Why would you need to setup multiple merchant accounts on one credit card terminal?

There are a few reasons that a business/businesses would want to setup multiple merchant accounts on a single terminal. There are a huge number of businesses that could benefit from using multiple merchant accounts, and they may already have all the equipment they need to do so.

The first scenario for multiple accounts is when a business has multiple merchant accounts for different transactions that they accept. Many restaurants and businesses that have a delivery service, or a phone order department, have a merchant account for their keyed transactions and another for their swiped transactions. Using a single terminal often is a much simpler system for charging credit cards than using multiple terminals or software programs.

The second situation that I commonly see is hair salon type businesses where there are multiple, independent parties that all need to accept credit cards in a single location. Rather than using some complicated system to deposit money into each professional’s account at the end of the month, a merchant account will automatically deposit each person’s money where it needs to go.

Setting up a terminal for multiple accounts:
The most important part in setting up a terminal for multiple account processing is to use a terminal that is compatible with multiple merchant accounts. Not all terminals are compatible with a multiple account setup.

Compatible Terminals:

• Verifone Tranz 380×2 (2 Accounts)
• Verifone Omni 3740 / 3750 (# of accounts depends on memory and how complex each account is normally ~9)
• Nurit 2085 (9 Accounts)
• Nurit 3020, 8320 (9 – 11 Accounts)

Other important things to remember when you need to setup multiple merchant accounts through a single terminal, are that the merchant accounts must be on the same processing platform through the same processor. The exception to this is the Tranz 380×2, as it is able to handle two completely independent merchant accounts through the same terminal. The Verifone Omni 3740 and 3750 could potentially do the same thing as the Tranz 380×2 using a function called split dial, but I have never seen it successfully done.

As for the rest of the terminals, I highly recommend using a single merchant account provider for the setup to ensure the terminal is programmed correctly and that each account is setup in the right place from the start. Also, if more accounts need to be added in the future, they can correctly setup each additional account from the start, and can easily program the terminal with the additional account information.

Why two merchant accounts for a single business:
A business can actually save money by having two merchant accounts if they do a decent volume of both keyed and swiped transactions. Keyed transactions will downgrade through a swiped merchant account, and swiped transactions are more expensive to process through a keyed account, so the lowest cost solution ‘can be’ to use a separate account for each transaction type. Very low volume businesses will probably not benefit from a multiple account setup, but businesses with higher volume can save a lot of money and can make their banking easier if they use separate bank accounts for their transaction types.

How to actually process a card through a terminal with multiple accounts:
This will vary from terminal to terminal and from processor to processor, but generally your terminal will prompt you for the id assigned to the merchant account in the terminal (Ex: 1, 2, 3…). All you have to do it remember which id is used for each account, and then process the card either by swiping it or by keying it in.

Quick example of a business that could save using multiple accounts:
Assume the business does about $20,000 per month in sales at an average ticket size of $75 split between keyed entry and swiped entry. Assume 2.3% + $.30 / transaction including AVS for keyed transactions and 1.75% + $.20 / transaction for swiped transactions.

Scenario 1 – Keyed Account
Processing Fees: $20,000 x 2.3% = $460.00
Transaction Fees: ~267 transactions at $.30 / transaction = $80
Total = $540

*Scenario 2 – Swiped Account
Assume keyed transactions downgrade to +1% over the swiped rate. Keyed transactions also get +$.05 / transaction for AVS.
Processing Fees Swiped: $10,000 x 1.75% = $175
Processing Fees Keyed: $10,000 x 2.7% = $270
Transaction Fees: ~267 transactions at $.20 / transaction = $53
AVS Fees: ~ 134 transactions at $.05 / transaction = $7
Total = $505

*This account is technically not allowed. With a swiped account, a business must be swiping at least 80% of their transactions. This account would eventually get shut down by Visa / MC or the processing bank unless they switched to a keyed account. Technically it would be cheaper than a keyed account, but the business risks getting shut down, having their money held or even getting TMF’d.

