Spring is here and your garden plants aren’t the only thing growing. Your credit card fees for processing will most likely be increasing because February and March is time for the industry interchange and assessment increases. Twice a year, in October and February, the credit card issuers and card brands roll out their increases that they will be collecting on every credit card transaction. For the issuers, these increases will be to the interchange rates and to the card brands these increases will be to assessments and various other regulatory fees.

These increases are passed on to the credit card processors like ourselves who in turn have no choice but to pass on these increases to the merchants who process through us. As the credit card processors or acquirer cost go up, they must pass on the cost to their customers as any business would do. But the fact is that many processors don’t simply pass on the increased cost, they will actually use the interchange increases as an excuse to raise the processor rates many times over this rising cost.

An interchange increases usually represent just a few basis points (1 basis point = 10 cents on $1,000 of processing volume) but many processors will increase the rates 10 – 15 and even 25 basis points on qualified and non-qualified transactions. Processors will also increase the transaction fee as well along with increasing the processing rate. So, for many merchants who aren’t watching closely, they will end up paying much larger increases. These increases will be usually communicated to the merchant on the February and March billing statements.

So, I want to tell you two ways to make sure you aren’t paying too much now.

The first way is to go to a cost-plus pricing system for your processing. A cost-plus program basically takes whatever interchange and assessments rates the card brands decide on and pass it on to you with a processing fee on top. The processing fee on top is usually between 15 and 30 basis points along with a 7 to 10 cent per transaction fee. The range is normally based on your processing volume and this is probably the fairest and safest way to set up your account. We have published articles before on this way of processing and you can look at them here.

So, when the card brands and issuers change the interchange costs, these increases are simply passed on to the merchant with no additional mark up. Once in a while you might see a processor trying to sneak in with an increase on the cost-plus merchant set up, but it really isn’t very often. It’s very important that you read your statement messages in order to catch any increases to your rates.

The second way of not paying too much for your processing cost is simply to have a rate check up every 2 to 3 years. This is especially important if you are on a 3, 4, or other tiered processing setup. What happens in this industry is twice a year these interchange increases happen and your processor or sales office increases your rates to cover this increase in cost.

You may end up with rates that are significantly out of touch with your initial quoted rate or the current rates being offered. Because these interchange increases are on specific interchange categories (e.g. such as a keyed in rewards card), the processor must make educated estimates on how this increase will affect their entire portfolio of customers.

This is very hard to estimate when you have thousands of different merchants. In the end, they will often increase everything across the board to make sure their costs are covered. This is why it is important more so if you are on a tiered system, to have your rates reviewed every 3 years. It’s very simple to do, just print out your latest statement and ask for a review from someone like ourselves.

Our industry is constantly evolving. Changing terminals, tablets, smaller swipers, and now you can even just take a picture of a credit card. The Merchant Store always tries to stay on top of or in front of the latest technologies. We were one of the first ISO’s to offer our MSM mobile setup and one of the first to be able to turn your laptop (before the tablet rage) into a point of sale using our MSI gateway.

Lately, Cryptocurrency has been all over the news. Especially Bitcoin, because after all, it’s the original and currently the most valued digital coin. If you look into Bitcoin and blockchain technologies, you will also find about 1000 other coins currently being traded. In this article I would like to discuss what they are, how they work, and the future that we as Merchants and Merchant service providers may be looking at.

Like I said, we have all heard of Bitcoin (BTC) and the concept of new money. Along with Bitcoin the current top coins are Ethereum (ETH) designed more for programming, Ripple (XRP) working on international transactions, and Litecoin (LTC), the silver to bitcoin’s gold, designed to be quicker and less expensive for everyday use. To use any of the coins you have to buy them through a cryptocurrency exchange market and either hold them as your would regular stock or send them to someone for payment. When you hold your coins, you do so in what is called a digital wallet. Most Exchanges offer an online wallet with your registration. You can also get a separate Digital wallet. It looks a lot like a usb drive but it holds your coins offline so no one can access them.

Let’s say you owe someone for a 10.00 lunch, and like you, they have a bitcoin account. You can buy ten dollars in bitcoin and send it to them and they can either cash it out as normal currency (minus transaction costs), or hold it and hope it grows in value. The transaction costs are what sets the coins apart. Bitcoin being the original, is slower and costs more to move around. Currently it takes about 60 minutes to transact and roughly a 15 to 25% charge. This is a big reason why its being looked at as more of a savings account, whereas a lot of the newer coins are faster and cost less to send somewhere. So, let’s look at the above example on the ten dollar lunch. If the receiver cashes out right away not only did it take an hour to get the bitcoin, but he may only end up with 8.50 because of transaction costs. Whereas If they traded Litecoin, which takes 30 minutes and .12 cents to transact, he would have received 9.88 cents. Ripple is even quicker and less expensive. Ripple transacts immediately with only a .04 cent transaction fee. While we can still offer better transaction fees on merchant accounts, the coins are getting lower and lower.

All of these coins have two main components that tie them together. One, to use them you have to buy them with “regular” money. I’m not sure how they claim to be the “new” money when they only work with “old” money. This does set Ethereum apart since its main design is for programming and most new coins along with some programs are built on top of Ethereum. However, it is still is used for stock purposes and transferring funds. Now number two, is that all of these coins, no matter the main purpose, requires Blockchain technology.

