Information on Merchant Accounts,
Ecommerce and Credit Card Processing

September 12th, 2018 by Jamie Estep

Confessions of a Risk Analyst (Part 3)

Filed in: Monthly Newsletters |

If you missed the previous two parts of Confessions of A Risk Analyst check out part one and part two.

What to do if your funds are on hold?

If you are put on hold, the processor may or may not contact you about it.  It generally depends on why you have been put on hold.  Most commonly it will be to verify a transaction or batch, in which case it’s customary for the processor to reach out immediately and request invoices, card holder information, and other relevant financial information.  It is in your best interest to be courteous and promptly send over what has been asked for. If you cannot provide everything they have asked for just explain what you are able to send and what you can’t send and the reason why. Generally, processors request more than they need to lessen the likelihood they will have to come back and make a second request, so its likely not a problem if you can’t send them everything they ask for right away.

It’s important to be courteous and prompt, and not saying you need to become friends with the risk department, but whether the person you speaking to makes the decisions or is just a liaison for the risk department, these people are part of the process of getting your funds released. Insulting them and telling them your going to cancel will not influence their decision and can often delay any action.  Most processors try to handle batch related risk holds the same day in attempt to avoid delay your deposit, so it is in your best interest to respond as quickly as possible.  If after you have received your funds you still feel like you don’t like how it was handled, then it would be best to reach out to the processor’s customer support and make a complaint there.

If you notice you are suddenly not receiving batches and the processor has not reached out to you, contact their customer service immediately. Do not mention anything about potentially being on hold, as this just raises suspicions. Most merchants don’t know holds even exist and if you start asking if you’re on hold, it might be assumed that you were doing something you knew could get your funds held. If customer service does find that you are on hold, they will directly you to the proper people to speak with, sometimes it’s just a glitch in the fund transfer system or a minor technical issue. Remember the customer service employees generally don’t have access to detailed information concerning holds and risk related information, so most answers about why, are going to be speculative at best.

Again, once you reach the risk department, go ahead a provide them with whatever they ask for.  Risk groups are generally going to ask for invoices, financials, and possibly even tax returns in rare situations. If you feel they are requesting something unreasonable, just talk to them about it.  Again, many times they are trying to request more than they need so they don’t have to keep reaching back out to you, if a risk assessor is not satisfied with the initial documentation.  If they are looking at your account due to chargeback related issues then the process is definitely going to take longer than a day. In rare and complicated cases, these issues can go on for weeks or month, and the details on those are vary on a case by case basis. This is outside of their control, the issuer controls the chargeback process, the processor is just an advocate for the merchant.

The key takeaway here is that it’s in the processors and the business’s best interest to get risk related issues resolved as quickly as possible. While most risk related issues can be handled within a day, others take more time and energy by both the processor and the business. Remaining professional helps the process move along at its fastest pace. You can always put in a complaint about the process once your funds have been released or if the process has started taking longer than expected.

This will never happen to my business!

You may feel like your business isn’t the type to be victim to fraudulent transactions, customer disputes, or wild changes in transactions or batches and that none of this applies to you.

We’ve worked on dozens of these issues where a business thought it couldn’t happen to them and was crushed by any of the previous mentioned issues. Some of those business knew they were doing something that could get them in trouble, but most were just normal businesses doing what they do and become victims of fraud or a distributor that quit supporting or shipping the products they sold. We’ve had numerous contractors and suppliers who processed very large transactions only to find out later that the transactions were fraudulent. Remember just because you receive an approval authorization, that doesn’t mean the transaction is legitimate indefinitely.  A chargeback can be issued in some cases up to 18 months after a transaction was processed and by that time the money has already been spent by the business.

Take time to look at your business and plan for potential risk related issues. Give yourself a sort of pressure test to see where your business is weak and look to avoid deal in those areas or strengthen those areas.  Also do research on avoiding card holder fraud. Small changes to your business can a big deterrent for criminals as they tend to only go after easy targets. If you do find yourself in some risk related issues, remain calm and work with the processor to get through it as quickly as possible.


August 14th, 2018 by Jamie Estep

Confessions of a Risk Analyst (Part 2)

Filed in: Monthly Newsletters |

How Processors Assess Risk

Continuing from part 1.

A processor takes a silent backseat to assessing potential risk based on what they know about the business, its owner, and the transaction information. They do this while reserving the right to request additional detailed information about a transaction, the business, the owners, and the company itself. A processor reserves the right to hold funds if they feel the potential risks warrants it. Holding back funds gives them some level of protection against loss but protects the business by not allowing those funds to get spent. If a business obtains those funds and spends them in operating the business, then they could become in debited to the processor who will then end up having to hold back funds to get repaid.

Example:
A business was selling custom hot tubs and was successful for the better part of 10 years. The manufacturer they were using changed some of their processes which created a quality issue and caused almost all the products they were selling to stop working shortly after delivery. While the agreement with the manufacturer included a money back guarantee, the process to refund the business was very slow. In the meantime the business was struggling to put a new manufacturer in place to build replacement units not to mention the new orders they had coming in. They were trying to replace and refund every customer. However, with the manufacturing issues, it was taking months to get replacement sent out or refunds processed. These refunds started to turn into chargebacks which immediately began draining the cash reserve the business had on their own. In the meantime, they began accepting new orders and using those funds to refund previous customers, while waiting for their reimbursements and their new products to arrive. After months of struggling to fix their customers issues, everything started to fall apart, they couldn’t float orders anymore, or pay their employees, or deliver whatever products they did end up acquiring.

In the end, the business collapsed leaving the business owner with more than $1.5 million owed back to card holders. The processor ended up covering all of it, and is still in the process of trying to collect from the business owner. Basically because of a change at a supply chain company entirely outside of the oversight of the processor, a thriving business imploded leaving the owner, and subsequently the processor, with millions in debt.

