I’ve been expecting Paypal to take a shot at acquiring a buy-now-pay-later service provider, and Paypal just announced they are making a move to acquire Bill Me Later. Paypal’s definitely been missing out on a huge market that Bill Me Later owns. Bill Me Later’s only major competitor is a company called eBillMe.

While I personally think that this could be scrutinized as an anti competitive acquisition, especially considering Paypal’s monopoly over non-credit-card online payments, this should make Bill Me Later easier for smaller businesses t use. Until recently, Bill Me Later required ecommerce merchants to be processing in the seven figures per year, far out of reach for many smaller sites that could have greatly benefited from Bill Me Later.

It would probably be six months to a year before any reasonable integration with Paypal happens, but the acquisition is supposed to go through by 2009.

A while back, I blogged about Visa’s unembossed card program.

These cards which can be printer at a bank, do not have the raised lettering that credit cards currently have. These cards are much easier to produce and can be done on standard equipment, but it prevents businesses from obtaining an imprint of a credit card either as a backup method or for smaller merchants who still exclusively use an imprinter.

Visa is now pushing their unembossed card program to US markets, starting with debit cards, and consumer credit cards. This allows issuers to create cards on-the-fly which is great for issuing debit cards to new bank members, or immediately issuing a credit card upon approval. Unfortunately, this convenience comes directly at the expense of fraud prevention and processing redundancy (albeit primitive), and effectively destroys many small mobile merchant’s primary processing method.

My recommendation to mobile merchants out there, is that if your only method of processing is a manual imprinter, start looking for a wireless terminal, or start looking for a portable photo copy machine. It’s just a matter of time before these cards are the only cards!

A few weeks ago I had the opportunity to have lunch with the owner of one of the largest online retailing websites in the world. He was looking for a new company to process with, and brought up some good points that I think can really help business owners looking to accept credit cards.

As far as processing goes, what is important to a business doing $10M+ per month?

1. It needs to work, period!
2. God forbid something does go wrong, it needs to get fixed, fast!
3. A “fair” price!

It needs to work!

There’s no question that cost is not important if your processing system is not working. A processing system needs to work fast, be completely seamless, and should not have problems, ever…

Ideally a business would not even know they have a merchant account would it not be for that monthly statement.

An invisible merchant account is a good merchant account!

If something does go wrong, it needs to get fixed, fast!

When a second of downtime can cost thousands of dollars in missed revenue, any problems in a credit card processing system needs to be fixed without delay. While service availability and processing connectivity issues should not be a problem, nothing is 100% guaranteed.

Businesses need to know that someone is always there to fix any unforeseen issues, immediately.

I am getting a “fair” price!

It’s not important to get the lowest price on earth, but if someone else costs 25% less, there’s a problem. A quality service costs money, but is also competitively priced. Cost should be low enough that a business owner doesn’t immediately consider switching when someone comes along with something a little lower. The quality of service should make up for any minor differences in price.

Conclusion – the perfect merchant account – The perfect merchant account is competitively priced and stays that way. Regardless of the processing method, it does not have problems with connectivity or in getting a business the money that they process. There must be someone on the other end of a phone, ready to correct any problem that should happen to arise, and problems should be rare. Does your merchant account work this way?

A business owner has better things to do than worry about their merchant account!

This month marks the 3rd anniversary of the merchant account blog.

I’m currently working on some large time-consuming projects which is the main reason that posting has been so sparse lately. Hopefully this will change in the next few months and I can get back to a reasonable schedule for posting.

Thanks to everyone who stops by. Please feel free to jump in and comment if you’ve been a silent lurker.

Thanks again

Right now, there’s a battle waging for the processing industry. On one side is a massive group of retailers including Walmart, Target, the NRF and many others and on the other is Visa, MasterCard, Amex, card issuing and processing banks. This outcome of this battle will ultimately decide whether the government will regulate credit card interchange, or it remains controlled by Visa and MasterCard.

Retailers argue that Visa and MasterCard are using anti-competitive practices to maintain a monopoly on the processing industry. Visa and MasterCard declare that government regulation of interchange will create a non-competitive situation and ultimately cost businesses more than they are currently paying.

