Just yesterday, I wrote about the increasing number of non-compliance PCI charges that processors are passing down to their customers. A few months ago several processors started adding monthly PCI compliance fees to their customer’s bill. We’ll, the PCI fees are getting a lot worse!

I reviewed a potential customer’s statement today and they had a $500 PCI non-compliance fee on it, which is by far the largest I have seen to date. Needless to say they were very upset.

Get Compliant:

It appears that these non-compliance fees are going to get much worse, very quickly. We’re getting a lot of pressure from sponsoring banks to impose similar fees, and so far we’ve been able to avoid them.

The point is, these fess are going to be the standard in the near future. If you’re not PCI compliant now, it’s time to look into it before your processor tacks a $500 fee on your monthly bill.

PCI-DSS is required for all US businesses that accept credit cards. For some businesses, there will be no additional cost for becoming compliant. For businesses the process online, or ones storing data, scanning can cost as low as $50 per year, which is a far cry from $500. Security is however, a lot more than just filling out a survey and scanning a server 4 times a year, as requires by PCI-DSS. Whatever the case, PCI-DSS is required by all card issuers, and needs to be adopted. I’m not going to argue whether PCI is fair for some of the businesses out there, but data needs to be secure for every business.

For PCI-DSS Compliance, Start Here: https://www.pcisecuritystandards.org/

CVV or card verification, (also known as CVV2, CVC2, CID) is that small 3 or 4 digit number on the back of your credit card (front for AMEX) that is not encoded on the magnetic stripe, and is designed to help prevent fraud.

CVV offers a little protection against fraud, but nonetheless should be used whenever possible.

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Due to the new PCI regulations affecting processing equipment manufacturers, Verifone is adding an across the board fee of about $10 for every terminal that they distribute. This means that processors and resellers will most likely be passing that cost on to their customers, so everyone can expect all Verifone terminals to be more expensive in the very near future.

Verifone is the second largest processing equipment manufacturer in the world, and their rivals Hypercom and Ingenico, have not made any moves to increase prices. Although this is only about a 5% price increase, I think that this will severely hurt Verifone’s reputation among banks and processors. Since banks and processors decide which terminals they make available to their customers, this could move to the point that Hypercom and Ingenico gain major ground on the US credit card terminal market. Hypercom’s most recent terminal line, is extremely competitive, and Verifone may have just opened the door for them to make a move.

Verifone’s stock has lost roughly 80% of it’s value since this time last year, while Hypercom has kept loses below 70%. I think this is a poor manner to handle a difficult situation. Verifone would have received a much better response by increasing the prices of their equipment instead of adding a fee to each one being sold. Sometimes the presentation is more important than the action, and I think that this may end up being one of those times.

I’ve been expecting Paypal to take a shot at acquiring a buy-now-pay-later service provider, and Paypal just announced they are making a move to acquire Bill Me Later. Paypal’s definitely been missing out on a huge market that Bill Me Later owns. Bill Me Later’s only major competitor is a company called eBillMe.

While I personally think that this could be scrutinized as an anti competitive acquisition, especially considering Paypal’s monopoly over non-credit-card online payments, this should make Bill Me Later easier for smaller businesses t use. Until recently, Bill Me Later required ecommerce merchants to be processing in the seven figures per year, far out of reach for many smaller sites that could have greatly benefited from Bill Me Later.

It would probably be six months to a year before any reasonable integration with Paypal happens, but the acquisition is supposed to go through by 2009.

A while back, I blogged about Visa’s unembossed card program.

These cards which can be printer at a bank, do not have the raised lettering that credit cards currently have. These cards are much easier to produce and can be done on standard equipment, but it prevents businesses from obtaining an imprint of a credit card either as a backup method or for smaller merchants who still exclusively use an imprinter.

Visa is now pushing their unembossed card program to US markets, starting with debit cards, and consumer credit cards. This allows issuers to create cards on-the-fly which is great for issuing debit cards to new bank members, or immediately issuing a credit card upon approval. Unfortunately, this convenience comes directly at the expense of fraud prevention and processing redundancy (albeit primitive), and effectively destroys many small mobile merchant’s primary processing method.

