Information on Merchant Accounts,
Ecommerce and Credit Card Processing

July 10th, 2006 by Jamie Estep

How Much do Merchant Account Sales Agents Make

Filed in: Merchant Accounts | 2 comments

Selling merchant accounts can be a very profitable venture. Selling merchant accounts is not an easy task by any means. It takes hours of work, a strong knowledge of the payment processing industry, dedication, and the ability to be told ‘NO’ many times and still keeping at it.

Selling merchant accounts is often first done successfully as a part time job, because it takes a long time to build up a residual stream large enough to live off of. In truth, more that 50% of all people that start out to sell merchant accounts, never make it, and maybe 10% are profitable enough to stick with it. Once a person has found the ability to sell merchant accounts, they can make a very good living from it.

How much can be made:
Statistically, an average merchant account will give a sales agent about $30 per month in residual income. If that sales agent can sign 10 accounts per month, they will be making $3600 per month at the end of the first year, or $36,000 per year. At the end of the second year, $72,000 per year, and at the end of the third year, $108,000 per year.

$108,000 per year is a very decent salary. As long as the agent keeps signing accounts, their income will keep growing. But, 10 accounts per month is not an easy task especially for someone new to the merchant services industry. Also, over time attrition shows up and the average number of accounts a person can setup goes down.

A simple overview of how a merchant account sales agent works:
A sales agent signs a contract with an ISO (Independent Service Operator) who is registered with Visa and MasterCard. The agent signs up businesses for merchant accounts, and the ISO provides the business with the merchant account, technical support, and some customer support depending on what the agent is capable of themselves. The ISO splits any processing fees with the sales agent above their cost. The more a business processes credit cards, the more the ISO and agent make.

Common pitfalls of selling merchant accounts:

  1. High Pressure Sales: While the merchant services industry has cleaned up a lot in the past five years, there are still many ISO’s that use high pressure sales, and other ‘gray area’ tactics to gain more business. These ISO’s are becoming extinct and simply are not doing good business. Watch the movie ‘boiler room’. If the ISO acts similar to the company in that movie, stay away. Find an ISO with a good reputation that is willing to work to meet your needs.
  2. Not signing a contract: If a sales agent doesn’t sign a legal contract with the ISO, they are at the risk of getting their income cut off with no recourse. Always make sure to sign and agree on a contract with an ISO before sending them a single account.
  3. Free Terminals: Free terminal programs often sound like the instant fix to selling merchant accounts, but they aren’t. Free terminal programs are OK for signing existing businesses, but they often come with many strings, and can cost an agent a lot of money if things don’t go as planned.
  4. Upfront Cash Programs: Upfront cash programs can be a great way to get some instant return on a merchant account. But, like free terminal programs, make sure you understand the conditions of getting the upfront cash. Normally you are exchanging upfront money for future residuals.
  5. Price Wars: One of the biggest mistakes an agent or ISO can make is getting into price wars with other companies. The problem is that by getting into a bidding war the service quality is devalued. Agents should set a competitive price, and should hold steady at that price. While it may be necessary to lower the price for an occasional larger business, constantly getting into the lowest price game gets nothing but customers that will leave as soon as another lower price comes along. Agents should provide personal service to their customers making a value that far exceeds any price.
  6. Going after the big fish: Naturally, most new sales agents think that the bigger the business, the more that can be made from them. While the idea is on track, the execution never plays out like that. In truth, the larger the business, the lower the margin above cost, making it much more difficult to make any profit. Large businesses shop fiercely, and most often have the lowest margins to make any profit from. While a businesses that processes $20,000 per month, may make an agent $30 per month, a business that processes $5,000,000 per month may only make the agent $2 – $3 per month. This combined with the huge amount of work and trust needed to sign a large company makes it un-profitable and generally a waste of time for most independent agents.

If you’re interested in learning more about becoming an independent sales agent, we invite you to take a look at our merchant account sales program. We offer a program with a variety or upfront and residual options, as well as wholesale pricing on equipment and ancillary services.


