Every so often, I’ll have an e-commerce client ask me “Will I ever be able to accept PIN-based debits online?” Although many companies have tried to devise a solution, I never seriously believed it would happen. After all, how could a consumer enter a 4-digit PIN from a personal computer and still meet the high encryption standards required for Payment Card Industry (PCI) compliance? Nevertheless, the topic is resurfacing again, and online PIN debits may finally be just around the bend.

The primary reason e-commerce merchants want to accept PIN debits is the savings. As I explained in this article I posted several months ago, brick-and-mortar merchants with high-dollar average sales can save considerable amounts by requesting PIN numbers from customers. But the PCI rules requiring that the debit card be swiped through a magnetic card reader and that the PIN number be encrypted have kept online merchants from participating.

In her June 2009 article for Transaction Trends magazine, Julie Ritzer Ross profiles software and hardware developers that are on the leading edge of finding a workable solution. PaySecure, from Atlanta-based Acculynk, is currently being tested by some of the largest players in the debit network business: ACCEL, NYCE, and Pulse. PaySecure’s software will place a floating “keypad” on a shopper’s screen, receive the PIN, scramble and encrypt it, and then pass it along to the appropriate network. Hardware developer, HomeATM ePayment Solutions, recently introduced Safe-T-PIN, a small and inexpensive USB card reader that allows consumers to swipe their own credit cards while shopping online. It’s going to be the combination of these, or similar, software and hardware components that eventually makes online PIN debits a reality.

But before you rewrite the payment options in your e-commerce shopping cart, keep reading. Before credit card processors will begin supporting these solutions, they’ll need to feel pressure from their merchants. And for merchants, the pressure will have to originate with their customers, since it’s the consumers who’ll purchase the hardware. So, in the end, it’s going to depend on when and how widely the American consumer adapts to this new technology.

You’re probably asking, “Why would consumers want to purchase this equipment anyway?” After all, it’s the merchants who will reap the cost savings, not the consumers. According to Ross, PIN debit payments offer shoppers “perceived security.” Among the 550 shoppers who participated in the testing of PaySecure’s software, a whopping 79% of them said they felt more secure shopping online with their PIN than without it. Economic conditions may be another force that drives consumers to adopt online PIN debits. In a time when many shoppers lack the ability or the will to pile more debt onto their credit cards, debit cards are becoming their preferred payment methods. The thought of compromising their debit card (in effect, their entire checking account) may spur the acceptance of online PIN debits by consumers.

When this technology finally does make its way into the homes of America’s shoppers, it will be a day for merchants to celebrate. It’s rare that something comes along that benefits business owners more than consumers or credit card companies. And with the struggles of the past year, it’s about time merchants caught a break!

I’m happy to provide this information free of charge.  If you found it helpful, please subscribe to my RSS feed so you’ll be notified of future posts.  You can also follow me on Twitter, where I regularly post short tips.  I promise to never spam you or pressure you.  Please forward this to your friends in business, and feel free to rate my post or leave a comment so I’ll know how to improve. Thanks!

If you’re involved with e-commerce (and you don’t live under a rock), then you’re probably aware that Authorize.net, the biggest, and arguably the best, payment processor around, experienced a failure of Biblical proportions this past Friday morning.  A fire in their Seattle, WA data center brought them (and the 238,000 Internet businesses that depend on them) to their knees.

For the record, I’ve been a fan of Authorize.net for years.  I used another processor in 2000 while first getting started in e-commerce, but we soon changed to Authorize.net.  Their service, features, and cost were (and continue to be) superior to their competitors.  I have many e-commerce clients today who rely on their payment gateway.  That being said, Authorize.net dropped the ball on Friday.  What remains to be seen is whether they will fumble or retain possession of the ball.

If your e-commerce business uses Authorize.net, you were certainly affected and probably lost money as a result.  So that your money wasn’t lost in vain, let’s look at what happened and try to learn a thing or two from Authorize.net’s mistakes:

