Account for Every Dollar
Choosing a Merchant Services Provider: Your E-Merchant Options
By Cyndalie
Often, it may seem as if there is a different type of merchant account option for every type of online transaction. It is virtually impossible to do business online, if you do not accept credit cards. Credit and debit cards are the most popular forms of payment in the U.S., comprising 70% or more of all Internet transactions. Every online merchant at some point is faced with the decision of selecting a transaction processing company. Getting a merchant account used to be a simple decision. But the tangled webs we have woven to get through and around the guidelines, restrictions, and compliances. in an effort to level the playing field for all Internet entrepreneurs, has created a whole new monster. In a world of charge-backs, fraud, legalities, risks, privacy, and protection, many would-be e-merchants not only don't know where to start looking, they aren't even sure what type of account they need.
Talking Dirty
It was common advice not too long ago that the best place to begin your search for a merchant account was at your local bank. With the flood of risks and the all too frequent short life span associated with an online business, many would-be e-merchants found that most banks recoil, as if INTERNET were a dirty word. So most began to search online.
It wasn't long before the realization hit that Internet merchant services were very big business. Would-be e-merchants were faced with a range of choices, among them onshore or offshore, merchant account or third party, and address verification or negative database for fraud screening? Choices that inspired questions, such as what is legal, what is a rolling reserve, what is the maximum per-transaction amount allowed? They found themselves in a whole new world. Identifying a solid MSP (Merchant Services Provider) became difficult, as the range of personal experiences, acceptable business practices, and requirements varied tremendously.
What's High Risk?
The term "high risk" comes up more and more frequently as our would-be e-merchants tried to describe the type of business they wanted to conduct. Selling books online? You're high risk. Fund raising to build a new church that was destroyed by a tornado? You got it, high risk. Selling dirty pictures of your ex- online? Do I have to say it? HIGH RISK. Some of the types of high risk businesses on Visa's list are: computer network/information services (ISP, hosting), travel related (tickets, agencies), mail order (brides, catalogs), direct marketing (MLM), gaming related (casino, lottery), auctions, and computer programming services. All Internet businesses, often classified as computer network/information services or mail order, are considered high-risk. There are several business types that, although they are not included on Visa's list, are treated as high risk at many banks: credit counseling, adult related businesses, Psychics, telephone pay-per-minute services, and phone card sales. Each Merchant Services Provider has their own version tailored to their experiences, capabilities, and merchant credit. Generally speaking, anything that does not require a physical customer signature or generate an actual card swipe is considered high risk. Since all transactions over the Internet fall into this category, you can consider it to be classified as high risk in the eyes of the merchant account provider or bank.
What's Right for Your Business?
First decide what you are selling, and how you want to conduct the transactions. If you have an adult site, and want to sell monthly subscriptions, a third party processor is the easiest, most cost effective way to get set up. The processor can manage the password access, and often implement recurring billing schedules to maintain your member base. Decide if you want to offer a trial period or set monthly fee. Offering a "free trial" and then charging the card if they do not cancel before the end of the trial period is illegal. Choose an account with payment options that are clearly stated and easy to manage.
If you are selling tangible products online, such as books or movies, a third party processor may be too expensive- or raise your overhead too high to maintain competitive prices. Seeking out a merchant account for your business may be right for you. Unless you wish to test the market and your business strategies using a third party processor, to avoid high set-up fees, it is a better long term plan to acquire your own merchant account and begin to establish business credit.
The third party processor is often the best place for first-timers to start out. Why? Upon approval you go "under the wing" of your provider, and often become labeled a "reseller," "associate," or "partner." A third party provider accepts your business and allows you to resell your products or services using the providers' merchant account. A third party processor often has the resources to help you acquire your own merchant status when you are ready. If you have an established business, two years or older (adult or non-adult), have good business and/or personal credit, and meet other guidelines laid out by the providing bank, you have the best chance of getting your own merchant account.
Offshore credit card processing is only necessary if you are looking to accept transactions for an online gaming Web site such as a casino, lottery, or sweepstakes that require a deposit to participate. Since accepting monies for gambling online is illegal if the transaction occurs in the U.S., the offshore processing option is the only one available for these types of transactions.
Weighing your Options
The benefits of having your own merchant account or using a third party processing service, are dependent upon the type of business conducted. If you are the merchant account holder you have full control over each transaction, with the chance to credit returned or refused items, cancel bad transactions, have access to cardholder information to cross reference disputes and detect fraud, and retain the ability to control your charge-backs. With a third party service many of these options are limited, as it is illegal for a third party merchant to gain access to personal cardholder information beyond shopping cart or reporting necessities. Actual functions allowable to a third party merchant depend on the provider and software used, so it's a good thing to inquire about your specific needs.
