Paypal issued a news release today stating that buyers no longer need to sign up for a paypal account in order to purchase from a Paypal accepting seller.

From a usability perspective this makes perfect sense, and has been one of the biggest hurdles for Paypal to overcome as a 3rd part processor.

However, I can foresee some major customer issues in regards to seller protection.

Right now, Paypal effectively removes traditional buyer and seller protection for credit card transactions by resolving disputes within the Paypalsystem instead of through the credit card chargeback system. This works explicitly because both the buyer and the seller are registered users of Paypal. Paypal has control over the entire transaction process, and has absolute power over both user’s accounts. Sellers currently have some piece of mind that their buyers have gone through a registration and verification process, albeit very limited. When the buyer is no longer required to maintain a Paypal account, a huge avenue for fraud opens up. The seller remains bound to Paypal’s dispute process, but the buyer is not. In this case the card issuing bank would take full control over the dispute, and unlike a traditional merchant account, the seller does not have a relationship with Visa or MasterCard. Paypal will become a liaison between the card issuing bank and the seller in the event of a chargeback, wherein the problem lies. Anyone who has tried to work with Paypal during an account hold or a dispute knows that yelling at a wall is more effective than trying to communicate with Paypal. Judging by Paypal’s already horrible customer service reputation, they are potentially adding an enormous workload on their plate in the form of chargeback handling. This could very well be a disaster in the making.

This is obviously an attempt to compete with more traditional Payment Gateways that have seamless API integration with websites (Authorize.net, Paypal’s Verisign, etc.). While this has the potential to improve Paypal conversions, I would be hesitant in enabling this feature in a Paypal account until more is disclosed about how non-account holder chargebacks will be handled.

Visa has an upcoming IPO planned for this year. They still haven’t released a formal date but it looks like it is going to be mid to late march as predicted.

This IPO may have a far greater affect on the US economy than anyone originally imagined. Because of the current credit and mortgage crisis, banks don’t have a good financial outlook for the coming year, or any year in the near future. Fraudulent mortgages and foreclosures are going to continue taking their toll on the banking systems, and the huge rate of inflation isn’t going to help any. Visa’s IPO could really change all of this.

Visa is composed and run by member banks with a board of directors consisting of members from JP Morgan Chase, BOFA, Wachovia, US Bancorp, Wells Fargo, Providian, First National of Nebraska, Texas First Bank, NationalCity, and SunTrust. While Visa itself remains non-profit, the banks that issue Visa cards and run Visa are certainly for-profit companies. When Visa goes public, the member banks are going to get a lot of pre-IPO stock. If we base Visa’s potential success from MasterCard’s IPO last year, Visa’s stock value could go up by four times, soon after their initial offering. Even though the economy isn’t in the same shape as it was last year, Visa is a far stronger company than MasterCard was, and there is little doubt to Visa’s strength even in a poor market. Visa is more than double the size of MasterCard by transaction volume, and this IPO should prove to be the second largest in world history, largest in US history.

If Visa’s stock sells for the median predicted price of about $40 per share, the primary member banks are going to get some major relief. The pre-IPO value that member banks are expected to receive is: JPMorgan Chase about $1.1B, BOFA $545M, National City $380M, Citigroup US Bancorp and Wells Fargo about $240M each. This should immediately go up after the IPO, and like MasterCard could be four times higher in a few months.

This huge increase in capital for these banks will have a cascading effect on their own stock, which should dramatically increase. Banks are having a hard time maintaining their current value and Visa could create a surge of investment that could turn things around. There’s probably not anything that’s going to turn around the mortgage and credit crunch, but a $17 – $50 billion bump in bank stock should really help investors regain some trust.

Related Posts:
Where Visa is headed…
Visa is going public

I come across horror stories all the time about people not getting money from their credit card transactions, or that they are being overcharged for long periods of time after something was supposed to have been canceled.