Scenario 3 – Swiped and Keyed Account
Swiped Processing Fees: $10,000 x 1.75% = $175
Keyed Processing Fees: $10,000 x 2.3% = $230
Swiped Transaction Fees: ~134 transactions at $.20 / transaction = $27
Keyed Transaction Fees: ~134 transactions at $.30 / transaction = $40
Total: $472

Not a huge savings (about 13.5% over a keyed only account), but over a few years it could really add up, and there are the other benefits that multiple account businesses have that often would be worth paying more for from an accounting perspective.

I just got back from a vacation, which is why the posting had ceased for the past week and a half. The following is a personal summary of a situation that I recently had the pleasure of enduring, and a personal opinion about businesses having fraud committed against them.

The Fraud:
We recently had a situation where a customer committed fraud against us. I am going to avoid disclosing exactly what this person did, because he essentially found a security gap in the processing system that allowed him to steal a lot of money, very quickly, very effectively, and that security gap has not been closed that I know of. As I know, he has stolen over $250,000 from several processors in the US.

Now, when a business is confronted with a situation like this, it is warranted to file a police report, and report it to the FBI and secret service. This is much easier said than done, and most businesses that have fraud committed against them, don’t even make it through this process.

To say that law enforcement personnel have no clue about anything related to electronic fraud, or fraud occurring across multiple states is a gross understatement. When trying to report this to the police, we were bounced between police stations about thirty times, and at no point did any person actually know where the fraud should be reported. It didn’t matter if we talked to an investigator or a receptionist, nobody knew where this actually needed to be reported.

Eventually, we found that the fraud needs to be reported where it actually occurred, which was in another state from us. We had to do the homework ourselves just to figure out where this needed to be reported at.

We then went to report it…

First we had to fight to even get the opportunity to fill out a police report. At this point we were absolutely sure we were filing it with the right state, but nobody at that state agency seemed to believe us (More likely they just didn’t want to deal with it). Finally we were introduced to an investigator that agreed that we were doing the correct thing at the correct location. Initially the investigator didn’t even believe that this situation could have happened. We are still shocked ourselves that it can happen, but it definitely did happen. After listening to the situation, he sent us some paperwork which was a police report and a bunch of signature documents, and we sent it back. He said he would look into it… The moment we first contacted the police station, to the moment the paperwork was actually filed took four days.

We then went to the secret service to report the situation. While they were much more knowledgeable about situations like this and electronic fraud in general, it didn’t appear that our situation was large enough to warrant their investigation. Even so, they said that they would consider it. They took our information and said that they would get back to us. They were very professional, and I wish that the police stations were even remotely as organized. Our entire dealing with the secret service was about 30 minutes, and we felt like we got a lot more accomplished.

In the weeks following the fraud we reported, processors in the US saw several other cases of the same situation with other processors. The total amount grew, and passed $250,000 the last I had heard. It may still be growing.

Finally, after five weeks the police station got back to us and said that they would conduct a formal investigation. We then sent over all of the information that we had, and now we wait again.

No Justice:
The truly sad thing about fraud that is electronic in nature, is that there in virtually no recourse once it happens. Unless you have an extraordinary case involving a ring of fraudsters, months worth of fraud, and millions of dollars in losses, there is virtually no chance that you will ever recover your losses. This person got away with a quarter million dollars in a few weeks, and I highly doubt that he will ever be caught. There were several chances that police could have got him, and there will probably be many more, but the bureaucracy of the system and the quantity of fraud and theft that occurs, prevents any quick action which would be required to catch people like this.

This person committing the fraud had better knowledge of the internal workings of the processing industry than any person I have ever talked to. He knew exactly what to do, how to do it, and when to do it, to get away with a lot of money before anything could be done about it, and he did it several times. The last few times, he did it with large financial institutions, while they were looking for it, and he still got away. He is most likely some employee, or ex-employee of a processor or bank, that thoroughly did his homework.

