Information on Merchant Accounts,
Ecommerce and Credit Card Processing

March 10th, 2006 by Jamie Estep

The costs of not using AVS (Address Verification System)!

Filed in: Ecommerce, Merchant Accounts | 5 comments

AVS, short for ‘Address Verification System’ is a simple verification tool businesses use, that verifies the billing address of the credit card. AVS can verify the billing ZIP code and / or the street address of the card. AVS currently is only available for cardholders in the US.

When a business keys a credit card into their terminal vs. swiping it, their terminal prompts them for an address or zip code, and this is the AVS system. When a merchant uses a online payment gateway to key in transactions, the gateway processes with the AVS system as long as an address and ZIP code are entered along with the transaction information.

AVS costs a little extra:
Normally AVS has an additional fee with it when a transaction is processed using the AVS system. This fee is normally $.05 – $.07 per each AVS transaction, and is charged in addition to the standard transaction fee for processing the credit card.

Many business owners see this additional fee, and not knowing the effects of not using it, decide to not use it so that they can save this additional 5 cents. What they don’t know and may never realize is that if AVS is not used on a keyed transaction, that transaction will downgrade to non-qualified. A non-qualified transaction is the lowest qualification level for a transaction, and has a much higher processing rate than with a qualified or mid-qualified transaction. Retail businesses will automatically downgrade to mid-qualified when keying in transactions, but will also downgrade to non-qualified when AVS is not used.

How much does it cost?
Depending on your merchant contract, a non-qualified transaction can cost as much as 2% and $.50 or more extra per transaction. What this can mean is that if you have a keyed merchant account setup at 2.3% with a transaction fee of $.25 per transaction, the downgrade to non-qualified can increase this to 4.3% and a $.75 transaction fee. Your costs to process the transaction nearly doubled, because of the desire to save a nickel. Not all merchant account downgrade fees are this bad, but they all are significantly more than the $.05 for keying in a transaction.

Use AVS!
For keyed merchants, AVS is required and should be used on every transaction. In addition to your transactions being more expensive by not using AVS, AVS is a very good fraud prevention system. For retail merchants, enter your customers billing ZIP code when you have to key in that occasional transaction.

The $.05 is much cheaper than the additional processing fee you will pay for downgrading to non-qualified.

March 9th, 2006 by Jamie Estep

Enter your name exactly as it appears on your credit card… Why?

Filed in: Ecommerce, Merchant Accounts, My Favorite Posts |

Being in the credit card processing business for several years, there is one thing that has always bothered me. The lack of the ability to verify the name of a person placing an order over a website or over the phone.

Lets just make a scenario to show exactly what I am referring to. Lets take John, a married middle age business man with 2 teenage boys. One day John’s oldest boy James, decides to ‘borrow’ John’s credit card to place an order online without asking.

James goes online to an ecommerce website, finds the product he was looking for. James is shopping at a large internet retailer that uses the latest fraud detection and prevention technologies. When he goes to fill out the customer information, he puts his name and address in both the shipping and billing address fields, as he doesn’t want anyone to know that he ordered with his dad’s credit card. After everything is filled out, he presses the place order button. 3 days later he receives the package he ordered.

What exactly is the problem here?
James just placed a credit card order with someone else’s credit card in his own name. To make matters worse, he probably could have entered any address within the same zip code as the card holder’s billing address.

To test this system myself
I placed an order through several websites using my address but using my father’s card. In the billing field there is small text that states “Enter card holder’s name exactly as it appears on the card”. Needless to say, I entered my own name instead. We live in the same zip code, and just as I thought, every transaction processed perfectly, and the items were delivered to me at my home address. The card might as well have been mine, because the business obviously cant tell the difference. To further add to the problem, I added one of his cards to my paypal account. Paypal is a little better and I did have to enter his street address, as paypal uses the street address and the zip code to validate a credit card’s owner, but again, no name verification. On paypal, since my own credit card is attached to my billing address, I can still ship confirmed to my address using his card.

I made sure to shop only at websites that had the words, enter name exactly as it appears on your credit card.

If John sees his statement and doesn’t recognize that $400 charge, he can request a chargeback from his bank. When the company that shipped the product shows his bank that the order was not placed by John, they lose the chargeback. It doesn’t even matter if the product was shipped to John’s house.

In a nutshell:

What is the point of having a field asking, ‘please enter your name exactly as it appears on your card’?

The complete lack of an electronic name verification is a gaping hole in credit card security. If there were name verification, I can see potential problems that could arise if someone enters their own name incorrectly. But, if every form I fill out asks me to enter the name exactly as it appears on the card, there shouldn’t be a problem. If I have the card in my hand, I can copy the name right off the card.