It’s a certainty that at some point most companies are going to need something changed with their merchant account. This could be a change of address, change of service, new equipment, and almost inevitably a bank account change. For some reason, bank account changes cause business owners more problems than any other action that affects their credit card processing. I recently heard a story from a business that had not been receiving their transaction deposits for nine months. Even more disturbing, that it isn’t the first time I have heard of this happening to a business. Personally, I don’t know how you could not notice your money was missing for nine months, but obviously this does happen.

As a business owner, if you change your bank account, or anything else that may affect your business’s ability to receive money, make sure you get your merchant account updated, and check to make sure it got updated. Additionally, every time that you call your provider, write down and archive exactly what the expected outcome is supposed to be and how long it’s supposed to take (Even if it’s just on a sticky note). Whether it’s your provider’s fault or not that something got messed up is irrelevant, it’s your money that is not getting to where it should be. Call them every day to check up on it if you have to, but don’t be that person who finds out six months later that you haven’t received a single deposit since you made the bank change request. Don’t be that person who finds out you were being charged $10 per month for something you canceled four years ago. Your provider needs to follow through with the changes, and it is irresponsible when they neglect to or just mess something up, but again it’s your money, make sure that it is going where it should be going.

Ingenico made an offer to purchase Hypercom corporation.

Ingenico and Hypercom are two of the largest credit card terminal manufacturers after Verifone. Verifone made a purchase of the Lipman corporation about a year and a half ago, which set their market share far ahead of any competitor.

The combination of Ingenico and Hypercom would create a company with an annual revenue of around 800M. Verifone is currently at about 2B so there is still a sizable gap, but this could create some real competition for Verifone.

Ingenico is less popular in the US than in other countries, but they make some very interesting products, and was one of the first to offer a reliable pay at the table solution. Hypercom is the number two terminal manufacturer in the US. Hypercom would be an excellent medium for Ingenico to grow their US presence.

I think that this would be a very smart acquisition for both Hypecom and Ingenico.

Next day deposits are something that many processors claim to have, but few if any actually do.

Hangup #1.) When a business processes transactions on any given day, those transactions must be reviewed before they are authorized to go to a bank account. This process, called risk management, is the final check to stop potential fraud before the money is deposited into a business’s bank account. While there is some automation to this, generally a human must look at the day’s settlement, and decide whether to let the transactions through, or to put a hold on that day’s funds. Processors are normally allowed 48 hours from the settlement date to analyze that days transactions and release them. The earliest that those transactions are available for review is the morning following the day the transactions were settled.

Next day depositing would typically require the removal of the risk management step from the process of a credit card transaction. Most processors are not going to relinquish this necessary step in the transaction process. Since the processor is liable for all of a business’s transactions in the event that the business commits fraud, it would take a great degree of trust and a long and positive processing history for a processor to do this.

Next day deposits are typically seen and work when a business processes directly through a bank, and also maintains a bank account with them. Because the bank has complete control over their account, they can front the money before formal risk management takes place, and go back into the bank account in the case that something is wrong. There are only a few banks that can actually deliver on this but in reality a bank’s endless spool of red tape often offsets the benefit of next day deposits. There are also some processor / bank account combinations that allow next day deposits, but again, this isn’t a service that every business can qualify for because there is too much risk in many situations.

Hangup #2.) Banks have a tendency of holding funds before allowing them to clear, and this can delay transactions from being deposited into a business’s bank account.

Depending on the amount and the situation, banks can hold funds for several weeks before allowing them to be deposited into an account. While it is much more uncommon for this to happen with a business account, some banks still hold funds for transaction deposits. If you find yourself in this situation, you should see if you bank will immediately clear transaction deposits of just find a new bank. For most small businesses, it’s not worth the hassle waiting for deposits because your bank is being picky. The bank is taking no risk on these deposits if you have a legally setup merchant account, so there is no reason they should be holding them for more than a day.

A few tips:

Sometimes something as simple as changing your daily batch time can reduce the time for your deposits by a day or more.