Conclusion on Fraud:
Online and retail businesses need to take appropriate steps to prevent fraud, chargebacks, and data loss before they happen, because the simple truth is that once that fraud is committed, it’s already too late to recover anything.

Following the suite of MasterCard and the planned IPO for Visa, Discover has announced that they plan to go public in the second half of 2007.

So far the effects of MasterCard going public have amounted to little more than the publicizing of credit card interchange. It will be interesting to see how these companies going public effects the processing industry. Personally, I cant see it as a positive direction for businesses, but public companies often rely more heavily on a positive public image than private companies, and this may cause card companies to turn in a direction that will benefit everyone.

This is the first complete year that the merchant account blog has been going. Google finally let the site out of the sandbox a few weeks ago, and since then the search engine traffic has gone up by about 300%.

Since there are so many new visitors, I am posting this as an aggregation of a few better topics from each month this past year.

January 2006:

• A brief guide to SSL certificates for online businesses.

February 2006:

• How to convert a dial omni 3740/3750 to be ethernet compatible
• Paying with a credit card in a foreign country, forex fees.

March 2006:

• Gone Phishing – Protecting yourself and identifying phishing attempts.
• TMF’d – What to do if you are are placed on the terminated merchant ‘match’ file…

April 2006:

• Created the: Processing Equipment Lease Cost Calculator
• The History of Credit Cards
• The History of Credit Card Terminals

May 2006:

• Guide to Merchant Account Affiliate Programs – Part 1, Part 2
• 3 Tips For New Merchant Account Owners

June 2006:

• Processing Platforms
• Factoring – Credit Card Laundering

July 2006:

• Cutting the middle-man, who is it best to process with?
• Paypal Shopping Cart Makes Spam
• Credit card skimming, easy to get skimming equipment.

August 2006:

• How to spot a fake credit card
• Credit Card Logos for Your Website
• Other Ecommerce and Merchant Account Blogs
• Merchant Account Fees, Credit Card Interchange – Who are you really paying?

September 2006:

• A credit card terminal from First Data (FD-100)
• Technological Progression of Payment Processing – Not any time soon!!!
• Magazines for small business owners

October 2006:

• Required Actions for PCI Compliance
• A list of payment gateways
• Google Checkout vs. Everything else…, Updated Google Checkout Review

November 2006:

• Where do data losses actually occur?
• Merry Christmas, Return Fraud and the Holidays
• How long does a credit card machine last?

December 2006:

• Unembossed cards are going to kill mobile merchants
• MisShaping the merchant account industry…

I often receive questions as to why merchant service providers so often are just simply trying to rip businesses off. A recent question got me to thinking of what had caused the shift in what should be a great service, into something that rarely reflects a good or honest industry. This is a quick analysis of how some past decisions in the processing industry have influenced the way the industry is often viewed, and why there are so many companies doing bad business.

(Take this article with a grain of salt, as I am not touching on positive aspects of the industry, which there are many.)

A little history:

In the US, merchant accounts were traditionally controlled by banks. Elsewhere in the world, banks still have this same unchecked control over credit card processing. At some point, banks in the US began to give up their control over processing, and a group of businesses called ISOs (Independent Service Operator’s) were born. ISOs perform the same service that banks did, but created some much needed competition in the industry. Fees and prices went down almost overnight, and the acceptance of credit cards spread much more rapidly due to the lower cost to businesses. Since ISOs were specifically devoted to providing merchant services, their levels of knowledge and customer support became superior to banks. The few ISOs at the time got really big, and started allowing smaller ISOs and sales agents to operate under them. This branching created a massive service industry in a short amount of time, empowering thousands of companies and individuals to provide merchant accounts.

Processing equipment in the beginning:
In the beginning, equipment for processing was usually giving to businesses to use for free from banks. The cost of accepting credit cards was high, and banks pretty much just gave equipment to businesses just for processing with them. With the increased competition from ISOs and the subsequent lowering of fees to accept credit cards, equipment turned from a merchant account feature to a commodity. Equipment became a way for banks and ISOs to make some upfront money on their merchant accounts. Since processing become cheaper, in theory this would not have been a problem.

