Merchant Agreements
Merchant Agreement / Contract For our overview video on Taking Credit Card Payments visit this post. Merchant agreements come in many different varieties, with the most common being an application, agreement and contract all in one. You will find this to be the most used tool in the field as it allows a representative to get all of the necessary information in one visit. Online applications are similar but typically broken up into multiple steps. The important items to look at are the fees attached in the Schedule A (commonly page 2 of an application). The other critical item is to look at the terms including cancellation policy and funding timeframes. Regardless of what the rep says, these are the legal obligations you and your business will be held too. Three Major Fee Areas Interchange Fees Discount Rate / Transaction Fees Monthly / Support Fees Interchange Fees (Cost) Interchange fees are commonly referred to as “cost,” because they are the fees that every company in the world pays to process credit cards, even businesses as large and bank card heavy as Wal-Mart and Starbucks. These fees are largely out of the control of the merchant and are dictated by Visa/MasterCard and Discover or American Express. What the merchant can do to keep these fees low is to processing correctly with up to date equipment and correct procedures. However much of the fee is decided based on factors such as debit vs. credit, card present vs. not and basic bank card vs. rewards card. The interchange fee can range anywhere from 3% of the transaction to less than 0.1% for high ticket retail debit. Many times the interchange fees are vague or hidden on merchant statements and they are rarely spelled out on merchant agreements. The important point to retain is that interchange fees make up 70% to 90% of total merchant account fees and cost. Discount Rate / Transaction Fees The discount rate or margin between interchange and quoted rate along with the various transaction fees is the gross revenue that the processing company makes from a merchant account. It is important to denote this as gross revenue as many companies have buy rates (pricing floors) where profit is only made above these amounts. In addition sales companies and buy rate free organizations or processors have certain costs associated with acquiring and maintaining an account before final profit is calculated. However the discount rate and transaction fees are where merchants have room to negotiate the total cost of their merchant account. Discount rate can be a little tricky to identify but is typically a percentage anywhere from 0.10% to 1.00% charge to the entire card volume. It is also expressed as a rate such as 1.9% where the margin is the different between the interchange cost and 1.9%. Transaction fees include but are not limited to, authorization fees, batch fee and AVS inquiry. Monthly Support Fees Monthly fees are another major area to negotiate on a merchant account. Common monthly fees include the statement fee, service fee, monthly minimum, PCI compliance and gateway fee. Some fees are reasonable and sometimes they can be way out of proportion to the account volume. A lot of it has to do with what software or hardware products that are supported in concert with the account. This can vary widely and thus the monthly fixed fees can fluctuate. Another commonly misunderstood fee is the monthly minimum which contrary to popular belief is the minimum amount of gross revenue that must be generated. If this amount is not generated, than...
Read MoreAcceptance Methods
Merchant Type – How You Take Payments For our overview video on Taking Credit Card Payments see this post. Although there are hundreds of different types of merchants and seemingly dozens of ways to take credit cards, for the purposes of processing companies there are three major types of merchants. There are additional Merchant Category Codes (MCC) used to classify the types of goods and services provided as well as for reporting to the IRS. However when it comes to risk for the processing companies and thus application acceptance and associated fees, the merchant type is one of the primary factors. These three merchant types are listed below. Three Primary Merchant Classifications Retail (Face-to-Face) Mail Order / Phone Order (MOTO) Internet / eCommerce Face-to-Face (Card Present Transactions) Although this merchant type or way of acceptance is commonly referred to as retail, the more appropriate and technical term is “Card Present.” This is especially true today with wireless technology that makes face-to-face card transactions easier and faster than ever before. This type of card acceptance involves the physical swiping of the card, and carries the lowest interchange fees. It is the lowest risk to both the processing company and merchant because fraud is much more difficult face to face. In addition the physical swipe of the card would require a fake card to be made which is an added cost and deterrent to many thieves who have simply bought stolen credit card numbers. Whenever possible it is always best to take credit cards face-to-face. For high ticket purchases, checking the card numbers and card holder’s ID is an absolute must to avoid simple stolen card fraud. In addition, face-to-face transactions afford the ability for the card holder to physically sign a receipt, either on paper or on an electronic device. This signature help further prevent fraud and gives the merchant a chargeback defense in the case the card holder disputes the charges. Mail Order / Phone Order (MOTO) Although mail or catalog ordering is a bit-outdated in today’s internet age, the term MOTO applies to payment transactions that do not happen face-to-face with the card present. This includes writing the card number down and processing it later. This also includes stored credit card numbers and recurring transactions through a piece of software such as Quickbooks or a Virtual Terminal / Gateway. Obviously taking credit cards over the phone also applies, and is a very common practice in businesses of all types from take-out restaurants to construction and building supply companies. Even though writing down a person’s credit card numbers because the machine is down and taking their info over the phone is fundamentally different, the processing network cannot tell the difference and treats this transactions as the same. They are risker because the assumption is that the card is not there because it is not swiped. This makes using stolen credit card numbers much easier, and thus fees are higher to offset for the higher level of fraud in this category. Practically all businesses have a MOTO element to how they take credit cards, and thus should understand the proper documentation and steps to take to ensure that they are protected. Online Transactions That last and most risky are transactions that happen online. In this situation, not only is the card not present, but there is typically not a human element involved for additional soft touch fraud prevention. Ecommerce is the highest area for credit card fraud and thus carries the highest restrictions for approval and fees. However many of the fees between MOTO and Internet are...
