Archive for July, 2014

Credit Card Processing Rates & Merchant Account Fees Explained

Thursday, July 24th, 2014

Huh? What did he just say?

If you are starting a business and have had the exhilarating experience of speaking with a credit card processing provider about setting up merchant services, you may have thought the same thing.

credit card processing rates & feesCredit card processing jargon can be quite confusing when you’re new to it, yet merchant services sales people spew their lingo like everyone should have learned that merchant account vocabulary in 1st grade. What seems like it should be a simple process can be a real headache.

Here’s a quick overview of how the credit card processing industry works. Basically, with every transaction there are four players involved.

  • Major credit card associations (Visa, MasterCard, etc.)
  • Customer’s bank (issuing bank of the credit card)
  • Merchant’s bank 
  • Merchant account provider 

A merchant account is set up through a merchant account provider and each player has a small role in the transaction and gets a small piece.

The Interchange Fee is the cost paid to the card associations by the ISO or credit card processor (merchant account provider). It is the rate and fee that the processor “buys” from the association.

Processors then add their rate and fee, making up the Discount Rate and Transaction Fee

The discount rate (the discount rate has the interchange fee built in). The discount rate is a percentage charged on each transaction and will vary based on the type of credit card as well as the type of transaction (keyed vs. swiped).

Just like it sounds, the transaction fee is a fee charged for every transaction regardless of whether or not the transaction is approved or declined.

When a transaction occurs, the credit card processor contacts the customer’s bank for approval. If the transaction is approved, funds are transferred to the credit card processor. The processor applies the discount rate and transaction fee, collecting a portion of the transferred funds. Typically within 48 hours the funds (minus the discount rate & transaction fee) are deposited into the merchant’s bank. 

Qualified, Mid-Qualified Non-Qualified

The primary rates that a merchant will be quoted by a merchant account provider is known as the Qualified Rate.

The qualified rate is the lowest rate a merchant can qualify for in their specific plan. In order for a transaction to receive this rate, the customer must use a personal (non-reward) credit card or debit card and the card must be swiped, not keyed in. In most cases, merchants rarely receive the qualified rate.

The Mid-Qualified rate pertains to rewards cards and keyed-in debit and credit card transactions at the retail level. However, almost all ecommerce or online transactions receive the mid-qualified rate. This is due to the fact that these are card-not-present transactions. This rate is slightly higher, but not as high as non-qualified.

The highest surcharge, Non-Qualified rate, is applied to upper level rewards cards and business credit cards, international credit cards as well as transactions that are processed without the customer’s billing address

Other common fees that you may hear from a credit card processing provider are Set-Up Fee, Monthly Service Fee and Termination Fee.

The set-up fee is a one-time charge by merchant account providers. This fee covers administration costs for underwriting and approving the account.

The monthly service fee, also known as a monthly statement or support fee, is charged by most processors to cover the cost of monthly statements as well as customer support.

A termination fee, also referred to as a cancellation or early termination fee, is charged when a merchant cancels the merchant account before a specified term is fulfilled. The terms and costs will vary from provider to provider.

Some merchant account providers may quote other fees not mentioned above. Be sure to ask questions when anything is unclear. And remember, just because a provider quotes what is seemingly the lowest rate, it may not be the best actual deal. Additional fees can instantly make a low rate the worst deal of all.

Before signing up for credit card processing services…

It’s important for merchants to understand these fees as well as their obligations prior to signing a contract. The varying rates and fees tacked on can be confusing. And early termination fees can be painful.

The truth is that in this day and age customers often prefer to pay by credit card. Therefore, credit card processing services are necessary for almost all businesses, especially ecommerce stores. The fees attached to merchant accounts are simply a cost of doing business.

If you have questions about merchant account fees and can’t find an answer, we’d be glad to help clear things up. Give us a call at The Transaction Group.


Reduce Ecommerce Merchant Account Chargebacks by Your Customers

Tuesday, July 22nd, 2014

If you manage an online store offering products or services for sale you probably know what a merchant account is. Without one, your business does not have the ability to process customer credit cards. But are you familiar with chargebacks?

A chargeback is a disputed transaction by a customer and is also referred to as a reversal. Chargebacks are a form of protection for customers by their banks (issuing banks) against fraudulent transactions. As soon as a complaint is filed, the bank begins to investigate the claim.

merchant account chargebacksChargebacks tend to be higher for online businesses, and they are a killer to merchants. Even if you have a merchant account and have been processing credit cards for some time, it’s possible to lose it. If your customers aren’t happy or simply don’t recognize a charge on their account, they may be tempted to call their bank and charge it back.

Even after a complaint has been investigated and ruled in favor of the merchant and no credit has been issued to the customer, the merchant may still be charged additional fees.

