Welcome to your Credit Card Processing Wiki
The Credit Card Processing Wiki is your online resource involving all aspects of Credit Card Processing, Merchant Services, Merchant Account Information and other need to know information for all companies and small business owners.
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Merchant accounts offer a convenient way for your customers to buy your services or products — especially since fewer of them are paying with cash and checks today. Merchant accounts increase the number of payment methods accepted by your business by adding credit and debit cards to the mix, making your business available to many different kinds of customers and all the different ways they shop. Having a merchant account for your business will enable you to accept credit cards and build a strong foundation for the profitability of your business.
Once you have made the decision to accept credit cards for your business, you will need to find the best merchant account provider to discuss your many options for credit card processing. Start the ball rolling by finding an experienced merchant service provider — preferably one with an excellent reputation for having a high level of competency and first-rate customer service.
The best credit card processing solutions can be decided by discussing the unique needs of your business with merchant account specialists. Together you can determine a customized payment processing solution to fit your individual requirements.
How and where you provide your goods and services will dictate what kind of credit card processing solution will work best for your business. The main types of merchant accounts are for retail point of sale (POS) processing, wireless credit card processing, mobile credit card processing, mail order-/telephone order (MOTO) credit card processing and e-commerce credit card processing.
The following provides a basic overview of these credit card processing solutions:
During the application process, merchant account providers take into consideration how long you have been in business, if you have had merchant accounts with other credit card processors before and your credit history. Applicants with higher credit scores are often rewarded with lower rates. Merchant service providers need to identify the potential risks you face and they want an assurance that you understand the business environment in which you operate. Being an experienced merchant with a constructive business history can work in your favor, as will demonstrating an understanding of credit card acceptance and fraud prevention.
Not everyone that applies for a merchant account will have experience in these areas, and that’s when merchant account sales representatives can help. The best merchant account providers will work to educate you on industry best practices for new business owners that have no prior experience with merchant account credit card processing. They can similarly provide training and support to experienced business owners. This assistance should be part of any reputable new merchant account application and boarding process.
Many factors are critical to business success, and accept credit cards is one of them. An experienced and trustworthy merchant account service provider can help you determine the best merchant account solution for your business, putting you on the fast track to success.
We are asked all the time by our business loan clients about the safety of credit card processing once they set up shop. While nothing is perfect, of course, we have managed to track down the four riskiest places to use them. But, the question which really is more important pertains to debit cards more so than credit cards because they operate a bit differently.
Think about giving someone access to your bank account information. Would you volunteer it every time you bought something? Probably not, but that is exactly what you may be doing when you used your debit card. Remember, a debit card, although nearly identical to your credit card in looks, links directly to a bank account and money is withdrawn immediately upon the credit card processing transaction. Credit Cards are different in that there is a middleman, a credit card processing company, that is the go between in case of fraud.
Banks which issue debit cards for their customers do have protective policies against fraud but there is no across the board policy when it comes to reimbursing customers for losses due to fraud so the money is gone until a bank decides the outcome. It could be months. Credit Card processors, on the other hand, will credit the account and open an investigation. The amounts in question are in a limbo state and not withheld from a customer without just cause.
With advances in technology moving at a rapid pace there is no real way to determine if the criminals or the good guys are able to consistently maintain a competitive advantage over the other, but for the purposes of a small business owner and the average consumer, safety seems a better bet with the traditional credit card.
With this in mind here are a few interesting examples of what goes on in the game of credit card fraud.
ATM machines are very convenient for us all but also for a criminal. Credit Card skimming has become a very basic grift for any one who puts in a little time or effort. Let’s say there is an ATM machine in your favorite gas station. You go in, swipe your card and get some cash. Simple enough right? Yep, and even simpler for the crook sitting in his car outside with a laptop and basic software which captures your pin code from the network giving them access to you information any time they want.
If they decide to clean out your bank account because you have used a debit card, then you are in trouble. Resolution of the crime takes time and while the investigation goes on, your money is gone. If you were to use the credit feature at the time of the transaction, then you would have the credit card processing company at your side and your money in your account during the process.
