Mastercard has been going through some internal changes since its IPO a few months ago. Just yesterday they released a press release titled: MasterCard Announces Interchange Initiatives Aimed At Maximizing the Value of MasterCard Card Acceptance.

Purchase, NY, September 05, 2006 – MasterCard Worldwide announced today that it will soon implement significant interchange initiatives aimed at addressing concerns that have been raised by the merchant community, and helping them maximize the benefits and value of accepting MasterCard cards.

Now while this may seem like a genuine act of goodwill to the businesses that accept Mastercard, I can only see a negative affect from this new policy.

Why would publishing interchange be negative?

Essentially what Mastercard is doing by publishing interchange is placing all of the weight of high processing fees on the Merchant Service Providers, or even more appropriately they are attempting to remove the blame from themselves. Even though merchant service providers only take home about 5% of the fees that businesses pay to accept credit cards, it is the common belief that they are getting the whole check. See the post: Merchant Account Fees, Credit Card Interchange – Who are you really paying?, for more information on where the money is going.

Now a business sees the credit card interchange fee schedule for their business type. It states something like: 1.39%, and they think, oh, why am I paying 1.71% if they only have to charge 1.39%? The business doesn’t fully understand the industry and as a result, they think they are being ripped off. The next thing that happens is a huge surge in complaints and negative feedback against the merchant service providers, ISOs, and banks who actually have to charge 1.68% just to break even. Since interchange is the same for everyone, this percentage is pretty much the same across the board. Mastercard has effectively removed their own accountability for high processing fees, and placed it on the businesses that provide services for them. Even though they are the deciding factor in credit card interchange, they place the blame on the companies that are reselling their services. In no way are they fixing any problem. They aren’t going to lower interchange, and as a result, nothing at all is going to change except consumer satisfaction.

Now, I know that this sounds completely biased but the simple fact is, unless Mastercard decides to lower interchange, nothing at all is going to change. I would absolutely love to be able to provide merchant accounts at .1% or lower. But as long as interchange is where it is, businesses will never see prices drop.

The humor that I see in this situation is that Mastercard interchange is about .09 – .1% higher than Visa for just about every business type. They have by far the highest interchange fees, and they are the ones who are going to show everyone. Mastercard is providing a perfect example of what not to do when your company goes public!

Related Posts:
Merchant Account Fees, Credit Card Interchange – Who are you really paying?

Other websites that are talking about this:
Payments News
Reuters
MasterCard Blinks On Interchange Fees

I recently launched the Ecommerce Blog: ecommerce-blog.org. The goal is to provide information and discussion on topics relating to non-payment related ecommerce.

I added a Tab to the top of this blog for easy navigation. Check out The Ecommerce Blog!

I have been very busy lately, which has resulted in a reduced quantity / quality of posts. The site just got switched to a new server and everything should run much more smoothly now.

I often run into website owners that are confused about the SSL requirements a website must have to process payments. Specifically, why would a SSL certificate be required if a website is using a payment gateway.

The answer to this is simple. Payment gateways are independent of SSL certificates and do nothing themselves to make a website secure. However, some Payment Gateways do not use an API (Application Program Interface) method to integrate with a website. A SSL certificate is normally not required if a website is not using an API method and not processing a customer’s credit card on their own site. Instead, the website’s visitor is redirected to a secure checkout page on the domain of the payment gateway. I think this redirection is where the main confusion is created.

Types of payment gateway integration:
Basic Integration – A website visitor browses and adds products to a shopping cart on a website. When they go to pay for their selected merchandise, they are redirected to a secure web page that is hosted with the payment gateway.

API Integration – This is a more advanced and better integration. The website is connected securely to the payment gateway. The visitors shops on the website, and makes payment on the same website. This is a completely seamless integration, and the website must have the ability to provide a secure connection between the user, in addition to a secure connection between the website and the payment gateway.

Which method is better:
There are benefits to both integration methods, but I think that the API integration method is much better that the simple method. API integration keeps a visitor on the same website that they are shopping with, it allows for easier visitor and order tracking, and is generally a much better practice for usability concerns. If you look at any major ecommerce website out there, you will find that they use the API version of whichever payment gateway they are using.

The simple method is easier to implement, and doesn’t require a SSL certificate. The drawbacks are mainly the loss of control of website visitors when they go to make a purchase, difficulty in tracking user behavior on a website since they leave it before a conversion is completed, lack of control over the payment abilities of a website, and poor website usability.

Many websites start out using a simple method of integration, but will later want the added capabilities of the API version.

I recommend using the authorize.net payment gateway using the AIM API integration method for any business.