My recommendation to mobile merchants out there, is that if your only method of processing is a manual imprinter, start looking for a wireless terminal, or start looking for a portable photo copy machine. It’s just a matter of time before these cards are the only cards!

A few weeks ago I had the opportunity to have lunch with the owner of one of the largest online retailing websites in the world. He was looking for a new company to process with, and brought up some good points that I think can really help business owners looking to accept credit cards.

As far as processing goes, what is important to a business doing $10M+ per month?

1. It needs to work, period!
2. God forbid something does go wrong, it needs to get fixed, fast!
3. A “fair” price!

It needs to work!

There’s no question that cost is not important if your processing system is not working. A processing system needs to work fast, be completely seamless, and should not have problems, ever…

Ideally a business would not even know they have a merchant account would it not be for that monthly statement.

An invisible merchant account is a good merchant account!

If something does go wrong, it needs to get fixed, fast!

When a second of downtime can cost thousands of dollars in missed revenue, any problems in a credit card processing system needs to be fixed without delay. While service availability and processing connectivity issues should not be a problem, nothing is 100% guaranteed.

Businesses need to know that someone is always there to fix any unforeseen issues, immediately.

I am getting a “fair” price!

It’s not important to get the lowest price on earth, but if someone else costs 25% less, there’s a problem. A quality service costs money, but is also competitively priced. Cost should be low enough that a business owner doesn’t immediately consider switching when someone comes along with something a little lower. The quality of service should make up for any minor differences in price.

Conclusion – the perfect merchant account – The perfect merchant account is competitively priced and stays that way. Regardless of the processing method, it does not have problems with connectivity or in getting a business the money that they process. There must be someone on the other end of a phone, ready to correct any problem that should happen to arise, and problems should be rare. Does your merchant account work this way?

A business owner has better things to do than worry about their merchant account!

This month marks the 3rd anniversary of the merchant account blog.

I’m currently working on some large time-consuming projects which is the main reason that posting has been so sparse lately. Hopefully this will change in the next few months and I can get back to a reasonable schedule for posting.

Thanks to everyone who stops by. Please feel free to jump in and comment if you’ve been a silent lurker.

Thanks again

Right now, there’s a battle waging for the processing industry. On one side is a massive group of retailers including Walmart, Target, the NRF and many others and on the other is Visa, MasterCard, Amex, card issuing and processing banks. This outcome of this battle will ultimately decide whether the government will regulate credit card interchange, or it remains controlled by Visa and MasterCard.

Retailers argue that Visa and MasterCard are using anti-competitive practices to maintain a monopoly on the processing industry. Visa and MasterCard declare that government regulation of interchange will create a non-competitive situation and ultimately cost businesses more than they are currently paying.

In theory this act (H.R. 5546) sounds to be a simple solution to a complex problem. The government gives retailers the ability to negotiate their interchange fees, done… What this resolution doesn’t take into account is that the system is so much more complex than just some simple interchange negotiation. This resolution would be on-par with telling every gas station in the country to negotiate prices with their customers, good luck… It doesn’t in any way address the cause of the interchange prices, it only addresses the result of where interchange is set at.

Why interchange should not be regulated:

Irresponsible: – The current concept of interchange regulation is in reaction to a slowing economy, and massive inflation in oil and food prices, and not the interchange fees themselves. This is an irresponsible and ineffective way to handle a complicated situation. Putting all personal opinion aside, the US Government Accountability Office, the US Justice Department, the American Banking Association, and the Federal Trade Commission have all warned congress against regulating interchange.

“Policymakers should heed the concerns raised by both the FTC and the Justice Department,” said Yingling. “The many benefits merchants receive from accepting payment cards come at a cost and intervening in this properly functioning market by establishing artificial interchange rates will ultimately hurt consumers.”

Congress passing this bill would be a matter of personal politics and not good government. These organizations exist to control and regulate trade and economy. If they are saying not to do it, it’s a good sign that personal issues are overshadowing what’s important in the overall picture.