It’s important to have your employees trained to look out for fraud which we cover in a previous articles (link1, link2). Small changes to your business can stop would-be criminals from taking advantage of your business. It’s also important to have backup plans in place to allow your business more flexibility in times of stress. Sometimes just having a line of credit you can draw on to help in a crisis can save a business if used properly. In our next article or two we will cover why processors don’t want to hold funds and what to do if you find yourself with a risk reserve.

Processors don’t want to hold funds!

Truth is, processors don’t want to hold funds. To dispel a common myth, held funds cannot gain interest, so there is no incentive on that part for a processor to place a hold. It is very disruptive to the business, the relationship between the processor and their merchant, and requires a substantial amount of administrative work for everyone. However, holding funds is better than allowing a business to over extend itself and collapse in the worst case scenarios. Most businesses and business owners are not expert risk assessors. They don’t see all the potential pitfalls, and are understandably biased about their invulnerability. A business owner doesn’t understand sometimes that a chargeback can happen at any time and that “big sale” is actually just a chargeback waiting to happen. From time to time this entrepreneurial spirit gets businesses in over their heads and sometimes it’s what causes a business to fail, which is also bad for the processor. Another reason the processor doesn’t want to hold funds is they will have to spend time, money, and resources to internally research and handle these issues. They would rather focus on addressing serious threats and their routine operations. The faster they can get the issue cleared up and funds released, the happier their customers are, and the quicker they can move on to normal operations.


July 24th, 2018 by J B

Confessions of a Risk Analyst (Part 1)

Filed in: Monthly Newsletters |

Risk reserves are one of those things in the processing world that go unknown for most businesses. For many businesses the first time they find out about risk reserves is when their funds get held. It can be a scary and confusing thing. One day you are receiving deposits, and the next nothing. It can happen without warning – leaving business owners scrambling to find out what has happened. Over the next two or three articles we are going to go over the primary ways you could find yourself with your funds held and how best to resolve the issue. We are also going to include real world examples that we have seen first hand with our own customers or that we know about from others in the industry. We hope this information and these stories will help you build a stronger business by preparing you for future unknowns.

What is a Risk Reserve?

A risk reserve or held funds usually starts with a rapid change in the business. Maybe it’s an abnormally large batch on an account or sudden activity on an account that hasn’t processed for some time or a large transaction that is far outside the norm for the merchant. More concerning it can be caused by a sudden increase in card holder disputes (chargebacks), or legal action against the business. Whatever the reason the first thing to understand is it is not a punishment sent down by the processor. While it may feel like a punishment, its really designed to protect the business, the card holders, and the processor from loss.
What losses or risk could there be?

For businesses the primary risk will come from disputes like chargebacks. These can originate from many different types of fraud on the part of the card holder (i.e. friendly fraud or stolen credit cards). Many times, a chargeback is not from a cardholder fraud. A chargeback may originate as legitimate claim against a business such as not processing a refund, selling faulty products, or not completing the anticipated services. The higher the dispute amount, the higher the potential for the business to be financially overwhelmed which could effectively destroy a business’s cash reserves, leaving the business owner with a large debt owed to card holders. And if the business cannot cover the refunds back to their customers, the processor is left to pick up the bill.

Real Life Example
A jewelry store owner several years ago was the victim of friendly fraud. In short, a man walked into her store in a small beach town and asked to see some diamond necklaces. While displaying her work to the man he calmly explained he was on vacation with his wife for the first time since they had been married years ago. He told her about the business he started and how his wife stood by him during the darkest days, but now it had grown, and they were doing well. He wanted to find something he could give his wife as a small token of his gratitude for putting up with all the hard years.

He finally settled on a $10k necklace and during the checkout process his credit card declined. He seemed quite a bit embarrassed about it, but they both figured it was due to the amount and the fact that he was out of town. He stepped aside to call his card issuer, and several minutes later returned saying they had fixed the issue. He also explained that his card issuer had given him an approval code along with instruction on how to properly run the sale, so the terminal would prompt for the approve code he had obtained. Now the merchant was a taken a bit off guard by this and the man told the her that his issuer wouldn’t be able to identify the transaction unless they used the code she provided.

The merchant knew that she needed to swipe the sale in order to be protected from stolen cards. So when they were processing the sale she made sure that the card was swiped. Her terminal then spit out her normal receipts, which the man signed for and everyone parted ways happy.

Happy, until the merchant received the chargeback notice a few days later. Not just any chargeback, but one specifically for accepting a stolen card and using a fake approval code on a closed account. It turned out that the card the man used had been closed after it was stolen, which is why the card was declining in the first place. The man never called his credit card company, he had just faked a phone call, and then told the store owner how to process the card in such a way so the terminal wouldn’t contact the issuer for approval.

In the end she lost the chargeback, the money, and the necklace. We assisted her and the local police to get a criminal report made. Surprisingly the man was later caught in a different state and arrested. He had been using his real name and bragging on social media about how we went on vacation and basically stole from a bunch of businesses using the same tactic. Unfortunately, they never found the necklace.

For the card holder, the risks are smaller and generally more related to time and inconvenience. When you are the card holder, the industry rules are heavily weighted in your favor, but they still have their limits. There is a relatively small amount of true business to consumer fraud out there, however the main source of risk is stolen card information. While the card holder can dispute transaction, they have to notice them and dispute it within the time-frame of their card agreement. Generally, they get paid back, but it takes some amount of time and frustration on their part. If they don’t check their statements with any frequency, they can miss the window to dispute a transaction.

