It is estimated that PIN-based debit transaction Interchange costs have gone up nearly 85% in the last year alone. The rise could be attributed to a large consolidation between debit networks. Whenever there is consolidation, there is typically less competition and the result is higher PIN-based debit costs to processors and higher interim costs to merchants. Interlink’s current fee is nearly $0.76 per transaction and Pulse’s is over $0.64. Many merchants have become accustomed to paying flat fees for PIN-based debit transactions but in the coming years that will be a thing of the past.

Online merchants can take advantage of PINless debit solutions by having the option of using networks such as Star, NYCE, and Pulse and not having to pay traditional Interchange fees. This is beneficial to e-commerce merchants because payment is immediate, unlike e-check or ACH which can take a few days. The funds are also verified and clients do not have to give out checking account information. These features are currently limited to certain business types, such as utilities (water, gas and waste management), Education, government payments (taxes, fines, licenses), insurance (auto, life, and health), health club memberships, and internet service providers.

It is still beneficial to add a PIN pad to your terminal if you are a large ticket business. This will ensure you are paying the lowest rate possible. Some processors will offer a low PIN-based debit transaction fee. Often the merchant will still have to pay debit network pass-through fees.  If the PIN-based debit fee you are quoted sounds too good to be true, it probably is.

Many large credit card companies, such as Capital One, are disclosing a rise in delinquencies for November of 2008. Issuers, like American Express and Bank of America, are raising rates on existing balances and slashing credit lines in the short term. Banks are expected to cancel $2 trillion in available credit over the next year. If credit card issuance is being cut and rates will soon be regulated, it only seems inevitable that banks will turn to raising Interchange rates on merchants to cushion the fall.

Although merchants can’t do much about rising interchange rates, they can begin to take Pin based debit cards instead of credit cards to ease the fees. Offering gift cards and loyalty cards are also becoming very popular. The Federal Reserve and Office of Thrift Supervision are already fighting the battle of Interchange rates. Small business owners may not like the rate hikes, but banks may have no choice. The money has to come from somewhere and it certainly cannot keep coming from government bailouts. What happened to taking responsibility for your own credit and debt?

It is arguable that banks should be able to adjust interest rates as they assess the risk of customers on an ongoing basis. What stops banks from misusing the power to adjust rates? Or is this a great level of protection for all consumers in an economic downturn? As the credit crisis continues to go round and round only coming years will tell what can be done to solve the situation.

Once your business is online and your shopping cart has been built, you have to select a payment gateway. Many merchants select their payment gateway based on what their merchant services provider tells them. There are hundreds of payment gateway options out there, and not all of them measure up.

A gateway facilitates your online payments by connecting your secure order from your merchant account to a processing bank. Something as important as the transfer of money should take some research. When selecting a gateway, consider available features, reliability, and support.

Some well known gateway options may not be your best bet. Authorize.net is a gateway that offers nothing more than a name. When it comes to support, this popular option falls short on all levels. Forty-five minute hold times, getting the run around from the help desk, and being a one trick pony are all this gateway has to offer.

An important item to look for in a gateway is ease of integration. If you don’t have a lot of money to spend on programming, or you are new to programming, you should select a gateway that allows you to follow some easy copy and paste steps to get your site up and running with all the payment options needed. A payment gateway should have a platform for identifying and preventing chargebacks without you having to take time out of running your business.

Some additional features to look for are a robust CRM and a strong customer database so you can run promotions and take care of your customers. A good payment gateway allows you to take payments in multiple fashions, such as recurring billing, bill me later, and ACH. There are gateways out there that even do your marketing for you. One such product is the Check-Out Box .

When selecting which gateway is going to support your business, cost should be the last deciding factor. Many online gateways may have low startup costs, but have hidden costs for additional features. For example, Authorize.net considers E-check and recurring billing to be additional features with additional charges.

I hope this sheds some light on those of you looking for a gateway solution. I invite those looking for a strong gateway to ask questions and give their opinions on gateway experiences you have had.