Blockchain technology is the highway that all of these coins or digital assets travel on. This highway is getting bigger and faster. It still has not caught up to Visa’s network that can handle 72,000 transactions a second, but it’s getting there. It lives online and is protected and ran by Miners all over the world. Almost all of the coins require “mining”. Mining is when a computer is used to decipher codes and problems that only a computer can solve. Once the “problem” is solved it creates the coin and every coin has its own program for mining. Bitcoin takes the most computer power and time to create its coin while some of the newer coins can be done on everyday PC’s or run in the background on your browser. Your PC may even be part of the Blockchain and you don’t even realize it. Now, once the coin is created it goes onto the Blockchain. The blockchain codes the coin and imprints it on its online ledger, and it can never be duplicated or deleted. So far, It can not be hacked into or changed in anyway since the Blockchain is online and survives between many independent computers running these programs. Much like we can’t “turn off” the internet, we can’t “turn off” blockchain. It is security at its finest. Today, the credit card industry has implemented our EMV technology using chip cards. This is also very secure and all of our credit card terminals are programmed for these new cards. This is why Ripple is working with banks and money transfer companies including MoneyGram, Western Union, and American express to share in the blockchain technology using their xrapid (uses XRP for liquidity) and xcurrent software (does not require XRP, simply a transferring system). Mastercard is even building its own blockchain and even the federal Government has created a Cryptocurrency department to research the Technology. There is even some gossip of a possible future Fiat coin.

This brings us to the main reason for our article. At the end of the day, all coins move money around, so the battle may turn out to NOT be the new money, but who will prevail as the future of transferring money using blockchain? Like i said before, it can not be hacked or broken into or changed. Kodak, (remember them?) even has a coin coming out at the end of the month for photographers to protect their images from illegal reproductions. Mastercard, Amex, processing companies, and international transfer companies are all looking into blockchain. I really feel this is the way our industry is headed. The way I see it, it will still require backing from the coins value and Banks, and possibly using a coin such as Ripple’s coin, XRP. As a customer you will probably still use a credit card for payment on a merchants POS system, but now the system will automatically transfer the funds into a coin then quickly transfer the funds on the blockchain. From here the information is sent to the bank for approval then back across the blockchain to give the approval to the POS system. From here it goes back across the blockchain to the bank to move the funds. The transactions will happen so fast that the coin’s value goes for the most part unchanged and the transfer fees are much lower than the current slow and expensive bank to bank systems. This will add security to the transferring processes possibly stopping or at the least cutting down on breaches such as the past Target and Wendy’s breaches. This will also save the banks billions if not trillions per year. Hopefully the added savings will be passed down to the processing companies and to the merchant service providers all the way down to the merchants. Currently this credit card processing system currently does not exist, but I’m willing to bet it will before you know it, much like EMV.

I personally like the cryptocurrency market right now. It’s fun. It’s basically stock market 2.0. Only the prices are very, very, volatile, on every coin. It still has regulations that have to be met. For a coin creator or the “first miner” to sell on an exchange, they have to register and be granted a bit license. The exchanges will crack down on the coins if they believe there is insider trading. The SEC stopped a new coin from coming out recently because they were guaranteeing 100% yearly increases. Some people fear of a collapse or the government stopping the exchanges, but the feds are working with Ripple along with their own crypto agencies, so I don’t see this market going anywhere soon.

Now I’m not a financial guy nor am I trying to tell you what coin to invest in. If you do decide to invest, look into the coin closely. I try to understand what it does and its utility, usability, and of course, only buy what you can afford to lose. Personally I like Ripples XRP coin. They seem to have the most utility and usability for the real world. They created their company and coin to work with our current financial system and try and replace the current antiquated international system such as SWIFT. Currently they have over 100 banks using their xcurrent system because of its cost and speed and 2 money transfer companies using xrapid.

Ways to protect your business against fraud through the holiday season.

The holiday season is a joyous occasion for businesses and consumers alike, however there is always someone out there looking to profit from the misfortune of others. It’s easy to get caught up in the in the spirit of the season and let your guard down, but this time of year it’s important to keep focus on defending your business from the Grinch’s trying to prey on you. In this article we are going to touch on a few different methods fraudsters use and how you might defend yourself.

Friendly Fraud

Unlike its name there is nothing friendly about friendly fraud. Friendly fraud is a broad term that encompasses fraud by legitimate customers who utilize chargebacks or other systems to steal merchandise or services or cash from a business. These types of fraud can be difficult to prevent and can be nearly impossible to recoup losses on.

Chargeback Fraud

Generally, chargeback fraud works when a person enters your business, or shops online, and legitimately purchases goods or services, and then disputes the charge with their card issuer.

Someone who knows what they are doing can easily dispute a transaction in such a way that the business owner will most likely not be able to fight it. Card issuers determine who wins chargeback, and they inherently favor card holders over merchants. There’s no question that the customer is stealing from you but police departments are reluctant to pursue friendly chargeback fraud cases, if they’ll even accept a report on them at all. Most of the time they will refer merchants to the civil court system which is time consuming, costly, and offers no guarantee of recourse even if the merchant wins in court.

The key to protecting yourself against chargeback fraud is to stop card holders from being able to claim they didn’t receive what they purchased, that it was defective or not as advertised, or that the charge was not authorized by the card holder. Unfortunately for online businesses, or situations where a card is keyed into a terminal or POS system, fighting this becomes very difficult, as proving the card holder made the purchase with the card in hand is all but impossible.