Another no no, is using a debit card for online shopping. Shopping online is relatively safe but if you have malware on your computer, such as a keystroker, anybody can have access to your bank account information. On the other end, there is no real way of knowing if the vendor is PCI compliant, meaning the level of care and security they take to secure your data. We’d like to think a retailer would have top level data security but we all hear about this big breaches on the news and they refer to stories involving financial data compromised by networks.
The most intriguing place not to use your debit card may be at a restaurant. We have all given our cards to the waiter or given our credit card numbers over the phone for a pizza delivery service. Well, what happens to your data when you are handing it to another human being, either in person or by phone. Well, they have to use it for something. They may leave the card out while tending to something else or even keep in on file for future orders. With the amount of employment turnover in the industry, there are all types of people coming and going who use restaurants as an easy mark.
For small business owners it is important to be PCI compliant and earn the trust of your customers. For consumers it is a good idea to use cash or credit cards as opposed to a debit card because of the level of service your credit card processing company affords you when things go wrong. It is far easier to deal with a dispute before you actually have to pay your bill at the end of the month, than it is to forfeit actual money from your bank account at the moment the fraud takes place
The holidays conjure up different images for different people but one that I always think of is the bell ringers who stand outside of stores collecting for the Salvation Army. But now they accept credit cards the jingle of coins might not be as loud this year.
We often touch on how credit card processing technology is moving so fast that it is quickly changing the way both merchants and consumers behave. Adopting mobile technology to accept credit cards is now changing the way we give to charity this holiday season, but will the ease of giving compel more people to donate? We will have to wait to see but statistics across several industries show that people are beginning to trust mobile credit card processing and often prefer it to cash.
The Salvation Army has chosen to use the new mobile app “Square” to accept credit cards through smartphones which will allow them to collect donations at any place, and any time, their bell ringers are ringing. Passers by will no longer be able to flash a shameful look and say they have no change any more. Those who wish to put up a nice front will no longer have an excuse on their way into a store to spend with their credit cards.
Square uses a proprietary credit card swipe mechanism that attaches to the input of a smartphone or iPad which redefines point of sale transactions. With Square there are no physical restrictions to accept credit cards and for the first time low volume vendors have a cost effective alternative to tradition credit card processing. Not that the Salvation Army is a low volume user but their volunteers and employees can collect without the need for a centralized payment system.
This year is strictly a test for the Salvation Army, but their entrance into digital donations is here to stay for other charities and non-profits. Those who survive on donations are feeling the pinch in this tough economy and any way to make it easier for people to give without the need for cash in their pocket will encourage early adopters. Instead of anticipating shrinking revenues, aggressive charities such as the Army are counting on revenue growth over the holiday season.
It has long been understood in the credit card processing industry, but not always by those who actually accept credit cards, that security has been rather lax. Most merchants do not understand how far behind the United States is compared to other countries when it comes to privacy and security. Keeping up with the crooks is expensive and the industry has resisted necessary steps to protect individuals and their lobbyists in Washington have helped them keep regulations favorable.
Well this might change soon as a result of some recent negative headlines for the credit card processing industry. Last week there were major arrests in an identity theft ring and government officials are finally calling out the industry. The Queens, New York D.A. chose to not only blame the criminals in this case but to point out that the credit card industry is partly to blame. Citing the massive marketing campaigns and limited allocation of funds towards protection, Richard A. Brown wants changes.
Merchants who accept credit cards in Europe know that in order to process the transaction they need not only the card itself, but a personal identification number to be punched into a keypad. This is similar to what we must do for debit transactions in this country but not for credit. This simple step would make it much more difficult for fraud to occur because a criminal would have to steal the card and learn the PIN code of the victim. It sounds easy but the credit card industry here has been slow to make changes saying that it is cost prohibitive.
The costs are high but in reality it is profit prohibitive to change technology but in the long run everyone would be better off. Chip technology which actually uses heavy encryption would be a terrific standard for the industry a long with PIN codes for credit transactions but so far it is cheaper to just deal with fraud on a case by case basis than to adopt the changes. It reminds me of how changes in insurance were not adopted until Hurricane Katrina.
When only one individual is affected by flawed policies nobody cares, but when an entire region of the United States realizes they are victims in one single day, then changes are forced. It is like that with credit card processing safety and for the first time we have a call to action from a government official whose pockets have not been lined by the banking lobby.
