Fees

Aggregators vs. Merchant Banks, Part 2: The Costs of Payment Aggregators Adds Up

September 29, 2014 Abtek Leave a comment

We’ve been exploring what makes merchant banks a better solution for merchants than aggregators.
Previously: Part 1 – PCI Compliance

You may have considered a payment aggregator for credit card processing of transactions from customers. Yet, you may wonder about the difference in costs between merchant services providers such as PayPal and Square when compared to a traditional bank merchant account. A critical difference for many businesses comes down to costs associated with credit card processing.

Pricing

Many aggregators such as PayPal and Stripe charge a flat rate price, and this method has become increasingly popular for their merchant services. Simplicity attracts business, and their POS systems offer quick and trouble free set up. The flat rate price structure is easy to understand and saves time for the merchant who can avoid reading through complex and lengthy processing statements. The method appears to improve transparency between the aggregator and merchant. However, despite the straightforward POS systems, the costs of using an online payments servicer can mount quickly.

The Illusion of Flat Rate Pricing

While flat rate pricing is attractive in its simplicity, it is a marketing strategy designed to appeal to business owners who wish to focus on sales rather than accounting. Because of the complexities involved in credit card processing, it makes charging a competitive flat fee nearly impossible. Each transaction processed through a merchant incurs three charges:

A fee to the card brand, such as Visa or Mastercard.
A fee to the issuing bank.
A fee to the credit card processor.

The interchange rate is not fixed cost, and it can range from 0.05 percent to higher than 3 percent. Aggregators must account for all potential interchange rates, thus the flat rate must be high enough to cover the highest interchange rates. This can cost a merchant up to 20 percent more in processing costs.

PayPal and Stripe charge a fixed percentage of 2.9 percent plus $0.30 per transaction. For businesses that rely on lower price point merchandise and transactions, that additional $0.30 can cut into profits quickly. Mobile merchant accounts to facilitate ecommerce have become increasingly popular. Yet, they remain expensive alternatives.

Funding

Additional processing costs associated with flat rate aggregators include the funding timeline. It is not cost effective for payment aggregators to maintain an appropriate reserve to pay their customers in a timely way. PayPal can take up to 48 hours, and Stripe may take a week. This can cause significant burdens to cash flow and create complex accounting problems.

Moreover, aggregators process payments through the umbrella merchant account instead of individual accounts for each merchant. Because of this, the money is technically the property of the aggregator. This arrangement alters the risk and liability arrangements between merchant services providers and businesses, and it may cost more to the business long term.

Another crucial limitation that directly affects costs is that networks have a $100,000 yearly limit for individual businesses using a payment service provider. Businesses that do more may have to consider additional options.

Additional Costs

In general, an aggregator will have an easy process to set up an account, although your business must have a link to an online bank account. The online merchant bank account will most likely have the following fees:

Annual and monthly fees
Merchant service fees
Minimum monthly balance fees

These charges will be in addition to the aggregator’s fees. Thus, while using an aggregator may be quick and easy, the additional capital fees will add up when compared to a traditional merchant bank account. The bank will make money from the merchant service fee; however, a provider such as PayPal will make a sizeable percentage plus a flat fee on every transaction.

Choosing between a merchant account and an aggregator will depend upon current business requirements and budgets. The POS systems are attractive, yet many businesses that take a little time to compare will find a merchant account is less expensive in the long term.

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Chargebacks

5 Tips for Reducing and Preventing Chargebacks

September 23, 2014 Abtek Leave a comment

When credit card transactions get reversed, it’s called a chargeback. Typically, chargebacks get initiated by the credit issuer at the request of the credit card holder. As a merchant, your first problem will be losing the funds from the transaction. You may or may not get the product or service back that you sold in the first place. However, getting credit card processing transactions reversed might cause other problems that could generate more headaches than just losing a sale:

You might not get your original transaction fee refunded.
Some merchant services charge an even larger additional fee for each chargeback.
Frequent reversals might result in even higher penalties or even getting your account terminated.

Most Chargebacks are Preventable

Visa, one of the largest credit card companies in the world, says that most reversal situations could be prevented with proper training and processing systems. It’s important to learn how you or your POS systems can catch risky transactions before they occur.

