Credit card processing introduction

When Western Union first gave charge cards to their best customers in 1914, no one would have guessed that over $2 trillion would be charged in 2003.

As omnipresent as credit cards are, their use is still growing. The exploding world of online commerce is playing a part, as is the increasing usage of credit cards in business-to-business transactions. While some businesses could not open their doors without a credit card processing service, it is more of a question for others.

The world of merchant services can be confusing, especially for small businesses who have never accepted credit cards before.

Source: http://www.buyerzone.com/finance/credit_merchants/buyers_guide1.html

Essential point to remember for selecting merchant services

All small businesses require some form of payment processing. Understanding how to select merchant services can impact your sales revenue and profit. Learn the hidden rules of the merchant account business.

1: What are merchant services?
Merchant services enable you to process credit card payments from your customers. It’s a special account tied to a credit card processor that works with your customer's bank to help route payments into your bank account.

2: Who offers merchant services?
Merchant services are provided by specialized companies called merchant service providers or independent sales organizations that offer payment processing. Another source for setting up merchant accounts is financial institutions.

3: Which type of company is best for a small business owner?
It depends on your business situation. A home-based business owner may be turned down from a bank since their business is less established. Merchant service providers and independent sales organizations can be more flexible. While one person may feel comfortable dealing with their local bank, another might prefer a credit card processor who offers low rates. Choose what is important to your business.

4: Is a merchant account required to accept credit cards?
No. One option is to contract with companies providing payment processing on your behalf. Their prices are higher from taking a larger percentage of the ticket price. All credit card providers charge your small business a percentage of each credit card payment received. If you are considering selling on the Internet, a merchant account provides a better professional image.
If you allow a third party company to process your payments, you have to put your order form on the payment processing site. You may only be able to get your funds two or three times a month, limiting cash flow. With your own merchant account, expect to receive those funds in less than three days from the time of the transaction.

Source: http://sbinformation.about.com/cs/technology/a/paymt.htm

Genuineness of Credit Card Processing

Consumers increasingly are turning to plastic over paper when they open their wallets. Yet many small businesses still don't accept credit cards. If you're one of the laggards, the entire transaction may retain the impression of a spiritual ritual swipe a card, input some numbers and money magically appears in the bank. In reality, though, credit card transactions involve coordination between multiple high-speed computer networks.

How the Process Works: when a merchant makes a sale and swipes a customer's credit card, the card number, the amount and the merchant ID travel over the credit card processor's computer network. The credit card processor can either be a bank or a company that does nothing but provide credit card processing services. From the processor's network the transaction goes to a credit card computer network. If the customer is using Visa, for example, the transaction will go to Visa's network. In turn, the electronic transaction goes to the bank that actually issued the card. The bank then checks the account and verifies the customer has adequate credit to cover the purchase. The bank then sends the merchant an authorization over the network. Now the sale is complete, but the transaction is not no money has changed hands yet. At the end of the business day, the merchant sends that day's charges, in a batch, to the credit card network for processing. The transactions travel via the merchant's credit card processor. Individual transactions are then stripped out and sent back to the individual cardholders' banks. Banks then debit cardholders' accounts and make appropriate payments to the merchant's credit card processor through the Federal Reserve Bank's Automated Clearing House. The credit card processing then includes credits the merchant's bank account for the transaction amount, minus its fees for the transaction. Those fees also go toward paying transaction fees to the issuing bank and the credit card network. Despite the use of computers, it can take two business days before the merchant's account is credited.

Opening a Merchant Account
In order to accept credit cards, you must open a merchant account with a bank. However, many banks have gotten out of the credit card processing business, and those that remain are often restless about servicing small businesses, particularly ones with limited operating histories. Many small businesses must therefore go through a specialized credit card processor or an independent sales organization, commonly referred to as an "ISO." Whether you use a bank or a credit card processor, you need a merchant account to receive credit card payments. Though businesses can contact credit card processors directly, banks unable or unwilling to process credit transactions often refer customers to an ISO to help them find a credit card processor and get the necessary equipment and training to begin accepting credit cards.

Source: http://www.buyerzone.com/finance/credit_merchants/ab-credit-card-processing.html

What to look for in a Payment Processing Solution

Finding a reliable, secure, and flexible payment processing solution for your business is critical, so it’s important to take the time to investigate and assess the options available to you.

A payment processing solution should include following.