A charge card can be a great tool for small businesses with inconsistent cash-flow because it allows purchasing as needed, but does not carry a month-to-month balance like a credit card. American Express and MasterCard both offer some good charge card programs designed specifically for small and medium businesses.

Let me start off by saying that I am not a fan of early termination fees. I believe that if service providers were are as good as they claim, then there would be absolutely no need to lock someone into a two or three year contract with a several hundred dollar termination fee. Early termination fees make the processing industry look like the cellular industry, which I can honestly say is a bad thing.

If every provider is as good as they claim, then why three year contracts?

There are a few reasons why service providers have early termination fees.

First there is fraud prevention. When a business has to sign a three year contract, there is a much lower chance that they will commit fraud and run. Services like Paypal are plagued by fraud, in part because anyone can sign up and instantly activate an account. Your provider is also taking on a lot of liability to accept your business (They are liable for every penny that you process!) and a termination fee is a way they can protect themselves a little.

Secondly, it actually takes a lot of work to setup a business for credit card processing. There are multiple steps that take place behind the scenes, involving multiple people and departments. It normally takes several hours of work just to process an application. Whether the business ever processes or not, the provider has spent several hours of manpower before anything is even finalized. Add another hour or more for programming a terminal, and then a few more for training and deployment, and the time really adds up just to get someone setup.

Up until about six years ago in the US, and still in some other countries, it was common if not standard for business owners to pay several hundred dollars just to apply for a merchant account. At the time it was seemingly a good idea, and it reduced the number if frivolous account requests and price shopping. That money was normally set to cover the cost of manpower to get a business approved, programmed, deployed and fully processing. Since it is rare to ever see an application fee anymore, that money is often made up with a termination fee.

Lastly, providers just want to keep their customers. Whether a termination fee is the right way to do it is debatable, but as a provider, when you see a customer switch to another company because they offered a much lower rate, which in reality saves them about two cents per month, it’s more than frustrating. Often a new provider comes along with creative rates, and the customer ends up paying more.

Many service providers simply don’t have a choice:

Many of the back-end companies that underwrite merchant accounts require minimum contract terms. There are a lot of providers that have no choice but to require a contract with their customers. It doesn’t make them a bad company as long as they are providing a service worth the contract.

Just because there is a contract, doesn’t mean the company is bad:

As a business owner, you can still get a great service from a company with a termination fee. But, you should do extra research to ensure that the company you are going to be processing with now, is the one you want to be with in a few years. Having a contract does not necessarily mean you are dealing with a bad company, but it does mean that you need to make a commitment, so make an educated commitment to avoid any surprises.

If you are in the market to start accepting credit cards, I recommend reading these before you start shopping:

The processing fee is the least important one on your application!
Avoiding a Bad Merchant Service Provider

Google Checkout is about to end their free processing, and switch to a traditional 2% + $.20 / transaction structure. Businesses who advertise on Google’s Adwords platform can still get major discounts on GCO processing.

I have blogged about GCO in the past, on more than one occasion, and I have held mixed feelings about it in several areas. We’ve now been using it for about a year and a half, and it is now becoming clear where Google Checkout it headed, nowhere.

Initially, Google gave coupons and incentives to consumers and business owners. These helped push GCO usage past Paypal for a short period of time, but now that the incentives are gone, GCO is going with them. For us GCO topped at about 10% of all online purchases, but has since dropped to about 1.2 – 1.5% (“Generous estimate!”). Paypal has slowly, but steadily increased all the while.

Despite the difficulty in integrating GCO with a website, I still think that it is an excellent alternative payment method, assuming that there are still going to be people who want to use it. From a shoppers perspective, one you have a GCO account, it is much faster than paying with a credit card or paypal, but there has never been a solid reason to use it. As we all know, it is consumers that drive services, and not businesses. I think that unless Google finds a way to make many more shoppers want to pay with GCO, there is never going to be a wide adoption of it. Paypal was driven by eBay until it was big enough to stand on it’s own. Google needs it’s own eBay to really make GCO popular.