Still reeling from the Durbin Amendment to Dodd Frank which limits fees placed on debit transactions by merchants who accept credit cards, the credit card processing industry will probably try to bury these demands and try to fight this battle later on down the line.
Recently most of the credit card processing news we have been hearing about has focused on the Durbin Amendment and the reduction of debit card fees. As a result, banks are trying to recover their potential lost revenue by pretty much annihilating all the debit rewards programs which changing the way consumers handle their spending.
Debit card programs were so attractive to consumers at one point that they made more sense to use as opposed to cash. Points and dollars were adding up so fast creating a too good to be scenario for consumers. But just as that wave has come and gone, it looks like credit card processing just got a little bit interesting again. We are seeing credit card programs riding the new wave for spenders.
Not long ago, the only company really focused on credit rewards was Discover which had a generous 2% cash back feature on transactions. But over the coming months we will hear more and more about other companies following suit and consumers will cash in. Why?
Finally credit card processing companies are trying to lure in customers with great credit. Customers like this have great repayment records but still carry balances which translates into revenue for the issuer. Competition for this breed of client is competitive and banks will have to offer more than just mediocre customer service to look attractive.
This move will also entice consumers to start using credit again. The debit card programs bit into the market and in many respects retrained spenders to spend with either cash or debit. Credit transactions were an afterthought because they could not compete with rewards programs nor the frequent discounts offered by merchants on cash transactions.
The new cash back credit cards have evolved a bit and will offer tiered rewards for certain types of spending. General transactions will have the lowest value while groceries and fuel will each respectively be higher. Some issuers will offer up to 5% cash back on specialty categories throughout the year in partnership with major retailers. For example, Spring might be lawn and garden season while Summer might see higher rewards for home improvement spends.
It all sounds like great fun and great deals for savvy consumers and those who literally play their cards right will cash in. Airline Miles and sign up bonuses will loom large before Christmas in order to get people spending on their new cards in time for the holidays but these offers are not for everyone.
Those with bad credit need not apply. Credit card processing companies are in it for the money and they are willing to part with a little to keep the type of customers they profit most from. Poor credit not only is risk heavy, but believe it or not, revenue often suffers. Charge offs and collections eat into the profits of credit card processing companies so they would much rather deal with client who spends often and repays bit by bit but does so on time.
Bank of America’s announcement to charge a monthly debit card fee last week has turned the credit card processing world on its head. But for industry insiders this move has long been expected as banks try to recover the lost revenues no longer available to them as a result of the Durbin Amendment.
The credit card processing industry will survive and somehow manage to find a way to become even more profitable. It is consumers who are most bent out of shape by this move yet they shouldn’t be. The big problem is that the banking industry has spent years teaching the public to become reliant on their debit cards but it was a mistake for consumers from the get go.
At first nobody really understood the differences between the debit and credit card processing fees and cost. They only saw that banks were using gimmicks to encourage use and if done correctly, users made out like bandits. There were no real debit card fees for most point of sale transactions but they were loaded with reward points which quickly added up to extra cash. Some users earned hundreds of dollars per year using their card the same way they would use cash. It made no sense to use anything but debit.
I myself chose to use a debit card to pay for dental surgery and received $53 back from my issuer at the end of that quarter which effectively gave me a discount off of my procedure. Throw in groceries, gas and utilities and I was a debit card junkie. Then came the increase in fees from merchants for credit card processing on small items like chips and gum. It was then that I noticed there was a significant cost to using debit cards.
Now that rewards programs have come and gone, and the banks can no longer charge high fees for POS transactions, they are resorting to monthly charges on checking or savings accounts with debit cards tied to them, and turning to tricks buried in the fine print of their terms of service agreements to generate higher fees to replace lost revenues. Consumers need to be aware of this and stop using their debit cards when credit is an option.
Debit transactions are immediately taken from a users account which makes fraud a lot more difficult to deal with from a consumer’s standpoint. Traditional credit card processing provides a much better challenge process and is much safer than using debit. For someone who pays off their credit statements monthly so they don’t accrue interest charges, there are still plenty of cash back programs which make using credit extremely attractive.