Lease abuse creates the foundation for bad business:
Providers realized that one of the best ways to make money was to lease equipment to their customers. Leasing became the standard, and stayed that way for over ten years. A low cost lease (~$25 / month) fronted the provider much more money than would have been made by selling equipment or giving it away. But, higher cost leases of $79 or more were common, even for equipment costing under $200. On a 48 month lease a provider could easily make $2000 upfront for each lease they signed. For a medium size organization bringing in 500 accounts per month, this would easily equate to 1 million dollars in extra profit each month. This cash flow from leases allowed even smaller ISOs to get very large and have very high revenue and profit. ISOs that heavily abused leasing had extremely high cash-flow and made this industry look like a gold nugget for anyone looking to make a quick buck. A lot of ISOs sprung up only with the intention of capitalizing on the ability to make money from high cost leases. High cost leases also tarnished the integrity of the industry as this cash flow was entirely at the expense of businesses. I still come across businesses locked into $79 / month and higher leases, as some banks and ISOs still dupe unsuspecting business owners into these ridiculous contracts.

A shift:
Sometime between 1999 and 2002, after the .com crash, leasing began to rapidly lose it’s appeal. Several merchant service providers (Merchant Warehouse is the first I know of starting in ’98) started selling credit card equipment online for very cheap, and leasing no longer seemed practical for many business owners. During this time several leasing companies also halted new leases, and lease provider’s practices came under scrutiny. Many ISOs lost their entire cash-flow overnight with the fall of prominent leasing companies.

Free terminal programs re-emerged in 2004 when United Bankcard and later Total Merchant Services revived the practice. Although United claims that they invented the free terminal program, they only re-invented it. It has however been an effective marketing tool for them. Now, most businesses either get a free terminal or they purchase one with very little markup when they first sign up for a merchant account. Both of these practices have their advantages and disadvantages.

How competition took a wrong turn:
At some point in the development of merchant services, the actual fees associated with processing became the primary competition focus. ISOs fought, basing their marketing and sales strategy solely off of their price. Since every ISO pays almost an identical cost, the industry shifted from a service driven industry to a price driven industry. ISOs began further and further discounting their services to make themselves appear the cheapest, and eventually hit their cost or below it. In response to no longer making money, many ISOs began getting creative with their fee structures. A business would sign up for a merchant account thinking they were getting a great price, and would get hit with a ton of other padding fees, or their provider would simply raise their rate. Things like monthly, convenience, yearly, and other fees become more common as ISOs had to make money somewhere. The industry ramped onto a self-destructive path, and still has not stepped off of it or even taken the steps to change it’s path.

Effects on the provider-customer relationship:
Processing companies have rarely been regarded as honest companies and taking this route did a few things. As more and more businesses started getting ripped off, the trust that these businesses had for service providers degraded more and more. Businesses locked into leases or contracts realized that they were being taken advantage of. Customer loyalty has become almost completely non-existent. ISOs started using termination fees more to keep customers with their business, and it doesn’t look like that is going to change any time soon. This has contributed to the further separation of businesses from ISOs. ISOs also make the mistake of isolating themselves from their customers, believing that they are better than the businesses that use their services. This can be party attributed to the business practices passed down from banks into the processing industry, but mainly ISOs just believe that their knowledge empowers them (which it very often does).

What we get in the end:
After all the cards are played, we end up with a service based industry competing only on price to a bunch of businesses that don’t care who they use because they will immediately switch as soon as there is any problem, or the next lower offer comes around. There is no real trust between the business and the provider, and as a result, there is no loyalty between the provider and the business. Businesses expect ultra-low processing rates, and providers are trying to figure out how to be fair and not lose money.

The bad providers keep the entire industry in a stalemate, as they keep focus on the price of services, while continuing to rip their customers off with other fees, increasing rates, and absurd contract terms. This in turn pushes the cycle of mistrust, and entices the good providers to remain in a price competition with the bad ones.

