Change is the one constant that we can all count on.  This is true on both a personal level as well as a business level.  For consumers and merchants alike, there are many changes occurring within the credit card and merchant account industries that will affect the way business is conducted in the future.  These changes have the potential to affect merchants in both positive and negative ways.  Robert Livingstone is the president and founder of IdealCost.com; he is also a merchant rights advocate.  He describes the following three trends which will impact merchants and how they do business moving forward.

Cell phone carriers move to gain market share

According to Livingstone, AT&T, Verizon and T-Mobile have been tossing around the idea of implementing technology which allows consumers to use their cell phone as a credit card.  For example, instead of swiping your credit card through a card reader for credit card processing, the customer would simply waive their phone in front of a card reader.  How this technology, which is already in use in Europe and Asia will affect merchants remains unclear, however it will undoubtedly change the way credit card processing is handled.

Increase in rates

Another trend mentioned by Livingstone is related to the passing of the Financial Reform.  With the Federal Reserve looking into debit interchange related fees, there is a chance credit interchange related fees will actually increase.  They may increase as much as debit interchange related fees decrease or possibly more.  There is also a very real possibility that the government may impose an additional credit card processing tax which is passed from the processor to the merchant and eventually to the consumer.

Data breaches and chargebacks

In 2010 there seemed to be an increase in individuals who disputed credit card charges when in fact, those charges were legitimate.  With the credit card industry firmly behind the customer when it comes to fraudulent charges, merchants are often left paying the price for these false claims of fraud.  There doesn’t appear to be any change on the horizon that will address this issue or deter card holders from continuing with this disturbing trend.  There has also been an increase in data breaches within the industry which is a concern for all involved parties.

The importance of understanding trends

In order for both merchants and consumers to save money moving forward, it is important to understand how these trends affect all of us.  When changes are seen within an industry it is important to look at the big picture.  While certain trends may save customers on one end, there may be a ripple affect where costs rise for other services.  Credit cards are likely here to stay, at least in the foreseeable future, therefore credit card processing will continue to be an issue of concern for consumer, merchants and the industry as a whole.  By understanding the current trends and how they will impact credit card transactions for everyone, you can make informed decisions that will save you money.

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Most merchants spend at least a small portion of their time looking at the cost of payment processing fees.  These fees can be costly and add up quickly to threaten small business budgets.  What many merchants may be seeing in recent years is a decline in the use of credit card transactions across the board.  Whether or not this changes the way merchants view credit card transactions or how they process such transactions remain to be seen.  Here we look at a few of the reasons why credit card transactions have decreased in numbers.

Change in the way we view credit

One of the most obvious reasons why people are using their credit cards less is the result of the economic downturn.  With more consumers struggling to make ends meet and others realizing the dangers of excessive consumerism, credit card use has dropped sharply.  The attitude of buy now and pay later has definitely shifted to one that is much more conservative, reducing the rate at which consumers use credit cards.  This is especially true for the younger generation who has seen the changes in recent years.  This generation of emerging consumers want to avoid the debt trap they may have witnessed in the family household.  They do this by using cash and debit where they can see immediately how their finances are affected by a purchase.

Tough lending environment

When you combine the tough economy and new restrictions in place to govern banks and credit card companies, the result is a lending environment that is less forgiving to borrowers.  For this reason many credit card companies have slashed credit offers that were previously handed out to most consumers regardless of their ability to repay the debt.  With less access to available credit, the ability to pay for products and services has been reduced for a great number of people.

Increase in the use of checks, cash and debit

There has been a noticeable shift from credit transactions to debit transactions.  In fact, many merchants are encouraging debit payments to reduce their credit card processing fees.  When incentives are offered by merchants to entice customers to reach for their checkbook, debit card or cash- the number of credit card transactions will be reduced as a result.  Many savvy consumers have saved a considerable amount of money by taking advantage of cash or debit preferred incentives.  At the same time, merchants are finding ways to reduce their credit card processing fees by making other forms of payment more cost effective for customers.

Despite the obvious changes occurring in our society, credit cards will remain a popular method of payment for many consumers.  Credit cards offer an easy and convenient way to pay for products and track your spending.  When used responsibly, credit cards can help consumers establish and maintain a healthy credit history and credit score which is imperative in this day and age.  The changes we are witnessing could spur changes in the credit card processing industry as well.  How these change will affect merchants and in turn consumers remains to be seen.