For the processor, its much the same as the business, just amplified. The processor is the second in line for liability. If a business cannot cover their chargebacks, it will fall on the processor, who will then place a negative balance against the merchant’s revenue. Meaning they will have try to collect from the merchant, either through holding their batches until they are paid back, or some type of legal action. Since the processor is exposed to thousands upon thousands daily, they must watch and verify that their portfolio of merchants isn’t taking on too much risk. This creates a problem however since it is impossible to take a detailed look at every transaction or batch nor do their customers want the processor investigating every little thing they do.

Stay tuned for part 2 of our Confessions of a Risk Analysis series.


June 20th, 2018 by J B

Payment Gateways

Filed in: Monthly Newsletters |

Payment processing is a complicated industry and if you’re starting an eCommerce business, you shouldn’t expect to have a thorough understanding out of the gate. That said, there are a couple of secrets to the process that would be useful to know before you agree to a commitment that doesn’t meet all your needs.

Payment gateways the bridge between your merchant account and your customers. They allow a merchant to manually or electronically process sales from their customers, they can add payment processing capabilities to a website, and they offer a variety of functionality to help run an eCommerce and more recently a retail business.

Payment gateway features vary depending on the gateway, and often the cost varies depending on the gateway.

Standard Features

  • Virtual Terminal for Manually Entering Transactions
  • Transaction Reporting
  • User Management
  • API for Website Integrations

Optional Features

  • Email Invoicing
  • Quickbooks or Accounting Integration
  • Recurring Billing
  • Secure Card Storage Vault
  • Fraud Screening
  • Retail or Smart-phone Integration
  • Multi-MID support

Besides obvious features like reporting on the transactions that have been run, basic features typically include a virtual terminal to manually enter transactions and an API interface that allows integration with a website. Some gateways charge for additional services such as recurring billing or fraud screening, and some include it in their base service package. It is important to understand the potential additional costs if these additional features are required as these can increase the overall cost by a sizable amount, depending on the gateway.

Some of the more advanced gateways also support retail payment methods such as PC and native Smartphone apps. These can be useful for certain types of businesses as well as backup methods in case a terminal or POS system is down.

Integration
An integration is essentially adding a payment gateway to a website. There are varying degrees of technicality when considering an integration. Some gateways do offer copy and paste HTML that can be used to allow their customer to make purchases and return to their website once payment is complete, but merchant’s will usually want to use an API integration which makes the checkout process seamless as their customer never leaves their website. Due to concerns over security, most website owners will want a well qualified programmer to integrate their website with their payment gateway regardless of which method they use. Popular gateways often already have pre-built integrations with popular shopping carts. Otherwise, integrating with a payment gateway is a fairly standard programming procedure that competent programmers shouldn’t have much problem with.

Costs
Gateway costs typically exist outside of the fees associated with a merchant account. Normally a gateway charges a flat rate per month and an additional fee per transaction. The overall cost of a payment gateway can greatly vary between companies and the cost for additional services can vary between companies. Typical, a merchant can expect to pay $20 – $30 per month for the ability to use a payment gateway and an additional $.05 – $.10 per transaction processed through the gateway, although some gateways do charge substantially higher in both the monthly and per transaction fee. Some gateways have much higher fees for additional services, so if things like recurring billing, card storage, invoicing, of fraud screening are added, the cost can increase considerably.
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Support
Nobody needs great support, until they need it. Can you call someone when your customer’s cards are declining? Often overlooked, but gateways without sufficient support can seriously hurt a merchant’s revenue when they do go down or there are technical issues such as problems with a gateway’s API. Nobody wants email only support when their ability to conduct business is on the line.


May 16th, 2018 by J B

Clover Station 2018: A Solid Update!

Filed in: Monthly Newsletters |

New for this year is the Clover Station 2018. It is a redesigned version of the previous Clover station with many added benefits. Clover went back to the drawing board on the 2018 Station and improved just about every part of the system. Below we will dive into some details about the new Clover Station.

Completely New Hardware:

While the overall function of the device remains largely intact, it has gone through a major overhaul. The Station 2018 now houses a larger 14” screen with built-in finger print reader versus the former 11.6” screen while retaining its proprietary Clover swivel stand in a one-piece design.

Clover has also removed the brains of the device from the printer, which allows for other printer options. In the previous generation it was the printer that contained the heart of what a clover device is and if you had to replace a printer, you were essentially replacing the entire system. You are now able to get a Clover Station 2018 with a standard thermal printer, or with a similar printer with built-in customer facing screen. It also comes with an NFC for Apple Pay and Android Pay.
Since the Printer is no longer the central hub of the device, Clover opted to include a separate port hub to minimize the number of cables that you have to run from the screen stand itself. With this new device one cable runs from the hub to the Station’s screen, and one cord from the stations screen to the printer, see the image below. From there any cash drawers, Ethernet cables, or USB connection are connected to the hub. This allows you to stash away the hub and limit the wires that are exposed on the counter top.



You still get plenty of connection options on the 2018 including Ethernet and Wi-Fi for network connectivity. It also includes Bluetooth, 4 USB ports, and now 2 cash drawer ports. This is very similar to the previous generation; however, all have been moved to a hub that is easier to stash away and keep out of view.

The processing capabilities have been bumped for the new Station, the processor is twice as fast as the previous station and has plenty of RAM for a device of this kind. Speed was never an issue on the previous model but these enhancements all add up to a faster system that will continue to operate smoothly as time goes by.

Payment Acceptance:

The Clover Station 2018 has really improved on its predecessor by having not just a Magstripe reader but also including EMV (Chip Cards), and NFC (Apple Pay/Android Pay) built into its screen. Unfortunately, PIN Debit was not included as part of its built-in capabilities, but there are options. You can connect a FD40 or Clover Mini to act as customer facing payment devices and accept PIN Debit as well.