All Chargebacks Matter

A chargeback rate greater than 2% can be enough to get a business’ merchant account closed. Put another way, if as little as 2 customers out of 100 have a problem with your business, your business may be out of business!

Often when a merchant’s credit card processing services are terminated, they will land on what is known as the TMF (terminated merchant file), and it can be nearly impossible to get a merchant account again. That’s why it’s important for businesses to be diligent when dealing with customers.

Here are some reasons chargebacks occur and some important actions merchants can take to prevent chargebacks:

Fraudulent Transactions

This is the most common chargeback. These complaints occur when a customer’s card is charged without their authorization and when they simply forget they made a specific purchase.

If a customer’s credit card information has been compromised and the merchant processes a transaction prior to the customer reporting a lost or stolen card, the merchant is still responsible. Merchants processing online transactions should always verify that the billing address matches the shipping address. Of course there are reasons for the address not to match, but in these cases it does not hurt to contact the customer for safe measure.

In some situations, customers see a transaction on their bank statement and do not remember the purchase. The first reaction may be to consider it fraud and file a complaint. In order to prevent these types of chargebacks, it is key to make sure that the business’ short name or identifier is identifiable when it appears on the customer’s bank statement. Having an identifier consisting simply of numbers is not a good idea.

Wrong Merchandise, Items Not Received & Returns

If a customer receives the wrong order or the merchandise is not what they expected they may be inclined to contact their bank. This is especially so when customer service is not on top of the situation. As soon as a customer complains to a merchant regarding the order, it is critical for the merchant to immediately address the issue.

The same holds true for customer returns. When merchandise is returned, a merchant should process the credit as soon as possible in order to prevent the customer charging back the order.

It’s a no brainer to understand that when items are not received by the customer, it can lead to a chargeback. Although less frequent, this does happen. As a merchant, be sure to confirm the shipping address and, again, handle complaints right away.

Technical Glitches

Technical glitches between banks can sometimes occur in which the customer is charged twice for the same transaction. This is also known as duplicate processing. A merchant processing a high volume of transactions may not recognize these occurrences.

Despite this honest mistake, the customer’s first reaction may be to contact their bank and dispute the charge.

It may not be feasible for a merchant to review each transaction and specifically look for these mistakes, but when they happen, it’s critical for a merchant to investigate these customer claims immediately.

Be Diligent

Sometimes there is nothing a merchant can do to prevent a chargeback. But keeping up with your customer service and staying on top of customer complaints is invaluable in protecting your merchant account and ultimately your entire business.

If you have questions about chargebacks or merchant account services in general, give us a call at The Transaction Group. We’d be happy to help.




What is a High Risk Merchant Account | Credit Card Processing

Tuesday, July 15th, 2014

If you’re wondering what a high risk merchant account is, it’s likely that you are searching for credit card processing services for your small business.  And you may have been told by a processor that your business falls into a high-risk niche.

high risk merchant accountsAnyway, don’t take it personally. Some businesses are automatically labeled “high-risk” by merchant account providers simply based upon their specific product and service offerings.

Over time some industries have proven to have higher credit card chargeback rates by customers, and/or higher risks of fraudulent transactions. Guilty by association, these characteristics give some merchants a riskier profile. This has especially been the case with online services, especially for non-tangible goods, such as credit card processing for tech support or online dating.

In some other industries it’s relatively obvious why a business may be considered risky and require high risk merchant services. These businesses include: adult services, dietary & nutritional supplement retailers, online gambling sites and debt collection services.

And some businesses are considered risky for no apparent reason, other than the processing underwriter’s say so. For example, despite some e-cigarettes not being a tobacco product, electronic cigarettes fall victim to this classification.

In addition, the physical location of a business can automatically cause a business to be high risk. This is the case with many businesses located outside the United States.

Additionally, if you’re just starting your business and have no credit card processing history or have poor credit, a high risk merchant account may be required. You will likely find it more challenging to get approved and the underwriting process can take longer.

High risk merchant accounts will always carry slightly higher rates. When shopping for a merchant account provider, you should get multiple offers. And be sure to read all the fine print. What seems like the best rate may actually have stipulations or hidden fees that make it a less favorable option to the merchant.

Do you your homework and make some phone calls. You’ll find that there are plenty of credit card processors that work with high risk businesses. In fact, some are so good at setting up high risk merchant accounts that they are considered specialists.

So, if or when a merchant account provider says “sorry we don’t work with high risk merchants”, keep your head up and make the next call. There are credit card processing companies that will be glad to help!

Have questions? Give us a call at The Transaction Group. We’d be happy to steer you in the right direction!