• Reliably and cost-effectively accept and process a variety of payment types, including credit cards and electronic checks. Not only does this reduce lost sales, but it also enhances the quality of your site by allowing your customers the freedom and flexibility to pay you quickly
and conveniently.

• Provide real-time credit card authorization results allowing you to accept or reject orders immediately and reduce the risk of fraudulent transactions.

• Easily track and manage payments from multiple payment types or processors so you can spend more time on your business, not on managing transactions.

• Be able to act as a virtual terminal to allow for processing offline transactions. This gives you the flexibility to process orders received via telephone, fax, email, or in person.

• Provide and store transaction records letting you easily search for transactions and create transaction reports.

• Scale rapidly and seamlessly to accommodate increased transaction volumes so your systems grow as your business grows. Protecting your online business against fraud.

• Provide recurring billing payment services. This allows you to set up recurring charges for your customers. For example, you can set up automatically recurring charges for items such as membership dues or installment payments. Recurring billing is an important feature that provides added convenience for both you and your customer.

• Be able to work with all the leading Internet Merchant Accounts, which allows you to switch your banking relationship and not have to worry about installing new software or performing new integrations.

• Be provided by a well-established and trustworthy company. This ensures that your payment service provider will continue to provide reliable payment services as well as new features.

Source: http://www.verisign.com/static/003190.pdf

M-Commerce

By using Mobile Commerce (m-commerce) credit card processing and debit card processing is very easily done. The acceptance method has been around for a few years, but is just really starting to make a large impact on how we do business away from our offices.

M-Commerce first started with the use of wireless POS (Point Of Sale) swipe terminals and has since then made its way into cellular phones and PDA's. Wireless POS swipe terminals are much more expensive then regular "wired" terminals which require you to be nearby a phone terminal and electrical outlet in order to operate. As a result, this has caused many people to find alternative ways to process transactions.

Cellular phones and PDA's have largely grown in popularity and as a result manufactures have made significant improvements and added features to attract even more consumers and meet current owner’s demands. One of those features is wireless transaction processing. Imagine being able to do credit card processing wirelessly within seconds anywhere.

Understanding Merchant Service Provider Rates

In online business today, accepting credit cards is a must. Consumers enjoy both the convenience and the security of buying with a credit card. But as a merchant, accepting credit cards can be costly if you're not aware of the potentially numerous charges levied on merchants by card associations and merchant service providers (MSPs).

Each of your transactions will be classified as either qualified, midqualified, or nonqualified. These three classifications are based on Visa/MasterCard regulations. Transactions that do not satisfy all qualified transaction conditions, as established by Visa and MasterCard, are assessed either a midqualified or a nonqualified surcharge.

The category of credit card used in a transaction is one factor that determines how a transaction is classified. Other factors that determine whether a transaction is classified as qualified, midqualified, or nonqualified are whether the address verification system (AVS) was used and whether the order was shipped within 24 hours.

Most merchant service providers charge a discount rate for each transaction, bundled with a per-transaction fee. The term discount rate is a misnomer because there's really no discount involved. This rate is a percentage applied to the dollar value of each transaction. The per-transaction fee is a flat fee charged for each transaction.

Source: http://www.inc.com/articles/2000/12/21705.html

How to set up a small business credit card account

A business credit card allows companies to separate business expenses from personal expenses and makes business transactions easily by phone, via the Internet or in person. The advantage of a business credit is obvious. But what kind of steps should be carried out to be successful.
If a company draws the decision to take a small business credit card processing, the decision must be followed by several other steps.

Firstly, the company must calculate the total amount of revolving credit that it will need.

Secondly, it would be wise to determine how many card the company will need and which employees will require cards.

Thirdly, the company might consider whether it needs a system to help keep track of employees’ expenses. Some card issuers offer this type of reporting package along with the card and allow downloading of data to QuickBooks, etc.

Fourthly, an examination of the travel and entertainment needs of the company would be sensible. Does the enterprise need a card that allows it to earn miles and provides special hotel and rental car benefits? Does the enterprise need travel accident insurance?

And finally, one should look for certain features like a low or no annual membership fee, a low interest rate, 24-hour customer service, local branch access, merchant services, overdraft protection and account reports customized for business needs.

On the whole many important steps have to be done and not only these five described here. Nevertheless, if the firm carrying out this steps right it could separate business and private expenses and could have a clear view on the whole expenses.