Do not accept or repeat a transaction after the initial request gets declined.
Respond to CALL requests from your authorizer, follow the instructions and document the authorization code.
Track and confirm delivery of physical products.
Publish clear refund and cancelation policies.
Respond to direct customer requests for cancelation of recurring services or refunds.

Your Customer Service and Refund Policies Prevent Chargeback Problems

With mobile merchant accounts and online payments, you have to reply upon your credit card processing system to properly validate transactions. However, you still need a clearly documented process for handling cancelations and returns. That way, your customers can call your own customer service number if they have questions or problems with a transaction. Typically, handling customer disputes internally is much better than waiting for reversals from credit card companies.

In some cases, your customer service representatives may be able to help your customer with an issue and prevent any request for a refund or cancelation at all. If not, it is still better to handle a refund or cancelation internally than it is to create a frustrated consumer who is likely to call his or her own credit card company to request a reversal. You might still lose a sale, but you will not risk chargeback fees, penalties or possibly even getting your merchant account terminated.

Finally, your clear refund and cancelation policies will direct customers to your business in the first place. In general, only frustrated customers end up calling their own credit card companies for help.

Abtek Helps Win the War Against Chargeback Issues

At Abtek, our professional compliance experts help new customers set systems up correctly to reduce the risk of reversals. If our clients run into problems, we are also there to support them. With over 17 years of experience in the banking industry, our compliance officer deals directly with clients and credit card companies to help fight reversals and educate clients about ways to prevent them in the future. Contact us today for more information.

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PCI Compliance

Aggregators vs. Merchant Banks, Part 1: PCI Compliance

September 16, 2014 Abtek Leave a comment

Payment aggregators or merchant aggregators provide services through which ecommerce businesses can process payment transactions. These service providers allow businesses to accept bank transfers and credit card payments without opening and maintaining a merchant account with a card association or bank. The aggregator facilitates the payment from a consumer via bank transfers, credit cards or stored value accounts to the merchant. Thus, the aggregator pays the merchant, not the consumer. These services have become increasingly popular, although they have downsides when compared to a traditional merchant services provider such as a bank. These include:

Limitations to transaction size.
Lack of PCI Compliance.
Fewer filters to prevent fraud.

In general, payment aggregators hold consumer credit card data for quicker purchases, or they hold money for making future purchases. Companies such as Google Checkout, PayPal and Amazon Payments differ in their POS systems, credit card processing, services and costs for their merchant services. While these alternative merchant services have aggressively worked to establish themselves as market leaders, each business must assess the risks and analyze the costs in relation to traditional credit card processing to obtain the appropriate payment solution.

Transaction Limitations

For instance, a business that sells high-end goods, may suffer from lost sales because the credit card brands place an $8,000 limit per business per month. This limits online payments to lower priced goods. Moreover, as the service providers accept liability and risk for each transaction through the master account, individual transactions face maximum limits as well. Currently, the increasingly popular POS systems such as Square use an aggregator model that limits transactions to no more than $400. If a business exceeds those maximums, the automated system places holds on transactions up to 30 days, and those transactions may be subject to higher processing charges. Thus, two major drawbacks include:

The money is not yours. Your business receives payment from the aggregator. The money collected from bank transfers or payment card transactions are property of the aggregator. If you violate the terms of agreement, the money may be held indefinitely.
Higher fees for higher volume. After monthly volume exceeds certain levels, the fees can increase.

PCI Compliance

Another way that traditional merchant bank accounts provide safer credit card processing involves PCI compliance. Currently, all bank credit cards must follow PCI procedures to reduce liability and risk for the merchants for all account types. Most payment aggregators include that critical information only in the ultra-fine print. The merchants remain obligated to maintain PCI compliance despite using a payment aggregator that lacks the ability to screen for potential fraud. This applies to mobile merchant accounts as well.

If you do not maintain PCI compliance, you put your business at greater risk for the increasing threat of debit and credit card theft and data breaches, which could result in large fines from regulatory agencies, banks or card organizations, as well as lost customers and legal expenses.

