Information on Merchant Accounts,
Ecommerce and Credit Card Processing

May 10th, 2007 by Jamie Estep

PIN and Signature Debit

Filed in: Merchant Accounts | 3 comments

I’ve done a few posts relating to debit card acceptance in the past. This post is designed to explain a little more about PIN and signature debit, why, and what business should be setup with debit acceptance.

PIN and Signature debit?

PIN Debit (Online debit) is the acceptance of a debit card where the card is swiped and a customer’s PIN number is transmitted to process the transaction. PIN debit can only be done through a credit card terminal or POS software system with an attached pinpad.

Signature debit (Offline Debit) is when a debit card is run as a credit card. This can be done over the internet, through a credit card terminal, or pretty much any way a credit card can be processed. Businesses inherently have the ability to accept debit cards using the signature method as long as they have a Visa or MasterCard logo on them. But, not all businesses are offered the reduced rate that is available for these types of cards.

Both signature and PIN debit are great ways that a business can save money on their credit card processing fees. PIN and Signature debit both have different interchange categories than credit cards and both will normally be cheaper than a credit card transaction if your merchant account provider offers reduced debit rates.

Details:

PIN Debit is normally a flat fee per transaction. No processing percentage no matter ho large the transaction is, just a flat fee for each transaction. Now the actual fee that you pay to process a PIN debit transaction is actually based on two fees. The fee from the processing bank (which includes the interchange fee) and the fee from the debit network provider (PULSE, STAR, etc.). These two fees are bundled into a single flat fee which is normally $.35 – $.50 per debit transaction. Technically there is a percentage and transaction fee for PIN debit, but the cap varies from $.30 – $.50 so for simplicities sake, this is almost always a flat bundled fee.

One of the drawbacks with PIN debit is that the majority of banks place daily debit limits for their customers, so if you have a high average ticket size (>$300), PIN debit may not be a good solution for you. Also, a business must have a pinpad encrypted specifically with the bank they process through for PIN debit to be possible. Pinpads can range from about a hundred dollars to over a thousand depending on the complexity of the pinpad.

PIN debit transactions are almost impossible to dispute because only the card holder knows the PIN for the card that is being processed. Normal chargeback rules do not apply for PIN transactions, and a customer must have an extremely good reason for a dispute to go through.

Signature Debit works on a fee structure similar to credit cards. A percentage of the transaction plus a transaction fee is paid on each signature debit transaction. While the percentage is normally lower than a credit transaction, the transaction fee is normally slightly higher than credit transactions due to a $.05 higher interchange fee. Signature debit offers reduced fees for all interchange and qualification categories so any type of business can benefit from a reduced signature debit rate.

A reduced debit rate is not always offered by default, so you may need to specifically ask to get a reduced rate. Also, advertising a debit rate instead of a credit rate, is one of the most common methods that processors use to lure customers that are shopping only on price. If you are offered some extremely low rate that ends up being a debit rate, make sure that your credit rate is not ridiculously high.

What is best for a business?

Any business will save on every PIN debit transaction where the sale amount is above ≈$20, when compared to a credit card. Businesses with very small ticket sizes (<$15) will probably pay a little more to the same for PIN debit transactions. Every business will save with Signature debit transactions, but a business’s merchant account must be specifically setup with a reduced signature debit rate.

A few things to look out for:

  • Check for separate PIN transaction and debit network fees. The total cost for a PIN transaction should be ≈$.50, not $.50 for each.
  • Make sure you aren’t being charged a percentage for PIN debit fees. I have seen a few times where a business was being charged the same fee for PIN debit as for credit cards.
  • Check to see how much an encrypted pinpad will cost and make sure that the cost is justifiable for your business. You can purchase a pinpad from another company, but it will need to be encrypted with your processor before you can use it. A low-end pinpad will normally cost from $75 – $150 with an additional $20 – $50 encryption fee.
  • Check for additional monthly debit access fee. These are normally $5.00 per month, but I have seen them as high as $20.00. In most cases they can be waived or reduced to $5 at the most.

May 7th, 2007 by Jamie Estep

Visa may publish a list of registered ISO’s

Filed in: Industry News |

The Green Sheet reported this morning that that Visa may be planning to list the ISO’s that are legally registered with them. They also may be starting to crack down on ISO’s that are not operating strictly according to Visa regulations.

I think that this could be a great step in cleaning out many of the bad areas of the processing industry. There are thousands of website selling merchant account services, and from my experience looking at them, I would venture to say that more than half are not complying to Visa’s ISO regulations.