Impossible Solution: – The resolution for setting interchange prices is by a panel of three appointed “Electronic Payment System Judges” who set interchange rates. How can setting fixed prices possibly allow for a competitive marketplace. If every store owner had to set their prices the same, how would there be any competition.

It also gives merchants “in theory” the ability to negotiate their interchange rates. Since interchange rates are set by Visa and MasterCard and not a business’s merchant account provider, Visa and MasterCard are going to have a lot of work on their hands. There are roughly 25 million businesses in the US. Giving everyone the ability to directly negotiate with Visa/MC is not going to simplify anything. Since interchange will be set based on cost and return, then I can see the cost going up a lot when 25 million people pick up the phone to call Visa.

The market is “not” non-competitive: – Open up a new business and see how many calls you get from merchant account providers. There is fierce competition in the merchant services industry. Putting scams aside, this competition benefits merchants in the form of the lowest possible rates, and best service. This is the definition of a competitive marketplace and is exactly what keeps the market fair. Interchange is extremely complicated, and only recently has become somewhat transparent. The actual problem being described is not the cost, it’s the complexity.

Conclusion:

The bottom line is that this is an extremely complicated situation that is being dealt with through personal emotions and haste instead of facts and understanding in a time of economic instability. Interchange has become a scapegoat for a falling economy and the fallout from rising oil prices and commodities inflation.

Related relevant posts:
An Ugly Regulatory Bill
STOP THE MADNESS!
Congressional Price Fixing
Electronic Payments Coalition Statement on Price Control Legislation (H.R. 5546)
Interchange bill may be dead for ’08
No Credit to Congress

I hate seeing yearly and other fixed fees with merchant accounts. As if its not enough that a business is being charged for every transaction processed, some companies feel the need to charge yearly, monthly, daily, peak-season, miscellaneous, PCI compliance, and other fees just for using their service.

These fees make short work of any great deal that you were supposed to get. Personally, I recommend avoiding providers with high fixed fees unless there is some extenuating circumstance where you can only get approved with a processor that has them.

Let’s take a look at how fixed fees affect overall processing costs:

Let’s say your end of month cost for $8,000 is sales is $150, of effectively 1.88%.

With a $20 fixed fee, this effective rate jumps to 2.13% which is an increase of almost 15%. Add a few more in and the additional cost can easily make up 50% of you bill.

More than just fixed fees can be factored into this equation. If your transaction fee ends up costing $20 more per month with one service provider, it has the same affect as a fixed fee. When you’re looking to get setup processing, it’s important to understand how certain types of fees and the way they are presented will affect your monthly cost. My recommendation is to work backwards. Start by ignoring the discount rate and look at everything else you will be paying.

Hypercom recently introduced the Optimum T4210 and the Optimum T4220 terminals. These terminals are the first of new standardized line of terminals from Hypercom.

Unlike Verifone and many other manufacturers, Hypercom realized that by making a single terminal with several versions, they can reduce their production costs, and make a superior product. Hypercom’s T42** and M42** line of terminals are exactly that, all the same terminal in form and operation, but with subtle hardware differences.

Hypercom’s T4210 is the most basic of the series and uses a standard dial connection. Stepping up, the T4220 is an Ethernet based terminal. Third in line, the T4230, is a retail (counter-top) based cellular terminal operating on AT&T’s wireless network. The M4230 is the same cellular terminal as the T4230 except it has a battery making it completely mobile. Last in the line, the Bluetooth enabled M4240, is battery powered and designed for hand-over processing such as pay-at-the-table.

This line of terminals is set to make a very strong stand against anything out there. They come in with a low price tag, and are high in features and usability. All include thermal printers, smart card capability, and internal PINpads. These are designed to be extremely easy to use, and all are identical to operate. This is a good thing, because businesses that want to upgrade within the terminal line, don’t have to learn any new operating procedures. Input ports are color coded, the printer cover opens with the push of a button, and there’s even a cable organizer to reduce cable clutter.

Hypercom thought these terminals through very well, and I think that they are going to be very popular once they are a little better certified. If you’re in the market for a new terminal because yours is going out or you need an upgrade, I highly recommend checking these out.