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The purpose of credit card processing is to ensure the merchant receives payment for their products or services in a timely and efficient manner.  As a merchant you will have to decide which type of payment processing is best for your business.  Your options include batch processing and real time processing.  There are pros and cons to each which should be considered before you decide.  Here we look at batch processing and the benefits and drawbacks associated with this type of credit card processing.

What is batch processing?

For online businesses or any business that does a high volume of credit card transactions, batch processing is an option to electronically transmit credit card data.  Instead of processing each individual sale as the sale happens, batch processing occurs when at the end of the business day (or some other pre-determined time), the merchant sends all of the credit card transactions that have occurred since the last “batch” has been processed.  With batch processing, the merchant is able to request an authorization which holds a certain amount of credit on the buyers credit card account.  This will ensure the funds are available when the batch is processed.  With batch processing all of the credit card sales are processed at one time, making it easier and more convenient than processing each individual sale.

Pros and cons of batch credit card processing.

There are several benefits to processing credit card transactions in a batch.  In many industries, this type of credit card processing makes it easier to transmit, track and record credit card transactions.  You have to look in only one location to see all of your credit card transactions for that business day.

Just as there are benefits to batch credit card processing, there are also certain drawbacks to this system.  Credit card processing fees are a big issue with merchants.  In fact, some merchants decide to forgo the advantages of accepting credit card payments because of the costly fees.  With batch processing you will likely see additional frees for credit card processing as well as added expenses for additional equipment.  This may make the entire process less cost efficient.  Another concern with batch processing is finding out there is a problem after the products or services have been received by the buyer.  Despite the fact that an authorization is in place to “hold” funds, it is possible for payments to be denied or not processed correctly with batch processing.  Unfortunately if the buyer has already received the product or service, the merchant may have little recourse to receive payment.  For example, the hotel industry uses batch credit card processing.  If an individual stays overnight and checks out the following morning and problems with their credit card are not discovered until the next day- the hotel may very well be out of luck trying to secure another method of payment for the stay.  For this reason it is important for merchants to not only see the benefits but also potential disadvantages before deciding which type of processing is right for their business.

Credit card processing has come a long way over the years and the technology used today makes it even easier for merchants to accept credit cards.  Payment processors can handle a wide variety of transactions that previously would not have been possible.  For some business owners, a virtual credit card terminal (rather than a merchant account) is essential to process sales that do not require the physical “swiping” of the card to complete.  This is a common practice at call centers or for businesses that receive orders and credit card information via phone, email or even by mail.  These businesses should have a virtual credit card terminal to process this type of transaction.

What are virtual credit card terminals?

Credit card processing cannot take place if the merchant has no way to transfer credit card information to the processor.  Simply having the credit card information will not result in the movement of money from the issuing bank to the merchant’s account, therefore there must be some method of capturing this information and forwarding it to the credit card processor.  With a virtual credit card terminal you need a secure Internet connection and a smartphone or processing computer to transfer the data.  You do not need to swipe the credit card, therefore no additional equipment should be required.

How to set up a virtual credit card terminal.

You must decide on several things before you begin accepting credit cards via phone, fax, mail or online.  You must decide which processing terminal will be used (computer or smartphone) and determine if the software necessary to process credit cards is compatible with that terminal.

Next you must select a credit card processor that provides features important to your business.  Again, systems have to be compatible and you will want a credit card processor that offers protection from fraud and 24/7 support.  It is important when selecting a processor to research the cost associated with your account.  This may include monthly fees, start-up fees, annual fees, statement fees and transaction fees.  When selecting a credit card processor, you are looking for the most value at an affordable cost.

If you do not already have a merchant account, the processor will help you create a credit card merchant account number.  They will also take you through the steps to set up your virtual terminal including any software that many be required to process credit card payments.    Once you have set up your virtual credit card terminal and tried a test run to ensure everything is working properly, you will be ready to process credit card payments that come to you from a variety of sources.

Regardless of how you capture the information for credit card payments, it remains the merchant’s responsibility to understand and operate within the terms of their merchant agreement.  There may be different “rules” that apply to credit card transactions that occur without the account holder being present and it is important to not only understand those rules but abide by them least you lose the ability to process credit card payments.