1. Have a backup plan that includes worst-case scenarios, and test your plan. I don’t know exactly what Authorize.net did wrong.  I don’t know their business any more than I know yours. But I do know that when they shifted their traffic from Seattle to their backup data center(s), something didn’t jive. It may have been due to increased traffic resulting from millions of holiday promo emails. It really doesn’t matter. They knew it would be a busy weekend, and they weren’t prepared to handle what happened.
2. Have a communications plan, before you need it. If your business is dead in the water, how will you notify those who depend on you? How will you answer their questions? And, perhaps most importantly, how can you be sure your customers will believe you instead of rumors circulated by others? I was in a meeting with a large e-commerce client when I first heard about the outage. He read a Tweet about it online. His business website was down, and the owner learned why through Twitter. That’s amazes me! Authorize.net signed up for a Twitter account, but not until about 11:00 a.m. EST Friday. Within minutes, the Authorize.net Twitter account had more than a thousand subscribers awaiting updates. Authorize.net used Twitter to disseminate information to their merchants, and it was the only reliable source of information throughout the weekend.  I’m still getting updates via Twitter, including one a few minutes ago (7:30 p.m. EST) announcing they are finally back up to full speed.
3. Answer the phone! I understand that most of us don’t have 238,000 customers calling at the same time. It’s not possible to answer that many calls right after disaster strikes.  But I spoke to many merchants today (3 days after the fact), and none of them had been able to get through to Authorize.net.  Make every effort to answer your phone, even if you know the caller is going to be angry.
4. Post updates on your website. Many of my clients were unable to log in to their Authorize.net accounts. That’s understandable considering what happened. But their homepage was up throughout the weekend.  Knowing that businesses across the country were down, Authorize.net could have at least posted a simple message on their homepage. Any news would have been better than no news at all!
5. Don’t pat yourself on the back while your clients are still hurting. This one should be obvious; in fact, I’m still shocked that Authorize.net had the guts to do it. Driving home from my client meeting at about 3:00 pm Friday, I received another Tweet from Authorize.net.  The author was congratulating everyone on “the team” for the outstanding job they were doing.  There was no mention of how their downtime was affecting businesses. Next time, Authorize.net, apologize for your problem before congratulating yourself for fixing it!
   
6. Don’t make promises you can’t keep. Authorize.net Tweeted all weekend about how this was finally working and how that would be working soon.  More often than not, they were wrong and had to retract statements. Remember that your clients are making promises based on the promises you’re making to them. If you’ve already let them down once, down let them down again.

As of 5:00 p.m. EST Monday, Authorize.net was still having problems (three and a half days after the event occurred.) Shopping carts were still timing out, many shoppers were still unable to order, and Authorize.net’s website still posted no information whatsoever. Please learn from this, Authorize.net! Your merchants are watching.

I’m happy to provide this information free of charge.  If you found it helpful, please subscribe to my RSS feed so you’ll be notified of future posts.  You can also follow me on Twitter, where I regularly post short tips.  I promise to never spam you or pressure you.  Please forward this to your friends in business, and feel free to rate my post or leave a comment so I’ll know how to improve. Thanks!

Let’s face it. Every processor is going to do things to make you unhappy from time to time. But that doesn’t necessarily mean you should leave them. For instance, all processors have to earn a profit, so don’t expect to find one with no fees whatsoever. (As an e-commerce owner myself, I had a goal to pay $1 million in credit card fees. Can you imagine the sales I would have needed?) And all processors have to respond to chargebacks by debiting your account, so don’t blame them if a customer files a complaint against your business.

Basically, as long as your processor is giving you outstanding customer service and charging reasonable fees, I’d give them the benefit of the doubt and stick with them. But there are several practices that you should never have to put up with – clear indicators that your processor is more concerned about their own profits than your success. This post focuses on three of the most blatant examples. If you find your processor is engaging in any of these practices, it may be time to move on.

#1 – Double-Dipping

I don’t know of an industry term for this practice, so I just refer to it as “double-dipping.” Here’s how it works. You expect to pay a discount rate on every credit card sale your business makes. (I didn’t say you like it, just that you expect it.) Using round numbers, let’s look at a $1,000 transaction with a 2% discount rate. Your discount will be $20.  As long as you factored in an adequate margin and your customer remains happy with the purchase, you’re in good shape.

But in reality, some customers won’t be happy, and they will return their purchases for a refund. (It’s hard to blame the customer, because we’ve all had to return something.) Many processors actually charge you a second time when you issue the refunds. With those guys, you’d pay 2% on the sale, and another 2% on the refund. Now, you’ve paid $40 in fees, and you have absolutely nothing to show for it. It doesn’t seem right, does it?

Most processors (at least the good ones) will calculate your discounts based on your gross sales alone, disregarding any refunds you issued. Double-dippers, on the other hand, charge discounts on gross sales plus refunds. (Notice, I didn’t say gross sales minus refunds. Charging discounts only on “net” sales would be great, but that’s not gonna happen.) Some processors use complicated statements to disguise the DD practice. But you can download my free whitepaper, “Digging for the Truth in a Deceptive Merchant Statement“, where I explain how to recognize when you’ve been victimized.