To prevent this method, you will want to swipe or dip (EMV Chip) as many transactions as possible. This can also prevent other forms of fraud such as duplicate card fraud. When you swipe or dip the card your customer gives you, it proves you were face to face with the customer, which aids in supporting your case that the card holder did make a purchase. Not everyone has the ability to swipe or dip cards, or even if they do they might also need to ship products to the consumer.

For ecommerce or mail/phone order businesses, the best thing you can do for yourself is to ship directly to the card holders billing address, and preferably ship everything with a signature required for delivery.

If you are shipping to an address different from the card holder’s address, you have no way of proving that they received the product. Not even a signed invoice with a photo ID attached will prove to the card issuer their customer actually made the purchase. Even with a delivery signature, the card issuer will usually side with the card holder. While it should go without saying, but if you’re not swiping or dipping the cards, you should be using address verification for both the street and the zip code to ensure the billing address provided by the card holder matches what the card issuer has on file. If you are not sure how to use address verification (AVS), contact your processor or payment gateway for more information.

AVS is not available in some countries or specialty cards like some gift cards, and it’s not uncommon for card holders to not know the exact address they are billed at, so it’s not by any means 100% fool proof. CVV is another mechanism that should be used on all non-present transactions. It at least verifies that the customer had the card in hand at some point as duplicated cards rarely store the verification code as well as the data on the magnetic stripe.

It’s a good practice to keep a clear return policy and always be willing to offer exchanges or refunds to you customers when appropriate. Many card holders will dispute a credit card charge instead of requesting a return if they feel it’s going to be a hassle, or they feel like the business won’t accept a return or exchange in a seemingly reasonable situation. Making these policies clear from the moment of the transaction can help decrease potential chargebacks.

Gift Card Fraud

This form of fraud is quite easy, has a low risk of being caught, and effects both the business and their legitimate gift card holders. Gift cards function very similarly to credit cards and therefore share some of the same risks. The data stored on the magnetic strip on a gift card can be copied and used to make cloned cards for a fraudster to use in stores. This is just one popular method of gift card fraud.

Many gift card providers offer the ability for card holders to set a PIN number on their cards to help prevent misuse, however not many card holders go through these steps. In the case of any card type, gift, debit, or credit, checking the physical number on the card against the number that a terminal or POS system electronically captures can tell you if the card is legitimate. This has become a more common practice by large retailers protecting themselves from duplicated card fraud. In the case where the numbers do not match, calling the police may be the best option, as there is a high likelihood the customer is trying to make purchases with a fake card.

Another risk that pertains primarily to gift cards is through credits or refunds. Crediting a gift card works differently than a credit or debit card as some cards will automatically receive the balance of a credit when it is run by a merchant. When this happens, the balance of the card is instantly increased by the amount returned to it. While that doesn’t sound like an issue, it gives you, the business owner, no time to identify accidental or fraudulent credits or make corrections.

Funding a gift card by mistake gives the card holder time to spend those funds before you can correct the mistake, or even settle your terminal, and can lead to the card issuer disputing your attempted correction later. There have also been cases where gift card holders attempt to distract a cashier so they can access the point of sale device and issue a return to their card. This is one situation where employee involvement puts a business in an impossible position to catch the fraud. The business is unlikely to notice a return has been processed until they settle out for the night, the fraudster is left with the rest of the day to make purchases on their newly acquired funds.

The best way to combat this and any other return or credit related fraud, is to have strict controls over the ability to refund and credit a customer’s card. All refunds should require manager approval and a refund should never be made to a card other than the one used to make a purchase. Terminals and POS devices should be in areas where customers do not have easy access to them and return and credit functions should be password protected at a minimum.

Return Fraud

Return fraud can be a huge problem for retail merchants, especially retailers who are large enough that employees do not have the ability to remember most of their customers, and ones who stock widely available products.

The most common form of return fraud is when a person returns goods that were purchased cheaper from another store or stolen goods for cash. A merchant, at the very least, pays the retail price for the product which causes any future sale to be unprofitable, and if the goods were stolen, there’s a chance that the police show up looking for the product. It’s also common that the person stole the product from the same store they are trying to return it to.

But, even in cases where goods aren’t stolen, merchants can suffer substantial loses from customers returning used or broken items, old items put in the box of a newer one, or items outside of a reasonable return window. Return fraud is one form of fraud that is frequently aided by employees who relax return policies or in more nefarious cases steal products themselves and have an acquaintance return them for a split of the cash refund.

Thieves are smart enough to target businesses during the busiest times of the year for returns which is typically immediately after the holidays when stores are extremely busy and often overlook or do not have the capacity to properly vet every return they are receiving. The NRF estimated that in 2015 alone, US retailers would lose over $2 billion dollars due to return fraud.

Combating return fraud can be difficult. Clear return and refund policies should be posted and strictly adhered to. Refunds should only be issued in the same form the payment was received, and in the case of electronic cards, should only be returned to the same card as the sale. Merchants should outright refuse refunds they are unable to determine are legitimate, refunds unaccompanied by a receipt, and refunds that contain obviously used or replaced products, unless they cover refunds on those products.

Merchant’s can employ proprietary or hidden tagging methods so that they can determine if a returned item actually originated from their store. In any case, if employees are helping defraud the business, it can be nearly impossible to prevent, so controls over who can accept returns and process refunds should be in place.

Also, it is worth noting that someone trying to defraud a business isn’t going to look obviously like a thief, they’re going to look just like a normal customer, and will usually have a believable story as to why they don’t have a receipt with their item. At the end of the day, a business will still lose the same amount of money regardless of whether it’s to someone who looks like a stereotypical cartoon thief or your favorite aunt, which is why policy adherence is so important.

