I was reading the copy on a popular merchant accounts for lawyers web site and there was so much false information, it’s amazing. Many law firms are fairly new to accepting credit cards, so maybe it’s easier to believe what’s written from a vendor that has an attorney for an owner. Below I clarify information about fees that I found misleading.

What are the costs associated with accepting credit cards? Fees include:

Discount Rate or Sales Discount:  Negotiable. This is the fee the Merchant/Acquiring Bank keeps for profit. For example, you call a credit card processor and open a merchant account. The credit card processing company you deal with charges a discount rate, which is itemized on better prices plans, but buried in other costs on more profitable price plans. How much profit is fair? Every business has overhead and needs to make a profit. What’s fair?  That’s negotiable, though some businesses may have internal rules for their sales force.  The fee can be a combination of a per transaction fee or percentage of transaction, and other itemized fees that include a combination of actual cost plus profit.

Interchange. Non-negotiable, but can be influenced.   Interchange is a fee paid between the merchant’s acquiring bank and the card issuers bank that serves to balance costs in the payments system. The rates depend on the card, the payment method (sometimes) and many other factors. It’s complex and every card has multiple interchange rates associated with them, except regulated debit.

On the best price plans, the merchant will typically have a discount rate and itemized interchange fees. On others, typical of small businesses, they’re combined into a merchant discount fee.

Merchant Discount fee: Negotiable. It is not simply the cost of moving money. It’s interchange plus profits (discount rate) bundled.   Quite simply, it’s easier for the merchant to understand and easier for the salesperson to explain. It’s never the best deal for the merchant, because to keep it simple, everything is rounded up to be sure all costs are covered.

Network Fees: Non-negotiable if on a pass through interchange price plan, which will be indicated on your merchant agreement. Non-negotiable examples include DISCOVER DATA USAGE FEE, MC NETWORK ACCESS AUTH FEE, M/C INTERNET AUTH FEE,MC ACQUIRER AVS BILLING. VI TRANSACTION INTEGRITY FEE,  and many others. These add up up but are still a minor part of what merchants pay overall.

REGULATORY PRODUCT FEE. Non-negotiable. Some processors are now charging this as an annual fee.

Other fees: Sometimes negotiable. These may be hard costs for vendor, as fees can vary by banking relationship, or they may be negotiable. AVS (address verification service, needed for card not present transactions, statement fee, authorization fee.

How do I know if I have a good offer on a merchant account? This is the $10 million dollar question. Here’s my critical requirements checklist for you:

1. Get a virtual terminal (works with swipe and mobile if needed).  Find out how long data can be searched for. They range from 6 months and up. Ideally 7 years access to data to match IRS audit needs.
2. Does it support expenses from operating account and deposits to second account?
3. How will the solution help you manage interchange fees, the largest component of accepting credit cards? This is where most solutions will fail and sales knowledge weaknesses become evident.
4. How will the solution help you reduce the burden of PCI Compliance, mandatory data security standards? (Hint: online pay page, client managed payment method storing and updating, fax authorization forms that replace sensitive payment data with a random alphanumeric ‘token’)
5. check out my videos, including 60 seconds to see if you have a great deal (for existing merchant accounts)

Protect your firm and protect your client relationships. Just because a merchant services provider specializes in legal credit card processing relationships does not mean they have the best solution for you. Without innovation and change, they’re just a company that had a great marketing years ago.

Level 3 credit card processing is explained, including merchant account and payment gateway requirements in this video of a slide presentation. What is it? What are the financial benefits? How can I get level 3 credit card processing for my business to business company?

Plus a brief mention of our technology that creates merchant efficiencies to qualify eligible purchasing, corporate, and business cards for level 3 qualified interchange rates.

To get level 3 processing for your merchant account or for more information about solutions to streamline payment acceptance for your business to business company with card not present customer transactions, contact us.

Interchange plus or wholesale pricing has the lowest cost potential for merchants. How do you know if you have a good credit card processing price plan? Don’t count on your banker or merchant account agent. Find out for yourself by comparing your merchant statement with the one in this video which shows wholesale interchange plus pricing.

You need the best price plan to have any hope of paying the least amount of fees. The type of price plan is only one element, and is the only one covered in this video. Who qualifies for this pricing? There are no hard and fast rules. It’s entirely up to the person selling you your merchant account or the particular organization they work for.   It’s usually offered to companies with over one million dollars in annual processing. Less than that, the price plan types vary widely.

VIDEO LINK: In 60 seconds, you’ll learn whether you are in the game or not.