On the bright side:
There are still good providers out there. These companies don’t exist just to rip businesses off, and they do provide a needed and honest service to their customers.

The best way to find a good provider is to initially take price out of the picture. Find a provider that your business colleagues recommend, that has a good rating with the BBB, that doesn’t use high pressure sales, that didn’t first solicit you, and that has fair fees on their application. Find 4 or 5 companies that match some or all of the above criteria, and get some info from them. You should find a provider that has fair fees, is completely upfront with you, and you feel comfortable with.

In the end, Knowledge is the most powerful tool for any business looking for a merchant account. A basic knowledge of the industry will greatly benefit any business looking for merchant services, and the industry itself.

In another well planned act of complete corporate brilliance, Visa and MasterCard are going to start making and distributing unembossed credit cards in the US.

An unembossed credit card is a card where the numbers on the card are not raised up like a normal card. It is perfectly flat, with everything just printed on the card.

Where’s the problem?
Unembossed cards completely eliminate the ability to manually imprint that card. Many restaurants and retail businesses use a manual imprinter as a backup processing method, and there are also mobile businesses that use nothing but a manual imprinter. These businesses are not going to be able to imprint their customer’s credit card, which opens up a door for chargebacks.

Both Visa and MasterCard avoided giving any straight answer as to what merchants can do to prevent a chargeback if the accept an unembosed credit card, or even a sufficient method for accepting the unembossed cards. Visa was nice enough to suggest to not accept unembosed cards, and instead ask for another form of Visa for payment!!! MasterCard’s unembossed cards have the text “ELECTRONIC USE ONLY” on the card itself, suggesting that there will be no reduced liability for any business that accepts that card manually.

Mobile businesses are going to suffer:
Many mobile businesses are not able to afford expensive wireless equipment, or there isn’t sufficient cellular coverage where they do business to justify a wireless terminal, or their situation just doesn’t call for a wireless terminal. The card issuers have taken the first steps to close the doors on these businesses, who may still make up 50% or more of all mobile businesses.

Also, these cards will be much easier for thieves to duplicate, as the hardest part in making a fake card is the embossing.

It would be nice for once, to see the card companies do something to help the businesses that accept cards.

What should mobile businesses do?
There are a few options. As Visa suggested, you could ask your customer for a different form of Visa. You could take the card anyway and accept the extra risk of a chargeback (I think that this will most likely be the rout that most affected businesses take). you could throw down the $500+ for a wireless terminal. You could just not accept the card.

There really isn’t a good answer for what businesses should do. This really places mobile merchants in a awkward situation, as most need to accept cards just to make money, and they are the only group actually affected by this change. All this trouble for businesses just so Visa and MasterCard can save a few cents on every few hundred cards that are produced.

MasterCard’s Unembossed Card Program for Merchants

I rarely bring up specifics about another business on this blog, because I think it is unprofessional and simply irrelevant to focus on other business’s poor practices, but this warranted a break from my norm.

One of our agents was recently in the process of signing a customer up with a merchant account. The business they were talking to was already processing, but was somewhat unhappy with their current level of service and fees and was looking for someone better.

Another merchant account provider that was also trying to gain this business’s merchant account was Heartland Payment Systems. Heartland is one of the larger US based providers ranking at number six in overall volume in the US.

After a recent post on the merchant account services blog, I thought that this was a completely appropriate post about deceptive merchant account fees.

What happened:
Our agent quoted the business a rate of about 1.68% and $.19 per transaction for credit cards (For times sake, I’ll avoid the entire fee structure). Considering that the company was paying over 1.9% on their retail account, this was a significant decrease in price.

Now, while the rate that our agent quoted to this merchant was not the lowest that ever existed, it was a fair, and completely honest rate. What heartland quoted was not an honest rate, it was designed to deceive this business owner.

Heartland’s quote (exactly as written):

Well, sign me up while you’re at it, Heartland!!!

Lets not consider that interchange for this business over 1.6%, and $.10 per transaction, and Heartland’s Dedicated Local Service Manager never even visited this business.