Thus, a small to medium sized entrepreneur faces higher risks when using POS systems like Square or aggregators such as Groupon for processing debit and credit card transactions. Traditional merchant accounts do not vary the liability and risks assumed based on processing volume, whereas many aggregators do. Smaller volume translates to higher risk ratios, which can lead to frozen funds and transactions in an automated system without regard for your cash flow needs. Moreover, without appropriate fraud screening methods to prevent risky transactions, the aggregators play catch up to the schemers at your expense.

Additional Costs

Lastly, it pays to investigate all of the potential costs for the alternative payment methods. Many can be significantly higher than direct card payments. Further, costs may increase from fewer fraud guarantees and clearly defined processes for disputes. Fraudulent chargebacks may increase without any restitution from the service provider. Thus, while it may be tempting to take the easier, shorter route to accepting payments, a traditional merchant bank account offers better safety, lower risks and potentially higher profits.

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Merchant Service Providers

Merchant Services Companies Can Protect Merchants and Consumers from Identity Theft

September 11, 2014 Abtek Leave a comment

Before consumers will take any risks on making purchases with a merchant service, they need assurances that their privacy is intact, their financial information is secure during credit card processing and that they are being protected from the invasive efforts of identity thieves through merchant service compliance initiatives.

Leading providers of merchant services offer credit card processing and POS systems management to most level 4 merchants such as debit card and credit cards from Visa, MasterCard and others.

Merchants understand, for the most part, that PCI compliance is not just a requirement, but a business responsibility for covering their consumers. Small business merchants believe that complying with PCI standards improves their business security. In fact since 2012, businesses that have stepped up their security PCI compliance have seen up to 50% growth in customer based sales, and even more recently.

Identity Theft Can Happen to Companies and Individuals

Business identity theft protection is as vital to thriving businesses as it is to consumers. When hackers compromise the security of business merchant records, they can get a hold of personal financial records of thousands of customers. With the continuing global growth of ecommerce trade, new innovative controls have been developed over the years to keep ahead of business hacker’s efforts.

Digital Solutions to Credit Card and Identity Theft Threats

Consumers are readily adopting the concept of mobile commerce technologies. Many find it easier to trust mega-corporations to secure customer online payments using business intelligence security using their smartphones and other digital devices than to trust the security of small businesses in brick and mortar shops.

One way financial institutions are protecting consumer security from identity thieves is by using geo-location within their payment and purchasing eco-systems. In fact, mega corporations like Google, Apple, PayPal and Square are investing big time in new geo-based technology. Processes for secure transactions using smartphone apps will soon become recognized as the safer and more secure transaction method, our digital wallets, over physical credit and debit cards.

Retailers have the capacity to provide security in a seamless, secure market with direct service transactions for their customers who elect to use mobile payment technologies. The built in securities in smartphones and payment apps will deter identity theft and wall out hackers, making mobile merchant accounts and their ecommerce companies highly regarded by consumers for their digital protective powers.

Efficiency in Chargeback Procedures and Compliance

An integrated online payment duty of merchant service accounts is to guarantee coverage for following through with customer chargebacks. The financial service industry is more versatile in administering certain guidelines and maintaining reserve funds for chargebacks for dissatisfied credit card holders. There have been many instances with banks denying valid claims because of their restricting regulations.

Pro-Active Protection Methods Used by Merchant Services Companies

Many merchant service companies provide their customers with software that can notify them if fraudulent activities are suspected on their accounts. Some banks will put a temporary hold on credit card activities until the customer makes a call to confirm unusual charges, before anything really serious can happen. If too many password attempts hit a merchant website page, their merchant account will be temporarily blocked until they call in to change the password.

Some merchant services websites outline the steps to take if a suspected fraudulent incident happens to a merchant account; these steps are designed to stop identity thieves in their tracks. Some financial services act as interceders between the seller and purchaser so they never have a printout or stamp of your account, and the information they receive on any transaction is limited. This can be as effective as using encoded passwords and account numbers.

Internet specialists, programmers and software designers are working around the clock to stay ahead with innovative features for safety in the online financial and marketing industry. Many trusted avenues for transferring money are being tasked to ensure that clients have a safe mode of completing business and sales without the danger of identity theft. Users who are observant, make good decisions and follow protection warnings when online can safely avoid identity theft.