There are some things you should be aware of when looking to add a customer facing device to the 2018 Station especially if you accept EBT. First – EBT cannot be processed using the FD40, so if that’s a payment type you accept, you will have to use the Clover Mini as your customer facing device. Secondly, and probably less importantly, once you connect a customer facing the device, the Station 2018 will no longer accept payment inputs from its built-in payment readers. It will force all electronically read payments to originate from the FD40 or Clover Mini. If you do happen to try to dip a chip card on the station, it will remind you to use the customer facing device to complete the transaction.



While the PIN Debit structure isn’t ideal, it makes sense from a card holder stand point and is still a huge step up from the previous model. The older Clover Stations required a customer facing device to accept anything beyond magnetic card reads.

Backward Compatibility? Kind of…

The key to remember here is this is all new hardware and the ultimate brains of the device, at least from a deployment point of view has changed. Where the printer was the hub for the entire system the new Station has completely separated the printer from the connectivity hub.

What that means, is you can’t connect an old Station Screen or Printer to the a 2018. There just isn’t a way to do that since the original Station was setup to be paired. Having said that, the Station 2018 does work with most if not all the same peripherals. So, if you have an existing cash drawer, bar code scanner, USB label printer, etc., those should all work just fine.

Software:

The station 2018 now has access to Clovers Lite Register pricing tier that starts at $9.00 per month and the full Register tier at $39.00 per month. The Lite plan is a great starting point for most businesses and allows access to most of the basic features you would normally use. If you need more functionality, the Register Plan opens Clover devices up to their full potential, greatly expanding what you can do. See the breakdown here that shows what the different plans offer.

If there isn’t a feature that is already built into the system, the Clover Marketplace is stronger than ever offering more first and third-party apps than any other POS provider. Most of these apps are free or include free trails. For the apps that don’t offer such things, they are generally quite affordable and can be shut-off without a penalty at any time. The App Marketplace allows you to find the apps that best fit your business needs without having to pay for software that your business never uses.

How does Clover Station stack up?

The new station is quite an upgrade over its predecessor and definitely worth every penny. The price point has basically remained the same as the original Station, but has also fixed some small annoyances with the previous generation and really improved on what Clover has already been getting right.

Check out our past comparison of Clover and Square Register.

For many businesses the Clover Station 2018 is a good fit. The Clover Mini and Clover Mobile devices also remain well equipped which offer all if not more of the same benefits but with a smaller footprint and lower cost. For many businesses, they will enjoy the larger screen of the Clover Station.


May 16th, 2018 by J B

Signatureless Payments, Finally (Update)

Filed in: Monthly Newsletters |

This is a follow up to our past article The Future: Signature Less Payments.

Towards the end of 2017, beginning of 2018, the major card brands stated that they would drop most if not all of their signature requirements starting in April 2018. I don’t know about you, but the signature on the back of my card, if there is one, looks nothing like my signature on those small receipts. Even if it does, nobody checks the signature and very rarely even verify the name on the card matches the card holders ID. I wouldn’t say they were ever really securing anything. There was an article written years ago that perfectly outlined how woefully inadequate signatures are. If you have a few minutes check out that article, it worth taking a look at. In short, the card holder just started off trying to make his signature as different as it could be, by the end is signing his receipts are signed “I Stole This Card” and no one ever took notice.

Technology is definitely paving the way for a signature-less future. Bringing chip transactions to the US is a lot of it, but companies like Apple and Google have shown the industry other ways to secure their sales with cost effective technology. For example, MasterCard is doing a trial release on a new card with a built in finger print reader, that works with the existing EMV standards. That card is planned to have a full roll out later this year. In the next few years I expect we will see a move to bio-metric confirmation potentially even with online transactions, which would be a huge win for online retailers.

It’s nice to see the card brand making changes that will help businesses and consumers alike. These kinds of changes will increase transaction speed and ease by removing the slowest part of the transaction. It will also cut down on the amount of time and money business spending keeping up with transactions and fighting disputes. Over the next several months expect more and more retailers to skip requesting a signature, and just move forward to saying “Have a nice day!”


April 17th, 2018 by J B

Tired of paying credit card processing fees?

Filed in: Monthly Newsletters |

An old method to avoid them is growing in popularity

New Dogs, Old Tricks

Many businesses are off-setting their processing costs by using one of the oldest tricks in the book. While it may not be possible to fully implement for all businesses in this article you might find some ideas on how to offset at least some of your processing costs. With that said, keep an open mind and let’s dive into what a Cash Discount program is, how it works, and the different ways to implement one.

What is Cash Discounting?

Cash discounting is a method of giving a discount to customer who is paying with cash while increasing your revenue on purchases made with a credit card. Also note this discount can apply to more than cash, for example you could also do the same discount on gift cards, PIN debit, paper checks, etc.

There are three popular ways to setup a cash discount program to recoup some or all of you processing fees, and while not difficult to setup it must be done within regulations. You will need to have signage that clearly states your business’s pricing and discounting policy, and these will need to be placed prominently at specific areas of the business. The wording needs to be clear and stay within the rules of law and processing regulations. We provide all the required signage for any of our merchants choosing to cash discount and will instruct you on where to keep them posted.

You will also need a Point of Sale setup to properly display and report the discounts to the customer. The reporting will vary depending on how your organization handles its transactions, however we also provide the point of sale systems needed to make sure you are in line with the rules.

Not a Surcharge:

It is important to keep in mind this is not a surcharge being applied to credit card sales, which has its benefits and limitations. It’s a discount off the price of a sale for using cash. Surcharging for different payment types is illegal in several states, and otherwise heavily regulated, whereas discounting is not. I know that may sound a bit odd since you can effectively accomplish the same effect by doing either, but those are rules.