Interchange Plus Pricing Video

What happens when you key enter a credit card on a retail merchant account? Most merchants and even merchant services sales agents don’t really understand the consequences of how this impacts what you pay in credit card processing fees, specifically how you qualify for different INTERCHANGE rates.

For this example, let’s assume you have a RETAIL merchant account. This means when you signed up for a merchant account, you signed an agreement that most of the time your customers are present and will swipe their credit card. As a result your account is coded in such a way that it’s expected you’ll transmit data from the magnetic stripe on the back of the card, or embedded chip. You’re also required to get a signature from the customer. For interchange qualification, the assumption is that if you key enter a transaction, it’s due to a misread of the magnetic stripe, not because your customer is placing a phone or fax order.

For a MOTO merchant account, the opposite is true. Your account is coded so that you are NOT expected to send the data that comes from the magnetic stripe, nor are you expected to have a signature. Instead different information is required. For example, Visa requires the address.

What happens when you key enter a transaction on a retail merchant account? The expected data is not received, and therefore the transactions does not QUALIFY for the associated ‘best’ interchange rate for the specific card.

EXAMPLE RATES FOR A RETAIL STORE with a RETAIL MERCHANT ACCOUNT and the customer uses a traditional rewards card:

Visa CPS/Rewards 1 1.65% + $0.10. The customer is present and the magnetic stripe data is sent. This is called the Qualified rate.

Visa Electronic Interchange Reimbursement Fee (EIRF) 2.30% + $0.10. The customer is NOT present and no magnetic stripe data is sent. The transaction is key entered. If you do not enter address on a key entered transaction, EIRF is the result. Let’s face it- your cashiers are not going to know when they need to enter an address and unless they are forced to, they will skip entering it anyway.

Visa Standard Interchange Reimbursement Fee 2.70% + $0.10. The customer is NOT present and no magnetic stripe data is sent. This transaction was key entered and additional required information was not present. How do your cashiers know what additional data is needed on a transaction by transaction basis?

Do you see how even if you have a great merchant discount rate, it doesn’t mean you’re paying the lowest rates possible? There are a number of reasons why EIRF and standard can occur, though I’ve discussed only one above.

EXAMPLE FOR A RETAIL STORE, with a RETAIL MERCHANT ACCOUNT USING CENPOS, and automated switching is on.

Visa CPS/Rewards 1 1.65% + $0.10. The customer is present and the magnetic stripe data is sent.

Visa CPS/Card Not Present CPS/Rewards 2 1.95% + $0.10.  The customer is NOT present and no magnetic stripe data is sent. This transaction is key entered, and CenPOS automatically prompts for the address and any other information required to qualify the transaction for the best card not present rate, or per merchant custom settings.

Using the CenPOS virtual terminal solution, the merchant qualifies for the best rate under both types of transactions, swiped and key-entered. Savings using CenPOS on this transaction= .45% or .75%, the difference between qualified key entered and EIRF or Standard.

The illustration shows part of the payment cycle that applies to interchange qualification.

Plus risk is mitigated:

• The merchant is not expected to have a signature on the key entered transaction, which will be required to defend against disputes.
• A common retail fraud check is the last 4 digits, but for key entered, that is useless. Instead, address is automatically prompted for by CenPOS.

How does CenPOS compare with other internet based credit card processing solutions and virtual terminals? The vast majority do not have the switching technology and intelligence required to automatically force the desired transaction as described above. They either don’t do it, or leave it up to the cashier to make the right decision at the point of sale. The evidence that other solutions don’t work are in your merchant statement detail. Just look for EIRF, standard, stnd, std or non-qualified in any of the interchange or fee descriptors.

TIP: Are you thinking about mobile payments to your CARD NOT PRESENT or MOTO merchant account? The same logic will apply. The CenPOS switching technology will enable you to qualify for retail card present rates on you MOTO merchant account. Will you qualify for retail rates with any other solution? The proof will be if you see CPS Retail 1.51% and $.10,  Visa CPS/Rewards 1 1.65% + $0.10, and other card present interchange rates.

About CenPOS: “Creating efficiencies through payment innovation”
CenPOS, based in Miami, is an intelligent payment processing network that streamlines the payment experience for businesses and consumers by using state-of-the-art technology to replace inefficient, outdated payment systems. The network reflects the core values that drive the experienced and innovative CenPOS team: Simplicity, Scalability, Security and a holistic approach to payment processing strategies.
CenPOS provides solutions to a range of organizations including but not limited to retail, card not present merchants, automotive dealers, professional services and academic institutions; special programs are also available for non-profits.

