Information on Merchant Accounts,
Ecommerce and Credit Card Processing

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.


June 7th, 2006 by Jamie Estep

We made the worst blog list…

Filed in: Industry News | 4 comments

I found a blog today that is a collection of what someone thinks are the worst blogs on the internet. I was surprised that someone has the time to write detailed reviews on what they think are bad blogs. The Merchant Account Blog coincidentally made the list which is why I’m writing this post. Normally I wouldn’t waste my time with something this trivial, but the blatant hypocrisy the author has by creating an awful blog about awful blogs is noteworthy. http://awfulblogs.com

In regards to the merchant account blog:

First of all, if business owners need to learn more about how merchant accounts work, they’re not going to get the information from this blog or from any blog. Secondly, most business owners just open a merchant account and don’t shop around to see who has the best blog. That would be a completely useless exercise.

I guess my tracking system is messed up since I tracked over 15,000 unique visitors, and 175 email questions, last month alone.

The simple fact is that people who are fed up with getting ripped off on their merchant accounts and business owners who need more information on a particular topic related to merchant accounts show up here to find the answer.

Why would someone search for a merchant account blog?

They wouldn’t…

People search for answers to their questions and find them here. This site isn’t a blog, because blogging is a trendy thing to do and I’m trying to get into the blogosphere on a business level.

Blogs are efficient, easy to read, easy to market, topically organized, and perfectly suited for articles and information like the ones that I write.


June 6th, 2006 by Jamie Estep

Verifone and D-Link WiFi Processing

Filed in: Credit Card Equipment, Merchant Accounts |

Here is some great news I came across in regards to WiFi processing. Verifone and D-Link are going to form an alliance to help support and push WiFi credit card processing. While it is fairly straight forward to setup a WiFi processing system, there are very few service providers that can support WiFi. Hopefully with this strategic partnership, we will see a huge advance in the availability and support of WiFi credit card terminals.

Between WiFi, Wireless, and Broadband/Ethernet/IP processing, I think that we are seeing the beginning of the end of the land-line credit card machine.

Link to the original article…

Related Posts:
WiFi Credit Card Processing


June 5th, 2006 by Jamie Estep

Motient and Mobitex No More

Filed in: Credit Card Equipment, Industry News |

I just found out about some very important news that is highly relevant to anyone using a Nurit 3010, a Nurit 2090 or any other wireless terminal that operates on the Motient or Mobitex networks. In a few months, all Mobitex and Motient network terminals will be unable to process on those networks. Essentially the networks are being shut down for wireless processing. Wireless terminals will only be allowed to operate on the Cingular GPRS network, and soon the Verizon CDMA network. The GPRS and CDMA networks are much more reliable with better coverage than that Motient and Mobitex networks. All Nurit 3010 and Nurit 2090 terminals will be obsolete when the switch is made. Nurit 8000 terminals that do not operate on the GPRS network will also be obsolete.

Because of this recent news, I strongly advise against buying any wireless terminal except a Nurit 8000 GPRS, or a Verifone VX terminal that processes on the GPRS and/or CDMA networks. Additionally, due to the acquisition of Lipman by Verifone, we can expect some major changes in the Lipman product line, and we may possible see Verifone dissolve Lipman into the Verifone product line completely.


June 2nd, 2006 by Jamie Estep

Where to get Ecommerce Help

Filed in: Ecommerce |

In the age of Do-It-Yourself, it is often difficult to find places to learn how to Do-It-Yourself. This is especially true with areas of ecommerce. There is so much information out there, that finding exactly what you are looking for can be a daunting task.

The best place to find real ‘tested’ knowledge, is to find people who are already doing what you need to do. I personally try to answer questions on the blog, but the sheer quantity of questions I get, and the fact that only a few people would be interested in many of them, prevents me from answering them publicly.

One thing that I have learned in years of working on ecommerce systems and helping my customers with their ecommerce needs, is where to find good information. Whether it is programming specific information, or general business relate there are a few places that I refer to, when I need help or want to give advice.

Discussion forums are the best place to find professional, objective, and accurate information on just about any topic. Once again, with literally thousands of discussion forums out there, which one should you go to.

Digitalpoint: This is by far one of the best forums out there. It isn’t as old as some of the forums around, but it has a huge member base and a ton of very knowledgeable professionals. I have rarely seen a question go unanswered here.