In theory this act (H.R. 5546) sounds to be a simple solution to a complex problem. The government gives retailers the ability to negotiate their interchange fees, done… What this resolution doesn’t take into account is that the system is so much more complex than just some simple interchange negotiation. This resolution would be on-par with telling every gas station in the country to negotiate prices with their customers, good luck… It doesn’t in any way address the cause of the interchange prices, it only addresses the result of where interchange is set at.

Why interchange should not be regulated:

Irresponsible: – The current concept of interchange regulation is in reaction to a slowing economy, and massive inflation in oil and food prices, and not the interchange fees themselves. This is an irresponsible and ineffective way to handle a complicated situation. Putting all personal opinion aside, the US Government Accountability Office, the US Justice Department, the American Banking Association, and the Federal Trade Commission have all warned congress against regulating interchange.

“Policymakers should heed the concerns raised by both the FTC and the Justice Department,” said Yingling. “The many benefits merchants receive from accepting payment cards come at a cost and intervening in this properly functioning market by establishing artificial interchange rates will ultimately hurt consumers.”

Congress passing this bill would be a matter of personal politics and not good government. These organizations exist to control and regulate trade and economy. If they are saying not to do it, it’s a good sign that personal issues are overshadowing what’s important in the overall picture.

Impossible Solution: – The resolution for setting interchange prices is by a panel of three appointed “Electronic Payment System Judges” who set interchange rates. How can setting fixed prices possibly allow for a competitive marketplace. If every store owner had to set their prices the same, how would there be any competition.

It also gives merchants “in theory” the ability to negotiate their interchange rates. Since interchange rates are set by Visa and MasterCard and not a business’s merchant account provider, Visa and MasterCard are going to have a lot of work on their hands. There are roughly 25 million businesses in the US. Giving everyone the ability to directly negotiate with Visa/MC is not going to simplify anything. Since interchange will be set based on cost and return, then I can see the cost going up a lot when 25 million people pick up the phone to call Visa.

The market is “not” non-competitive: – Open up a new business and see how many calls you get from merchant account providers. There is fierce competition in the merchant services industry. Putting scams aside, this competition benefits merchants in the form of the lowest possible rates, and best service. This is the definition of a competitive marketplace and is exactly what keeps the market fair. Interchange is extremely complicated, and only recently has become somewhat transparent. The actual problem being described is not the cost, it’s the complexity.

Conclusion:

The bottom line is that this is an extremely complicated situation that is being dealt with through personal emotions and haste instead of facts and understanding in a time of economic instability. Interchange has become a scapegoat for a falling economy and the fallout from rising oil prices and commodities inflation.

Related relevant posts:
An Ugly Regulatory Bill
STOP THE MADNESS!
Congressional Price Fixing
Electronic Payments Coalition Statement on Price Control Legislation (H.R. 5546)
Interchange bill may be dead for ’08
No Credit to Congress

I hate seeing yearly and other fixed fees with merchant accounts. As if its not enough that a business is being charged for every transaction processed, some companies feel the need to charge yearly, monthly, daily, peak-season, miscellaneous, PCI compliance, and other fees just for using their service.

These fees make short work of any great deal that you were supposed to get. Personally, I recommend avoiding providers with high fixed fees unless there is some extenuating circumstance where you can only get approved with a processor that has them.

Let’s take a look at how fixed fees affect overall processing costs:

Let’s say your end of month cost for $8,000 is sales is $150, of effectively 1.88%.

With a $20 fixed fee, this effective rate jumps to 2.13% which is an increase of almost 15%. Add a few more in and the additional cost can easily make up 50% of you bill.

More than just fixed fees can be factored into this equation. If your transaction fee ends up costing $20 more per month with one service provider, it has the same affect as a fixed fee. When you’re looking to get setup processing, it’s important to understand how certain types of fees and the way they are presented will affect your monthly cost. My recommendation is to work backwards. Start by ignoring the discount rate and look at everything else you will be paying.

Hypercom recently introduced the Optimum T4210 and the Optimum T4220 terminals. These terminals are the first of new standardized line of terminals from Hypercom.