This could also provide another good tool for businesses looking to accept credit cards, if it is made readily available to the public. A person could make sure the company they are planning on processing with is actually a legally registered with Visa. This wouldn’t provide any background to whether the company was providing a quality service, but it would eliminate any doubt as to their legal affiliation.

However, Visa publishing registered ISO’s could have a negative affect on independent sales agents, as many of these sites are not compliant with current regulations, but are barely non-compliant. One current regulation states that sales agents must use the exact name of the ISO that they provide services through as their own DBA. Most of these non-compliant sites could be easily fixed to properly comply to Visa regulations, but Visa is extremely picky when inspecting websites for compliance. Something that seems so simple is actually a very complicated, bureaucratic mess, when you get down to it.

The other thought that worries me is that the only affect this may bring about, is to tighten the regulations on ISO’s that are compliant while ignoring companies that aren’t registered. (Like an anti-gun control argument, “ban guns, and the criminals are the only ones left with them”.) Currently, if you are a registered ISO you are under the microscope at least once per year, but if you aren’t legally registered, Visa and MasterCard really don’t care. There’s just too many websites operating illegally for anyone in Visa to take interest. In fact, I’ve been told first hand that it’s not policy to police non-registered websites on the internet, but only the ones that are registered. They would have to drastically change this policy before anything productive ever came from listing registered ISOs.

In response to this, I created a website listing registered ISOs that I have been able to identify.


May 1st, 2007 by Jamie Estep

Can online gambling come back?

Filed in: Industry News | 2 comments

An article on MSN: Democrat proposes lifting federal ban on Net gambling talks about how a Democratic politician has proposed to lift the ban on online gambling.

While I’m not a huge fan of online gambling, I do believe that it should be legal and that the government should never have stepped in, in the first place. It would be far more beneficial to the government to regulate or tax online gambling than to completely ban it. I have read several stories in the past few months of gambling operators being arrested and business being raided because they were still involved in online gambling. I think that there are so many places that tax money would be better spend than this.

Onto the business side of the issue, the government was very effective with banning it because they effectively regulated banks from allowing US consumers to make transfers to or from an online gambling business. I know that a lot of online gambling websites went under, not to mention a huge loss in revenue from businesses that advertised, supported, or provided services online gambling companies. Hundreds if not thousands of people have lost their jobs because of this.

Looking at the issue from every side, I can really find a single group that was involved with the online gambling business (users, websites, or service providers) that at any point actually wanted the government to shut it down. Seems like the only group that possibly benefited from it were the casinos in the US that lost business from the online companies. In addition to this, the government attached the bill that banned it, to a port security bill that had absolutely no chance of being overturned. The fact that there was never a direct vote on actually shutting down this multi-billion dollar industry shows exactly how much trust the group who added it to the bill had in it being passed.

The actual chance of the bill being overturned is fairly low, but it is nice to see that someone higher up actually has taken notice to the absurdity of the situation.


April 25th, 2007 by Jamie Estep

Before you process, check the BBB profile

Filed in: Merchant Accounts |

When setting up a merchant account I always recommend to investigate the business that you are considering processing through before you send in any paperwork. You don’t need to do a background check on every employee of a particular company, but looking for obvious signs that a company is doing bad business, is always a good idea.

This morning a news article was released in the Green Sheet (http://www.greensheet.com/forimmediaterelease.htmlthis link is not permanent), that the company MPI (Merchant Processing Inc.) was halted from doing business on April 12th of this year, due to unethical business practices.

Basically MPI had a number of complaints against them, and it was found that they were not addressing customer service issues, and were not properly disclosing contract terms to their customers. A few years ago a similar situation happened and the company CMS (Certified Merchant Services) was forced to pay $23.5 Million in damages.

What struck me as interesting is that this company had over one hundred complaints with the BBB.

I would say that it is very true that the majority businesses do not do any check into a merchant service provider before they do business with them. It took me only about 30 seconds to pull up the BBB report on this business, and in my opinion 104 complaints is definitely a red flag.

So, to anyone looking at finding a new processor, or to anyone looking to process credit cards for the first time: take a few minutes and check out a business before you sign with them. Even if you only check their BBB profile, it will at least avoid the most obvious of bad situations.

You can do a BBB search here: http://search.bbb.org
(Enter the business name and the state and you can normally find the correct business very quickly)


April 24th, 2007 by Jamie Estep

A little ETA recap

Filed in: Industry News |

I was at the ETA conference for a few days this year. Two days seems to be more than enough for any social event in Las Vegas. Red Bull became my best friend after a painful two hours of sleep the first night.