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History of Credit Cards

The History of Credit Cards, Part 3: The Evolution of True Digital Credit Card Systems

September 2, 2014 Abtek Leave a comment

Today’s ecommerce depends heavily on digital credit card processing solutions and efficient, reliable, secure merchant services. While business is booming with brick-and-mortar companies relying upon digital POS systems, these digital systems have actually been evolving for over 30 years.

The First Online Shopping Cart

According to ”Internet – Technical Development and Applications,” the first online shopping cart system was demonstrated by a British entrepreneur named Michael Aldrich in 1979. Because of this, Aldrich is actually credited with the invention of online shopping. In other words, he developed the first system that made it possible to conduct online transactions between customers and businesses.

Even though this was the first true “ecommerce” system, that word had not yet been coined. Most people did not really even know that online shopping was possible way back in the late 1970s and even the 80s. In fact, the first internet browser, simply called the WorldWideWeb, was not invented until 1990.

One might also imagine that today’s internet security experts would be horrified by how vulnerable and transparent these first online payment systems actually were. But basic technology has to be developed and demonstrated before it can evolve into the truly useful and secure systems we rely upon today.

In 1992, two years before Amazon emerged, an article called Visionary in Obscurity reported that a bookstore moved their old dial-up BBS system to the internet as Books.com, and it attracted half a million visitors a month at its peak. The owner of the bookstore, Charles Stack, reported feeling very moved because his first online customer told him that he was a blind person who was able to make his own purchases with computer aids for visually impaired people.

Even then, true POS systems had not been developed, and the process of taking credit card information from the online system was partially manual and usually relied up a traditional store’s merchant account. This is similar to the fact that the first mobile merchant accounts actually relied upon sending text messages that needed intervention in order to get processed as transactions.

Early Mobile Payments

You might be surprised to learn that Coca-Cola innovated mobile payments in 1997. They introduced a few vending machines that allowed thirsty customers to send a text message to the machine with payment information. In that same year, Merita Bank introduced a similar system that accepted text messages with payment information for purchases.

No-Contact Payments

Radio frequency identification, called RFID, describes systems that are able to help customers make purchases with a chip and antennae embedded into electronic devices. Most commonly, these devices are smartphones. The customer just needs to wave their phone over a payment terminal in order to make a purchase. In some cases, the system might request a PIN number, but this is usually only for very large purchases or in cases where the automated system detects unusual payment activity for a specific customer.

The first example of this was Speedpass, a product from Mobil that allowed gas station customers to wave a small key ring fob over a payment panel in order to pay for gasoline. Today, ExxonMobil still accepts a Speedpass, and other companies have also adopted this technology.

The Future of Digital Merchant Services

At Abtek, we have provided secure, innovative and reliable ways for consumers to make online payments since 1986, and we continue to keep up with advances in digital technology and security. We thrive in this competitive business with a combination of futuristic solutions and a timeless commitment to customer service.

Besides providing basic credit card processing, we offer mobile merchant accounts, POS terminals and other aspects of today’s digital commerce. Our main commitment is to make certain that our services make our merchant affiliate’s businesses more productive and profitable. Contact us to learn why Abtek can provide the right solutions for your business.

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Monthly Archives: September 2014

Aggregators vs. Merchant Banks, Part 2: The Costs of Payment Aggregators Adds Up

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5 Tips for Reducing and Preventing Chargebacks

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Aggregators vs. Merchant Banks, Part 1: PCI Compliance

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Merchant Services Companies Can Protect Merchants and Consumers from Identity Theft

Identity Theft Can Happen to Companies and Individuals

Digital Solutions to Credit Card and Identity Theft Threats

Efficiency in Chargeback Procedures and Compliance

Pro-Active Protection Methods Used by Merchant Services Companies

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The History of Credit Cards, Part 3: The Evolution of True Digital Credit Card Systems

The First Online Shopping Cart

Early Mobile Payments

No-Contact Payments

The Future of Digital Merchant Services

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Credit Card Processing and Merchant Account Solutions