Sitepoint: While I don’t spend a lot of time at sitepoint, it is still one of the best. Like digitalpoint, sitepoint has a huge amount of professionals willing to give advice. Sitepoint also has some very good articles and information. Sitepoint does have some annoying pop-ups and advertisements, but the quality of content negates any negatives that I have seen.

Webproworld: I moderate at webproworld, and while it isn’t quite as active as digitalpoint or sitepoint, it has a number of professionals that you wont find anywhere else.

If you have a question related to the internet, marketing, business, ecommerce, or something related and you cant find an answer at one of these forums, you probably wont be able to find the answer. There are plenty of other great forums out there, and I’m not saying that these are the best out there. I’m saying that I find them to be the most usable, with the best information and contributors.


June 1st, 2006 by Jamie Estep

Cutting the middle-man, who is it best to process with?

Filed in: Merchant Accounts |

I was recently posed with the question of how a business can bypass all of the middle people in the payment processing industry, and go straight to the credit card companies. This post is briefly in regard covers that question and also covers who the best company to process with is.

Processing Flow Chart

First off, it is not within the spec of my knowledge to accurately discuss negotiating directly with Visa or MasterCard, if it is even possible. Any company that is large enough to go straight to them, would have to be processing in the hundred of millions to billions of dollars per year. If your company is smaller than say Paypal, Visa and MasterCard wouldn’t even pick up the phone.

So, who is the best company to process with?

This depends on two factors, what you are looking for in a processing company, and how big your business is. If you want the absolutely lowest cost possible at the expense of any decent service quality, then going for a middle sized ISO, that offers some absurdly low processing rate is probably the way to go (You can find these companies on EBay). On the other hand if you have ever had problems that your ISO couldn’t fix in a reasonable manner, or you want to quality service that you can stick with, a good MLS, or a good mall to medium sized ISO is the way to go.

If you ever do have problems with your merchant account, and your ultra cheap provider is slow, or generally bad at getting the problem fixed, then I guarantee that you will wish you chose a better provider.

When would you go straight to a large ISO?

Only when your business is very large. In my view, very large is defined as above ten million dollars per month. Based on that you can probably negotiate a very low rate with the ISO, but also get decent support from them. Smaller businesses will normally receive poor, generic support when they process with very large companies.

Getting good support from a provider:

Quality of merchant account support

From my experience, as the size of a company goes up, the quality of support goes down. This isn’t always the case, but it makes sense. Large companies generally have poor support because the cost to maintain a good support department is very high, in addition to the technology to integrate all of their departments into a single, reliable system.

The best service:
The best support I have ever seen for merchant services is from small, independent sales reps that are large enough to have their own office, but small enough to know their customers by name. These outside agents usually handle customer service face-to-face, and will show up at their customers place of business when needed. Their customers pay a little more for their services, but if you ask any customer they have, you wont hear even the slightest hint of negative feedback. But, not all businesses need their provider to show up at the slightest sign of trouble. For these businesses, processing with a small to medium ISO that has good telephone support and a personal account representative, will be more than sufficient. They will save some money each month, but not by sacrificing the quality of their support.

The worst service:
The worst service I have ever seen, is when small businesses believe that they will save money by processing with the largest company they can find. They later find that when they have a problem, the get to navigate through endless telephone menu’s only to be left on hold for an hour, and hopefully get the issue resolved because they talked to someone who barely spoke English. And, each time they call they speak to a new person.

The other major mistake people make is by looking for the absolutely lowest offer they can find. These companies offer super low rates, which often come with hidden charges, or a rate increase a few weeks after the merchant account is up and running. The bottom line is, when you shop for the cheapest company out there, you get exactly that. The cheapest company out there.


June 1st, 2006 by Jamie Estep

Shopping Cart Development

Filed in: Ecommerce |

CartI am currently in the process of developing a simple php based shopping cart system. What differs my shopping cart from most other carts out there, is that my cart can be easily integrated into an existing website. It is made for smaller website’s that don’t need a full features ecommerce system. But, it will still offer the capabilities for a website to accept paypal and credit cards through a variety of payment gateways.

I am looking for a few programmers to help develop and test the shopping cart. I need to have several payment modules created that will integrate the shopping cart with different payment gateway’s.

Email me if you are a programmer that has experience developing ecommerce systems and are interested in contributing. You will get a permanent link to your website on the shopping cart website.

The shopping cart already has its own website and will be distributed under GPL.