It amazes me how much money goes through Las Vegas, and through the ETA in general. It has to be billions of dollars a day. The Mandalay Bay hotel is amazing, not only in how nice it is, but also by the sheer size of the place. I think that it is about a mile to the conference area, once you are in the hotel.

If you are an ISO or someone looking to see some of the meat of the processing industry, I recommend attending an ETA conference at some point. Even if you get very little out of the seminars, the social aspect of the conference is definitely worth it. Just about every major ISO, equipment manufacturer, and anyone involved in credit card processing will be there. It is a great place to make new relationships, and learn about new products and services.

Anyway, I was able to make it to the EVO dinner at Aureole, the FDR lunch at the Mix lounge (horrible elevator ride to and from the 64th floor), spent some time at the Rumjungle Paybytouch cocktail party, and the rest of the time I was with the whole crew from Way systems. I missed out on Nova’s dinner, but did spend a good hour at the Nova booth catching up on some new information especially related to their Canadian ISO program. I was able to attend a few seminars making a special point to get to the “running a successful free terminal program” seminar with Jared Isaacman (United Bankcard), and Ed Freeman (Total Merchant Services) as the main speakers.

It seems like the FDR acquisition was one of the biggest topics of the event, especially from FDR’s perspective. FDR has some major changes coming up in the near future that will greatly improve the back-end structure for any company that is using FDR platforms. Way systems was also a major topic, as they are showing some amazing growth and potential. So far they have established themselves as the largest wireless terminal provider other than Verifone/Lipman, and the future looks extremely bright for them.

As for the rest of the news, I will be incorporating into the website over the next few months. Thanks for the patience on the lack of posting over the past few weeks.


April 23rd, 2007 by Jamie Estep

Cant get out of a credit card terminal lease

Filed in: Credit Card Equipment, Merchant Accounts | 1 comment

About three times a week, I come across someone looking to get out of their lease for their credit card terminal. I wish that I could say that there is a simple solution for this situation, but unfortunately there isn’t a quick fix.

First off, I highly recommend not leasing a credit card machine. If you want to see just how much a lease can cost you extra, check out the lease cost calculator, and the: Why would you ever lease processing equipment? Furthermore, if there is any business type that should not lease, it would have to be new businesses. Many new businesses will not be successful, and the last thing that you want is a bill that lasts three years longer than your business. If your business doesn’t make it, then you will still have to pay off the rest of the lease.

Now onto how to get out…

Getting out of your lease is something that is dependant on exactly what you agreed to when you signed the lease. Leases tend to be some of the toughest contracts on earth, and it is nearly impossible to simply walk away. Some leases will even survive your death or bankruptcy, and all will keep going if you go out of business.

With that being said, there are only two effective ways to get out of a lease.

  1. Find someone to take over the lease.
  2. Pay it off.

Find someone to take over the lease:
Generally you can have another person take over your lease. This can be difficult because that person will go through a credit check, and you may not feel good trapping a friend in something that you don’t want. But, it is probably the least painful way to get out of the lease. This is also dependant on having the option written in your contract, but most lease contracts allow this.

Pay it off:
Paying off the lease is always an option, but really isn’t going to be a good outcome, as you will most definitely pay a lot of money to get it settled, and you are trying to get out of your lease without paying. A few things that you need to look into before you go and pay off your lease. Make sure you are aware of any early closing fees, whether you actually own the equipment, and what the buyout is for the equipment before you pay it off.

Last Resorts:
In the end if you want nothing less than to get out of the lease, but you cannot pay for it, you should consult a lawyer and see if there is any chance to get out of it. Even then, it is unlikely that you can get out without paying off the lease. The only times I have heard of this working, the lease company made some illegal actions to get the lease approved. Now, lease companies are required to call you and get a second confirmation over the phone before the lease is effective. Some very bad sales agents will sometimes give a lease company their own phone number, and confirm the lease in your name. This is very illegal, but it is hard to prove unless the agent’s personal phone number was listed on the lease application instead of the business’s number.

Defaulting: If you decide to default on the lease, you can be assured that the lease company will quickly attempt to reclaim the payoff amount. They will immediately send the account to a collection agency if they don’t have one in-house, and eventually they will probably try to garnish wages, repossess assets, or take out a lawsuit against you. There is probably a clause in the contract that allows them to automatically debit your bank account, as well.

Conclusion:
In the end, the best option is to not lease unless it is absolutely necessary, and the only time that I see it even remotely justifiable is when purchasing very expensive equipment is necessary. This really only applies to POS systems and some wireless terminals, and even in these situations, it is a good idea to look at alternative funding sources as well.