#2 – Daily Discounting

For me, the process known as “daily discounting” is even worse than double-dipping. Instead of taking your money, these processors steal your time and your sanity! As business owners, we all want to be in control of every aspect of our business, including our books. If you’re like me, you balance your business’ checkbook religiously, always looking for errors. This process is complicated enough already, but it’s nearly impossible if your processor takes discounts on a daily basis.

Monthly discounting is the industry standard, so most processors wait until the end of the month to take their fees. Let’s look at a typical business day ($1,455.68 in total credit card sales and an average discount rate of 1.79%) to understand how each method affects you:

Monthly discounting – You record your daily deposit of $1,455.68 in your checkbook. Then, in a day or two, that exact amount appears in your bank account. When your bank statement arrives, that amount is shown again as a daily deposit. It’s easy to reconcile your bank statement because the deposits all match. The discount due for that daily deposit (1.79% x $1,455.68 = $26.06) will be combined with the rest of that month’s discounts, and will be debited from your account during the first few days of the following month. In essence, you get your money right away, but the processor waits until the next month to get theirs.

Daily discounting – You record your daily deposit of $1,455.68 in your checkbook. A day or two later, a deposit for $1,429.62 appears in your bank account. Your processor deducted their $26.06 in fees before they paid you. When your bank statement arrives, $1,429.62 is shown again as a daily deposit. Your checkbook and your bank statement both show your month’s deposits. Unfortunately, none of the numbers match, and trying to reconcile your bank statement becomes a guessing game, at best.

Daily discounting should be reserved for businesses with poor credit histories that are considered high risk. But some processors subject all their clients to this practice just so they’ll get paid faster.

#3 – Monthly Minimums

Monthly minimums rarely have any affect on larger businesses; it’s the small start-ups that suffer from them. During the seven years that I sold shoes online as co-owner of 2BigFeet.com, we used several processors. Most of them subjected us to monthly minimums. Even though we always paid more than the required minimum discount, it still made me mad just knowing the minimum was there.

For obvious reasons, processors like big businesses with large credit card volumes. The more money you make, the more the processor makes. Some processors have a problem with merchants who have occasional slow months; those processors don’t like to see their own revenue drop. To insulate themselves against those times, some processors impose a minimum monthly discount. And if the merchant doesn’t process enough credit card transactions during a given month to reach the minimum amount in discounts, the processor will debit the merchant’s account for that amount anyway.

This practice really only hurts small or seasonal businesses such as lawn maintenance, water sports, hunting reservations, etc. Most average-sized businesses have no trouble meeting the minimums. Nevertheless, it just doesn’t seem right to penalize a business that’s obviously had a tough month already.

I know from personal experience that running your own business is tough. You need your credit card processor to be on your side – working with you, not against you. If you’re using a processor who engages in any of the above practices, you deserve better. There are some outstanding processors available to you, and I’d be happy to recommend one if you’ll give me a call.

I’m happy to provide this information free of charge.  If you found it helpful, please subscribe to my RSS feed so you’ll be notified of future posts.  You can also follow me on Twitter, where I regularly post short tips.  I promise to never spam you or pressure you.  Please forward this to your friends in business, and feel free to rate my post or leave a comment so I’ll know how to improve. Thanks!

Recently, I was reviewing a merchant statement from a large import/export broker. I had already provided them with a quote, and at the request of the merchant, I was trying to calculate their expected monthly savings. After studying the nine page statement for a half-hour, I gave up. Not because it was too hard, but because it wasn’t possible. This payment processor had designed their statements to be useless. Nowhere on the statement did it show the discount rates for the downgraded transactions.

I’ve seen hundreds of statements. It’s normal for me to have to reverse engineer mid-qualified and non-qualified rates, but this was ridiculous. Simple information, posted in any normal statement, was absent. Downgrades were charged in such a way that I had to look at three consecutive statements just to see the whole picture.

Credit card processors sometimes use tactics like these to keep merchants in the dark. They’ll spread fees among different sections of a statement or even among different months’ statements. They may succeed in hiding their charges, but their tactics usually leave merchants feeling angry and confused. No one likes being made to feel stupid! If you’re having trouble understanding your merchant statement, or if you just need help determining your current rates and fees, download this whitepaper about deceptive merchant statements. I wrote it to help business owners find and understand the tricks that can be hidden in their merchant statements.

If your current processor shows all their rates and fees on a statement that’s easy to understand, consider yourself fortunate. But if you think you may be paying hidden fees, or if you’d just like a statement that makes sense, give me a call. I’d appreciate the opportunity to work with you!