Speaking of cash, why not use that? Cash still spends and many merchants offer discounts for its use because they pay no fees what so ever. Cash may not be the safest thing to carry but using it is your least expensive option. The real point here is that smart consumers need to be aware of the current, and upcoming, changes in the credit card processing industry.
Well we in the credit card processing world new it was coming before October 1st and Bank Of America has fired the first shot. Bank of America is introducing a $5 debit card free which will undoubtedly anger its customers.
For those that do not already know, The Durbin Amendment which places a cap on what issuing banks can charge merchants to process debit cards. Credit Card Processing can be very expensive for merchants and this is why you see minimums in some stores in order for them to accept credit cards from customers. The legislation is good for small businesses and in turn will benefit consumers. But what about the banks? Are they the victims here?
Well if you follow credit card processing news headlines you would think they are being driven into bankruptcy. Their credit card processing revenue has been estimated at near $19billion per year and they are out to recover their potential losses any way they can. The announcement from Bank of America to charge a $5 a month debit card fee has been the most notable attempt so far. Other banks have already done so but BOA has the most depositors and is a giant in the industry.
The fee is not as bad as it sounds because the $5 fee will only be assessed as a monthly charge is someone uses their debit card during the month and it is not a per transaction fee. Transaction fees will be capped at 21 cents plus 5 basis points times the amount of the transaction and will be charged to the customer by the merchant. At the point of sale this is a much better deal for consumers than they currently face.
The way to avoid the fee with BOA is quite obvious. Don’t use your debit card. It sounds a bit harsh but the truth is that these new bank fees will change the way consumers behave in the market place. This fee will be imposed on top of any other checking account fees already in place. Free checking accounts have all but disappeared as a precursor to this new legislation and bank customers have to pay more attention to their accounts than ever before if they hope to avoid the pitfalls of a la cart banking but perhaps this is something good.
The incentive here is to become more reliant on cash and let the big monster mega banks know how you feel by avoiding their credit card processing fees as best you can. But for individuals who make lots of debit card transactions over the month, the $5 fee may prove to a blessing in disguise as they realize more savings at the point of sale. We will have to wait a few months to see how this all shakes out but one thing is for sure, things are going to be different as far as credit card processing is concerned.
In one of the most interesting news stories about credit card processing this year, what I had long suspected turns out to be true. It has to do with the credit card processing and their strong lobby. It is important to know what goes on in Washington and how it affects small business.
This story in particular focuses on American Express and how they spent over $600,000 in the second quarter of 2011 lobbying Washington in an effort to ease regulations regarding credit card processing and, more specifically, debit card fees. As many of us already know, new legislation was passed which regulates the amount of fees a merchant can be charged for accepting debit cards on a per transaction basis.
This type of legislation has been a long time coming and is an attempt to keep merchants who accept credit cards from being victimized by enormous fees for offering a service that customers have come to expect, and expect it at no additional cost to them. Merchants are forced to declare minimums when they accept credit cards for small purchases because their profits may actually go straight to their merchant account providers and theoretically they could lose money on every purchase.
In a lot of cases maximum amounts are also be because the percentage fee from a transaction may represent far more than any credit card processing company deserves just because a transaction is so large. With regard to debit charges, the new law states that a merchant can only be charged 21 cents plus 5 basis points times the amount of the transaction. A great deal for merchants and terrific news for consumers, but the banking industry is upset about this.
Issuing banks will need to make up this lost revenue somewhere and of course, customers will have to pick up the bill. Free checking will completely disappear, if it hasn’t already, and debit rewards loyalty programs have disappeared almost faster than they hit the seen a few years ago. The winners and losers will really be determined after consumers change their spending behavior at the credit card terminals but the banks want to make sure that they are somehow the winners in all of this.
The interesting thing about the American Express lobbying spend during this time was that American Express does not even issue debit cards and are not directly affecting by the new rules. However, they clearly see the writing on the wall and probably fear the consequences of how these new laws can now regulate Interchange which is an amount that banks can charge each other for credit card processing. American Express also lobbied other legislation regarding customer tracking and tighter privacy protections and their position, as with most banks, does not bode well for the consumer.