Credit card processing allows a vendor to collect payment from a customer in exchange for providing a product or service.  While most information regarding credit card processing centers around how the merchant receives payment, there is another side of this process that should be explored.  What happens when a customer wishes to return a product or receive a refund for services?  Just as credit card processors ensure merchants get paid, they are also responsible for ensuring customers receive credit when it is due.  Here we look at what happens (or should happen) when a customer requests a refund or credit.

Define your return/exchange policy

It is important for each merchant to establish and clearly disclose a return or exchange policy that describes both the merchants responsibility as well as that of the consumer to ensure there are no misunderstandings that can result in a dispute.  The credit card processor can only support the merchant and customer if each adhere to the rules set forth regarding exchanges or refunds.  If there is no clear policy in place between the merchant and customer it becomes difficult to prove one’s case if there is a disagreement over a refund.  The return/exchange policy should be defined in one of the following ways:

• No returns or exchanges-  If your business considers “all sales final” then it is imperative your customers understand your policy.  This should be clearly displayed and relayed to customers when they make a purchase to ensure there are no misunderstandings that refunds, returns and exchanges are not an option.
• Exchange only-  If you are willing to accept an exchange for another product that is similar in price to the original, then your policy should state exchange only.  In this case a customer will not be able to return a product for a full refund but rather get another item that costs the same (or less) than the original purchase.
• Credit with receipt-  If you are willing to issue a credit for merchandise returned in the original condition or other special circumstances, this should be disclosed in your return policy.  Many vendors opt to have the return policy printed directly on the receipt to facilitate easier returns.  Whatever conditions the customer must meet to receive a credit should be outlined in the policy.
• In store credit-  Many vendors opt to offer a credit but one that can be used in-store only.  This means there is no actual reversal of charges on the credit card but rather a store credit that can be applied to the customers next purchase.

By establishing a clearcut policy on returns and exchanges, it becomes much easier for the credit card processor to support the rights of both the consumer and merchant.

Issuing a credit to a credit card.

If your policy allows for a customer to receive a credit on their credit card purchases, you must honor that policy if all the terms have been met.  When this occurs the amount of the credit will come out of your account and be credited to the customers account via your credit card processor.  While many merchants would prefer to not deal with the hassles of issuing a credit, for most this is one of the best ways to retain customer loyalties and encourage repeat business.

Photo via Jim Frazier

In an ideal world one would never have to change who supplies their credit card processing services.  Unfortunately that is rarely the case and each vendor should have a back up plan in place should their current credit card processor not work out.  While there are plenty of opportunities to switch processors, it is also important to have a plan in place should your current processor fail (literally).  If you rely on your credit card processor to ensure you receive payment for services and products, it is better to have a plan in place before disaster strikes versus waiting until the day you are no longer receiving payments.

What would cause a credit card processor to fail?

Under most conditions a credit card processor will provide reliable and predictable service.  There may be conditions that arise on occasion which make it difficult to process payments.  This may be the result of contractual issues among parties or software problems that halt the processing of transactions.  In any event, if your business would be at risk due to the inability to process credit card payments in a timely manner, it is essential you know what to do to ensure your business can survive.

Back up your credit card processing service.

It is important for each vendor to determine how vital credit card processing is to their business.  If you have other forms of payment which you accept and a temporary halt in credit card sales will not put you out of business, it may not be cost effective to invest in a costly back up plan.  Conversely if you rely solely on credit card sales or the bulk of your business is conducted online, over the phone or other credit card intensive areas, it might be a good idea to have another way to process credit card transactions in a relatively short period of time.

Merchants who count on the ability to process credit cards should always consider having a secondary processor who they can turn to in a pinch.  Whether you opt to actually change processors altogether or want to add a layer of protection should you need it, will be determined by each situation and the factors that contributed to the inability to process payments in the first place.  Small business owners may consider an alternative processor such as PayPal to expedite immediate payments or even invest in a mobile processor that can be attached to their cell phone.  Larger businesses can research alternative processors to determine which would be the second in command should the need arise, which will reduce the amount of time lost gathering and comparing important information on short notice.

To be successful in business you have to have all of our bases covered and then have a back up plan should your primary business needs become jeopardized.  This is true for all areas, not just credit card processing.  Taking the time in advance to ensure you have the ability to accept and process payments is vital to the success of your business.