April 16th, 2007 by Jamie Estep

Going to ETA

Filed in: Industry News |

I will be at the ETA (Electronic Transaction Association) conference through Thursday starting tomorrow. The ETA is the largest payment processing trade association in the world. This year as well as the last five or so are in Las Vegas. Always a good place to have a conference.

Anyway, I may make a post or two on the road. I imagine that I will run into some post worthy information and news this year.

I expect that security topics, contactless payments, and smart card payments will be prominent topics this year, as well as some good debate over free terminal programs and other internally controversial processing topics. I’m hopeful to get some good information while there.

Lastly, if anyone going to Vegas has some extra time, and is looking for a good place to gamble, check out the Casino Royale. It’s probably the last, non-corporate owned casino on the strip. Top-shelf drinks are usually under $5, and the table prices are all reasonable. This may be the only, true to Vegas casino left.


April 13th, 2007 by Jamie Estep

If your Nurit 2085 isn’t broke, then don’t upgrade!

Filed in: Credit Card Equipment | 4 comments

I have been getting a plethora of emails recently from people who’s current processor is insisting that they need to upgrade their credit card terminal. While older Tranz, Zon, Linkpoint, and some older Hypercom T7P terminals are being phased out, the terminals that many of these businesses have are still well supported and very popular.

Broken Nurit 2085The Nurit 2085 seems to be number one of terminals that processors are trying to get their customers to upgrade from. In most cases much more expensive terminals were being suggested to replace the Nurit 2085.

Businesses shouldn’t need a new terminal:
The Nurit 2085 uses an operating system called NOS (Nurit Operating System). Right now there are two NOS versions commonly being used. NOS 6 and NOS 7. Terminals that are currently being manufactured are all NOS 7 as far as I know, while existing stock and older terminals will most likely still have NOS 6 on them. Both NOS 6 and NOS 7 are still functional, but some business types and applications will need a specific NOS version to operate correctly. With that being said, it is also possible to change the NOS version on a Nurit terminal. This is a fairly simple download that allows the operating system to be changed.

So, there is really no reason that you should have to upgrade your terminal, unless you need to use a feature that is not available with a Nurit 2085. Examples of these would be Ethernet, WiFi, high memory applications, unsupported 3rd party apps, or features and programs not compatible with your terminal.

The two exceptions:
There is one version of the Nurit 2085 that is not upgradeable. I’m not even sure on the exact model number, because we have only seen one of them is the last five years, but that one model cannot be upgraded to the recent NOS 6 or NOS 7 operating systems. If you are unlucky enough to have one of those terminals, then you may be in a position where you have to upgrade. But, the un-upgradeable model is extremely rare. By my guess these consist of less than .01% of Nurit 2085s in circulation. Secondly, your processor may be phasing out Nurit 2085 terminals. There isn’t any good explanation that I can come up with as to why to do this, but from the sheer number of questions about this I am getting, it looks like it may be happening with a few processors.

Personal Outtake:
So far I haven’t seen any solid info that any processors are phasing out Nurit 2085’s. Unless I missed some gigantic press release, I have no reason to think that this terminal wont work for years to come. I do know for a fact that 2085’s are still supported with most processors, and they are still the terminal that I recommend for entry-level needs. If you are confronted with this situation, I strongly suggest that you get an actual reason why you need to upgrade. You shouldn’t have to spend extra money replacing something that works perfectly fine.


April 11th, 2007 by Jamie Estep

Dmoz’s sad merchant services category

Filed in: Merchant Accounts | 1 comment

Dmoz is something that webmasters either hate, love, or just don’t care about. There has always been a lot of speculation about Dmoz editors abusing their privileges and only adding sites that they have interest in. Another major problem with Dmoz is that many categories are edited by business owners, who are somewhat less than likely to list their competitors in their category.

I was looking at the dmoz merchant services category this morning, and I have to say that it needs a lot of work. I have personally attempted to become an editor for the category on several occasions, but have so far been unsuccessful. While I can accept that some meta-editor at dmoz may not think that I am worthy to be an editor for dmoz, what is upsetting is that the editors for the category are absolutely worthless. I have emailed the editors of almost every category on multiple occasions pointing out sites that no longer exist, hijacked and redirected websites, sites in the blatantly wrong category, sites that haven’t been updated in ten years, and a multitude of other problems. Some of the problems have been corrected, but many are still blatantly there.

So if any dmoz editor that has any control over the merchant services category happens to see this post, here’s the major problems in the main and the card processing categories, (for anyone else if you don’t care about or know what dmoz is, you probably want to stop reading here).