I’m happy to provide this information free of charge.  If you found it helpful, please subscribe to my RSS feed so you’ll be notified of future posts.  You can also follow me on Twitter, where I regularly post short tips.  I promise to never spam you or pressure you.  Please forward this to your friends in business, and feel free to rate my post or leave a comment so I’ll know how to improve. Thanks!

There’s an old saying that warns “If you’re trying to sell a cow, don’t give the milk away for free.” (You may have heard it in a song by the Georgia Satellites.) I’m pretty sure the saying had nothing to do with farming! It’s good advice for anyone involved in negotiations, including anyone who’s seeking favorable rates from a new payment processor.

When you’re searching for a new merchant services provider, you have the advantage. You have an established business with a proven track record. You already have a merchant account (in other words, you’re not desperate.) And you know what rates you’re currently paying. If you’re talking to a credit card processor about possibly changing to their merchant account, there’s a good chance they want your business more than you need theirs.

In negotiations, you never show your hand. In the credit card processing business, all providers pay the same Interchange (wholesale) rates. So naturally, we are all able to beat one another’s rates (if we know what rates you’re paying.) If an agent insists on seeing your statement BEFORE he’ll give a proposal, don’t walk away. Run!! If you give him that information, he’ll certainly offer a better rate, but not nearly as good as you might have gotten by playing your cards closer to the vest.

I prefer to give potential clients the best rate quote I can afford, regardless of their current rates. I’ll give you a binding quote without asking what you’re currently paying. If you’re speaking to another agent who’s not treating you with that kind of respect, I’d appreciate the chance to earn your business.

I’m happy to provide this information free of charge.  If you found it helpful, please subscribe to my RSS feed so you’ll be notified of future posts.  You can also follow me on Twitter, where I regularly post short tips.  I promise to never spam you or pressure you.  Please forward this to your friends in business, and feel free to rate my post or leave a comment so I’ll know how to improve. Thanks!

Whether you’re just getting started in your new business, or you’re expanding an existing retail business by taking it online for the first time, you’ll need to know something about getting paid. Today’s shoppers use plastic, so you’ll want to accept credit cards. You’ll have many choices when it comes time to set up a merchant account. But, regardless of which approach you choose, you’ll need to understand (and even speak) the language. So, keep reading to get a quick look into the world of merchant accounts, discount rates, and settled batches.

Since I’ve already written in depth on this same topic elsewhere, I’m only going to hit the high points in this post. After all, you probably didn’t come here looking for details anyway. When you’re ready to bite off a little more, you can explore my other posts. I also recommend reading this popular article I submitted at HubPages. It contains more details on all the topics covered here.

Some of the terms you’ll need to get acquainted with include Merchant Account, Acquiring Bank, Card Issuing Bank, and Authorization. To begin, think of a credit card transaction as a guaranteed I.O.U. Yes, you’ll get paid, but it’s going to cost you something, and it’ll take a day or two for you to see the cash.

The card-issuing bank represents your customers. The bank name may be printed on the front of your customer’s credit cards (i.e., CitiBank or Capital One). When you swipe a customer’s credit card through a terminal, you’re asking that customer’s card-issuing bank whether or not they’ll cover your customer’s (their client’s) debt. If the bank agrees, you’ll receive an authorization number that’s good for the requested dollar amount. That’s your I.O.U.

Authorizations have no value unless someone is willing to convert them into cash for you. That’s where the acquiring bank comes into the picture. To accept credit cards, you’ll first need to open a merchant account with an acquiring bank. These are usually very large banks that may, but probably will not, have a local branch in your town. Your merchant account, although it is a bank account, will not function like a typical checking or savings account. Its sole purpose is to take your authorizations (I.O.U.’s) and collect on them. Once that’s done, the money is automatically sent via ACH transfer to your business’ checking account at your local bank. The entire process takes only 24-48 hours.

There are several ways to set up a merchant account with an acquiring bank. Most local banks will act as resellers for large acquiring banks. To choose the local option, you just go to your bank and open the account. You will almost certainly pay much higher discount rates and fees, but many business owners don’t care about the additional cost. If you have a strong personal relationship with your banker, or if you just prefer the idea of local banking, this may be the option for you.

Other options for opening the merchant account include dealing directly with the acquiring bank (usually via the web or telephone & fax) or working with a merchant services provider (who may represent several different acquiring banks, similar to the way mortgage brokers work.) Either of these options should save you money compared to your local bank, but there’s a distinct difference in the level of service you’ll receive. Acquiring banks usually won’t have a representative in your area, so any problems will have to be resolved through their call center. Merchant services providers, on the other hand, usually do have local agents (like myself) offering personal support.