When it comes to the rules and regulations governing credit card processing, it is not uncommon for both merchants and consumers to be in the dark.  For example, many merchants impose restrictions or apply special rules to consumers using credit cards, despite the fact they may be in violation of their merchant agreement.  Consumers often follow along with whatever is asked of them because they do not necessarily understand the credit card processing system or their own rights as account holders.  It is important for both parties to understand their rights and responsibilities when it comes to credit card transactions.  Here we look at one rule that this often misunderstood by participants on both sides of the fence.

Valid ID Not Required When Making Credit Card Purchase

It is important for credit card users to understand that they do not have to present a valid ID for credit card processing to take place.  Consumers are often under the false impression that by presenting their ID, it somehow adds protection against the fraudulent use of their credit card.  In reality, this protection is already provided by the issuer of the credit card.  While the law limits your responsibility to only $50 of unauthorized charges, many major credit cards offer total protection in the event your card is used fraudulently.  This means you, the consumer already have protection against fraud, so why then would the merchant be requesting a valid ID?

Reasons Why A Merchant May Ask For ID

There are a few exceptions which allow a merchant to ask for an ID before finalizing a credit card transaction, but for most normal sales activity, this is prohibited.  Nevertheless, some merchants, either unaware of the rule or working against it will ask to see ID.  In most cases this will be to ensure they are not accepting payment from an unauthorized user or a stolen credit card.  Other reasons, with are permitted, include verifying the age of the consumer if age restricted products like alcohol, tobacco or certain medications are involved.  Merchants can however protect themselves from processing a fraudulent transaction not by requesting ID but rather carefully inspecting the card to ensure it hasn’t been tampered with and comparing signatures on the receipt and the back of the credit card.  If the signatures do not match or the consumer has not signed the card, merchants are not required to complete the credit card transaction.

The Importance Of Understanding The Rules

Both consumers and merchants must make the effort to understand the rules governing credit card use to ensure their rights are protected.  The credit card companies and credit card processors are all part of a system that only works if all parties adhere to the rules set forth.  If a business violates their merchant account agreement, they risk losing the right to process credit cards all together.  When consumers are unaware of their rights and responsibilities they are also exposed to negative consequences.  An understanding of how the credit card processing system works and the rules which account holders and merchants must adhere to ensure everyone gets what they want out of the transaction.

Photo via Cormac Phelan

Credit card processing tends to follow the same transaction life cycle, whether your customer pays with credit cards in person or uses a credit card online or by phone.  The specific credit card processing events and activities may vary from one merchant or card issuer to another, but the basic life cycle is the same.

If you’re going to accept credit cards from your customers, it’s a good idea that you understand how the credit card processing life cycle works, how the money ends up in your account, and what happens if something goes wrong with the cycle.

Authorization of Card

1.            The credit card user presents their credit card to make payment in person, or enters their details into a form or dictates them to a customer service representative by phone.

2.            The merchant swipes the card or the account details are digitally entered into the system for submission to the merchant’s credit card processor.

3.            The merchant bank electronically requests card authorization from the card issuer (Visa, MasterCard, Discover, American Express).

4.            The card issuer approves or declines the transaction, and sends the response back to the merchant bank.

5.            The merchant bank sends response back to the merchant, and the merchant processes the transaction based on whether the card is approved or declined.

Clearing and Settlement of Payment

1.            The funds from the credit card payment are deposited into the merchant’s bank, the merchant’s account is credited and an electronic submission of the transaction is sent to the credit card processor.

2.            The credit card processing system facilitates payment, pays the merchant bank, debits the cardholders account and sends the transaction on to the card issuer.

3.            The card issuer posts the transaction to the cardholders account and sends the monthly statement to the cardholder for payment.

4.            Cardholder receives their credit card statement and sends payment.

Reasons for a Declined Credit Card

The merchant doesn’t get an explanation or reason for why a credit card is declined. Instead, the cardholder must contact their customer service to find out why their transaction was declined. Typically, declined transactions happen because the transaction was over the credit limit, a credit card payment was late, or the credit card has been used too many times that day.

Internet Payments Extra Step

Internet payment processing adds an extra step because the credit card information must be encrypted to reduce the likelihood of theft. The customer inputs their credit card information into a web page and presses a “Submit” or “Send” button. Before the cardholder’s information is sent to the acquiring bank, it’s encrypted and passed through a payment gateway (e.g. VeriSign or Authorize.Net). The authorization is also encrypted before being sent back to the internet application.