The Merchant Account Blog is moving to a new server. The move should go smoothly, but I am going to refrain from posting until the switch is fully completed. It should be fully switched over tomorrow, and by Friday at the latest.

I recently stumbled upon a great pdf guide on the features of each type of credit card from the four major credit card companies. Each cart type has a very clear diagram outlining the card identification features of that particular card.

Screenshot of the Visa diagram.

(Mastercard, Amex and Discover are available in the guide)

From what I have been reading, card counterfeiters are getting so good at reproducing cards that it is virtually impossible to distinguish the difference between a well made fake, and a real credit card. Most businesses wont check each card to ensure that it is real. It would take too much time, and it simply isn’t that big of a problem. But, if you ever do have a question, this guide should give you what you need to verify a card is real.

The file is rather large (~1Mb), so you may want to download it instead of opening it in your browser window. Right Click and select “Save Target As” to download the guide.

Credit Card Identifying Features ^.pdf

This guide is also available in the download area.

I just added a huge credit card logo collection for using on a website. You can place these logo’s on your site to let your visitors know that you accept credit cards.

Credit Card Logos For Your Website

ISO’s and Service Providers – Make sure that you have your financial institution disclaimer on the footer of your website, business cards or any marketing material before you put a Visa or MasterCard logo on them. There are other restrictions for using these logo’s on your media, so check with your sponsor to ensure you don’t break any rules.

I’ve compiled a list of merchant account and ecommerce related blogs that offer good information from knowledgeable, professional people. I’m leaving SEO and online marketing specific blogs off because my list would be far to large for a reasonable post.

It is hard to find merchant account related blogs that offer objective information because most of the blogs out there are run by companies. Although my blog is also company sponsored, I try very hard not to bias my information on anything but my personal opinion and observations.

Merchant-account-services.org run by John Conde is a good merchant account blog. John offers some great articles and information relating to merchant accounts, and his information remains as objective as any out there. John is also responsible for creating the foundation for the merchant account wikipedia article.

An Ecommerce blog that I find interesting is about.com’s Online Business Blog run by Ana Rincon.

The ecommerce times offers a great ecommerce news and articles. While this isn’t a blog by definition, it is updated with great articles daily and the quality of the content at Ecommerce Times is far above most if the internet.

The most comprehensive blog covering payment processing and ecommerce related news is Payments News, operated by Glenbrook Partners LLC. I have had several articles syndicated by Payments News. They are updated many times a day with highly relevant, interesting news covering everything related to payment processing.

The shopping cart Volusion, offers an interesting ecommerce related blog. The blog topics are focused more on the analytics, usability, and SEO sides of online business.

Lastly, practical ecommerce is a ecommerce magazine offering free and paid ecommerce articles and three ecommerce blogs. Practical ecommerce is fairly new, but I think they have a lot of potential in the world of ecommerce.

That’s it for this list. Email me if you own or know of an ecommerce or merchant account related blog that deserves to be on my list.

Factoring is discussed in this article: Factoring: There’s Money in Your Receivables from the Ecommerce Times.

A business can also factor using their merchant account. By using their credit card processing history, a business can take out an advance backed by their business’s processing volume and history. This works just like the factoring in this article but the lender is basing their funding from a business’s history instead of their accounts receivable.

Business can get cash very quickly, and without strict credit requirements since business history is what a lender is basing the advance from. Factoring from a merchant account will put money paid in processing fees toward paying off the advance, which can also make it much easier to repay.

Many small businesses get stretched thin on their available credit, so factoring against their sales can be a great way to get extra funding, fairly quickly.

What should the money be used for:
Since any money advanced through factoring is backed specifically by the sales of the business, it is important that the money advanced goes back into the business. Whether this be a remodel, increased marketing efforts, opening a new location, or anything else, the money advanced should always go back into the business.

If you are interested in factoring against your sales through your merchant account you can talk to your current provider to see if they offer this service, or contact me. We have several factoring options available for our customers.

Also, don’t confuse this type of lending with the type of merchant account fraud: credit card / merchant account factoring.

I am frequently asked about the process in becoming an ISO (Independent Service Operator) by businesses and sales agents alike. Here is a brief description of the actual process to become a registered ISO.

There are two types of ISO’s in the credit card processing industry, Registered and Unregistered. The real-world difference between the two, is that an unregistered ISO is essentially a sales agent, and a registered ISO is an independent company. Unregistered ISO’s are not allowed to have sub-agents working beneath them. Registered agents can have sub-agents, as long as those agents operate under the name of the ISO. Registered ISO’s are normally much larger than unregistered ISO’s.