General Good Practices

Require a positive AVS match and CVV match on all non-present transactions
Ship only to a customer’s billing address unless you feel comfortable shipping to another address, but know you will likely not be able to win a chargeback no matter what other verification you require
Restrict access to your terminal or POS system
Require owner or manager approval for all refunds and credits
Inspect all refunds for condition and verify the product is correct to the packaging
Do not issue a credit to any card other than the one used to make a purchase
Have and adhere to a refund policy without exception

But first, let me take a selfie.

With the conversion to EMV (chip cards) payments, face to face credit card fraud is on the decline. That said other card payment methods are still struggling to become more secure. While banks and businesses want a more secure transaction process, businesses and especially consumers want faster, more efficient payments. The demand from all sides is pushing what could be significant changes to the payments industry.

Where we stand today:

Signatures are quickly becoming a thing of the past. Whether signing a receipt or signing a credit application, the signature means little anymore. No one is verifying your signature and many transactions or applications are processed in such away that signatures are impossible. With seemingly weekly data breaches and the pay or apply online world that we live in, identity theft will continue to be on the raise.

In the instance of a dispute an individual can claim identity or card theft rendering the signature invalid without additional proof to support it. This is proof that most businesses are not going to be capable of providing.

Big banks such as Bank of America, Citigroup, and Chase have been working on bio-metric systems to help protect themselves and their customers. The large institutions have the resources to deploy teams to work on these kinds of systems, but those won’t protect everyone. With companies like Apple, Samsung, and Google implementing bio-metrics into their new devices, smaller institutions and businesses are starting to take advantage of the increased security without having to invest in additional infrastructure.

Changes are coming:

Visa and MasterCard are both making changes to policies and investing in technology to take the systems in the marketplace today and use them to make our financial lives more efficient and secure.

MasterCard recently announced that effective April 13th, 2018, they will be dropping the rule requiring merchants to obtain signatures for transactions on both credit and debit in the US and Canada. MC has recognized the obsolescence of the signed receipt and are hoping this change will help lower costs for merchants retaining signed receipts as well as increase the speed and consistency during checkout. This is being made possible by improvements by the large banks, and services like ApplePay, and other payment securing technologies.

Visa will be releasing its new platform to allow banks, both large and small, to integrate biometric systems into credit card applications and payments. This might allow banks to use existing systems like fingerprint readers or cameras to verify a person’s identity. This could be a number of different ways, for example using a Smartphone’s fingerprint reader to verify the person. They may also require the applicant to submit a selfie and also take a picture of their driver’s license that their systems and compare against each other for confirmation.

This platform could also be used during the transaction process. Issuers could reach out to their customers when they see suspicious transaction activity and use TouchID to confirm they are attempting to make the purchase. This could also be done with a photo, or voice recognition. This system is being designed to allow each card holder to choose what their preferred biometric verification type.
Expect to see a lot of changes in financial security over the next couple years. As more and more systems and devices keep us connected, the payments industry will continue to use our connection as verification methods.

While that is a bit concerning to think about, so is not preventing fraud which has a direct impact on our lives, businesses, and overall cost.

Every business should have a beautiful website!

These days it’s important to have some sort of web presence even if it’s only so your customers can find your location and store hour information. For most business owners web design is not their specialty, so they get a site built by friends, family, or a professional. Then, when it comes time to update the company’s website they find themselves yet again looking for assistance. This leads to company websites becoming out of date, poor quality, or a continual administrative nuisance for many businesses.

That has led many small businesses dropping their website altogether or not even building one when they open their business. Some of those small businesses have started to favor using sites like Facebook because of the ease of setup. This allows them easy access to update their customers and company information. While this method works in at least getting your business visible on the internet you still don’t have a site of your own. This limits the control of your own business content and you are left to a third party who controls how your information is displayed and found within its system.

Where do you get your information?

When you are searching for a business or product online, do you immediately seek out information from a social media pages? Rarely…

While I think we would all agree that social media should be part of your web presence it’s not a replacement for a traditional website. I always prefer to find a company’s website, even if it’s just basic information about the store hours and location, it still adds an additional level of legitimacy and longevity.
Where are all the web pages?

It’s easier than ever for anyone to build and maintain a website. There are all kinds of sites that will allow you to point and click your way to a website and you won’t need any sort of technical knowledge. So why doesn’t every business have an amazing website?

One of the big hurdles for many businesses that just want a simple landing page is they feel the monthly costs of having that site hosted outweighs the benefits.

Another hurdle is for businesses who want a somewhat more robust site and find the standard hosting options don’t include the features they need.

Businesses who are looking to take their brick and mortar business into the world of Ecommerce often find that the prices and complexity of running such a website are even higher than before. Then there is the overhead of keeping their eCommerce shop up to date, which can be a full-time job.

So, what’s the solution?

There isn’t a one size fits all web solution, however there is a system that has three sizes which will fit most small businesses.

If you want to have a robust website that you can easily build and maintain, has completely free web hosting and is integrated with full Ecommerce Point of Sale system – Clover Online is what you need. Its interface is the easiest and quickest te building tool I have seen. In fact I tried it out and had a fully functional eCommerce website with products up and running in less than 10 minutes.

Clover Online

There is so much to Clover Online that it would be difficult to touch on everything here, so I am going to stick to the key points. Clover Online comes in 3 options.

Online Basic: Free

I really like this feature, completely free site design and web hosting.