Types of credit card processing

There are several types of companies you can turn to for credit card processing.

Bank: The bank you use for your business finances should be the first place you contact. Banks can be the easiest source to turn to for credit card services; many offer service packages for businesses that include merchant services. Most banks do not process credit card transactions themselves, though. Instead, they outsource credit card processing to a third party processor. It can be tough to get approved from this channel, though. Banks are likely to inspect your business more closely before deciding whether or not to accept your application.

Third Party Processor: Third party processors dedicate themselves to handling credit card processing. As such, they take care of different aspects of the transaction process such as authorization, billing, reporting, and settlement.

Independent Sales Organization: An independent sales organization (ISO) is essentially a registered credit card merchant broker who represents one or more third party processors. They set up and service credit card merchants, but do not do the actual processing. ISO’s are less selective than banks, but that comes at a somewhat higher price. They are also not strictly regulated the way banks are, so be particularly vigilant when evaluating potential suppliers.

Financial Service Provider: MasterCard and Visa require you to establish a merchant account through an intermediary. However American Express and Discover give you the option of applying directly to them. Association Small business and trade associations often offer credit card processing at discount prices. They are a particularly good resource if companies in your industry historically have trouble attaining credit card merchant status.

Source: http://www.buyerzone.com/finance/credit_merchants/buyers_guide3.html

How to select merchant account

A crucial part of ecommerce online is choosing the merchant service provider for a merchant account that is perfect for your requirements. The more you learn about a merchant account and its significance, the better position you will be in to make your choice.The procedure for getting you a merchant account begins with the approval process, which may range from 30 minutes to a couple of days. Once the approval phase is completed, you'll need to wait for about a week to activate your account.

But before you begin to use your merchant account, a couple of decisions have to be taken. Decide how you intend to process the credit card transactions. Choose between manual typing of your transactions into a software program or credit card terminal. Alternatively you could opt for real time credit approval by equipping your website to process transactions automatically. In order to process credit card transaction, a software or tool will be necessary. In case you purchase equipment, get your merchant service provider to program it for authentication with their network. For the real time option on the other hand, you have to get yourself affiliated with an Internet gateway that you'll have to pay some kind of a monthly fee, to provide you connection to your merchant account. A number of fees are involved in accepting credit cards through a merchant account. Here is a guide to understand them better.

1. Startup Fee: This one time cost to set up your account could be in excess of $99 depending on the provider you choose.

2. Credit Card Fee: Credit card carriers charge a credit card fee directly. Visa and Mastercard have a fee lower than that of American Express and Discover. 1.5% to 4% deduction per sale is the usual rate depending on the type of card and pre-negotiated rate. Taken off the top, it gets deducted from the charge amount before deposit in your account.

3. Transaction Fee: This is the merchant provider's charge for covering costs of network, equipment, etc and may be between 10 cents to $1 per transaction. Also taken off the top, the deduction is done before depositing into your account.

4. Additional Fees: Providers may differ in the additional fees they charge for your account. Monthly statement fees, minimum traffic fees, charge back fees are typically included. This is why you need to be aware of the terms before signing up with a provider.

Source: http://www.pinnaclecart.com/articles/merchant-account.htm

Credit Card Processors a Must for Business – Merchant Services

A major issue for small business is finding a reasonably priced option for an online Merchant Service provider so that they can accept credit cards for instant real-time approval of online payments. Small businesses are finding the routine charges of up to $150 monthly to be out of line based on their small sales volume. The basic issue is that online sales are driven by credit cards and if someone is forced to print a form and mail a check, then waits for their merchandise, they are likely to go elsewhere FAST. So this issue troubles many new online merchants.

Hosting a shopping cart program on a site without the secure server opens you up to huge liability from your own customers and it is unlikely that your Merchant Bank will allow it anyway. This is a major issue for small businesses online and is frustrating many small operators trying to operate with minor online sales.

A new entry in the Merchant account field are many merchant service providers, who provide free software, credit card processing terminals and free merchant accounts to allow any business to accept credit cards online. Online payment solutions propagate like wing, but this is too important to risk the smaller companies and you need the reliability offered by the major companies so that you can select the best Merchant Service provider.

Source: http://www.website101.com/

6 Essential Questions for Selecting Merchant Services

All small businesses require some form of payment processing. The most important issue is to understand how to select merchant services that can have impact your sales revenue and profit.