Another benefit to being a merchant account holder is having a much lower transaction charge, processing fee, and little-to-no reserve fee's. Transaction charges are a percentage of each transaction amount or flat fee per transaction. Unlike a merchant account holder whose maximum charge amount is limited to the allowable credit line, third party merchants are often limited to a maximum allowable transaction amount. Processing fee's are usually a percentage of each transaction amount charged to the reseller, ranging between 11-15%. In addition, resellers are often charged a rolling reserve fee, typically between 6-12%. Rolling reserve is like insurance against charge-backs, a micro account that disputed charges and charge back fees are deducted from if the reseller abandons the account or runs into a negative balance.
One other disadvantage to being a reseller merchant is that the future of your business is dependant upon the future of your provider. Moving to a new payment process can result in the loss of a recurring member base, as it is allegedly illegal to transfer card information from one merchant account to another. For adult sites that are dependant upon a recurring subscription customer base, this can be detrimental. If your provider losses their merchant account you can be out of an account to process transactions as well.
Quite often, reseller or third party merchants can apply and get set up for free within 3-5 business days, sometimes sooner. Many providers will help place a merchant with a merchant account, if they so qualify or request to apply. Using a merchant services provider that offers merchant account placement services are advantageous when trying to move forward. Due to the minimum risk and low money down, third party merchant services are a popular choice for online business entrepreneurs intending to accept credit cards online. Some top processors are Ibill.com, CCBill.com, NetBilling.co.uk, Epoch, and Payment Resources International (PaymentResource.com).
Questions to Ask or Answer Yourself
Review the checklist of things to ask a potential processing provider in the sidebar. This list is designed to help you get all pertinent information needed to make your decisions in one or two phone calls. Some questions they will answer, and some they won't. The idea is to get as much solid information about the company, so that you can cross reference,
and get an idea of how much they will cooperate with you. You need to determine if they
are a quality company with longevity, and if they will accept your business. Although much of the information is likely provided at their Web site, it is a good idea to talk to an account representative to get a feeling for how they do business and how easy they are to contact. Asking some questions in e-mail, and some on the phone with more than one staff member can help you cross reference information and find any inconsistencies.
You want a provider that is readily available, on top of industry changes, and has solid business practices.
Visa Takes it Up a Notch
Visa and MasterCard have set the precedents and guidelines for acceptable use of credit cards online. In an effort to ensure customer security in a market not yet standardized, Visa has announced new requirements for merchant account holders that process transactions on the Internet. Effective June 1, 2001 all Visa/MasterCard merchants must post data privacy policy statements and the method of security used to protect transactions such as Secure Socket Layer and Secure Electronic TransactionT (both recommended by Visa) on their Web sites.
Also new is the operating policy for all cardholders disputing online charges, to contact and deal with the Web merchant. This gives the merchant, and the cardholder, the chance to settle any discrepancies and promote good business. Regardless of whether you are a merchant account holder, third party merchant, or an offline merchant with a general Web site, it is a good idea to comply with these standards. This opportunity gives
the online merchant a chance to keep charge-backs down, maintain good customer service, and allows Visa to more easily find the fraudulent merchants, or merchants with bad business practices, in a sea of fraudulent transactions.
A good privacy policy not only gives your customers the impression that you care about their concerns, it also makes a legal statement on how you use personal information in the case of dispute. Visa recommends the guidelines designed by OECD's Privacy Policy Statement, and other privacy policies generated free online at TrustE.org and Siia.net. Visit Visa's new Global Data Security Web site at:
www.visa.com/nt/gds/main.html.
Other Payment Options
Providing more than one payment option is a smart idea for any business. Online, you can offer check processing that uses ACH, adult sites can use dialer programs, which are becoming a popular replacement for 900 phone billing- or there are PayPal, wire transfer, or money order. The last of these three is preferred for offshore transactions, such as online gambling or auctions, as such transactions are often for large amounts, or too heavily restricted by credit card companies. In fact, American Express will not allow adult Internet transactions at all.
Existing merchant account holders who want to limit as much online fraud as possible, can acquire a home terminal where customers can call or fax in orders. E-commerce software is available to use your home computer as a terminal and manage accounts, inventory, orders, and track shipments. When you sell tangible products online, be sure that the shopping cart software you choose can be interfaced with your processing
provider.
The best advice for choosing a payment processor is to ask smart questions and look for smart answers. Avoid fees that sound too high or too low. The lowest bidder is often the first to crumble, and an outrageous fee can be a telltale sign of a get- rich-quick scheme. Lastly, be HONEST about your business and your needs - You don't want to do business with a company that does not want your business. Learn to tailor your business practices to what is available, required, has minimum risk, and keep your goals realistic.
Do the research. Ask around by interacting at message centers and events, and take it all in with a grain of salt. Staying competitive is about making informed decisions and evolving with the industry. Don't be afraid of change, and account for every dollar.
|
Printer
Friendly Version