Maintaining Consumer Credit Card Safety

As a merchant accepting credit cards, you should understand your role in keeping the credit card data safe throughout the credit card processing life cycle.  Your data storage systems should not maintain any of the magnetic-stripe data received after a customer swipes a card and the transaction has been processed.  After the card is authorized, all information taken from the swiping of the card must be deleted.  You can maintain account number, expiration dates and names from credit cards if you do so in a CISP-compliant manner, but no other information can be stored.

If you use the CVV2 number for verification purposes in some or all of your credit card transactions, you must not store that data or document it in any way digital or otherwise.

Businesses are often liable for losses customers experience due to compromised credit card data that occurs due to merchant neglect and lack of adequate data security measures.

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Most credit card processing companies classify online businesses as “high risk”, since the potential for credit card fraud is higher than in-person transactions.  Operating a business online requires you have the ability to accept credit card payments from your customers, and unfortunately, some US businesses find it difficult to get a traditional merchant account due to their personal credit histories or the nature of their business being “high risk”.

With a business based in the United States, you’re governed by the laws of the US as far as credit card processing is concerned.  If you use offshore credit card processing, the laws and limitations are lifted, you’re not considered a high-risk company, and you could benefit from a number of other advantages over using domestic companies.  When you begin to consider offshore companies, you have a wider selection of banking and financial institutions from which to use to process credit cards from antiscians.

Benefits of Using Offshore Credit Card Processing Companies

Some of the advantages gained from processing credit cards with companies located outside the United States include:

• Ability to accept a larger range of credit cards, including foreign forms of credit: when you can accept foreign credit, you immediately give your company access to a world-wide, global market.  While people in the United States have the most material belongings, they only make up a fraction of the total world’s population – and limiting your business to only United States consumers means you are missing out on many other potential sales.
• Fraud protection offered by the provider.  Just as there are different laws regarding how a transaction is handled, fraud management is vital to ensure your transactions are secure and your business is protected from fraudulent transactions and the chargebacks that may result from disputed transactions.  An international processor will have the experience and expertise to handle these unique situations that come with accepting payments from around the world.
• Able to help you stay within the bounds of international privacy laws.  Each country that you do business with may have varying laws regulating how private information is handled.  If you are unfamiliar with these laws as a business owner, your credit card processor can ensure your transactions are handled correctly and that your business is protected.
• No transaction minimums or maximums to maintain
• Possible tax-reduced transactions
• No large set up fees, application fees or deposits.  Most off-shore credit card processing accounts can be set up with minimal investment.
• Accept credit cards in multiple currencies and convert them to your own currency. Offshore providers can accept payments in global currencies and have them converted to your own when depositing into your account.

If you have found it difficult to get a credit card processing account with a domestic company, you may look to offshore companies.  Before selecting an offshore provider, make sure to compare their features and benefits, and let them know you’re doing so.  Many times, offshore banks will compete for your business by trying to offer a better deal than the competition.

Considerations for Using Offshore Credit Card Processing Companies

As with any decision, there are potential disadvantages or circumstances to consider carefully before making your choice.  If you decide to move your credit card processing business to an offshore provider, you’ll want to consider the following:

• Offshore banks may not be FDIC insured: other countries may have different types of insurance protection for your money.  Make sure you do some research into how your funds are protected if the bank is robbed or goes bankrupt before choosing a provider.
• Check customer privacy laws: make sure the laws governing the banking industry where you are considering an offshore credit card processing account requires that your customer’s financial data is kept private.

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In these economically challenging times, it’s harder than ever to get a small business loan.  Almost every business experiences the need for some extra cash flow at one point or in another, whether it’s to even out a temporary lack of sales or to expand your business.  Even if you qualify for a small business loan, you may find it takes a month or more before you have the money in hand, and by then you could be in trouble!  What you may not know is that many credit card processing companies also offer cash advances to their clients.

Cash Advances Through Your Credit Card Processor

Many credit card processing companies will give their customers a merchant account cash advance.  You apply for the cash advance through your credit card processing company, similar to a loan, and if approved the money is deposited into your account to use for whatever purpose you need.  Some business owners need cash to even out cash flow problems, make payroll during a slow period, or to purchase new equipment or inventory.  You can apply for a merchant account cash advance for any financial purpose.