1: What are merchant services?
2: Who offers merchant services?
3: Which type of company is best for a small business owner?
4: Is a merchant account required to accept credit cards?
5: What is required to begin payment processing online?
6: What are other ways to accept credit card payments?

Merchant services enable you to process credit card payments from your customers. It's a special account tied to a credit card processor that works with your customer's bank to help route payments into your bank account.
Merchant services are provided by specialized companies called merchant service providers or independent sales organizations that offer payment processing. Another source for setting up merchant accounts is financial institutions.

One option is to contract with companies providing payment processing on your behalf. Their prices are higher from taking a larger percentage of the ticket price. All credit card providers charge your small business a percentage of each credit card payment received. If you are considering selling on the Internet, a merchant account provides a better professional image.

If you allow a third party company to process your payments, you have to put your order form on the payment processing site.

To begin payments processing you need the following:

Secure Server with Certification
Order Form
Gateway
Shopping Cart
Merchant Service Account

Another way to collect credit card payments on the web is called deferred payment processing. The customer inputs all data and you receive the data manually. With deferred processing, the data does not go through the gateway. One advantage to deferred processing is the ability to inspect all orders and correct them. Deferred payment processing can be time-consuming especially if you have hundreds of orders per day.

Source: http://sbinformation.about.com/cs/technology/a/paymt.htm

Internet merchant accounts and third party credit card processors

Some type of Internet merchant account is necessary in order to have a place to receive funds from credit card sales. Internet merchant accounts can be gained from most major banks. A word of warning - your bank wills more than likely charge like a wounded bull for such an account because of the "risk" involved. You're probably better off utilizing the services of companies who specialize in ecommerce and can tailor a merchant account/payment gateway solution to suit your needs. Another option may be to use a third party processing service such as Paypal or WorldPay. These services are basically a payment gateway and merchant account rolled into one and operated by the same company.

Selecting an Internet merchant account provider or third party processor

Shop around and then shop around some more - this is a very confusing section of ecommerce. If you make enquiries with a company and they don't respond within 24 hours, or are somewhat indistinct in their responses - run like hell away from them. Banks are notorious for utilizing poorly trained salespeople rather than those with hands-on product knowledge or an understanding the complexities of ecommerce. Ensure they explain all charges thoroughly by enquiring about the following rates:

· Statement - the charge each month for issuing you statements on all transactions
· Application fee - some institutions will charge you for the privilege of applying for an account, regardless of whether your application is successful or not.
· Setup fee - once your application has been approved, there may be other fees associated with establishing the account.
· Discount Rate - a percentage deducted for each product sold
· Transaction - added to the discount rate, a flat rate on each transaction
· Monthly Minimum - what you will be charge regardless of the level of sales each month
· Reserve - some providers require you to maintain a certain level in the account to cover chargeback fees.
· Chargeback - the killer fee which may cost you up to US$30 per fraudulent transaction

Source: http://www.tamingthebeast.net/articles2/back-end-ecommerce.htm

Credit Card E-Primer

Credit card processing from website sales involves two distinct subjects: the merchant account and the processing mode.

Merchant Account:
Merchant Accounts are not an account that you open at the bank. They are granted by a bank and usually involve at least two other entities, an ISO and the underwriter. An ISO is usually someone from the local debt collection service who certifies the risk involved in granting the MA. They look at the operation itself and the history and assets of the applicant. Frequently the ISO also is the Merchant Accounts administrator, the one who pulls the plug and liquidates the merchant's assets should things go wrong. The underwriter is usually a bank you will not deal with directly. Their responsibility is with the cardholders. They review the website, the operation, and the ISO's report. The underwriter is the entity which actually grants the account. Underwriters frequently request non-negotiable cosmetic and even structural changes to websites to protect the cardholder's interest. Merchant Accounts are specific not only to the merchant but to the activity where they are used. Conducting credit card sales in a manner not specified in the MA is illegal and constitutes willful fraud. All revenues from such sales are also illegal and will be refunded to the cardholders, regardless of the cardholder's satisfaction with the sale. As the merchant's expert in e-commerce the web designer/developer can be held liable for those losses to the merchant. Include a clause in your contract that states that the client has the responsibility to approve and accept a website that is not in violation of their MA, and that the MA is in compliance with all State and Federal banking regulations. Such a statement should protect you from civil liability.