WHERE TO BUY

• CenPOS  is sold through limited authorized resellers and agents.
• Keep your existing merchant account.
• Contact Christine for CenPOS for your business and for reseller opportunities.

It’s nice for budgeting, but is it a good deal? TransFreedom by TransFirst offers merchants a simple way to budget credit card processing expenses by offering a flat monthly fee for everything. It’s the same rate as long as merchants do not exceed their monthly tier.

Prelude: All credit and debit cards have associated interchange fees. How the merchant pays for them varies widely. The processor can bundle all the fees and keep the difference between actual cost and the bundled rate sold for. Or the processor can ‘pass through’ all the fees and add a merchant discount on top. Bundled rates:

• The payment processor is obligated to pay interchange fees, regardless of what your price plan looks like.
• The processor uses industry experience to calculate what the average effective rate is (sum of all fees divided by net business volume) for different types of business (professional services, hair salon, manufacturer, etc) and payment acceptance methods (online, retail etc).
• The processor offers you a bundled rate they are reasonably sure you will exceed, typically adding a nice cushion on top just to be safe.

TransFreedom One Price Plan Pros:

• Merchants can budget for fees as a monthly operating expense
• Includes the TransFirst Gateway
• Includes data breach security protection policy
• Merchants don’t need to learn anything about interchange or qualifying transactions for better rates.
• Addresses an issue for small businesses with low volume: eliminating the need to understand complex credit card procssing fees.

TransFreedom One Price Plan Cons:

• Merchants pay for volume even if they don’t use it, causing a wide swing in the effective rate:
• $15,000 for $449= 2.99%.
• $11,000 for $449= 4.08%
• Rarely do merchants have the same volume month to month.
• Restrictions do apply, but they are not listed for public viewing. Most likely international card surcharge fees will apply. Also, since the effective rates vary widely by industry, if you’re in a higher fee industry (business to business) rates may be higher.

Blog Author Speedy says:

• Comparing apples to apples for a specific tier revenue amount, a merchant could conceivably save with Transfreedom. It all depends on the merchant deal. Regardless, since a merchant pays for unused volume, or 4% for going over the volume, this plan is not for merchants counting pennies.
• Choose this plan if you want a fixed price, lowest cost is not an objective, and you’re comfortable with the 3-year term that is standard for Transfirst merchant agreements. Additionally, be sure to read the fine print about ‘restrictions’ before committing.
  
• One of the biggest problems for businesses is ‘qualifying’ for lower interchange rates. Rather than change processors, merchants can fix the problem with CenPOS the industry’s only intelligent payment gateway- universally works with all credit card processors, for retail, MOTO, mobile, online etc. to qualify ALL transactions at the lowest rates possible. Contact Christine Speedy for more information.

DISCLAIMER: This review uses publicly available information posted on the TransFreedom web site as of 5/25/2012. The review does not include the processor, just the price plan.

Effective November 1st 2011, the MasterCard Processing Integrity fee will increase by $0.01 to an amount of $0.055. Unless your merchant account is on a special type of bundled pricing, all merchants will see this on their November 2011 merchant statement, delivered in early December.

WHAT IS THE FEE FOR? This fee is applied to authorized transactions that are not followed by a matching MasterCard cleared (settled) transaction (or in the case of a canceled transaction, not properly reversed). The fee can be avoided by clearing (settling) your transactions. If an authorization is not needed, the authorization must be electronically reversed within 24 hours for face to face authorizations and reversed within 72 hours for Card absent authorizations.

WHO PAYS IT? All merchants pay the fee if triggered by the fee rule.

HOW WILL I KNOW IF I RECEIVE THE CHARGE? All merchants on “interchange pass through” or “interchange plus” pricing will see these charges listed as a separate line item, when the fee applies. If you are not on this type of pricing, then it’s up to the processor how your fees are bundled, though in most cases, I think merchants will see this fee regardless of the type of pricing.

HOW CAN I CANCEL OR REVERSE AN AUTHORIZATION AND AVOID THE FEE? This varies by many factors, including how you are processing.

• Yahoo stores now have a Reverse Authorization button on the Order Details page.
• Authorize.net has issued an API. Shopping cart engines are integrating the API, but it is not yet widespread.
• Check with your processor or POS software provider.

Can you give me an example of when this fee would be applied? An ecommerce store receives an order for an item. The item is backordered and will be back in stock in 3 weeks. The merchant does not want to cancel the order and does nothing. The authorization will be automatically dropped because it exceeds the 7 calendar day maximum. The merchant will also incur the MasterCard Processing Integrity fee.