The credit card processing company then determines if you are eligible for the cash advance by looking at your credit card transactions.  If you have sufficient sales volume, they will approve your application and deposit the money for you.

Merchant account cash advances are repaid from the money you receive through processing credit cards.  You will pay back a fixed percentage of every credit card transaction you make, with an agreement that the total loan amount will be repaid within a set period of time – usually about 12 months.

Paying back a merchant account cash advance based on a percentage of credit card transactions is ideal for business owners who may have fluctuating sales volume – since making a regular loan payment requires you have the same amount of money available each month to pay, where as a merchant account cash is a percentage of sales processed.  When your sales are lower, then the monthly payment you have to make is lower.  The payment arrangements of this type of business lending is a much lower risk for the business owner who just needs some additional cash, but isn’t sure how much of a monthly payment he or she can afford consistently.

What Your Business Can Use a Cash Advance For

Cash advances for businesses can alleviate any cash flow problems you may run into from time to time.   If you don’t have access to another source of funds if your sales volume decreases, you may be forced to reduce your inventory or lay off employees – or worse – go out of business.  Choosing a credit card processing company that can also provide a cash advance is a good idea for those lags in sales that could really cause your business to struggle.  You can deposit the advance into an account to use as a line of credit whenever your sales dip too low to pay your expenses and/or payroll.  Repayments will come out of your future credit card sales.

Potential Disadvantages of a Merchant Account Advance
Despite the advantages and benefits of a merchant account advance, it is not without it’s potential disadvantages.  Interest rates on the money borrowed is generally higher through a merchant account advance than through a bank – but for many small business owners, a traditional bank loan is not possible so it may be worth paying a little more for access to the money you wouldn’t have otherwise.

If you’ve been looking to grow your business but need cash to get things going – a cash advance from your credit card processing company is convenient.  You get the money faster than a traditional loan and the payments are conveniently a percentage of your sales.

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Reducing credit card processing fees has long been a challenge for merchants trying to save money.  The benefits of accepting credit cards as a method of payment are obvious in a society that relies heavily on credit.  Businesses that make this option available to their customers almost always see an increase in sales as a result.  This boost in sales does not come without a price for merchants.  With the privilege of accepting credit cards comes with credit card processing fees which can quickly add up.

In the past, many small business merchants have tried to reduce these fees by requiring a minimum credit card purchase.  Most consumers are familiar with the practice.  Often appearing in hand written signs at gas stations or grocery stores, “$10 minimum purchase required for credit cards” policies are not uncommon.  What many consumers and in some cases even the vendor themselves do not realize is until recently this practice was actually in violation of the vendor’s merchant agreement.

As a result of the credit card reform, several aspects of credit card processing have changed.  One of which is the minimum purchase requirements set forth by businesses.  The major credit card companies no longer prohibit merchants from enforcing a minimum credit card purchase as long as they follow certain rules.

Visa has already changed their policy to allow merchants to require a minimum purchase amount for credit cards.  This minimum amount cannot exceed $10 and may not be applied toward transactions made with a debit card.  MasterCard has not yet officially changed their policy on minimum credit card requirements, however they plan to in the future.  American Express is also permitting minimum credit card purchase requirements as long as the merchant has the same minimum requirement for all credit cards.

This change in policy will impact both merchants and their consumers.  For the merchant, minimum purchase requirements help reduce credit card processing fees.  Merchants have to pay a fee for each transaction.  If a small business such as a gas station has many “micro” payments, for example using a credit card to pay for a soda or snacks, they end up paying more in credit card processing fees.

Consumers will be affected in another way.  Many people choose to not carry cash and make all or most of their purchases with a credit card.  This offers convenience and in some cases an easy way to track expenses for individuals who use their credit card for day-to-day purchases and reconcile their balance every month.  For these consumers, the minimum purchase requirement means they either have to buy more than they intended to meet the minimum or carry cash.  While this may not seem like a big deal, it does in fact limit options for consumers which may result in a loss of business for merchants who require a minimum payment for credit card purchases.

Merchants should carefully consider whether the money saved on credit card processing fees is worth the potential loss of sales if credit card consumers opt to take their business elsewhere.

Scams involving money are as old as time.  Both consumers and merchants alike must be vigilant in protecting themselves from scams, especially those that involve credit cards or credit card processing services.  As more legislation is passed to protect consumers from fraudulent acts, merchants remain a target for certain scams.  It is important to understand what to look for in order to protect your business as well as your bottom line.  Here we look at credit card processing scams and what you can do to protect yourself from becoming the next victim.