Once your merchant account is up and running, you’ll need a method to enter your transactions. Retail businesses typically use a credit card terminal. Prices vary, but good terminals are available for as little as $250. Some acquiring banks and merchant services providers offer free terminals, recovering the cost by charging higher rates and fees. Some providers offer long-term leasing for terminals, with monthly payments of $30-$50. But, because leasing always results in a much higher overall cost, I discourage the practice.

For other types of businesses, entering transactions becomes more complicated. Restaurants often utilize a point-of-sale system with integrated credit card processing. These systems can greatly improve the speed and accuracy of order taking. Mail order, telephone order, and Internet merchants don’t typically need terminals. Since their customers aren’t physically present, these merchants can’t utilize a terminal’s card reader. Instead, these merchants may use a payment gateway such as Authorize.net to transmit the credit card data securely across the Internet.

E-commerce transactions processed online are the most complicated of all. In addition to a website and merchant account, the business owner will also need a shopping cart, a payment gateway, and an SSL certificate. Although many small e-commerce businesses (such as eBay stores) do accept credit cards without these components in place, I wouldn’t recommend it. Despite the costs, my personal experience in e-commerce is that merchants will benefit from having their own merchant account, payment gateway, and SSL certificate.

If this post is all you’ve read about credit card processing up to this point, you’ve still got a lot to learn. But, hopefully, you’ve gotten enough information to feel comfortable going forward. If so, go ahead and start looking for a merchant account. If not, continue reading my posts as well as those on other websites. If you have any questions at all, don’t hesitate to call me. I’d be happy to help you. Good luck!

I’m happy to provide this information free of charge.  If you found it helpful, please subscribe to my RSS feed so you’ll be notified of future posts.  You can also follow me on Twitter, where I regularly post short tips.  I promise to never spam you or pressure you.  Please forward this to your friends in business, and feel free to rate my post or leave a comment so I’ll know how to improve. Thanks!

Over the years, I spoken to many business owners who knew exactly what they were paying. They knew their Qualified rates, as well as their Mid-Qualified and Non-Qualified rates. But most business owners just don’t have the time to pay attention to those kinds of details. And even if they wanted to, many statements hide the MQ and NQ rates, disguising them instead as smaller, segmented fees. In those cases, it can be difficult for the casual observer to even locate the rates.

Here’s an easy way to determine your overall cost in less than a minute. In fact, I often use this approach myself to determine whether or not it’s worth if for me to pursue an account. You’ll only need 2 numbers: the total of all transactions processed during a given month, and the total of all discounts and fees paid during the same month.

The first number should be easy to find. It represents your total credit card sales for the month. Usually on the first page of your statement, you’ll see a breakdown of your transactions. It may list Visa, MasterCard, and Discover separately, or there may be line items for Qualified, Mid-Qualified, and Non-Qualified. Regardless, there should be a total shown on the same page. Circle that number.

The second number may be a little harder to find because some processors take money from your daily deposits throughout the month (called “daily discounting”) and then take more from you at the end of the month. In that case, you’ll need to find how much was taken beforehand by locating the Deposits Summary. There, you should see a total of how much was withheld throughout the month. If you find a number like this, circle it. Next, look for a total of all fees and/or discounts itemized in the statement. Since this amount is being withdrawn from your account by the processor, it’s usually labeled as “Total amount withdrawn from your account.” Find and circle that number. If your processor withdrew daily discounts throughout the month, add those two total together. This amount represents your total cost of accepting credit cards for the month.

Now, you simply divide the second number (total cost) by the first number (total credit card sales.) You’ll probably get a number somewhere between 0.0175 (1.75%) and 0.0400 (4.00%). Without knowing anything about your business, I can tell you that 1.75% would be a very low average and 4.00% would be very high. With all fees included, most retail business will be somewhere close to 2%, and most e-commerce businesses should be closer to 2.75%. Businesses that primarily sell to other businesses (B2B) may be closer to 3.50% due to the high number of corporate cards they receive. Keep in mind, these are only examples. Your average will vary based on many factors, including how you receive your orders, what type of cards your customers are using, etc.

If you’re satisfied the results of this quick test, congratulations! If you’re not satisfied with your results, I’d ask you to please give me a call. I’ll look over your results and show you where you’re paying too much. And if you’d like, I’ll offer a rate proposal and calculate exactly what you can expect to save.

I’m happy to provide this information free of charge.  If you found it helpful, please subscribe to my RSS feed so you’ll be notified of future posts.  You can also follow me on Twitter, where I regularly post short tips.  I promise to never spam you or pressure you.  Please forward this to your friends in business, and feel free to rate my post or leave a comment so I’ll know how to improve. Thanks!