The fee does NOT apply to:

MCCs 3351-3441 (Car Rental Agencies)
MCCs 3501-3999 (Lodging-Hotels, Motels, Resorts)
MCC 4411 (Cruise Lines)
MCC 7011 (Lodging-Hotels, Motels, Resorts –not elsewhere classified)
MCC 7512 (Car Rental Agencies – not elsewhere classified)

NOTE: The penalty for failure to reverse authorization is $.055 but the merchant per transaction fee is likely even higher. Unfortunately merchants will be hit with two fees in order to reverse an authorization for the benefit of the customer. Here’s a better idea to improve consumer satisfaction. Why not require card issuing banks to fund  consumer accounts faster when merchants issue refunds?  The money comes out of the merchant account per the merchant termsn, usually upon settlement, but the consumer doesn’t see there money usually for 3-5 days, sometimes longer.

At what point does it make financial sense to convert from a Paypal to a regular merchant account? I frequently recommend new small businesses start out with a Paypal account initially. There are factors you need to consider in making this decision, including risk of chargeback and whether you’ll be in front of your customer at the time the payment is needed. Below we examine two  business scenario’s and solutions. Both have customers that pay mostly by check or cash so credit card volume is low.

• A home improvement company meets with customers in person. Multiple salespeople are in the field so traditional wireless devices could be expensive. Some customers make a decision later and fax over their signed contracts.
• A boat towing service company has a fleet of part time captains that respond to emergencies on the water. Most customers pay cash so the credit Traditional wireless devices are impractical due to the number needed and inability to withstand weather elements.

All companies have their service personnel call in the credit card information for an approval over the phone, or they key enter it back in the office later.

Charge slips are impractical and expose the company to risk of a data breach whether through internal or external theft. Paypal is month to month, enabling new businesses to test the waters and build credit card volume before seeking prices from traditional merchant services companies. On the negative side, deposits to your bank account will usually take 3-5 days.  A merchant account will deposit funds to your bank in 1-2 days automatically, and deduct fees once per month.

Paypal is $30 per month plus the table below:

Paypal -month to month, no application fee. Deposits to your Paypal account, then you have to manually transfer it to your bank account which takes 3-5 days. Fees are deducted from every transaction, so you receive net transaction deposit. Some find this to be inconvenient for accounting.

Merchant account- Usually a 3 year agreement, and penalty for early termination and application fee may apply. Deposits to your bank account in 1-2 days and fees are deducted via ACH monthly.

How much will a merchant account cost? All credit card processing fees are based on interchange rates.  There are hundreds of rates. Hardly anyone charges $30/mth, so if your volume is low, be sure to include this when calculating your effective rate.

PAYPAL VS MERCHANT ACCOUNT FEE COMPARISON

The chart below shows examples of multiple scenarios of credit card processing for card not present transactions.  Foreign cards can have a major impact. Paypal charges 1% for foreign bank issued cards and most merchant accounts will pass through the extra fee which varies from .4% to .6% depending on the card brand. The chart assumes NO foreign cards which is a bit unrealistic.

Every situation will vary by number of transactions, types of transactions and actual merchant account fees. For your convenience, you can download the excel spreadsheet above and put in your own numbers. This spreadsheet is offered FREE for your convenience. It may not be used for commercial purposes, nor modified and distributed without express written permission from 3D Merchant Services.

Click to download the xls file Paypal vs merchant account fee calculator .
If you need a Paypal merchant account, click the image below.

The Merchant Solutions review examines themerchantsolutions.com web site advertised credit card processing offers. Every so often I see ads that I know are too good to be true. In your heart you know it too, but that doesn’t stop you from at least looking right?

I stumbled upon this site because it was at the top of google when I was searching for something and it caught my eye. This review lays out facts based on direct observations. I hope this helps you in evaluating any company for merchant services. Draw your own conclusions.

INTERNET MERCHANTS HOME PAGE OFFER

• 1.59% + 0.15 per transaction
• FREE Payment Gateway Software/Terminal
• FREE Gateway Access
• No set up, application fee or annual fee

ACTUAL OFFER (based on standard industry card not present):

Gateway – choose from authorize.net, $149 application fee, or PC Charge Pro, $249 application fee; both carry a $10 per month fee.

AUTHORS Comments: The home page says “free payment gateway terminal”. That’s true, the terminal is free, but the gateway is not. I knew that, but it’s a trick question. Are gateway fees negotiable? While the fees may vary, authorize.net and PC Charge are never free. They are for-profit businesses. The only way you can get them for free is if you are being charged somewhere else for it to make up the hard costs. I’ve never seen that happen and you should beware if offered. Whenever a cost is bundled, you can bet you’re going to pay extra for built in profit margin. END COMMENTS.

