driver's license. This tactic usually works best in a B-to-B (business to business) sales environment. While this is not a defense under Visa or MasterCard rules, it is yet another way to deter fraud.
   
   
9. Posting a warning message
   
   Taking the time to post a warning message on your order page to those who may attempt to make a fraudulent order will greatly deter the number of instances of fraud. Be sure to mention that IP (Internet Protocol) addresses are being logged. IP addresses can come in handy when locating people about fraudulent orders.

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