It’s a simple single page website, that shows you’re the basic information about your business along with a map showing your business. It sets up in less than a minute.

The best part is the price. Free.

Just a couple clicks and you are up and running with single page site, that gives anyone looking for your business everything they need to reach out to you.

 

Online Plus: $14.95

This option gives you a complete, professional, website and the hosting is included. You get access to design templates and over 100,000 professional stock images. All of the templates are designed to function properly on mobile devices and have social media integration.

Once you have selected a template, you can change all the text and images on the website. You can choose from the 100,000+ stock images, or upload your own. You can also register your own domain name and link it to your hosted Online Plus site.

In 5 or 10 minutes, you point and click your way to a beautiful, fully functioning website.

Online Pro: $29.95

This is by far my favorite option.

Full Ecommerce at your fingertips, with none of the down side. This option is also great for restaurants as it populates their menu in real time.

It’s a flat $29.95 per month!

No additional transaction fees…
No SSL Certificates to buy and keep up with…
No maintaining servers and software…

You get the same power and beauty from the Plus option with the additional of full Ecommerce. Since Clover Online is fully integrated into Clover Point of Sale, your menu or inventory are always up to date on your website without any additional maintenance.

Attract more customers and reward existing ones with built-in discounts, coupons, and payments. If you have an old web store, Clover can even assist you in transitioning to their platform.

Since your inventory is synced across the entire Clover platform, the setup for this site is basically the same as the plus version. All of your products are already loaded into your online store, you just need to add product pictures, and turn off any items you don’t want listed online.

That’s it… Full Ecommerce. 10 minutes. Done.
If you are looking to just give your business a simple home on the internet, or are wanting to bring your storefront to world, Clover Online is a spectacular product.

Have you ever wanted to have access to some seriously big data?  First Data’s Clover Insights app allows you to use their massive amounts of credit card transaction data to benchmark your business against other similar businesses in your area.  First Data uses data from both sides of the house; processing and issuing. It uses this data to bring you information about your business, competitors, and customers so that you have real time information to help you build your business.

While Insights is integrated into Clover POS, it also works with many existing point of sale systems.  You can also take it for a test drive through the mobile apps for Android and IOS devices.  Whether on site or on the road you can access insights from just about any device.  If you are already a First Data customer you can login using your merchant ID to see Insights just based off your processing volume.

Just select a location and Clover will bring you real business data to help you see area trends.  You can even find other businesses serving similar customer which could be handy when strategizing about obtaining more customers.

What can it do?

Insights can give you a quick snapshot of your business showing you sales data from the last week, month, or year.  Several of which will let you drill down to get a quick view of more information or to jump to the details.

You can quickly find similar businesses to your own and see how your business is stacking up against the competition.  You can use that information to set goals for your business instead of just guessing.
It gives you the ability compare your revenue against your previous year, or even other similar business.  You will be able to view an extended timeline view (imaged below) or a day of week breakdown to better show peak sales days easily.

Heat maps are a good way to see where your customers live and shop to develop a better idea of where to market and to whom.  In addition, you can use the sales analysis to gain even more insights into your customer behaviors and buying habits.

You get charts and graphs on product specific sales data.  You can also link Clover Insights to your company’s social media pages to gain even more insight into you customers.  There are some helpful reports in Insights that can help you grow and fine tune your business and at $10.00 per month its cheap enough to try it out for a month to see what data might be valuable to your business.  There are also some third-party apps that use the Clover Insights data to give you even more powerful reporting if you so desire.

Thinking about Payment Surcharging?

Many business owners have been considering surcharging their customers for paying with a credit card to help offset the cost of accepting those payments. One of the common views by these business owners is that the fees charged for accepting card payments are too high and are dramatically impacting the business’s bottom line. For the past several years, the card brands have allowed businesses to surcharge consumers. However, there are limitations and procedures that you must follow. Keep in mind that your business must not be in one of the states that prohibits surcharging all together. We understand that surcharging credit card transactions is an enticing idea, however it may or may not be the best plan for every company out there.

Why Surcharge?

It seems like every month there is some new interchange fee being handed down. It feels like we are all being nickeled and dimed to death with credit card fees. For businesses with tight margins, or small tickets sizes, the cost of processing a card payment can exceed the potential profit. Passing costs back to the card holder promotes the use of more cost-effective payment options, or at least covers the cost, and helps preserve the business’s bottom line. Also, some business owners believe it will help to keep interchange rates from increasing as the card holders will understand the costs are being generated by the issuer of their card and issuers. If their customer is the one paying these fees, it might influence the amount of purchases they make on a credit card.

What are the limitations and procedures of surcharging?

There are limitations for surcharging consumers that you need to be aware of if you are considering adding a surcharge at your business. This is not an exhaustive list; however, it will get you thinking about what you will need to do if you want to start surcharging. You will want to contact your payment processing provider for assistance so that you have the most up-to-date procedures.

Prohibition:

All of this only applies to true credit cards, as the Durbin Amendment made it federally illegal to surcharge debit cards and prepaid cards.

You will also want to review your state’s laws to see if you are prohibited from charging a surcharge to your customers. Below is a list of states that as of this writing, have a law on the books concerning the prohibition of surcharges on credit card transactions. If you’re located in one of these states, most likely surcharging is either completely prohibited or greatly restricted.