The actual offer continued.

Credit card processing

• 2.19% + 0.27 per transaction
• $10 per month statement fee
  
• No set up, application fee or annual fee
• CROSS BORDER FEES will be added and listed separately

The rest of the costs are found in the fine print: If you are a Direct Mail/Telephone Order Merchant (non-magnetic swipe read transactions) and each transaction you submit meets all of the following requirements will be priced at the rate quoted. Any other transaction, including all foreign transactions and commercial card transactions in addition to transactions using Visa Rewards Card, Visa Signature Card, Visa Infinite Card, and MasterCard World Card, will be priced at the rate quoted plus 1.14%.

REQUIREMENTS:

• Obtain an electronic authorization and settle for authorized amounts (one reversal permitted on Visa transactions to make authorization amount equal to settle amount).
• Address Verification Request in authorization on cardholder billing address.
• Purchase date (settled date) is ship date.
• Send order number with each transaction.
• Settle and transmit batches same day via your terminal/electronic system.
• Send level 3 data (line item detail, sales tax, customer code) with every eligible commercial card transaction. NOTE: Card Not Present transactions involving one-time, recurring, or installment bill payment transactions are subject to additional card association requirements which must be complied with to avoid NQS. Electronic commerce transaction requirements are also subject to additional card association requirements which must be complied with to avoid NQS. Please refer to Card Acceptance Guide for additional requirements.

AUTHORS Comments:

• There is no explanation as to why no transactions will process at the home page ad rate of 1.59% and $.15. However, Visa debit interchange for card not present is 1.60% + $0.15 as of April 2010. This does not include network fees incurred by processors or any profit margin. The home page advertisement would lose money for the company on every transaction, unless offset by other fees.
  
• A monthly statement fee is also a hard cost, so is not unexpected.
• Cross border fees are hard costs and it appears they are being passed through with no mark-up, which is good.
• Which transactions will qualify at 2.14% and which at 2.14% plus 1.14%, or 3.28%? First of all, does your business model meet the requirements listed? If you authorize on one day, but capture/settle on a future date, the transaction would not qualify. You may not be aware of it, but data captured does not always equal data passed on to the processor. For example, Authorize.net does not support level 3 data. I was unable to confirm if PC Charge does at this writing. At the other end, the processor also needs to accept the level 3 data from the gateway. Verify this with your processor. Statistically, about 50% of all consumer transactions are now with debit cards, so if you met the requirements above, and have a consumer oriented business, about half of your transactions would qualify at 2.19%. The majority of credit cards today are some type of rewards cards;  rewards cards rate is 3.28% in the above offer.
• “The Merchant Solutions (TMS) is a registered ISO/MSP of Wells Fargo Bank, N.A., Walnut Creek, CA” is on the home page and all web pages. I like to know more about companies I might do business with so I always research the entity.  Here’s what I found:

1. The wording on the application changed to “The Merchant Solutions (MSC) is a registered ISO/MSP of HSBC Bank, USA, National Association, Buffalo, NY”. Note both the company abbreviation and the associated bank name have changed.
2. The agreement terms and conditions are with Global Payments Direct, Inc. There is no mention of The Merchant Solutions (TMS).
3. I found no listing with the state of California for The Merchant Solutions under multiple name variations I searched for.
4. I performed a reverse phone number check at whitepages.com and got no results.
5. I performed various address check versions at whitepages.com and couldn’t find a company with any similar name at the address.
6. I searched Hoovers.com and didn’t find the company listed.
7. The online application does not use SSL technology (no https or lock symbol)  for taking your private data, including bank account and social security information. This is a significant security risk.
8. The application terms have significant penalties for early termination on the 3 year agreement. “… all monthly fees assessed to Merchant under this Card Services Agreement and due for the remainder of the then existing term of the Card Services Agreement, including all minimum monthly fee commitments, shall be immediately due and payable”.

FINAL REVIEW NOTES:

I’ve pointed out a few ways you can perform basic checks on a company for any service you find online, as well as reading between the lines for a merchant offer. Merchant services in particular involves highly confidential and sensitive information. Before sharing your private data, check out the company.  The sources mentioned in this article don’t measure company reliability.

For the record, you can verify 3D Merchant Services here:

http://sunbiz.org Registered Corporation, state of Florida, whitepages.com, hoovers.com.