Also, surcharging comes with very strict requirement on the processing side. For example, Visa/MasterCard regulations state you are not allowed to profit from a surcharge, so your surcharge cannot be more than your processing fees. You also must be able to meet certain requirements concerning how the surcharge is displayed in store and on receipts. Surcharging is additionally prohibited on debit transactions. You may also be required to show historical reports on your surcharging to your processor at almost any time.

Discounting on the other hand is more flexible, however there are still signage and receipt information that needs to be clearly displayed in case a claim is made that you are surcharging.

Popular Cash Discount Options:

True Cash Discount

This is the cleanest way to handle cash discounting. It’s also the method used by gas stations and some large retailers. Let’s say your processing fees are costing you an average of 4% per dollar and you are looking to recoup 100% of those fees.

In this scenario you would reprice your products or services by an additional 4%. When a consumer brings their items to the register they would ring up at the already marked up price. If the customer pays with a credit card, you just run the card as usual. The sale is done, your customer didn’t get a discount and you have recouped your 4% and your processing fees are offset.

If a customer pays with cash you would apply a 4% discount on the register or point of sale device, and their receipt would clearly show all the items priced as advertised and as marked, as well as a line item showing a 4% discount.

Its that simple, you aren’t losing 4% on credit payments, and cash customers get the 4% lower price. This way allows your employees to engage customers with an additional discount on their entire purchase.

You still need to have the correct signage explaining your policy along with a point of sale device capable of discounting your cash sales and reporting that discount on the receipt. We can provide the point of sale device and signage you need to make sure you are doing it correctly. If this a method, you are thinking about using please contact us for more information about getting started.

Customer Service Fees

It seems like almost any event ticket has a service fee attached to it at checkout, why not apply one of your own? This is another option we are all familiar with, and while it will not work for many businesses, it a slam dunk choice for others.

Instead of re-pricing all products and services you would implement a customer service fee of 4%. This customer service fee would apply to every consumer regardless of payment type and would be clearly listed on the customers receipt from the point of sale device.

At the time of checkout when a customer pays with a credit card, they are paying the same 4% charged to everyone else.

When a customer pays with cash, you can apply a discount of 4% to offset the customer service fee.

In both cases above the customer’s receipt would show the customer service fee, but in the case of the cash payer their receipt would also show a 4% cash discount, offsetting their customer service fee.
You are not required to charge a percentage of the sale price. For example, you could just charge a flat $1.00 as your customer service fee and give a $1.00 discount for cash payers. At the same time, you also don’t need to call it a customer service fee, the name is flexible. Please use common sense when naming the discount, for example it would not be a good idea to call it “Non-Preferred Payment Fee” as it really starts to sound like a surcharge.

If either of these methods are something you would like to implement give us a call at 888-528-0058.

Advertised Cash Price

This is the easiest to implement by far but the legality behind it is shaky at best right now. I was not going to include it, but after seeing many businesses trying this, I felt it was important to touch on what it is, and why we feel there might be issues down the road.

What makes this so easy to implement is you don’t need change your posted prices at all. Again we will assume 4% processing fees. The claim is you simply need the proper signage around your business stating that all your posted prices are the cash price and that represents a 4% discount over the actual retail price. Then you just need a credit card terminal or point of sale device that can add an additional “discount reversal” during the sale and print it on the receipt.
So, from the merchants stand point nothing changes with their pricing, the credit card terminal or point of sale just adds 4% to the total automatically when a card is processed. This is where things are a bit shaky. When the merchants receipts show a 4% increase to the over all price, but calls it a “discount reversal”, could that be considered a surcharge?

A rose by any other name would smell as sweet?

Technically it’s a discount, because the signage tells customers about your pricing. But at the same time you are either charging more than the advertised price, or you are surcharging certain payment types. If you had to defend that position against a card issuer, they could very easily look at the credit card receipt from the card holder and call it a surcharge.

The industry is split over this method and there are people on both sides who have valid points as to why it is or is not a surcharge, but at the end of the day no one knows if it’s within the regulations.

Who knows maybe this way of discounting will be proven legal in the future, but right now we don’t know of any such precedent. My opinion, if it was not already clear, avoid this method until it the laws and processing requirements are absolutely clear that it’s an approved practice.

Can’t I just implement this on my own?

To some extent yes, but… It can only take one complaint to an issuer before a processor starts looking into your payment practices. If your processor is unaware that you have started cash discounting, and they get a report that you are improperly surcharging you will have some serious explaining to do, and still need to prove you are doing everything by the book.

You’re a lot better off working with a company who is helping you structure your cash discount program. So, both the processor and you know its being implemented correctly.

If a complaint does come in there will still be verification steps to make sure you are maintaining the program as it was designed, but the processor will already know what that design is.

Also, if your processor doesn’t want anything to do with surcharging or cash discounting, you could find that even if you were doing it properly your processor is now holding your funds or even worse have shut down your account.

There is also keeping up with proper signage and probably even more importantly proper receipts. Working with a processor who has a program designed specifically around cash discounting means your Point of Sale device will be running software that is up to date and reporting correctly.

Conclusion

Is cash discounting for every business? Probably not, but we have seen many businesses implement successful programs over the years with surprising success. It is well worth a quick conversation and brain storming session to see if it would work in your business. I would say most often we see smaller ticket businesses using our cash discount program. But recently many businesses with larger tickets are putting it to good use, and actually increasing cash and check transactions as their discount more than offsets rewards paid by issuers to the card holders.