July 7th, 2006 by Jamie Estep

Credit Card Truncation Now Required

Filed in: Industry News, Merchant Accounts | 2 comments

The July 1st deadline for credit card truncation has come. Now, any businesses that isn’t properly truncating their credit card receipts is standing to lose a lot of money, and can have their merchant account shut down.

A word to business owners:
Now, it is my belief that most businesses that aren’t truncating right now, are probably not going to find this website. But, one of the most often questions that I am asked, is how to report a business that is not truncating.

If you don’t think that your customers notice or care that you are not truncating, you are dead wrong.

Again, the penalties:
1st Violation – $5,000
2nd Violation – $10,000
3rd Violation – $25,000
4th Violation – $50,000
Willful or Egregious Violation – $500,000/month

Everyone has had a long time to get the problem fixed, and truncating receipts has been an active topic in the news for the past two years. Get it fixed, if you aren’t doing it. Its just not worth the money or the potential loss.


June 29th, 2006 by Jamie Estep

Google Checkout Sign-up Open

Filed in: 3rd Party Processors, Ecommerce, Merchant Accounts |

Google Checkout is finally released.

You can sign-up at: https://checkout.google.com/

As expected, it is only for US businesses right now. I would expect that some other select countries will be joining the list shortly.


June 28th, 2006 by Jamie Estep

Google Payments, Update

Filed in: 3rd Party Processors, Ecommerce | 3 comments

Google payments is the talk of ecommerce and yesterday google let out a little about their pricing.

It looks like google is going to be charging a fee of 2.2% and a transaction fee of $.30 per transaction. This is more expensive than paypal for higher volume businesses, but is about the same as paypal for smaller businesses. Additionally google has stated that they may be discounting customers that participate in their adwords program.

What google is going to be lacking is the single thing that has made paypal so popular, Ebay. While google is the only company that I think would have a chance going against paypal with a new service, they don’t have the current 100 million current customers that paypal has. They also don’t have Ebay, and google base which is their ebay competitor isn’t going anywhere very quickly. It is going to take a long time to lure even a fraction of Paypal’s user base despite paypal’s very poor customer service history. I think google is going o have to find a new use to get a running start against paypal.

Maybe they can buy craigslist…


June 27th, 2006 by Jamie Estep

Free Credit Card Machines – Not so much

Filed in: Merchant Accounts |

Seth Godin posted a great blog today referring to how something that appears to be free isn’t always without strings.

This reminded me of the free credit card terminal programs that are going on now. These programs have been catching the attention of businesses and reselling agents across the country for a little over a year now. Now, like the situation in Seth’s blog, these programs always come with strings, for both the business that receive the terminal, and for the agent that the business signs with.

Free terminal programs are not for ownership of the terminal, they are more of a free rental. The business that gets the terminal, does not own it.

Business Owners:
Business owners can expect a hefty early termination fee, and are required to return the terminal in perfect condition if they ever close their account. If the terminal is not returned or is returned damaged, the provider automatically takes the money out of their bank account. The programs almost always come with yearly fees, that are unnecessary almost everywhere else. Also, the merchant account fees that the business pays are always higher than what the business could get in order to cover the cost of the terminal.

Reselling Agents:
Reselling agents stand to lose the most with free terminal programs. At first the idea of giving a free credit card terminal to every customer, sounds great. But, in the even that the business doesn’t return the terminal when they close their account, the cost of that terminal can fall back on the agent. I recently surveyed about 50 reselling agents, and not one of them said that they would be willing to take on the risk of having to pay for an un-returned credit card terminal. How many agents would like a nice $400 deduction from their monthly residuals, because one of their accounts closed and didn’t return their terminal?

The point is that it is rare to find something truly free, and Credit card terminals are far from being an exception.


June 20th, 2006 by Jamie Estep

Checking GPRS Wireless Processing Coverage

Filed in: Merchant Accounts |

Just a quick post. I don’t think I’ve mentioned it before.