To become a registered ISO, a business or individual must register themselves with Visa and MasterCard, and find a sponsoring processor, or larger ISO to resell for. This process is very time consuming and expensive, and is not the right direction for the majority of sales agents. Once registered, that company can have sub-agents, and generally has the ability to provide lower rates on credit card processing services than a sales agent. The major benefit of registering as an ISO are better buy rates to resell credit card processing services, more control over prices and residual payment options, being able to have outside agents that represent the main company and generally being able to establish a independent brand and company.

The application process:
The first step in becoming a registered ISO, is to find the company (either a processor or ISO) that you want to resell for. There are probably a hundred or more companies that can provide this ability. Depending on the needs of the agent, there are a variety of good companies that they can resell for. Any agent that has been in merchant services long enough to know the industry, should know who the better processing companies are, who has the best support, and the general provisions in signing with particular companies. It is equally important to sell for a company with a positive business image, and a very positive history of paying their ISO’s. Also, some processors don’t allow new ecommerce or card-not-present businesses, which could leave a gaping hole in an ISO’s ability to provide services. Some processors have high fees, or poor reselling rates. The differences between companies is completely unique to that individual company. A very good amount of research should be put into finding the best company to resell for.

Once the processor or ISO to resell for is chosen, the agent must then begin the registration process. I would honestly suggest allocating for no less than 6 months for the registration process. It may be shorter, and it may be longer, but either way, it takes a long time to complete the registration process. It is also a very good idea to hire an attorney that has experience in forming ISO’s to help with understanding and completing the application process. The repercussions from not fully understanding the provisions of the application could easily devastate a sales agent or small corporation.

To apply with Visa and MasterCard, the application itself is very lengthy, thorough, and expensive. The business history and any personal history of the owners will be closely scrutinized. Profit and loss statements, and any available financials for the business will be required. The business’s and owner’s personal assets and credit will be looked at, as well as any prior criminal or civil history. Basically, any available information for the business and owners is taken into account in the application.

Next comes the fees. The initial registration fee for registering with a single ISO or processor is $10,000 for the first year, and $5,000 for each subsequent year. If a company is registering with more than one company, which is common, it costs the same amount for each registration.

At the same time as the Visa and MasterCard applications, the agent will be applying with the ISO or processor, which is a similar but slightly less stringent application process. The Visa/MasterCard registration is separate from registering with the processor., and Visa and MasterCard are separate themselves, so there are essentially three applications.

Finally done with the application!
Once the application is completed, it’s time to wait. Visa and MasterCard will begin their lengthly process to qualify the organization as an ISO. Hopefully there isn’t a backup with Visa or MasterCard. The last time that I helped a business through the process, Visa took seven months to approve the ISO. MasterCard took about six weeks. If there are any major issue’s Visa and MasterCard will contact the sponsor. The sponsor will then come to you for whatever it was that needs attention, and they will send it back to Visa and MasterCard once complete. Visa and MasterCard will never communicate directly with a registering ISO, so making sure that you are registering with a solid company is important in getting your application processed quickly. I wouldn’t say it’s a fact, but probably 99% of the time, Visa or MasterCard will need some additional information.

Now you’re an ISO:
After several months of headaches, you’re finally an ISO. Now what?

That’s completely up to you. You will probably have gone through some extensive training with your sponsor by now. Obviously if you reach this point in the credit card processing industry, you have things pretty much figured out. You can now recruit outside sales agents, and you are your own company. Congratulations, and get to work.

Lastly, if you get to this point, don’t make the mistake of thinking you can transfer your current portfolio of clients to your new sponsor. Do not ever transfer your existing customers to a new processor, exclusively for that purpose. You can risk loosing your residuals from all of your existing accounts, and you can be fined, and sued.

Related Articles:
So You Want To Register As An ISO?

This is an off-topic post, but the incident was unique enough for me to blog about.

We received a package today from American Express. It was a large white box with no information on it at all.

Inside the box was a black case a little smaller than a briefcase, but weighing about 10 lbs. On the case it stated ‘YOUR BUSINESS CENTURION CARD HAS ARRIVED’.

Inside the case was:

a single credit card.

The interesting thing about the Amex black card itself is that it is metal and not plastic. The entire card including the numbers is cast or milled from a sheet of metal. It weighs about double a normal credit card. I don’t think any information is going to get rubbed off any time soon.

The elaborate packaging for such a small object sets a new standard in my book. I think everyone in the office came to look at how much material was used to package a single credit card.

It takes a rare product to justify the cost of packaging like this.

If you don’t know about the American Express Centurion Card, I found a good article on Wikipedia: the black Amex card.