March 8th, 2018 by J B

Spring Cleaning

Filed in: Monthly Newsletters |

Spring is here and your garden plants aren’t the only thing growing. Your credit card fees for processing will most likely be increasing because February and March is time for the industry interchange and assessment increases. Twice a year, in October and February, the credit card issuers and card brands roll out their increases that they will be collecting on every credit card transaction. For the issuers, these increases will be to the interchange rates and to the card brands these increases will be to assessments and various other regulatory fees.

These increases are passed on to the credit card processors like ourselves who in turn have no choice but to pass on these increases to the merchants who process through us. As the credit card processors or acquirer cost go up, they must pass on the cost to their customers as any business would do. But the fact is that many processors don’t simply pass on the increased cost, they will actually use the interchange increases as an excuse to raise the processor rates many times over this rising cost.

An interchange increases usually represent just a few basis points (1 basis point = 10 cents on $1,000 of processing volume) but many processors will increase the rates 10 – 15 and even 25 basis points on qualified and non-qualified transactions. Processors will also increase the transaction fee as well along with increasing the processing rate. So, for many merchants who aren’t watching closely, they will end up paying much larger increases. These increases will be usually communicated to the merchant on the February and March billing statements.

So, I want to tell you two ways to make sure you aren’t paying too much now.

The first way is to go to a cost-plus pricing system for your processing. A cost-plus program basically takes whatever interchange and assessments rates the card brands decide on and pass it on to you with a processing fee on top. The processing fee on top is usually between 15 and 30 basis points along with a 7 to 10 cent per transaction fee. The range is normally based on your processing volume and this is probably the fairest and safest way to set up your account. We have published articles before on this way of processing and you can look at them here.

So, when the card brands and issuers change the interchange costs, these increases are simply passed on to the merchant with no additional mark up. Once in a while you might see a processor trying to sneak in with an increase on the cost-plus merchant set up, but it really isn’t very often. It’s very important that you read your statement messages in order to catch any increases to your rates.

The second way of not paying too much for your processing cost is simply to have a rate check up every 2 to 3 years. This is especially important if you are on a 3, 4, or other tiered processing setup. What happens in this industry is twice a year these interchange increases happen and your processor or sales office increases your rates to cover this increase in cost.

You may end up with rates that are significantly out of touch with your initial quoted rate or the current rates being offered. Because these interchange increases are on specific interchange categories (e.g. such as a keyed in rewards card), the processor must make educated estimates on how this increase will affect their entire portfolio of customers.

This is very hard to estimate when you have thousands of different merchants. In the end, they will often increase everything across the board to make sure their costs are covered. This is why it is important more so if you are on a tiered system, to have your rates reviewed every 3 years. It’s very simple to do, just print out your latest statement and ask for a review from someone like ourselves.


January 30th, 2018 by Jamie Estep

Will Cryptocurrency and Blockchain Technology change our world?

Filed in: Monthly Newsletters |

Our industry is constantly evolving. Changing terminals, tablets, smaller swipers, and now you can even just take a picture of a credit card. The Merchant Store always tries to stay on top of or in front of the latest technologies. We were one of the first ISO’s to offer our MSM mobile setup and one of the first to be able to turn your laptop (before the tablet rage) into a point of sale using our MSI gateway.

Lately, Cryptocurrency has been all over the news. Especially Bitcoin, because after all, it’s the original and currently the most valued digital coin. If you look into Bitcoin and blockchain technologies, you will also find about 1000 other coins currently being traded. In this article I would like to discuss what they are, how they work, and the future that we as Merchants and Merchant service providers may be looking at.

Like I said, we have all heard of Bitcoin (BTC) and the concept of new money. Along with Bitcoin the current top coins are Ethereum (ETH) designed more for programming, Ripple (XRP) working on international transactions, and Litecoin (LTC), the silver to bitcoin’s gold, designed to be quicker and less expensive for everyday use. To use any of the coins you have to buy them through a cryptocurrency exchange market and either hold them as your would regular stock or send them to someone for payment. When you hold your coins, you do so in what is called a digital wallet. Most Exchanges offer an online wallet with your registration. You can also get a separate Digital wallet. It looks a lot like a usb drive but it holds your coins offline so no one can access them.

Let’s say you owe someone for a 10.00 lunch, and like you, they have a bitcoin account. You can buy ten dollars in bitcoin and send it to them and they can either cash it out as normal currency (minus transaction costs), or hold it and hope it grows in value. The transaction costs are what sets the coins apart. Bitcoin being the original, is slower and costs more to move around. Currently it takes about 60 minutes to transact and roughly a 15 to 25% charge. This is a big reason why its being looked at as more of a savings account, whereas a lot of the newer coins are faster and cost less to send somewhere. So, let’s look at the above example on the ten dollar lunch. If the receiver cashes out right away not only did it take an hour to get the bitcoin, but he may only end up with 8.50 because of transaction costs. Whereas If they traded Litecoin, which takes 30 minutes and .12 cents to transact, he would have received 9.88 cents. Ripple is even quicker and less expensive. Ripple transacts immediately with only a .04 cent transaction fee. While we can still offer better transaction fees on merchant accounts, the coins are getting lower and lower.

All of these coins have two main components that tie them together. One, to use them you have to buy them with “regular” money. I’m not sure how they claim to be the “new” money when they only work with “old” money. This does set Ethereum apart since its main design is for programming and most new coins along with some programs are built on top of Ethereum. However, it is still is used for stock purposes and transferring funds. Now number two, is that all of these coins, no matter the main purpose, requires Blockchain technology.