Credit card terminals have a history of being about twenty years behind any current technology, and have always been designed for function only.

Here’s a few newer terminals that are finally catching up with technology, and style! My personal favorite is the Hypercom M4100, but several of these terminals are amazing.

Verifone VX 670

This the same terminal that Verifone uses for their pay at the table processing. This is a super fast battery operated WiFi terminal that is going to start getting very popular for high-end restaurants.

Verifone VX 810

The VX 810 is a high-end PINpad that is made in a hand-over design. Because of its high price for a PINpad, it’s unlikely that the 810 will ever become a mainstream PINpad.

Hypercom M4100

The M4100 is Hypercom’s answer to all other wireless terminals. It is made to compete with the ultra-compact terminals from Way Systems, Comstar and Apriva, but is rock solid and ready to use for any size merchant. It’s GPRS and WiFi enabled, includes an internal PINpad, and fits in a pocket.

Thales Artema Mobile

Thales terminals are not common in the US, but they are fairly popular in some other countries. The Artema Mobile is a GPRS wireless terminal with a printer and PINpad. It is one of the smallest wireless terminals available that has a printer attached.

Ingenico i7300 – i7910+

Ingenico has been making some very interesting terminals for several years, but most US processors do not support them. The i7*** series terminals come in just about any configuration a business would want, GPRS, WiFi, multi-terminal server, etc. These terminals are very small and have attached printers.

Exadigm XD2000

Exadigm is another brand that is rarely seen in the US. The XD2000 comes with an internal PINpad, smart card reader, and full size printer. It can be configured for dial, Ethernet, WiFi, Bluetooth, GPRS, CDMA, and runs on a very basic Linux operating system. It’s slightly larger than some other wireless terminals, but has more features available than any other terminal.

Blue Bamboo H50

The Blue Bamboo H50 is a compact terminal, that is full featured and is relatively inexpensive. This is a newcomer to the processing industry but the price, size and features, make it likely to gain popularity with some mobile businesses.

Way Systems 1581

This is the newest terminal from Way Systems and is scheduled to be in operation in the next few months. This appears to be a vast improvement over the functional, but ugly MTT 1551 and 1556, and is still based on a Siemens mobile phone.

About a week ago Verifone stock took a huge dive due to a overestimate of profit margins. Verifone stock fell 45% in a single day when they announced that profit had been overstated by 80% for 2007.

Companies do make mistakes, and occasionally large ones like this. However, in this particular case the CEO sold his own Verifone stock the day before the crash making millions while every other shareholder lost half their Verifone stock.

There is now a class action lawsuit against Verifone for violating the Securities Exchange Act of 1934.

With well over 10,000 new visitors per month, this post is to reference what I think are some of the better and more important posts and topics of this past year.

January 2007:

• You don’t want to know anything about your merchant account

February 2007:

• RFID Contactless Payments vs. Smart Cards
• Government toying with the bankcard business
• A simple PC Charge based wireless processing solution

March 2007:

• Did you know, refunds are calculated into your chargeback ratio?
• How can you Store and Forward?

April 2007:

• First Data sold!
• Should you buy a terminal, or use a free one?
• Don’t run that $50,000 transaction!

May 2007:

• PIN and Signature Debit
• What credit card terminal should you use?
• How many data security breaches will it take?

June 2007:

• The processing fee is the least important one on your application!

July 2007:

• Only half of top ecommerce sites require Card Verification
• Prohibited Merchant Accounts

August 2007:

• Amazon.com to offer Paypal and Google Checkout competitor

September 2007:

• Credit Card Terminal Certification
• Credit card terminal operation is not universal

October 2007:

• Maximize your credit card terminal’s life

November 2007:

• Giving the right response – AVS and declined card messages
• Reward card interchange for debit

December 2007:

• Debit cards surpass credit cards for most use

Also, a look back at the year 2006 in review.