States that Prohibit surcharges:
California Florida Maine Colorado Georgia MassachusettsConnecticut Kansas New York Oklahoma Puerto Rico Texas

While Visa and MasterCard were forced to allow surcharges, you may have signed a merchant agreement where you agreed to not surcharge your customers. You will also want to review your merchant agreement, as it might have a clause that prohibits you from surcharging your consumers. With some processors this clause might be removable, but you would have to modify it with your processor. If not you still have the option to shop around for a processor who will allow it.

Rules and Limitations

There may be changes to make to your business before you start. You will need to post the proper signage at the entrance to your business and at the register. This would explain what the cardholder will be surcharged and that it doesn’t exceed your cost for the transaction. You must also have a point of sale system capable of surcharging appropriately. Your receipts will need to have a separate line item that shows the surcharge for the transaction and you will also need to keep up with how much you have surcharged. There are also limits to how much you can charge a consumer for using a credit card.

Merchants are only allowed to charge a customer no more than it costs them to accept the payment, up to 4%. So, if your per transaction costs exceed 4%, you are still going to be paying more than the customer. If your fees are exceeding 4% then it’s probably an appropriate time to shop around for other processing options.

You will need to provide your payment provider and the card brands with written notice, stating you will be surcharging customers. This must be done at least 30 days before you begin. It’s important to reach out to your payment processor and ask them what information needs to be on your notice and where that notice needs to be sent. It will also be important to follow up with them after you send written notice to confirm they have received it, and that there are not any issues with your notice.

Thoughts on surcharging:

Surcharging might be a good option for many businesses who want to recoup some or all of their processing costs. However, they should take some time to think about their business and your customers in regard to what impact a surcharge might have.
Your goal isn’t to alienate your customers, or prevent browsers from becoming customers. Depending on the industry, having an additional surcharge might really push away customers, and while you might be recouping processing fees you are driving your sales. Many consumers would rather see a slightly higher cost of goods, than a lower cost that comes with an additional fee. This is routinely observed in online sales, where higher price but lower shipping often sells better than lower price with additional shipping costs. Again, it’s going to depend on your customers and on your competition.

So, check out what the other businesses in your industry are doing, if it’s commonplace to have a surcharge, then the effect on customers will most likely be minimal. The same could apply if your product or service offerings are unique and consumer shopping for what you sell have very limited options.

You might also think about implementing an alternative method, where you increase the price of the products and services you are selling and offer a cash, or equivalent, discount to help entice more customers to pay in cash.

The potential of pushing customers away, and more importantly creating a limit to what those customers can spend, can make the decision to implement a surcharge very difficult. If the customer feels the surcharge is keeping them from buying with a credit card, then they are limited by the cash they have on hand.

So, it’s going to come down to what will work best for your business.

If you have any questions about surcharging, please don’t hesitate to email us or call at (888) 528-0058.

Previously we went into a very detailed, multi-page, explanation of some different structures and we wanted to give a summarized refresher. In this article, we will focus a little time to flat rate merchant processing, tiered and Interchange plus with the primary pro and con for each.

Basics of industry pricing:

All credit card processors are charged a fee by the card issuers for moving money, called interchange. Interchange is currently made up of over 800 card and charge type combinations ranging from 0.05% + $0.22 up to 3.25% +$0.10 per transaction. The processing industry built different pricing structures for several reasons, most primarily to simplify the costs to the merchants. Now that you know a little about the basis of the structure let’s look at a couple different structures.

Tiered and Flat Rate Pricing Structures:

The tiered rate plan has always been a popular option, generally consisting of 4 or 5 different rates based on the transactions processed. Basically, the processor takes the 800+ possible rates and groups them together into buckets and charges the merchant one rate for each bucket. It’s much easier to explain to a merchant how a card type, or method of acceptance will be billed at one of a few rates than explaining interchange.

Companies like Square use the tiered structure to charge merchants based on how they accept a card. Quick example: swiped transaction process at 2.75% and keyed transactions process at 3.50% + $0.15. While is this referred to as a flat rate setup, it’s actually a two tier account. They just use the two tiers to simplify the cost of card acceptance.

Pro:

Simplified fee, which are easier to understand and easier to estimate processing costs

Con: 

As the merchant you can’t tell how much you’re paying to your processor and how much is going to interchange.

Interchange Plus:

This structure has been around forever, however has become more mainstream in the past 10 years. In this structure the processor doesn’t bucket anything, it simply passes the interchange cost from each transaction processed to the merchant and then separately tacks a small flat rate on top. It can be difficult to wrap your head around the idea at first, just due to the number of possible fees, however in either structure you are paying for interchange, this one just shows you what the issuer charged to move the funds.

This structure is very transparent, in that you will see exactly what you paid in interchange and what you paid to your processor. This allows you to better control your merchant processing costs, however your trading a little bit of simplicity for better control.

Pro:

Almost always more cost effective, and easier to know where who is getting your processing fees

Con: It’s a little more difficult to understand, and adds some additional complexity to processing statements

So, which is better?

It’s almost always Interchange Plus, in fact there are only two ways tiered beats it.

1.The plus side of your Interchange Plus account is inappropriately high, which can be resolved by shopping around.

2.Your processor was not effective in setting up their buckets and they basically don’t have any margin on the buckets. (Quite unlikely)

I’m not saying you can’t have a fair setup either way. I have seen plenty of tier accounts that were very cost effective, however if I were looking at change providers I would only be looking an interchange plus structure.

How do I know if my current setup is competitive?

You need to start by figuring out what your total processing volume and your total monthly fees are for a given month. If you divide your total merchant account expense by your processing volume you will end up with your effective rate.