Processing Mode: This mode includes two steps which are as follows

Offline Authorization:
Most e-commerce sites use offline authorization. In this scenario the details of the orders are recorded on the web server, downloaded as a batch, authorized through offline software as a batch, and then later captured through the offline software in batches. Some banks and online ISO will attempt to require ICVerify as a condition of their MA since ICVerify has been a standard for many years. Offline authorization can be a source of added value for the CGI capable web designer.

Live-time Authorization:
Live-time authorization should be used for instantly deliverable sales, such as software downloads or access to restricted areas on the website. Live-time authorization for hard goods sales is an expensive option that eliminates the need for offline processing software and accomplishes the authorization stage automatically. Live-time processing does not eliminate the need for a second capture phase after shipment. Most live-time processing goes through a third party. There are also dozens of independent parties that offer this service. Some of these third parties also offer full shopping carts services tied into the process.

Source: http://www.evolt.org/article/Credit_Card_E_Primer/18/12694/?format=print

Technology Requirements for Processing Credit Cards on Small Business Web Sites

The need of today for any e-commerce Web site is to accept credit cards. A right infrastructure is needed for starting credit card processing transactions yourself. Before selecting an e-commerce Web host and a merchant account provider, one should make sure that they provide you with the features you need.

1. Secure Payment Area. This protects credit card data and other sensitive information from hackers during the transaction process. Identity theft and credit card fraud are running rampant on the Internet, and you need to ensure that your customers are protected. Many consumers will not buy from a site that does not provide secure transactions.

2. A Compatible Shopping Cart Application. Make sure your shopping cart application can "talk to" your payment-processing gateway. There are hundreds of different payment gateways, and each one has a specific set of standards. Many free shopping carts do not support all of the available payment gateways. Check with your merchant account provider or consult your shopping cart documentation to make sure that all the elements will work together.

3. PGP Encryption. If you plan on accepting orders and sending or receiving credit card information via email, you will need to encrypt the information that is sent. PGP, which stands for "Pretty Good Privacy," is the most common form of email encryption. PGP encrypts emails when they are sent and decrypts when the information has reached its intended recipient.

4. Firewall Protection. If you store your customer’s data or credit card numbers on your server, it is vital to have a site wide firewall to protect this information. Many companies have exposed their customers to hackers by neglecting to implement a proper firewall. If you are not certain how to install a firewall on your site, check with your Web hosting company for more information.

After you have taken care of these technology requirements, you are ready to offer your customers an easy way to purchase your items. You can also give them the peace of mind in knowing that you are looking out for their best interests by providing a safe and secure payment processing solution.

SOURCE: http://www.allbusiness.com/articles/content/3929-2804-2814.html

FINANCIAL MIDDLEMAN FOR SMALL BUSINESS

Small online businesses are mostly represented by home-based entrepreneurs. In this regard any payment scheme or system should meet at least two criterions:

1) It should be relatively cheap. Individuals are usually not enjoying huge investment potential in contrast with legal entities.

2) It should lead to complete automation of financial transactions as a result of lack of time or inability for the majority of entrepreneurs to hire support stuff to serve these transactions.

Sophisticated e-commerce systems based on merchant accounts are expensive, hard to establish and support for an average entrepreneur. That is why third party payment processors that handle all online orders on behalf became widely popular among small businesses. They require very little effort to establish and even less effort to support.In practice once set up, the whole customer paying and product delivering process becomes fully automated and consists of the following steps:

1. Customer fills out the order form and clicks on the submit button to pass the order to the payment gateway.
2. Automatic payment gateway routes credit card (e-check etc.) data and purchase amount to the payment processor of the merchant (seller) acquiring bank.
3. Acquiring bank sends authorization request to the payment processor of the customer's issuing bank.
4. Issuing bank validates customer's account, credit limit and authorize the transaction, freezing the specified amount on the customer's account.
5. Issuing bank routes authorization code (or "transaction declined" message) to the acquiring bank's payment processor.
6. Acquiring bank routes payment approval (declined) message to the payment gateway.
7. Payment gateway notifies the merchant (seller) about approved (denied) transaction.
8. Provides customer with the product s/he ordered, the details of shipping etc. or notifies about payment problems.
9. Banks' clearing settle the mutual transfer of funds, crediting the respective merchant (seller) account with the specified amount of purchase.

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