This weekend, I was shopping at a business here in Austin, TX and I noticed that the there was a minimum purchase to be able to pay with a credit card. I politely informed the business owner that this was a prohibited practice and I was rudely returned with a “if they’re going to charge me for taking a credit card, then I’m going to chose the ones and how I am going to take them”.

While this may not seem unusual to some, it is clearly against Visa and MasterCard regulations. Many businesses may not know that this is illegal, and others may just not care. Either way this post is a review of a few common practices that some merchants partake in, and they shouldn’t.

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I’m not going to pose this topic as a question, I’m just going to say it. Merchant Service Providers are better than banks for providing quality credit card processing services.

Merchant service providers provide the same type of service as banks, but do it with better customer service and support, with lower rates, and better prices on credit card processing equipment.

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The Credit Card Processing Industry has a very long list of reasons that a customer can charge back merchandise for. It is unfortunate that all credit card fraud and protection laws are written with the consumer in mind and not the business owner.

It’s ludicrous to imagine that a consumer has no accountability for loosing their credit card and having someone who finds make fraudulent purchases on it. But, at the same time, a business is completely accountable for accepting a stolen card.

This list includes most of the reasons that a customer could request a chargeback for.

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Hopefully you have never been presented with the situation of your business needing a reserve account for your credit card processing. Delta Airlines has just been threatened with a reserve account for their credit card processing that could cost their business over $750 million dollars in just 2 months.

A reserve account is basically a savings account that some merchants are required to have in the event of excessive chargebacks, a high risk business type, poor credit history, or some other factor that could jeopardize the businesses ability to pay their credit card processing bill.

There are 2 types of reserve accounts, rolling and fixed. A fixed reserve will require a business to maintain a certain monetary amount of money in the reserve account at all times. A rolling account will keep a certain percentage of the funds the businesses processes for a set period of time and then the funds will be released into the merchants bank account. Some rolling reserves span for only a few days while others are for months or even years.

A reserve account is designed to protect the processing bank in the event that the merchant can’t pay for the processing bill that they accumulated. If the merchant cant pay, then the processing company is stuck with the bill. This includes merchant account fees, chargebacks, merchandise returns, or any other fee the is any way connected to the accepting of credit cards.

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There are literally thousands of organizations that can set you up with credit card processing. Of these thousands of businesses, there is a large percentage that is out there just to take your money. Finding a good merchant service provider is nearly as important as accepting credit cards itself.

Start looking for a merchant account several months before you actually need it. Trying to desperately get setup in a hurry is the most common way businesses get locked into expensive contracts with poor providers.

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Every merchant account application consists of 4 main sections; the business and past history, anticipated processing volume and anticipated transaction information, merchant account fees, and the signature section. The Merchant Account Fee section is undoubtedly the most complicated section and is the most important to you, the merchant.

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A seasonal merchant account is exactly as it sounds, a merchant account that is only active for a portion of a year.

Businesses like firework stands, fruit stands, and seasonal tourist businesses can benefit greatly from setting up a seasonal merchant account. Seasonal merchant accounts are not available through all processors. Currently, Nova is the only processor that can setup a ‘true’ seasonal account, but FDMS and others can be setup similar to a seasonal account.

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To finalize my 3 part post on downgrading, I will conclude with three case studies using different business models to show possible savings by using some of the methods described in part 2.

These business models should show a good monetary representation of the possible savings by using the previously described methods to help prevent downgrades. There will be some technical terminology and calculations, but following should not be extraordinarily difficult.

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Many businesses may be able to prevent or eliminate their downgrade charges. This post will focus on ways to help eliminate or prevent downgrade charges. There are several simple methods that can be used to help prevent downgrades, and there are more involved methods that involve multiple merchant accounts or the restructuring of the merchant account type.

By analyzing the differences in customers from business to business, and the method that businesses use to accept credit cards, I find that for some, downgrading is inevitable. Some businesses will always downgrade. Their customers are always international, they are unable to use AVS, or some other reason beyond their control will prevent them from qualifying their transactions. For these businesses, my best advice is to negotiate. Downgrade charges can often be negotiated by talking with your current processor.

As for other businesses, these methods are primarily intended for Retail merchants who swipe their credit cards. Keyed entry merchants have much less of a problem with downgrading, and most downgrading can be prevented by using AVS.

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This topic will consist of three posts; the first covering common reasons for a merchant account to downgrade, the second will cover ways to help prevent transactions from downgrading, and the third will cover case studies putting these methods into action.

I will also reference a great article written in the Green Sheet, called Interchange Untangled. It is lengthy, but is the best source for transaction downgrade information that I have found, anywhere.
http://www.greensheet.com/interchangeuntangled.html

Credit card downgrading is common in every business merchant account. A transaction downgrade is where the transaction fails to meet certain pre-defined criteria, and an additional charge is added to the fee for processing the transaction. Some businesses see many downgrades while others may only see a small percentage of downgrades. There are generally 2 levels of downgrading, MID-qualified and NON-qualified. MID being the first downgrade level and NON being the highest downgrade level with the greatest additional fee associated with it.

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