(more…)


April 10th, 2007 by Jamie Estep

Don’t run that $50,000 transaction!

Filed in: Merchant Accounts |

High Ticket SizeWhen you sign up for a merchant account, you specify an expected average transaction size and an estimated monthly volume. These numbers work as a reference for your actual processing. Rarely will these soft limits cause a problem for your business unless you go and exceed them by what your processor would consider a lot. The two ways to exceed these limits are to either run a single, very large, transaction, or to run enough transactions that your monthly volume greatly exceeds the limit.

Now the title of this post ‘Don’t run that $50,000 transaction’ is for those businesses that specified a lower amount and all of a sudden they have the need to process a very large transaction, or the just exceeded their estimated monthly volume and it is the second day of the month. Sometimes it happens only because the business is having a really good month.

This is something that happens all too often. A new or even an existing business will get a new merchant account, and looking at past history, or a well founded guess, will specify an amount that they think their average ticket and monthly volume will be. Then they go and greatly exceed on of the limits that they specified on their application.

Estimate a higher monthly volume and ticket size from the start:
A good processor will instruct a business owner to make a good guess on what they expect their volume and ticket size to be and to raise it, sometimes a lot. Depending on the type of business and how low the monthly volume was estimated, I have recommended people to raise their estimated volume more than ten times what their original was, in a few situations. For most businesses, doubling the initial guess is usually about right, unless a very large volume was initially assumed. Whatever the business may be, you should always specify a number much higher than what you actually think you will do to allow for growth. If you think you will do $5,000 per month, I would put down no less than $10,000. Think about where you want your business to be in two years and write down that number. The point here is to try and prevent ever reaching one of the amounts that you specify.

What happens when you need to make a $50,000 charge?
Situations like these must always be looked at on a case by case basis. If your normal transaction size is $48,000, then a $50,000 ticket shouldn’t be any problem. If your ticket size averages to be $55, then running a $50,000 transaction is a very bad idea. Looking at it from a risk standpoint (Which is what your processor will do), a $50,000 is enormous risk for a business averaging $55 per transaction, both for the business itself and the processor.

How Risk Works:
Risk is the likeliness of fraud and chargebacks on transactions that a business processes. Processors care about this because if you commit fraud through your merchant account or get a lot of chargebacks and cant pay the bill, the processor gets stuck with it. Risk is handled differently with each processor. Some have computer systems that flag batches for a later manual review, and some are completely reviewed by humans. Some allow businesses to exceed their limits, and some will temporarily or perminantly shut down the business’s merchant account once limits are exceeded. Whatever processor you are with, when you run large transactions or you exceed your monthly limit, a big red flag goes up. In fact, if any single day’s batch is higher than a specified amount, you can be 99% sure that it will be manually looked at by a human before the money is ever cleared to your bank account.

Having worked with more than nine processors and ISOs that handle risk, I can tell you that not all risk departments are created equal. Some will shut your merchant account down completely if you process 10% more than your estimated monthly volume. Some will automatically hold any transaction larger than your specified max ticket for several months. Some risk departments wont even tell you that your account is in risk, instead they wait for you to notice that your money is missing and call in. Once your money or account goes to the risk department, it can get really tricky to get it back in a timely manner. Remember when you were a kid, and your parents told you that you weren’t going to get something if you asked again. Well, risk works the same way when they are holding money. The more you ask about it, the more angry you are that they are holding it, and the more you need it, the less likely they are to give it up.

What to do when you need to run that transaction:
I highly recommend not running a large transaction in haste. If at all possible, call your processor and ask them if you can run the transaction. They may say it’s fine, they may want you to fax over a copy of the signed receipt or an invoice, they may just flat tell you not to run it. Whatever the case, calling your processor first is likely to prevent some major headaches.

If you decide to run it anyway:
Be prepared at the very least to not get your money on time. The first thing that will happen, is that the entire day’s batch will be held and manually reviewed. In the best case, they will release your money, after review, and may not even contact you. In the wost case, they will hold your batch and future batches until they resolve the situation with you. They can automatically refund the transaction to the customer, and ask you to collect payment via another method. They can hold the money from that batch for six months. They can shut down your merchant account completely, and hold your funds for six months. The point is, that if your processor sees too much risk in that transaction, the result is going to be much worse than if you would have called them before you made it, especially if they told you to not run it.

In conclusion:
Try to setup your account with the highest monthly volume and ticket size possible, and if you do need to run that huge transaction, or you start approaching the monthly volume that you specified, call you processor and see if you can work something out.