Blockchain technology is the highway that all of these coins or digital assets travel on. This highway is getting bigger and faster. It still has not caught up to Visa’s network that can handle 72,000 transactions a second, but it’s getting there. It lives online and is protected and ran by Miners all over the world. Almost all of the coins require “mining”. Mining is when a computer is used to decipher codes and problems that only a computer can solve. Once the “problem” is solved it creates the coin and every coin has its own program for mining. Bitcoin takes the most computer power and time to create its coin while some of the newer coins can be done on everyday PC’s or run in the background on your browser. Your PC may even be part of the Blockchain and you don’t even realize it. Now, once the coin is created it goes onto the Blockchain. The blockchain codes the coin and imprints it on its online ledger, and it can never be duplicated or deleted. So far, It can not be hacked into or changed in anyway since the Blockchain is online and survives between many independent computers running these programs. Much like we can’t “turn off” the internet, we can’t “turn off” blockchain. It is security at its finest. Today, the credit card industry has implemented our EMV technology using chip cards. This is also very secure and all of our credit card terminals are programmed for these new cards. This is why Ripple is working with banks and money transfer companies including MoneyGram, Western Union, and American express to share in the blockchain technology using their xrapid (uses XRP for liquidity) and xcurrent software (does not require XRP, simply a transferring system). Mastercard is even building its own blockchain and even the federal Government has created a Cryptocurrency department to research the Technology. There is even some gossip of a possible future Fiat coin.

This brings us to the main reason for our article. At the end of the day, all coins move money around, so the battle may turn out to NOT be the new money, but who will prevail as the future of transferring money using blockchain? Like i said before, it can not be hacked or broken into or changed. Kodak, (remember them?) even has a coin coming out at the end of the month for photographers to protect their images from illegal reproductions. Mastercard, Amex, processing companies, and international transfer companies are all looking into blockchain. I really feel this is the way our industry is headed. The way I see it, it will still require backing from the coins value and Banks, and possibly using a coin such as Ripple’s coin, XRP. As a customer you will probably still use a credit card for payment on a merchants POS system, but now the system will automatically transfer the funds into a coin then quickly transfer the funds on the blockchain. From here the information is sent to the bank for approval then back across the blockchain to give the approval to the POS system. From here it goes back across the blockchain to the bank to move the funds. The transactions will happen so fast that the coin’s value goes for the most part unchanged and the transfer fees are much lower than the current slow and expensive bank to bank systems. This will add security to the transferring processes possibly stopping or at the least cutting down on breaches such as the past Target and Wendy’s breaches. This will also save the banks billions if not trillions per year. Hopefully the added savings will be passed down to the processing companies and to the merchant service providers all the way down to the merchants. Currently this credit card processing system currently does not exist, but I’m willing to bet it will before you know it, much like EMV.

I personally like the cryptocurrency market right now. It’s fun. It’s basically stock market 2.0. Only the prices are very, very, volatile, on every coin. It still has regulations that have to be met. For a coin creator or the “first miner” to sell on an exchange, they have to register and be granted a bit license. The exchanges will crack down on the coins if they believe there is insider trading. The SEC stopped a new coin from coming out recently because they were guaranteeing 100% yearly increases. Some people fear of a collapse or the government stopping the exchanges, but the feds are working with Ripple along with their own crypto agencies, so I don’t see this market going anywhere soon.

Now I’m not a financial guy nor am I trying to tell you what coin to invest in. If you do decide to invest, look into the coin closely. I try to understand what it does and its utility, usability, and of course, only buy what you can afford to lose. Personally I like Ripples XRP coin. They seem to have the most utility and usability for the real world. They created their company and coin to work with our current financial system and try and replace the current antiquated international system such as SWIFT. Currently they have over 100 banks using their xcurrent system because of its cost and speed and 2 money transfer companies using xrapid.


December 12th, 2017 by J B

Avoid The Holiday Season Grinch

Filed in: Monthly Newsletters |

Ways to protect your business against fraud through the holiday season.

The holiday season is a joyous occasion for businesses and consumers alike, however there is always someone out there looking to profit from the misfortune of others. It’s easy to get caught up in the in the spirit of the season and let your guard down, but this time of year it’s important to keep focus on defending your business from the Grinch’s trying to prey on you. In this article we are going to touch on a few different methods fraudsters use and how you might defend yourself.

Friendly Fraud

Unlike its name there is nothing friendly about friendly fraud. Friendly fraud is a broad term that encompasses fraud by legitimate customers who utilize chargebacks or other systems to steal merchandise or services or cash from a business. These types of fraud can be difficult to prevent and can be nearly impossible to recoup losses on.

Chargeback Fraud

Generally, chargeback fraud works when a person enters your business, or shops online, and legitimately purchases goods or services, and then disputes the charge with their card issuer.

Someone who knows what they are doing can easily dispute a transaction in such a way that the business owner will most likely not be able to fight it. Card issuers determine who wins chargeback, and they inherently favor card holders over merchants. There’s no question that the customer is stealing from you but police departments are reluctant to pursue friendly chargeback fraud cases, if they’ll even accept a report on them at all. Most of the time they will refer merchants to the civil court system which is time consuming, costly, and offers no guarantee of recourse even if the merchant wins in court.

The key to protecting yourself against chargeback fraud is to stop card holders from being able to claim they didn’t receive what they purchased, that it was defective or not as advertised, or that the charge was not authorized by the card holder. Unfortunately for online businesses, or situations where a card is keyed into a terminal or POS system, fighting this becomes very difficult, as proving the card holder made the purchase with the card in hand is all but impossible.

To prevent this method, you will want to swipe or dip (EMV Chip) as many transactions as possible. This can also prevent other forms of fraud such as duplicate card fraud. When you swipe or dip the card your customer gives you, it proves you were face to face with the customer, which aids in supporting your case that the card holder did make a purchase. Not everyone has the ability to swipe or dip cards, or even if they do they might also need to ship products to the consumer.