Why is this rate deceptive?

This is called a pass-through or interchange plus rate, and while it’s not an extremely bad pass-through rate, it was presented in a deceptive manner. Basically, heartland passes the interchange cost to the business, and then adds their own fees to the rate. If interchange was 1.65% and $.10 per transaction, they add their .4% and $.10, to make it 2.05% and $.20 per transaction. Not much of a deal anymore, especially since the business was currently paying 1.9%, and not one place on the proposal mentioned that interchange would be charged as well. Earlier on the application the words: Fully Disclosed, Competitive Pricing, are in bold with an excellent paragraph explaining how Heartland doesn’t increase fees, and only passes interchange fee changes to the customer. They make a special point to let the business know that if interchange goes down, they also lower the passed fees as well.

How many times has interchange gone down? – Never!!!

What is really upsetting, is that the majority of business owners, would actually think they are getting a merchant account at .4%. Compare that to a decent rate of 1.7% and lets see who they go with. Heartland makes a ton of claims about their honesty, full disclose, even has a website http://www.merchantbillofrights.com/, but then sends this garbage to a potential customer, with no disclosure about interchange fees.

This is a completely deceptive proposal, and doesn’t even approach the concept of full disclosure. The app did have the interchange fees on it, but the proposal did not.

I wonder how many hundreds, or even thousands of businesses have been sold by this company based on this same deceptive fee structure.

Most businesses that accept credit cards online have become more aware of Payment Card Industry (PCI) security regulations like CISP, and SDP. What I find to be an interesting figure is that very little data loss actually occurs with online businesses.

Roughly 65% of all data security breaches occur at restaurants, the next largest group retail stores claim about 12%, and the remaining percentage is split between every other type of business out there including online. The simple truth is that with all the scrutiny over online businesses, card companies have failed to see the actual problem. It is retail businesses where employees and even customers often have direct access to sensitive data. Online businesses, even with poor security would require someone very knowledgeable in networking and computers to compromise their data. Any average Joe could obtain a credit card skimmer and use it at the restaurant where they work.

What this concludes is that somewhere along the line, card companies ignored where data breaches actually occur, and just decided to target all online businesses. Now everyone has to jump through hoops when for many there is absolutely no risk of a security breach because the information just isn’t there to steal.

Security is extremely important for all businesses, and protecting cardholders information is every business’s responsibility. Don’t store sensitive data if you don’t have to, and if you do, make absolutely sure you know how to encrypt and store it properly.

Also, if you use any custom made POS software system, you may want to check with the programmer that the system is not storing track data. If it is and you get caught, you can get up to a $100,000 per month fine until it is fixed. That is just a fine for storing the track data, not for an actual data breach which could be significantly higher.

Ebay has become one of the largest marketplaces for selling in the world. Actually getting money from an eBay auction can be as hard as selling something.

Here’s a quick overview of the different methods of payment you can consider for your eBay auctions.

Paypal:
Paypal is by far the easiest and most tightly integrated method of accepting payments on eBay. Paypal is automatically tied into the eBay checkout system, and Paypal is widely used by buyers. There is however a percentage of buyers and sellers that have bad experiences with Paypal, and wont use it. For this reason it is always best to provide at least one supplemental payment method for selling on eBay. But, buyers normally want to use Paypal to pay for auctions and from a sellers perspective it is wise to accept Paypal, even if you have had a negative experience with them. As crazy as this may sound, Paypal auctions almost always sell for much higher than an auctions where Paypal is not accepted. Even an automated credit card acceptance system does not offer a suitable replacement for the wide use of Paypal.

Credit cards:
Credit cards can be tricky to accept on eBay auctions, but are the second most desired method of payment next to Paypal. Depending on how many products you sell, manually accepting orders over the phone from eBay sales can be the perfect solution or simple impossible. There are a variety of pre-made systems that can integrate eBay with your payment gateway and merchant account, but these systems often add unnecessary extra fees to the already high cut that eBay takes. If you run a successful online business, I recommend hiring a programmer to develop an eBay checkout system for your auctions through your existing payment gateway. This creates a much more usable system, and eBay orders can be better integrated with website orders for inventory, customer service, and tracking.

