Information on Merchant Accounts,
Ecommerce and Credit Card Processing

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:

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.

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.

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.