Additional programs like Verified by Visa and MasterCard secure code are great concepts which greatly reduce any chance of fraud, but are expensive and difficult to implement. Small to medium sized ecommerce websites are years away for having easy access to these tools.

AVS (Address Verification):
Address verification should be used on every transaction that is processed through a website or over the phone. Address verification can either check the zip code of the card holder, or can check the zip code and the street address of the card holder. While checking both the street address and zip code better ensures that actual street address of the card holder is being used. But, in using street and zip address verification, I have received a huge number of declines due to the street address field being very temperamental.

As long as the address verification data passes when a transaction is processed, it doesn’t matter who’s name appears on the card. The business could be shipping to Mickey Mouse, but as long as that address matches, everything is fine. Until banks come up with a universally electronic system to verify names, like AVS, the risk of this type of fraud will not go away. While it is not considered a major source of fraud, it is not something that should be overlooked, especially since the liability always falls in the hands of the businesses accepting credit cards.

March 8th, 2006 by Jamie Estep

Debit card thieves get around PIN obstacle…

Filed in: Industry News |

With consumers around the country reporting mysterious fraudulent account withdrawals, and multiple banks announcing problems with stolen account information, it appears thieves have unleashed a powerful new way to steal money from cash machines.

March 8th, 2006 by Jamie Estep

Surprise: Stores can’t set a credit card minimum!

Filed in: Industry News |

This is a great article for consumers and businesses alike about merchants charging to accept credit cards, and what consumers can do if they get upset about a business doing it.

We all have to pop into a convenience store every now and again to get a carton of milk or some coffee. But some readers are wondering can such stores charge a fee to customers who use their debit or credit cards for such small purchases.

March 2nd, 2006 by Jamie Estep

Creating additional revenue as a Merchant Account Agent

Filed in: Credit Card Equipment, Ecommerce, Guides, Merchant Accounts |

Merchant Account Agents:
A merchant account agent program is a referral partnership between a merchant service providing company and another company or individual. The merchant service provider pays the referring company a fee for each business that is referred for a merchant account. The payment can be a residual split or can be an account buyout program. Merchant account agents with existing, well founded, business relationships can create substantial revenue with minimal effort being an agent. Accountants, Consultants, Financial Services, Web Services and many other business types can greatly benefit from a merchant account agent program, as many of their customers are looking for merchant services already.

Two options for agents referring businesses
When an agent enters into a contract with a merchant service provider, they agree upon the payout method. A residual split option is by far the most common agreement. A residual split means that the provider and the referrer split revenue collected from the processing of transactions by the referred business. The split can be anything, as negotiated between the referrer and the provider, but a 50/50 split is the most common. It is common for an upfront cash bonus in addition to the split, for many providers. Residual payments normally last as long as the referred business is processing, so they can provide a great lifetime value for businesses looking to form long term relationships.

Upfront buyout programs are also available but much less common than residual splitting programs. An upfront buyout is a lump sum that the referrer receives for referring a business. Since their is no residual payments like the residual split program, upfront programs are better for businesses looking to get paid upfront and not ever have to worry about that business again.

The company you refer to is a reflection of yourself
When you refer a business for a merchant account, you want to ensure that they will be taken care of and treated in a way that reflects positively on your own business. Very often, merchant account agents refer their existing contacts to their partnered merchant service provider. To avoid potential repercussions from referring to a company that provides a poor experience, you need to make absolutely sure that you are referring to an honest company. Check BBB reports, and look for consumer complaints about the company that you are looking to form a partnership with. Also, make sure the company you are referring to has been in business for several years. New businesses come and go, so you should make sure that the company has a solid foundation, and positive reviews from customers.

Another often overlooked aspect of referring to a merchant service provider, is what type of businesses the provider accepts. Many providers are restricted in the types of businesses they can accept. A good provider is registered to several processing banks and can normally provide services to all but a few select rare business types.

Customer service is a huge factor in determining who to refer to. Your customers need great service and support, and you need support when you require it. Only partner with a company that gives you a direct contact that can help you and answer any questions that you have. You are a person and not a number, and your partnered merchant service provider should feel the same way.

Lastly, equipment pricing should be a major concern for you and your customers. Equipment can be very reasonably priced, but due to huge markups, often costs businesses and agents 3 or 4 times what it is actually worth. Try to find a company that will provide you with wholesale, or near wholesale pricing on equipment. Be vary cautious of free credit card terminal agent programs. From what I have investigated, they often come with many strings attached.

Not all agent programs are equal
With every industry there are good companies and there are less good companies. Becoming an agent for a merchant service provider requires a trust and commitment on your part, and you need to be sure that the company you are working with is the best match for you. Many providers with agent programs have huge payout or residual claims, but when payday comes around, their promises fall far short.