Unlike Verifone and many other manufacturers, Hypercom realized that by making a single terminal with several versions, they can reduce their production costs, and make a superior product. Hypercom’s T42** and M42** line of terminals are exactly that, all the same terminal in form and operation, but with subtle hardware differences.

Hypercom’s T4210 is the most basic of the series and uses a standard dial connection. Stepping up, the T4220 is an Ethernet based terminal. Third in line, the T4230, is a retail (counter-top) based cellular terminal operating on AT&T’s wireless network. The M4230 is the same cellular terminal as the T4230 except it has a battery making it completely mobile. Last in the line, the Bluetooth enabled M4240, is battery powered and designed for hand-over processing such as pay-at-the-table.

This line of terminals is set to make a very strong stand against anything out there. They come in with a low price tag, and are high in features and usability. All include thermal printers, smart card capability, and internal PINpads. These are designed to be extremely easy to use, and all are identical to operate. This is a good thing, because businesses that want to upgrade within the terminal line, don’t have to learn any new operating procedures. Input ports are color coded, the printer cover opens with the push of a button, and there’s even a cable organizer to reduce cable clutter.

Hypercom thought these terminals through very well, and I think that they are going to be very popular once they are a little better certified. If you’re in the market for a new terminal because yours is going out or you need an upgrade, I highly recommend checking these out.

The owners of Paymentech, JPMorgan Chase and First Data have decided to dissolve Paymentech into their own operations. JPMorgan will take 51% and the remainder will be merged into First Data.

Both companies have committed to a no-disruption transition so existing Paymentech customers (1Million+) should not see any major change in their processing service.

In a move to become more transparent from increased scrutiny over interchange, Visa has made their operating regulations available. Regulations are available for all regions of the world. The US has two volumes of regulations, for a total of about a thousand pages.

http://corporate.visa.com/pd/rules/main.jsp

Lately I’ve been hearing reports of processors that are starting to charge their customers $19.95 per month for not being PCI compliant. To fix this problem, these processors are requiring their customers to install some PC based scanning software that is supposed to magically make the business PCI compliant, thereby allowing them to avoid the monthly charge.

Let me start out by saying: This is a bunch of crap!

There is nothing that you can just put on your PC that will make your business PCI compliant. This is so far off course that it hardly can be related to PCI. PCI compliance is in reference to networks, computers, hardware and software that play a part in the processing, storage, or transfer of a credit card transaction.

It is now required that every business be PCI compliant, but let me assure you that there is no simple computer program that will do this for any business. Even if only a single computer is used to enter card data, it is unlikely that it is the only piece of the puzzle, and even more unlikely that a single piece of software can guarantee PCI compliance.

Steps to get compliant:

1. Determine whether you need to be PCI compliant. (If you accept credit cards, or play any part in the processing of a credit card, you need to be PCI compliant.)
2. Determine which Level of compliance is required for your business.
   • Level 1: Greater than 6 million credit card transactions per year or any business that has suffered a hack or data breach, or any business deemed Level 1 by card associations.
   • Level 2: 1 to 6 Million credit card transactions per year.
   • Level 3: 20K to 1 Million credit card transactions per year.
   • Level 4: Less than 20K ecommerce, or 1 Million total transactions per year.
3. Fill out the self assessment questionaire (SAQ).
4. Fix every area that you answered ‘NO’ to on the SAQ.
5. Hire an approved scanning vendor (ASV) to perform quarterly scans of any external networks. – All Levels
6. Fix and maintain any failed area of the scan.
7. Level 1 Only: Complete an annual on-site audit by a Qualified Security Assessor (QSA).
8. ** Continue to maintain security of networks and card information! **

Once you complete all of those requirements, and maintain a secure network and business environment, you are PCI compliant. Most of the details of PCI compliance can be found in the SAQ, and on the PCI Security Standards website.

If you’re trying to determine whether PCI compliance is worth it to you, consider this: A security breach will result in a business requiring Level 1 compliance. The cost for level 2, 3, and 4 compliance can be as low as a few hundred dollars per year. The cost of Level 1 compliance can easily reach into the 6 and 7 figures per year.

Some Good PCI Resources:
PCI Answers Blog
PCI Security Standards website
Visa Cardholder Information Security Program
MasterCard SDP Program