Credit card processing scams are tough to track and sometimes even harder to spot.  Scams in this industry are not generally considered criminal in that a law is broken.  Rather clever wording and misleading promises are used that can cost a merchant hundreds if not thousands of dollars in processing and other fees.  These are they things you must be on the lookout for when selecting a credit card processor.

Hidden fees

When choosing a credit card processing service, carefully read the contract and ask if there are any fees which are not disclosed in the agreement.  Also remember that just because fees are disclosed, doesn’t mean you aren’t getting ripped off, not all credit card processors charge these fees.  Some of the fees that may be disclosed or not disclosed include but are not limited to:

• annual fees
• technical support fees
• customer support fees
• licensing fees
• software fees
• chargeback fees
• termination fees
• statement fees
• bank setup fees
• daily close-out fees
• non refundable setup charges

Keep in mind that the more you pay in fees the less you are benefiting from accepting credit cards as a method of payment.  The wrong credit card processor can literally make or break your business.

Background check

It is important to check the reputation of any company with which you do business.  When that company is responsible for ensuring your receive payment for goods and services sold by your business, their reputation becomes even more important.  Check with the Better Business Bureau to see how previous clients rate the business.  You can also get a good feel for a business by using the Internet.  If you were to enter the company name into a search engine with the words; fraud, scam, ripoff or illegal you might be able to spot problems before they start.

Unrealistic promises

A frequently used tactic by less than honest credit card processors is making promises that seem to good to be true.  Companies providing legitimate credit card processing services are generally working within a limited industry.  This means that while some companies may be able to offer better prices or benefits, most are very similar in nature.  When a company goes completely off grid offering promises that no one else in the industry can compete with, there is a good chance very important information is not being disclosed.  There are two popular sayings that should apply when considering a credit card processor.  If it seems too good to be true, it probably is….and let the buyer beware.  By keeping these adages in mind, you reduce the risk of being scammed by a credit card processor.

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As more and more consumers become more conscientious of their spending, debit card transactions continue to rise.  Debit cards offer consumers the same convenience of credit cards when making a purchase, however instead of reducing their available credit, money for the purchase is deducted from their bank account.  For consumers the difference between the two types of cards may end there.  Merchants, on the other hand, must understand the difference between credit card processing and the processing of a debit card transactions to better manage fees associated with accepting this form of payment.  Here we look at several factors that must be considered when processing a debit card.

Verification system

With credit card processing, you must always ensure there is a verification system in place to determine if the credit card presented has available funds to cover the purchase.  The same is true for debit card transactions.  The verification system should also confirm is a customers bank account has the funds to cover a purchase.  This is vital to ensure the merchant receives payment for products or services.

PIN pad

Credit card processing fees are different for credit card transactions and debit card transactions.  Some credit card terminals have internal PIN pads which do not require the customer to enter their PIN number to process the transaction.  This applies only to customers using a debit/check card which can be processed as either a debit or credit card.  While eliminating this step may seem like a convenience, it will end up costing the merchant more in credit card processing fees.  When a debit card is processed like a regular credit card, the merchant pays twice the amount of fees for each transaction.  To reduce fees, merchants can install and encourage customers to enter their PIN number into an external PIN pad.  Another benefit of the external PIN pad is for customers using a “true” debit card, who must enter a PIN number in order to use their debit card.  It is important to note that the external PIN pad will only help retail establishments reduce credit card processing fees.

Benefits of debit card transactions

When you provide convenient payment options to your customers, you automatically increase your sales and revenue.  With debit cards, especially those that require PIN numbers, having an external PIN pad reduces your per transaction fee and no discount rate is applied.  When customers use their PIN, chargebacks are reduced if not eliminated and customers are also given the option of receiving cash-back which is hugely popular for debit card users looking to avoid ATM fees.

By accepting debit cards and credit cards at your business, there is also a reduced risk of employee theft which is a major concern when dealing with cash only or even cash and check transactions.  Credit card processing ensures you receive payment for your product or services while at the same time offering your customers additional payment options.  As a merchant, it is important to understand how you are charged for each type of transaction, which will in turn allow you to reduce fees when possible.