If you want to check by zip code whether an area has GPRS coverage for wireless processing, go to: http://www.apriva.com/cingularcoveragequery.cfm

You can view an extremely detailed map of the US which outlines wireless coverage in the US, and you can search for coverage by zip code.


June 14th, 2006 by Jamie Estep

Processing Platforms

Filed in: Merchant Accounts |

When it comes to the back end of credit card processing, most people have no idea that there is a complex and complicated system creating the infrastructure for the entire credit card processing industry. Processing platforms are the back-end networks that merchant’s credit card terminals and software connect to. These networks enable businesses to process credit cards.

This diagram is a very basic (and incomplete) model of the back-end of credit card processing. The main processing platforms that businesses in the US deal with are listed. Green denotes the most commonly used platforms, and sub-platforms, and the Orange denotes some of the larger ISO’s and providers.

Credit Card Processing Platforms


June 13th, 2006 by Jamie Estep

Factoring – Credit Card Laundering

Filed in: Ecommerce, Fraud, Merchant Accounts | 2 comments

Credit Card Factoring is a type of business fraud that I commonly refer to in the blog.

What is factoring:

Credit card factoring is essentially processing transactions through a merchant account for a business or entity other than the specific business that was screened for the merchant account. Credit card factoring, also known as credit card laundering, or even money laundering, can exist in many forms. The most basic form of factoring would be a business processing transactions for another business. Another common case of factoring is when a business opens a branch, DBA, or sub-business and attempts to process through the central company’s merchant account. This case is often seen when a business starts a website, and tries to process credit card transactions without opening a separate merchant account for their website.

Telemarketing and call centers used solicit factoring often, but their business practices have come under close scrutiny in the recent years due to massive fraud and losses by major financial institutions.

Why exactly is factoring bad?

First, factoring is used as a method to launder money via credit cards. A business would theoretically process payments for illegal products or services and end up with a clean deposit in their bank account a few days later. It is rumored that a huge amount of terrorist activity is funded illegally with credit cards.

A slightly less severe result of factoring, is the loss of accountability for credit card transactions when a business processes for someone else. In the event of fraud or chargebacks, the processing banks have a hard time figuring out who is responsible for the credit transactions, because they could have been run by multiple businesses. In the end, the customer gets their money back, and the processing bank is left to recoup from the business.

Telemarketing companies have been notorious for employing individuals to open merchant accounts and process transactions for them in exchange for a quick buck. The telemarketing company would keep the bank account empty, and when the chargebacks started rolling in, the processing bank was stuck with the bill. Millions of dollars have been lost to this type of fraud, which has also helped telemarketing companies to be labeled as high risk businesses, whether legitimate or not.

What is considered factoring?

  • Processing a transaction for another business or person
  • Processing a payment for an illegal or restricted product or service
  • Processing the merchant account owner’s credit card
  • Processing transactions in a method not allowed by the merchant account type (Ex: ecommerce transactions through a retail merchant account)
  • Processing transactions for a separate division / branch / DBA of a company not approved on the merchant account
  • Unauthorized scanning / reading / decoding of the information on a credit card with or without the intent to process the card
  • Attempt to employ, or solicit another company or person to process a transaction through their merchant account
  • Unauthorized re-charging of a credit card (often seen if a business looses a chargeback)

Repercussions for being caught factoring:

Simply put, Visa and MasterCard will have your merchant account shut down, and you can be substantially fined, and placed on the TMF (Terminated Merchant File). Depending on the severity and intent of the factoring, there may be legal repercussions as well. Since deliberate factoring often qualifies as money laundering, there are a variety of laws that are also being broken when a business is guilty of factoring. Also, depending on whether the factoring took place across different states there are federal and state penalties, for factoring. In many states factoring and money laundering are felonies.

Why am I writing about this?

Factoring is something that many businesses do and may not even know its wrong. Factoring is a crime, and is easily avoidable, but is most often done through ignorance or due to the disregard of established fraud prevention measures.