Personal checks:
In my opinion, personal checks are the worst method of payment for eBay auctions that work well enough to consider. Checks are slow, they must clear a bank account, they are prone to bouncing and being lost in the mail, and they create a very poor user experience. With the exception of a few rare occasions, checks are not a convenient, timely, or cost effective method of payments for eBay. The money you save by not using Paypal or accepting credit cards, is most definitely more than offset by the lack of bids you get on your auctions. Nearly every bad experience I have had on eBay was a result of having to send or received a check.

Money orders & cashiers checks:
Money orders and cashiers checks are safe and effective methods of getting paid on eBay. But, they are slow as they have to be mailed by the buyer and deposited into a bank account before the auction item can be shipped. They are best used with high dollar auctions where it is essential that the seller is protected from any buyer fraud or frivolous chargebacks and disputes, and time is not of the utmost importance. For high dollar items, I recommend getting an initial deposit via Paypal or credit card, and accepting the balance by cashiers check. I would consider a high dollar item anything of about $2000 and up.

Cash:
I would not even consider sending or requesting cash through the mail. If you sell locally and are comfortable with meeting your customers, than cash can be a great method of getting paid for your auctions. For most of us, cash is rarely if ever a viable option. For those that do meet their customers, I would highly recommend taking appropriate precautions to protect yourself. If you do not have a business address, I recommend meeting your customers in a public place, not at your residence. Most likely you will never have a problem with a buyer, but it’s simply not worth the risk to you or your family.

Western Union:
Western union is not an acceptable method of payment for eBay. It is commonly associated with fraud, and a very high chance of someone getting burned exists with western union. I do not recommend using western union for auction payments at all. eBay also warns against it. Just don’t do it.

Other 3rd party checkout systems:
There are several other common checkout systems that can be used for accepting payments on eBay. Personally, I find most of these systems to offer a poor experience for a customer, but they are still used often enough to mention. Andale, Bidpay, Vendio, and USAepay are some of the commonly used checkout systems for eBay auctions. These systems have a hosted checkout process for your auction winners. They also help manage your existing auctions, shipping, and have a variety or reporting tools that help you keep track of all of your eBay affairs. All of these services have fees associated with different levels of their services, but they can help sellers that have a large quantity of items to manage.

Using a payment method that your ‘buyers‘ want to use is vital to getting the most out of your eBay auctions. It is important to provide at least two options for payment from your customers, and make it as easy as possible for your customers to pay. One of the largest contributors to a low quantity of bids on auctions is not accepting the payment method that buyers want to use.

There has been a growing attention to the credit card interchange system in the US, ever since Visa and MasterCard declared that they were going to publish their interchange fees. Another source of the growing curiosity is the huge surge in consumer and business interest relating to the fees paid for the ability to accept credit cards.

Visa released their interchange fee structure first, producing the 4 page table that many people in the industry have come to know. MasterCard released a similar but excessively long 72 page monster fee schedule soon after Visa.

Both of these papers make interchange into an improbably difficult web of fees and charges that nobody can easily understand. Even after several years of experience in deciphering them I have to admit that they are extremely complicated. Taking a look at who these fees are actually going to, and the fact that both Visa and MasterCard are now public companies, there are many professionals in the processing industry that are predicting it is just a matter of time before something breaks, and then something changes.

Why is interchange so complicated?

First off, the interchange structure was never meant for consumers to understand or even see. While I don’t advocate this idea, it was a fact until about a month ago until the interchange fee structures were officially released. In fact, it is specifically written in an ISO’s contract with Visa and MasterCard that they will not print or disclose actual interchange fees to the public or even to their customers. These fees were released almost completely unedited, and because of this it makes them difficult to understand from an outsider’s perspective.