Much of credit card processing is done electronically with little to no effort on the part of the business owner or their staff.  For businesses that manually swipe credit cards at the point of sale, credit card terminal care is vital to ensure you are able to process credit card transactions.  Heavily used and often subject to much abuse, credit card terminals often do not last as long as they could if they were cared for properly.  Fortunately it is not that difficult to preserve this piece of equipment if you consider the following tips.

Keep it dry-  Murphy’s law states “anything that can go wrong, will go wrong”.  Think of this anytime you place a soda, water or coffee in the vicinity of a credit card terminal.  Enforce a policy that prohibits staff from drinking or placing drinks anywhere credit card terminals or other electronics are used.  It only takes a second for an accident to happen and the next thing you know, your terminal is soaked and any damage resulting is usually not covered  by standard terminal warranties.

Pay attention to temperature-  Extreme heat and cold can damage electrical equipment.  Changes in temperature from one extreme to next will have the same damaging affect.  Credit card terminals should be placed in an open, well ventilated area that isn’t subject to extreme temperatures.  A common mistake is placing the credit card terminal too close or in the pathway of a cash register exhaust vent.  If your credit card terminal is in an area that gets very cold (as in freezing) it is recommended that you leave the terminal running versus turning it off when not in use.  A frozen terminal is vulnerable to damage when it heats up after being turned on.  This can result in the loss of information or damage to internal electronic components.

Secure terminal-  Depending on the age of your credit card terminal, falling to the floor or other contact with a hard surface can be the end of the road.  Newer models are especially susceptible to damage if dropped.  Regardless of external fortitude, a credit card terminal that has been knocked over or dropped is subject to internal damage or screen damage that can render the equipment unusable.  To avoid this you can place the terminal in a location that is far from the edge of a counter or attach the terminal with wall mounts.  Non-skid rubber tape is also an inexpensive yet efficient way to prevent a terminal from getting knocked around.

The tips mentioned here apply to credit card terminals that are permanently placed as well as wireless devices that are mobile.  Protecting your equipment from damage is one of the easiest ways to ensure your credit card processing continues uninterrupted while at the same time saving money.  Replacing one credit card terminal will not break the bank, but many businesses have hundreds of terminals with which to contend.  Regardless of the price of replacement, any money spent that could be used elsewhere in the budget is a waste of money.  Avoid this and the inconvenience and possible downtime resulting from a damaged terminal by preventing damage in the first place.

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Your business already accepts credit cards but for any number of reasons you may be interested in switching credit card processing services.  Considering the importance of this decision, you must take the time to ensure your next credit card processor is the right fit for your business.  Making the switch must be seamless to guarantee your business is not losing sales during the process.  Here we look at several tips to make the change as smooth and efficient as possible.

Pinpoint why you are changing credit card processors

What is it about your current processor that you do not like?  By getting to the root of your current issue, you can make it a point to look for a new credit card processing service that addresses this concern.  Perhaps you are satisfied with the service but are looking for more affordable fees.  Or, you may be satisfied with the cost but experience other problems.  Whatever the reason, you want to make sure you pick a company that is able to provide the services you need at a price you can afford.

Do your homework

Before you jump ship from your current processor, find out if there are any fees or penalties for terminating services before a specific period of time has passed.  If this is the case, you will have to carefully consider if the cost of switching processors before that time period has passed is worth any savings or benefits gained.  Keep in mind also that there are many companies out there offering credit card processing services.  Avoid picking the first company that looks appealing without first researching several of their competitors.  Switching credit card processors is not something you want to do every year, therefore finding the perfect match for your company and business needs is vital.

What you’ll need

If you have been following the tips listed here, you will already have some of the information needed when the time comes to make the switch.  You will need the terms of your current credit card processing provider, current processing statements and the type of equipment including model numbers that you are using.  Your new provider will also need general information about your business and processing needs.

What you should look for in your new provider

Since you are already dealing with a credit card processor and have made the decision to change, you probably already know what not to look for in a new provider.  It is helpful to remember what benefits can be gained with the right credit card processor.  Look for a provider that customizes a service plan for your business based on your unique needs.  They should provide accurate transaction processing that is safe, fast and reliable.  Make sure the new processor is capable of processing all of the credit cards you accept and back up any services provided with round the clock customer service.  Finally, carefully read the terms and conditions of your service agreement to ensure you are teaming up with the best possible credit card processing service provider.

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