With any offer, if it sounds too good to be true, it most likely is. Also, make sure to read the fine print. I have seen free terminal programs for agents, but after reading the contract, I found that the terminal is free to the customer, but the cost is deducted from the agent’s residuals. I have also seen upfront buyout programs that guarantee $1000 or more per merchant account, but if the business what not active for two years, the agent had to pay back the full amount of the referral fee. The point is, make sure you know what you are getting into, and who you are getting into it with, before you ever sign the contract.

Merchant Account Agent Program Question Checklist
I made up a short series of questions that you should absolutely know and be comfortable with before entering in a partnership with a merchant service provider.

Questions for them:

  • How long has the merchant service provider been in business?
  • What processing banks / processors is the company registered to?
  • What types of businesses does the company provide to and do they accept startup internet or MOTO (Mail Order Telephone Order) businesses?
  • What residual split and buyout option are available?
  • How often are residuals paid, and are they lifetime?
  • What are the prices and customers prices on processing equipment?
  • Does the company deploy the equipment themselves?
  • What payment gateway options are available for internet merchants?
  • What support do I have and what support do my customers have?
  • How competitive and what are the rates that are being offered?
  • What are all of the extra fees with each merchant account (SETUP, APPLICATION, MONTHLY, YEARLY, TERMINATION, ANY OTHER MISCELLANEOUS FEE)

Questions for you:

  • Do you have an actual person you can contact, phone, email, etc.?
  • Is the processing equipment at or near wholesale?
  • Does the company support all types of businesses, including startups?
  • Do you understand all of the fees that they have for each business type?
  • Do you understand your contract and your referral’s contracts?
  • Most Importantly: Would you be comfortable using this company for your own business?

If you are interested in learning more about being a merchant account agent or would like info on the program that my company offers, please check out The Merchant Store’s Merchant Account Agent and Referral Program.

February 28th, 2006 by Jamie Estep

Convert an Omni 3740 or 3750 for Ethernet Processing

Filed in: Credit Card Equipment, Guides | 18 comments

The Verifone Omni 3740 and 3750 credit card terminals are compatible with an Ethernet processing module, which will enable them to process over an IP based connection. The Ethernet module is available in an Ethernet only, and a dual comm version, which includes a phone connection and the Ethernet connection. I highly recommend the dual comm version of the module over the Ethernet only module.

The Ethernet processing module is a small electronic adapter that replaces the land-line module that comes standard with Omni credit card machines.

This is a simple instruction on how to convert your Omni to the Ethernet compatible version.

What you will need:
Compatible IP enabled processing service
Small Philip’s Screw Driver
Omni 3740 or 3750
Omni Ethernet or Dual Comm Module
An IP based connection for processing (broadband internet, VOIP, LAN, etc.)

First make sure the terminal is completely unplugged, and make sure you do not have any transactions on the terminal. If you have transactions that are not batched sitting on your terminal, you will probably lose them. Make sure you are batched out.

  1. The processing module in your machine is located on the bottom rear of the terminal. It is held in place by a single screw which can be removed by a small Philip’s screwdriver.
  2. Once the screw is removed, the module can be slid backwards and removed from the terminal. Be careful not to touch the medal contacts, as this may damage the module.
  3. Once the old module is removed, the new Ethernet or dual comm module can be inserted into the terminal, exactly as the old module was removed. Carefully push the new module into the terminal. Again, make sure you do not touch the metal contacts to avoid damaging the module.
  4. Once the new module is fully inserted into the terminal, replace the screw that was removed in step 1.
  5. Your terminal will now need to be re-programmed in order to operate. You will need to call your provider and they can normally do this over the phone. Hopefully everything will work smoothly the first time and you should now be able to process over an IP based connection.

Disclaimer: This guide was written as I swapped out a module in an Omni 3750, so it is accurate to the best of my writing ability. Regardless of that fact, this guide is meant as a reference only. I make no guarantee of the accuracy of this guide, and I am not responsible in any way for anyone messing up their terminal as a result of following this. Credit card terminals are complex and expensive equipment, so if you are unsure of your own ability to perform the swap, I suggest you get help from a qualified individual or your processing company.

February 28th, 2006 by Jamie Estep


Filed in: Industry News |

This is a great article about another type of rapidly growing fraud method. This method is something completely new to me, but business stand to lose the most from this type of fraud.

“Online criminals are having a harder and harder time tricking Web sites into shipping items purchased with stolen credit cards. So the bad guys are getting consumers to do their dirty work. By routing stolen packages through innocent consumers in inventive ways, criminals have sometimes been able to gain the upper hand in the cat and mouse game against fraud fighters inside electronic commerce firms.”