June 12th, 2006 by Jamie Estep

Credit Card Truncation Deadline Approaching

Filed in: Merchant Accounts |

Credit Card Truncation, which is the removal of all but the last 4 digits of the credit card number and the expiration date from the customer’s transaction receipt, has been implemented successfully for quite a while now. Until now under Visa and MasterCard policies, existing businesses weren’t required to comply with truncation, but on July 1st, 2006 all businesses whether new or existing must comply with the credit card truncation requirements.

Visa and MasterCard penalties are as follows:
1st Violation – $5,000
2nd Violation – $10,000
3rd Violation – $25,000
4th Violation – $50,000
Willful or Egregious Violation – $500,000/month

There are only a few weeks left to make sure that your terminals or software is truncating. Hopefully everyone is compliant, but those who aren’t will most likely temporarily lose the ability to process credit cards, until they are compliant. We saw the exact same thing happen with a few major banks about two years ago when several older terminals were phased out, and merchants lost their ability to process with very little warning. July 1st is quickly approaching.


June 8th, 2006 by Jamie Estep

Online Check Drafting – Not ACH

Filed in: Ecommerce, Merchant Accounts |

I just learned about a system that I was unfamiliar with for online businesses. It is called check drafting. Now my first thought was that check drafting was just a fancy name for ACH (Automated Clearing House) bank drafting, but surprisingly it was different.

Check DraftCheck drafting works very similar to the ACH system. ACH is essentially an electronic method to debit a checking account. Check drafting does the same basic task, but there are a number of benefits offered by check drafting that makes it superior to ACH. The main benefit of check drafting over ACH is more protection to the business accepting checks through the check drafting system.

ACH chargeback system:
ACH is governed by the NACHA (National Automated Clearing House Association). NACHA has some very stringent regulations and consumer protection is similar to credit card processing companies. Customers can request a chargeback over the phone, and like credit cards, they have 180 days from the time of their purchase to make a chargeback. Anyone who has dealt with chargeback fraud, or just Chargebacks in general, knows how difficult it can be to win them, even when no wrong has taken place.

Check drafting chargebacks:
Electronically debited transactions through the check drafting system take only a few days to enter the businesses bank account. Unlike the ACH system, check drafting also offers much better protection for a business.

  1. A customer must go to their bank and fill out an affidavit to claim that the draft was a fraudulent transaction. The customer has 30 days from the time they receive their statement to do this.
  2. The customer’s bank then requests that the processor explain their position (why the customer was billed).
  3. When the processor authenticates that the customer authorized the draft, the bank will not allow the chargeback and the merchant will not be penalized.
  4. The advantage here is that check drafting allows you the option of refunding the money. The money stays in your account until the issue is resolved; unlike an ACH, where the money is automatically returned to the customer or frozen. You create goodwill with your customers because you are able to address these issues, as they occur, placing you in a proactive position instead of the reactionary situation that is created with an ACH.

Integrating check drafting into a website:
The check drafting system uses an API (application programming interface) similar to a good credit card payment gateway. The benefit of using API integration for any purpose is that your hard earned website visitors don’t ever leave your website. The check drafting system integrates seamlessly into an existing website, and allows customers to pay with a check in addition to any other offered payment methods. The system also offers a virtual terminal that allows the manual keyed entry of checks, making check drafting great for businesses that take orders over the phone.

The Price:
Check drafting is about the same as or slightly less expensive than accepting credit cards. The benefit over credit cards, is also the greater protection a business has over Chargebacks compared to credit cards. It also gives another method to allow customers pay for merchandise or services, helping a business to provide the most convenience for their customers without paying more themselves.

We are currently setting our own company up for check drafting on our website. We are also beginning to sell it to customers, as we have partnered with the Giact Check Drafting company. I am a firm believer in selling only products that I would personally endorse so we are going to test it out first hand. I will post again on more specifics of the check drafting setup and the process altogether. From the response we gotten so far in only a few days on the website, and the features that I have seen, it looks like check drafting could be an excellent system.