Change in the credit card processing industry, and banking in general, is costly. New technologies which constantly need to be upgraded to protect against vulnerabilities require massive capital and are never ending so it is understandable that these industries resist change. But is it for the right reasons? These moves are clearly an attempt to protect their bottom lines and show little concern for transactional safety and the price merchants must pay to accept credit cards to compete at a customer service level. The Lobby was originally developed as an organized way for the people to talk to Government but it has evolved as a way for big businesses to slow down Government by filling the pockets of voting legislators.
Credit Card Processing should only get better, more efficient and less costly for both merchants and consumers but if issuing banks have their way, it will be anything but.
Recently we discussed how Anthem Blue Cross in California cannot charge the $15 convenience fee to accept credit cards from policy holders to pay their premiums. It is a violation of California law for private businesses to charge credit card processing fees to their customers to accept credit cards instead of cash. The can discount amounts if a someone uses cash or check but cannot make it more expensive to use credit.
They attempt to do this to make up for lost revenue for the merchant account fees they must endure for providing the ability to accept credit cards as a form of payment. In the past it was something that companies were willing to write off but in tough economic times it doesn’t sit so well. In Anthem’s case they tried to charge what they call a “convenience fee” and it was a miserable failure. They were negligent with their attempts to inform policy holders and many on autopay plans ending up $15 short on their premiums and lost coverage.
The fee has been done away with but many wonder how Anthem could get away with this in California and the truth is they cannot. But others can. There is definitely a credit card processing loophole in the State and here it is. Private companies cannot charge a premium for credit card users but public ones can. A college like UCLA, for instance, charges a 2.75% fee for allowing students and parents to pay with a credit card. Certain counties are charging an extra fee for credit card processing on property taxes and California utilities companies can also charge for the convenience.
In the broadest sense of the word none of the above are considered retailers by State Law and therefor exempt for laws governing retailer’s charging above the price the credit card processing. Utilities are not, however, allowed to collect any more than the actual cost of their actual merchant costs due to tougher regulations but others can. UCLA says it spends over $6.5million in merchant account fees and now by passing them on to students, they save that money. It is unclear whether UCLA is profiting by charging a flat 2.75% fee.
For most of us, the best example of two tier pricing is at the gas pumps but the standard party line on this from the oil industry is that they are offering a discount for cash or check and this discount is offered to all customers. If they admitted to raising the price for credit this would be against California’s credit card processing laws.
Credit Card Processing technology is seemingly changing by the minute and both merchants and consumers alike wonder how they will accept credit cards in the future. Mobile devices are the hottest talk in the industry and Square has been making a lot of news lately but before this, NFC, or Near Field Communication devices were expected to be the main method of credit card processing in the future.
But as technology changes, so do the certainty of certain technologies cornering the market. While everyone agrees that mobile credit card processing will allow more businesses to enter the market, nobody is sure how to best accept credit cards. The fact remains that no matter how many people are set up to accept credit cards on the go with their smartphones, the vast majority of both merchants and consumers still feel most secure with real plastic credit cards.
Near Field Technology would actually be used to allow devices to communicate with each other at close range. So merchant and customer would not have to physically handle cards if they had built in NFC chips in their cellphones or had one of the many NFC accessories on the market. Even though the transfer of data can only be done at close range, NFC security is not yet that safe and can be breached by hackers. It is certainly not the norm but as with many newer technologies the bad element always seems to find a way in.
The credit card processing for those will to accept credit cards this way is very cool. Basically a customer with credit card information stored on an NFC type chip in their phone can simply wave their phone over a receiving device located near a merchants terminal. In completely mobile transactions, the devices would simply need to connect or wave in some manner.
A lot of the major players in technology have invested heavily in seeing that NFC becomes a mainstay of future eCommerce with many of the major Cell phone manufactures already making NFC equipped phones. The potential to streamline credit card processing for point of sale transactions is one thing, but using the technology for ticketing, boarding passes, coupons, rental cars and hotel check ins also have others interested in pushing the technology.
Companies like Square plan to make sure that both mobile and stationary payments are equally serviced to accept credit cards because they are not sure that NFC will be the best solution for credit card processing and do not want all their eggs in one basket. Traditional transactions have been ingrained into people for the last 40 years and won’t easily change over the next generation.