Read MoreTaking Credit Card Payments
Overview: Accepting Credit / Debit Cards Taking credit card payments, rather it be in person, over the phone or online; is one of the most important points in the circle of commerce. This is typically the entry point for most businesses and an area commonly overlooked when it comes to understanding the basics. With new and emerging technologies today, taking payments with mobile phones (iPhone / Android) is now a feasible possibility for all businesses. In addition, setting up an internet storefront or ecommerce solution is easier than it has ever been. Behind the scenes, technology and fraud prevention algorithms are developing at a rapid pace, allowing the payment ecosystem to stay in balance. With all of these new and exciting changes, there are still three basics that are very important to understand, track and document when it comes to taking payments. These three critical areas impact many areas of your business but most importantly impact three important money areas listed below. Three Money “Hows” Impacted By 3 Critical Areas How Fast You Get Your Money (Funding) How Much Money You Pay In Fees How Safe Your Money Is (Security) These three important areas that must be understood in order to maximize your businesses cash flow, minimize costs and protect your money are listed below. Three Important Areas – Taking Credit Cards How You Take Payments (Merchant Type) Merchant Agreement / Contract Technology (Device) Used To Take Payments How You Take Payments (Merchant Type) The type of merchant you are classified as, or more specifically, how your business accepts payments impacts all three important money areas. Unfortunately, the details are commonly glossed over. Most businesses primarily take payments via the following methods. Retail (Face-to-Face) Mail Order / Phone Order (MOTO) Internet / eCommerce Some business accept payments through only one method however, most merchants take credit cards through a combination of the three areas above. For detailed information on this be sure to check out our Acceptance Methods post. Merchant Agreement / Contract One of the key areas of payment processing that can potentially have a large impact on funding (cash flow) and processing fees, is the merchant agreement. This contract between the sales organization and the merchant serves as an application, fee schedule and terms of credit card processing. Most agreements are fairly similar with a few stipulations to look out for. The major items to be aware of when it comes to fees are as follows. For further explanation see our Merchant Agreements page. Interchange Fees Discount Rate / Transaction Fees Monthly / Support Fees Technology (Device) Used To Take Payments Commonly the focus with taking credit cards is the device, hardware, software, etc. that will be used to accept payments. While this area has the smallest impact on fees (other than outlay for device / technology) it has a large impact on the security of both the merchant funds and the personal information of its customers. It also can play a role on how quickly funding takes place. For a discussion about the most common types of devices today, view our Payment Technology...
Read MoreValue Chain Networking Summary
This article is an excerpt from the Total Financial Network (TFN) white paper by Christopher Vincent titled Value Chain Networking. Download the entire white paper in pdf format HERE. This is the Summary – Return to the Introduction Value Chain Networking (VCN) is the concept of not only honing in on one company’s core value, but continuing to develop it among the other companies in the industry. It is the activity of creating a Value Network via business networking that includes suppliers, service providers, competitors and even customers. In a broader sense VCN is the continual development of a community, with the core mission of providing value to the marketplace and in a grander scheme, the world. Companies that engage intentionally in this activity and utilize the technology of today will benefit not only from market position but also from an enhancement in company capabilities. Company ability is the key, as market position and competitive advantages are temporary. Sustainability and ultimately profitability for a company is not achieved by locking-in market position but rather by continuing to build upon its capabilities, core value-add and its...