The main reason that interchange is so complicated is the quantity of business types and acceptance methods that find themselves on the interchange tables. You have a variety of businesses, retail, keyed entry, quick service restaurant, business to government, ecommerce, gas station, and hundreds more all wanting to accept credit cards. Because fraud probability plays a huge role in the actual interchange fees, it is assumable that it is going to be a complicated structure based on the number of different business types and the fraud that goes with those types. Restaurants have a very low chance of fraud, while gas stations and ecommerce statistically have a very high chance of fraud. Visa and MasterCard decided a long time ago that low fraud industries shouldn’t be charged as much as the high fraud ones, and the list got really big over the years.

The Interchange Problem
The problem with the whole system is that Visa and MasterCard have a complete monopoly on credit cards, and that’s not something that is going to change anytime soon, if ever. Visa and MasterCard also control a huge amount of the physical networks that facilitate the transaction processing and the connections between different banks and processors. They currently have control in nearly every way imaginable over a credit card transaction through every step that it takes.

What makes the situation even more complicated, is that the banks that control Visa and MasterCard are also the banks that issue credit cards. These banks take the biggest cut of interchange fees, and they collect they collect the most from consumer interest on their credit cards. On every transaction they get paid from the business’s processing fees, and interest collected from the consumer.

So what’s going to happen?
What I would like to happen, is for Visa and MasterCard to drastically lower the interchange across the board. Processors can provide a better valued service to their customers, and businesses everywhere pay less to accept payments from their customers. Businesses are happier, and more money goes to their bank accounts, or back into their businesses to help further push sales and growth.

What I think is actually going to happen…
Unlike some industry professionals, and many rumors floating around, I don’t think that interchange is going to go down. At least not enough to make any major difference. The fee structures may get some formatting and clarification, but overall on the individual business level, I expect very little change as far as the overall cost of processing is concerned. As for processors, they may see some changes, but again, it’s unlikely that these events are going to drive interchange down. These companies are now in the business to make their shareholders happy, so going public was a step in the opposite direction of lowering prices.

Anti-Interchange Campaigning
There recently has been a major growth of anti-Visa/MC/Interchange websites aimed at bringing interchange to it’s knees, or at least down a few notches. Websites such as waytoohigh.com have been gaining some very widespread media attention. Waytoohigh.com is run by the two lead plaintiffs of a major class action lawsuit against Visa and Mastercard. While I admire their effort and completely understand their anger, I think that their are some major inaccuracies in their arguments, and in the end their efforts are going to be in vein. Trying to get things like interchange fees printed on every retail receipt, and attempting to shift the cost of interchange to appear as a consumer tax makes their argument come across as unprofessional and simply inaccurate to me.

Standardizing interchange could hurt many businesses
Your typical retail store or restaurant pays between 1.7% and 1.9% per transaction for their credit card processing, not counting downgrade charges. A website pays closer to 2.5%. By standardizing interchange, only one thing is going to happen. The high rate would be adopted by more industries, making credit card processing more expensive overall. I’m sure that every online retailer would love to see a 70% reduction in their processing costs, but it just isn’t going to happen.

When is the last time that you saw a public company cut prices to their consumers without getting something in return? Do you think that Walmart doesn’t know exactly what and where they gain when they make a sale that lowers their revenue? Do you think Google buys a video sharing website for billions of dollars only for the purpose of providing a useful service to their customers?

In the end there is no easy solution:
Visa and Mastercard don’t have to lower their prices, because there is nothing that they will gain from it. People will accept Visa and MasterCard as long as those systems remain the most widely used and convenient ways to pay for something.

Additionally, when Walmart won it’s lawsuit against Visa and MasterCard relating to debit card use, the interchange across the globe coincidentally went up .1% immediately afterwards. So, we can see how well it works in everyone’s favor to win lawsuits against the card companies.

I think that for any major change in interchange pricing to happen, it will take an act of congress. But, the question that remains in my mind, is whether congress would attempt to regulate something in an industry they have very little control over, that would impact the movement of billions of dollars every year, and the US economy in general?