For ecommerce or mail/phone order businesses, the best thing you can do for yourself is to ship directly to the card holders billing address, and preferably ship everything with a signature required for delivery.

If you are shipping to an address different from the card holder’s address, you have no way of proving that they received the product. Not even a signed invoice with a photo ID attached will prove to the card issuer their customer actually made the purchase. Even with a delivery signature, the card issuer will usually side with the card holder. While it should go without saying, but if you’re not swiping or dipping the cards, you should be using address verification for both the street and the zip code to ensure the billing address provided by the card holder matches what the card issuer has on file. If you are not sure how to use address verification (AVS), contact your processor or payment gateway for more information.

AVS is not available in some countries or specialty cards like some gift cards, and it’s not uncommon for card holders to not know the exact address they are billed at, so it’s not by any means 100% fool proof. CVV is another mechanism that should be used on all non-present transactions. It at least verifies that the customer had the card in hand at some point as duplicated cards rarely store the verification code as well as the data on the magnetic stripe.

It’s a good practice to keep a clear return policy and always be willing to offer exchanges or refunds to you customers when appropriate. Many card holders will dispute a credit card charge instead of requesting a return if they feel it’s going to be a hassle, or they feel like the business won’t accept a return or exchange in a seemingly reasonable situation. Making these policies clear from the moment of the transaction can help decrease potential chargebacks.

Gift Card Fraud

This form of fraud is quite easy, has a low risk of being caught, and effects both the business and their legitimate gift card holders. Gift cards function very similarly to credit cards and therefore share some of the same risks. The data stored on the magnetic strip on a gift card can be copied and used to make cloned cards for a fraudster to use in stores. This is just one popular method of gift card fraud.


Many gift card providers offer the ability for card holders to set a PIN number on their cards to help prevent misuse, however not many card holders go through these steps. In the case of any card type, gift, debit, or credit, checking the physical number on the card against the number that a terminal or POS system electronically captures can tell you if the card is legitimate. This has become a more common practice by large retailers protecting themselves from duplicated card fraud. In the case where the numbers do not match, calling the police may be the best option, as there is a high likelihood the customer is trying to make purchases with a fake card.

Another risk that pertains primarily to gift cards is through credits or refunds. Crediting a gift card works differently than a credit or debit card as some cards will automatically receive the balance of a credit when it is run by a merchant. When this happens, the balance of the card is instantly increased by the amount returned to it. While that doesn’t sound like an issue, it gives you, the business owner, no time to identify accidental or fraudulent credits or make corrections.

Funding a gift card by mistake gives the card holder time to spend those funds before you can correct the mistake, or even settle your terminal, and can lead to the card issuer disputing your attempted correction later. There have also been cases where gift card holders attempt to distract a cashier so they can access the point of sale device and issue a return to their card. This is one situation where employee involvement puts a business in an impossible position to catch the fraud. The business is unlikely to notice a return has been processed until they settle out for the night, the fraudster is left with the rest of the day to make purchases on their newly acquired funds.

The best way to combat this and any other return or credit related fraud, is to have strict controls over the ability to refund and credit a customer’s card. All refunds should require manager approval and a refund should never be made to a card other than the one used to make a purchase. Terminals and POS devices should be in areas where customers do not have easy access to them and return and credit functions should be password protected at a minimum.

Return Fraud

Return fraud can be a huge problem for retail merchants, especially retailers who are large enough that employees do not have the ability to remember most of their customers, and ones who stock widely available products.

The most common form of return fraud is when a person returns goods that were purchased cheaper from another store or stolen goods for cash. A merchant, at the very least, pays the retail price for the product which causes any future sale to be unprofitable, and if the goods were stolen, there’s a chance that the police show up looking for the product. It’s also common that the person stole the product from the same store they are trying to return it to.

But, even in cases where goods aren’t stolen, merchants can suffer substantial loses from customers returning used or broken items, old items put in the box of a newer one, or items outside of a reasonable return window. Return fraud is one form of fraud that is frequently aided by employees who relax return policies or in more nefarious cases steal products themselves and have an acquaintance return them for a split of the cash refund.

Thieves are smart enough to target businesses during the busiest times of the year for returns which is typically immediately after the holidays when stores are extremely busy and often overlook or do not have the capacity to properly vet every return they are receiving. The NRF estimated that in 2015 alone, US retailers would lose over $2 billion dollars due to return fraud.

Combating return fraud can be difficult. Clear return and refund policies should be posted and strictly adhered to. Refunds should only be issued in the same form the payment was received, and in the case of electronic cards, should only be returned to the same card as the sale. Merchants should outright refuse refunds they are unable to determine are legitimate, refunds unaccompanied by a receipt, and refunds that contain obviously used or replaced products, unless they cover refunds on those products.

Merchant’s can employ proprietary or hidden tagging methods so that they can determine if a returned item actually originated from their store. In any case, if employees are helping defraud the business, it can be nearly impossible to prevent, so controls over who can accept returns and process refunds should be in place.

Also, it is worth noting that someone trying to defraud a business isn’t going to look obviously like a thief, they’re going to look just like a normal customer, and will usually have a believable story as to why they don’t have a receipt with their item. At the end of the day, a business will still lose the same amount of money regardless of whether it’s to someone who looks like a stereotypical cartoon thief or your favorite aunt, which is why policy adherence is so important.

General Good Practices

Require a positive AVS match and CVV match on all non-present transactions
Ship only to a customer’s billing address unless you feel comfortable shipping to another address, but know you will likely not be able to win a chargeback no matter what other verification you require
Restrict access to your terminal or POS system
Require owner or manager approval for all refunds and credits
Inspect all refunds for condition and verify the product is correct to the packaging
Do not issue a credit to any card other than the one used to make a purchase
Have and adhere to a refund policy without exception