Read MoreValue Chain Networking: Leveraging Technology
This article is an excerpt from the Total Financial Network (TFN) white paper by Christopher Vincent titled Value Chain Networking. Download the entire white paper in pdf format HERE. This is Part 4 – Return to the Introduction Technology Closes the Gap Given advancements in both internet and mobile technology in the last several years how businesses position themselves has now become a continually evolving rule-book. As Michael Dell stated, “…a fundamental shift in the definition of value is occurring. There used to be value around inventory; now there’s value around information.” Companies need to consider the implications of leveraging the Internet for their business. Simply establishing a web site-putting a web front-end on top of your company-is not going to create the efficiencies you need. You must re-think how you’re going to use information more efficiently, and drive inefficiencies out of the system. In the past in order to hold meetings, form alliances and meet like-minded people, physical travel was required. With the onset of new tools for interaction this is no longer a pre-requisite. This allows for the rapid development of capabilities on the fly with collaborators that are minutes or miles away. How a company creates this interface both internal and external will shape how their Value Networks develop either intentionally or unintentionally. For those businesses that seek to build a strong Value Network with collaboration that maximizes market exposure and minimizes costs along the value stream, technology integration is a must. Example; for years businesses have been able to link partner (website link) with other business to improve traffic, search engine ranking among other intrinsic benefits. Today businesses can go a step further and use social media outlets such as Facebook to directly communicate back and forth with each other’s customers. In reverse, consumers can set up a forum for any given activity or topic, and businesses that support that activity or topic can chime in to answer questions and offer support. For example a potential customer may ask what size tire fits their car on an automotive forum. A local tire dealer can assist this customer remotely and directly impact many other potential customers at the same time. From a business – supplier standpoint, businesses may setup knowledge centers for their customers and give them direct access to the supplier for further assistance. This is a practice that has been around especially in warranties for years. Now with the advancements in communication it can be expanded and even implemented as a core customer support strategy. Technology of today has made it easier than ever before for all companies to engage intentionally in the development of the Value Networks that impact their business. Continue to the Value Chain Networking...
Read MoreCreating The Value Chain Network
This article is an excerpt from the Total Financial Network (TFN) white paper by Christopher Vincent titled Value Chain Networking. Download the entire white paper in pdf format HERE. This is Part 3 – Return to the Introduction The process of actually going about creating and/or developing a Value Network and putting together the most critical Value Chains for the customer benefit, is an elusive and complex practice. It becomes clear that organized business networking and resources sharing is necessary for these interactions to happen and relationships to evolve across industries and sectors. It is also evident that somewhere across the supply chain at least one business or group must take an active role in developing this community. The issue however is, by exposing suppliers or customers to potential competitors, will the company taking the active role be vulnerable to attack or use this position to create dominance in the industry? History provides us two such examples both in the realm of personal computing. During the PC revolution of the 80s and 90s IBM was an industry giant and abandoned its vertical integrated approach when it came to producing consumer ready computers. Instead they outsourced two critical elements, microprocessors to Intel and the operating system to Microsoft. By the end of the 90s the PC had gone through many generations and both suppliers and customers had come to care far more about “Intel Inside” or “Windows 98” then the actual brand on the box. The power in the chain had shifted, as had the financial rewards. IBM’s decision to outsource its PCs’ microprocessor and operations system determined the contours of the entire industry for years to come. Fast forward a decade to Apple Computer, Inc. Apple perhaps learning from the past has so far been able to avoid such brand erosion even though they bring together even more players than IBM did years ago. In fact Apple customers are more than just customers they are part of a loyal raving community that puts stickers on their cars and gets tattoos of the Apple logo on their bodies. Apple has been able to bring together software, hardware, application developers, and the entertainment industry among other players into a Value Network where both the customers and vendors are interdependent. Along the way Apple continues to innovate, develop new products and tie the network even closer together through each release. Once a business has identified its true core value added activities along with that of its suppliers, providers and competitors, building the value network with a networked business approach is the next step. Choosing the right processes to insource and the right ones to outsource is critical along this path. If a company is in a new or emerging industry, the competencies or products needed may not be available for purchase on the open market and thus will have to be developed. Does the business bring on partners to lower capital risk and speed up time-to-market or do they “go it alone” for fear of competitive pressures? There is never one right or wrong answer and instead each business must look at their most core values and constantly engage in the activity of business development to find the right “make vs. buy” mix, along with the correct partners and suppliers to bring this value to market. Creating and developing a strong and consistent feedback loop from customers is also a critical step. Having world class products is a given for dominance in the market and by enhancing the customers experience, businesses begin to develop a loyal “community” rather than clientele. This is exactly what Apple has...
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