February 20th, 2006 by Jamie Estep

Simple Merchant Account Fee Calculator

Filed in: Ecommerce, Merchant Accounts, Tools |

Would you like to have an idea of how much accepting credit cards should cost you.

Fill out the merchant account fee calculator to get a basic idea on how much you should expect to pay each month for processing credit cards.

Merchant Account Fee Calculator

February 15th, 2006 by Jamie Estep

IP – Broadband Credit Card Processing

Filed in: Credit Card Equipment, Merchant Accounts |

Broadband Credit Card Processing

Broadband internet is now the standard for most businesses and homes. Naturally with the increased speed and usability, phone line technologies are migrating to broadband. Credit card processing, which is build around the conventional phone networks, is also making the move to broadband.

All popular terminal manufacturers are moving toward broadband technologies, and each manufacturer is making broadband capable terminals. Processing banks have been slow to pick up the new technology that operates completely differently from phone based equipment. The Verifone Omni 3740 and the Omni 3750 are the two terminals with the best support for broadband processing.

Each of these terminals is available in both phone and Ethernet capable models. There is also a dual communication module that allows the use of both standard phone lines and IP based broadband connections.

How does broadband processing work?
Unlike a phone line, a broadband or IP based connection is always on. A credit card terminal is connected securely to a processing server similar to the way a computer web browser connects to a website. This server connection allows the credit card terminal to communicate with the processing server in order to process transactions. The whole process is done very rapidly and eliminates the need to dial out on a phone line, because the terminal is always connected.

Why is broadband processing better?
The main benefit of a broadband processing terminal is the increased speed and security in processing. A broadband capable terminal will also free up an extra phone line, and since most businesses already have a broadband internet connection, minimal hardware is needed to connect the terminal to the internet.

The Drawbacks:
Currently, not all processing banks support IP based processing. There is a lot of extra equipment that is needed to support broadband processing, and the extra cost has made for a slow transition. It can also be difficult to initially configure. All broadband connections are different because of the hardware configurations used to setup a network, so there can be compatibility problems when setting up a terminal for broadband processing.

What is needed to process over a broadband connection:
The first thing needed would be a broadband capable terminal. Next, a broadband internet service, DSL, Cable, Satellite, or other broadband internet connection is needed for access to the internet. Lastly a free space on a router or directly through a broadband modem to connect the terminal to.

Once configured, IP based processing is faster, cheaper, and more convenient than processing through a standard phone line. If you have an existing Omni 3740 or 3750 you can buy a dual comm module and setup an IP processing service for it. The module will cost you about $100.

Related Posts:
Convert an Omni 3740 or 3750 for Ethernet Processing

February 14th, 2006 by Jamie Estep

Level 1, 2, and 3 credit card processing

Filed in: Merchant Accounts | 1 comment

The credit card processing system is setup on a three level system. These levels of requirements are made to determine if a certain transaction is a qualified transaction. A qualified transaction will ensure that the business gets the lowest qualified processing rate that they are signed up with.

If the criteria for being qualified is not met, the transaction downgrades. When a transaction downgrades, an additional processing and/or transaction fee is also assessed on the transaction. Downgrade charges can be costly for some businesses do it is important to know what is required for a transaction to be qualified.

Processing Level Qualification Chart

This chart explains exactly how much information needs to be passed through the processing system for a level 1, 2 or 3 transaction to not-downgrade and remain qualified, for the lowest possible processing rate.

Data Type

Level 1

Level 2

Level 3

Merchant Name


Transaction Amount




Tax Amount

  X X

Customer Code (16 Char)

  X X

Merchant Postal Code

  X X

Tax Identification

  X X

Merchant Minority Code

  X X

Merchant State Code

  X X

Item Product Code


Item Description


Item Quantity


Item Unit of Measure


Item Extended Amount


Item Net / Gross Indicator


Item Tax Amount


Item Tax Rate


Item Tax Identifier


Item Discount Indicator


Ship from Postal Code


Freight Amount


Duty Amount


Destination Postal Code


Destination Country Code


Alternate Tax Amount


Level 1 transaction are your standard retail transaction. The card holder is using a personal credit card issued from an American bank.

Level 2 transaction are normally corporate cards issued from an American bank.

Level 3 transaction are government credit cards or corporate cards.

Level 1 and 2 transactions can be run through a standard credit card terminal or PC processing program if setup correctly. Level 3 transactions require special software to transmit the extra information required to qualify the transaction.

Businesses that have many downgrades due to corporate and government card acceptance should look into a level 2 or level 3 processing solution to avoid downgrading.

Reference Posts:
What Does All This Mean? – Merchant Account Fees
Why am I downgrading? – Part 1/3 – Reasons
Why am I downgrading? – Part 2/3 – Preventing
Why am I downgrading? – Part 3/3 – Case Studies