Example: If you processed $12,152.79 last month and the total fees were $392.54 you effective rate was 3.23%.

$392.54 / $12,152.79 = 0.0323 or 3.23%

Now if you are happy enough with that percentage and don’t feel like shopping around at least you know what that month costed you. If you want to shop around you now have a basis of comparison. When you receive a quote from a processor is should include an estimate of what your dollar volume is going to cost using their service and you can calculate the effective rate of that quote to compare against your own.

Something to keep in mind: The lower your processing volume the higher your effective rate maybe due more static fees. Regularly checking your effective rate against your volume is a good idea to stay on top of your effective cost.

Send us an email with your statement and let us do the breakdown for you and give you our opinion of your current setup and how your payment types are affecting your processing fees. There are many instances where changing an internal business process will do a lot to lower your effective processing costs even before changing your rates.

News Briefs

Interchange Regulation

The National Retail Federation and the Retail Industry Leaders Association have asked the US Supreme Court to let stand an appeals-court ruling. This ruling had struck down the 5-year old Interchange rate settlement. The trade groups that represent large retailers argue that the settlement provision to allow merchants to add surcharges for credit card transactions, has done little to aid those merchants. The surcharging restrictions, which were loosened under the card-brand rules, allowed merchants to charge the lesser of the actual acceptance costs, or 4% of the transaction amount. Surcharging is currently allowed in 40 states. For now, even though the settlement has been thrown out by the appeals court, surcharging is still allowed because the card networks have not reworded their rules put in place due to the settlement.

Payment Fraud

Counterfeiting cards is still the largest type of fraud in the payment industry, but probably won’t be for long. The Federal Reserve recently released a payment study that shows, “fraudulent use of card numbers” is fast over taking counterfeiting. This fraudulent use of card numbers is another name for a card not present, web based, or internet based fraudulent orders. This is a direct result of the new EMV chip based cards that are harder to counterfeit.

Mobile Processing

Mobile Commerce now comprises 21% of all online orders, according to comScore Inc. (a based data-measurement firm). This growth is up 45% from the year before, for the 4th quarter of 2016. This shows that retailers are doing a much better job at making their sites more mobile friendly. This also foreshadows the increasing growth of mobile wallets in the years to come.

Just about every Merchant Account has monthly set fees. Some call these,“Padding Fees” and I’ve seen all kinds of names for various fees on merchant statements. What are they? Am I getting ripped off? The best answer without looking at your statement is: Maybe. It depends on how many of these fees you have, and how high they are.

More fees?  What am I paying for?

To keep an account on file or active status, it costs money to your processor. If a merchant doesn’t run anything on their account, and lets say they don’t have any kind of monthly fee, the processor or sales office is losing money. Sales offices are charged an, “on file fee” from the bank they have placed the account with. This fee can range depending on the agreement between the sales office and the bank, however there is always some type of fee. To cover the cost, most providers simply pass this on, typically as a statement fee. Over the years some started calling it a service fee or support fee and so on. Sometimes I see where a merchant is getting charged a statement fee AND a support fee AND some other type of monthly on file fee. While having one of these charges is common, if you have a myriad of these on your statement, it may be worth a call to your processor to make sure what the charges are for.

Statement Fee – (Service Fee, Support Fee, On-file Fee, Terminal Service Fee) This is a generic fee to help offset the costs of maintaining an account.

PCI Non Compliance Fee – (Non Supported Terminal Fee, Non PCI) This is in effect, a fine from your processor for not being PCI-DSS compliant. This can be removed by completing your compliance requirements, or providing a copy of a valid compliance certificate to the processor.

PCI Service Fee – (Annual PCI Fee, Monthly PCI fee) This fee covers the cost of the PCI Certification Vendor. You might be able to get this fee removed if you already have a PCI certification vendor you are working with, however most processors still won’t do it, because the PCI Certification Vendor also maintains all the PCI records for the processor, even if you are using another vendor.

Regulatory Product Fee – (IRS Reporting Fee, Reg Fee) This fee covers the cost of managing reporting requirements.

Terminal Rental Fee – (Terminal Service Fee, Rental Fee) A charge for equipment that is rented from the processor. If you have a rental fee, you should really consider purchasing a terminal, or shopping around for other processing options. Credit Card terminals are cheap, and removing a rental fee generally pays back in less than a year.

You had a dream, and you made it come true, you are a true entrepreneur that helps drive our country. Not only that but you call the shots, set the hours, you are the boss, which means you also really understand the saying “open a store marry the door”. While you wear many different hats when running your business you are constantly the target of business to business salespeople hungry to land their next big deal, and credit card processing companies are no exception.

When you opened your checking account, your bank told you to open a merchant account with them, on top of which you are getting 10 calls a day from merchant providers, and door to door salespeople looking for a few minutes of your time, all of whom saying they are cheaper than the last company you spoke with. One company says one thing, then you’re told another, and everyone changes back again. It’s confusing and frankly makes you wonder who would best serve you. Don’t worry, let’s calm down and start making sense of who does what and where there key focus lies. From there you will be better educated and know more about how to find the best options that work for you and how you do business.

In the processing world you have 4 basic sales channels.

Processors

Credit card processors are the back-end payment systems that process all credit and debit cards. They are the ones who handle funding your bank account. No matter who you process your credit cards through they are going to be using a processing bank to handle your money. These are usually very large organizations who build and maintain the infrastructure to handle thousands upon thousands of transaction requests per second, and facilitate countless money transfers between business owners and card issuers.

Processors are effectively the wholesalers of the industry and “can” have their own internal and/or external sales teams, which makes you feel like your cutting out the middle man and going direct. If you sign up directly with a processor, you may be technically going direct, but the processor’s sales team is in a business in itself and needs to maintain profitability. It will have roughly the same costs of any other provider you will find in the industry. You are also not going to get direct support from your sales person, but instead be given their national or offshore call center for future support.

Independent Sales Offices

Many times referred to as ISO’s or MSP’s (Member service providers), ISO’s are companies registered with Visa and MasterCard to represent a processor or processors and solicit and support merchant accounts. ISO’s vary in size from small offices to large corporations, as large or larger than processors even. Becoming a registered ISO is not cheap and requires many steps and proof of technical and financial solvency. However, they in effect the retailers of the industry. These companies are sales focused and many do their own technical support and customer service in house. They may also carry some of the financial risk and liability related to their merchant’s processing accounts.

ISO’s sales forces and support teams generally lend themselves to more personalized service than larger processors. Instead of calling a national call center with hundreds of agents, your sales or support team will generally be small, and when talking to them, you’re likely to get the same people on the line. Many times, your sales person will remain your lead support contact as well. Your salesperson and ISO will also typically act on your behalf with the processor, handling research, tracking down funding, disputes, and tracking account changes are just a few of the things most ISO’s can handle for you so you don’t have to. This may seem insignificant until you try and navigate a processor’s support system or are never able to speak with the same person, requiring you to start from scratch every time you need support.

ISO’s sales operate similar to that of the processors, however they will have much greater flexibility with account pricing and account structures. ISO’s often have less staff but much more experience and lower employee turnover than larger organizations, automatically giving them an advantage in providing support and solving problems.

Traditional Banks

Many traditional banks can technically fall into either the processor or ISO category. It really depends on the bank and how they structure their credit card processing program. To the traditional bank, credit card processing is a value add, and so many, if not the vast majority, have farmed out the handling of their merchant’s services divisions to other companies. This way they can focus on the more traditional side of banking.

With any bank, don’t expect to be able to run down to your local branch to fix any problem you might have with your merchant account. While a few banks may have that ability, you will most likely be calling into a large call center for support, and that call center might be the processor, or an ISO.

However, since you are already a bank’s customer, the likelihood that you will sign up with them without checking other options, is greater, meaning they can charge more than others in the industry and still obtain new customers. Some banks may offer to lower fees for other services, which may off set high processing costs. And while it is an illegal practice called tying, some banks may require you to process with them in order to obtain a loan or other service. In any case, with any company, we strongly suggest looking at a few different options. We’ve seen more bad deals with banks than any other type of provider in the industry.

Sales Agents

This group is much like an insurance agent, a good one is worth their weight in gold, and a bad one will make you despise everything about the industry. Being a sales agent is a relatively easy way for a person to run their own business by selling merchant accounts and it requires very little but motivation, and on the job training, to get started. With an independent sales agent, the accounts they sign up will go through an ISO or a processor who is registered with card associations and the sales agent earns commission based on the accounts they write.

Outside Sales Agents should be your sales person and your first level support person the entire time you have an account with them. It’s not only their job to get you setup and running, but they are normally very interested in making sure you are well taken care of. Having an area rep who can look out for your account individually and will come by and help solve issues in person is a very nice thing to have access to. While there are some agents out there who will sign up an account, never to be seen again, most work for their merchants and advocate for their customers as if they were their own businesses.

Generally speaking, sales agent’s hard costs can very quiet a lot, but the better sales agents will have cost and pricing options comparable to ISO’s, and may sign accounts to multiple processors. Outside agents can have even more flexibility than processors and ISO’s because they carry some of the risks of negative revenue on accounts. But, they must conform to the systems in place by their sponsoring sales office. meaning they will have limits as to what they can assist you with personally on your account. Higher level support issues are typically referred to the ISO or processor.

When using an outside agent, one should really look for an agent that has been in business for at least a couple years, and can provide reference, ideally someone local. There is a large portion of outside agents that previously worked in the processing industry and wanted to apply their knowledge in building their own business. Many of these are some of the most knowledgeable and dedicated sales and support persons in the industry.

Equipment

One of the biggest areas where merchant account sales channels differ is costs for processing equipment and software. Banks and some sales agents tend to try and lease equipment far more than processors and ISO’s. While a lease in itself isn’t an end of the world situation, when you’re offered a 48 month, $100 lease, on a piece of equipment that costs only $300, you can do the math on how great of a deal this actually is.

We’ve seen a resurgence of leases in the past few years, and there are some downright ugly deals floating around. Make absolutely sure you understand the terms and the total cost of a lease and the approximate retail cost of the equipment you’re leasing. It makes little sense to spend many times the cost of equipment as well as getting stuck in a non-cancellable lease on equipment that you could easily purchase outright.

Conclusion:

Now you should have a good understanding of the industry and where pricing comes from, and that’s half the battle. Now when you talk to a sales person hopefully it won’t sound so Greek to you. All three options work, they will all allow you to run credit cards and put the money in your bank account. You just need to decide if you like the one stop shop or are freedom and leverage with the personal touch more important. Look at multiple options when shopping for processing and always request and check references to find out where each option may have short comings. Once you know the answers to these questions you should be able to make an easier educated choice.

As always, for information on the Merchant Store’s services, or for answers to additional questions please email, call us at: (866) 937-5973, or visit our website.

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