Illegitimate chargebacks are costing business owners, and it’s time to fight back against dishonest customers and fraud. I have surveyed 50 of my online merchants and found that most of their chargebacks come from people who order items online, and then in an attempt to keep the product without paying for it, dispute it. I consider this shoplifting.

Part of the problem seems to stem largely from regulations put in place stating anyone can dispute any charge for any reason. Naturally, crooks will use these regulations to their full advantage.

Many online merchants are losing the battle against chargebacks and feel there is nothing they can do. Online merchants should not give up; not all chargebacks are final. The best option is to respond to the chargeback letter immediately. Keep in mind that if your bank still honors the chargeback, you have the right to go after the consumer plus any costs you incur as a result.

Some key tips for combating against chargebacks are:

1. Use a trackable shipping service and require signature on delivery. This provides you with documentation if a dispute should arise. If you sell e-books or other downloadable items, it is a good idea to add something tangible for tracking purposes.
2. Make sure your return policy is clearly posted on your website. Post time limits for refunds and associated fees, such as restocking fees. Also note the condition of the product.
3. Post a chargeback policy on your website. Don’t be afraid to report customers to collection agencies for excessive chargebacks.
4. Make sure to pick a gateway that has a chargeback support feature. These gateways can help you find the best way to combat chargebacks and the correct way to respond to chargeback notices.

It is better to be safe than sorry. If you have specific chargeback issues and are looking for the best way to respond to your notices, feel free to comment. We would love to help.

Federal regulators jumped into action and passed laws to protect consumers from increased interest rates on existing account balances. Government rules seem to run at a snail’s pace as these laws will not take effect until July 1^st 2010; that’s a lot of money in the banks’ pockets in the interim. Millions of card holders will get raked over the coals, paying high fees on previously made purchases until these laws kick in.

Credit card companies will still be able to raise rates on new credit cards, future purchases or cash advances. Finally, the Federal Reserve and National Credit Union Administration are cracking down on arbitrary hikes in interest rates. It would seem that we  have learned a lot from subprime lending. These rules will also stop the issuing of credit cards to people that all ready have a large amount of debt, and who were previously getting approved by banks for high interest rate cards.

Some of the new rules include:

• Consumers will have to be given 45-days notice before any changes will be made to the terms of their account.
• Rate hikes will still be allowed on cards with payments more than 30-days late.
• Late fees cannot be charged without giving at least 21 days to make a payment.
• Most cards currently charge a different rate for different balances, such as purchases versus cash advance transactions. Card companies will now be required to apply any payment above the minimum amount due proportionally to all balances, or to the balance with the highest interest rate.
• Finance charges can’t be assessed on paid-off balances from prior months on a current month’s billing cycle

Credit card companies take huge risks in issuing credit to people who have below average credit, so they hike up the interest rate for everyone to make up for their losses. Because these guidelines are being tightened, banks will have to be more cautious as to whom they give credit to. With less credit circulating around, we will ultimately have fewer purchases at retail locations. Hardest hit will be the online businesses since some purchases can only be made using a credit card. The other areas it will affect will be revealed in time.

With hand-keyed transactions you run a greater risk of fraud because the magnetic strip information is not available. If you are in a retail environment you can do the following:

1. Check your terminal and make sure it is working properly. You can try to swipe your own card to ensure the issue is not with your equipment.
2. You can also check to see if the number embossed on the front of the card is the same as the number indented on the back. There are scams where thieves will shave the numbers to alter the embossed numbers on the front of a card.
3. Look at the expiration date and make sure it is valid.
4. It is important to get an imprint of the card and have the customer sign the imprint slip. This way you can confirm the signature matches the back of the card.

If you take cards over the internet, make sure you are following Payment Card Industry Data Security Standards. Seeking out proper fraud control software is a key element to keeping your transactions safe and keeping site secure.

Most people that are going to use fraudulent stolen cards follow the same patterns. Some key things to look out for are people making large purchases without any regard for size, color, or price. Some will try to distract you or rush the sale by asking questions about other items while they are at the register being rung up. Many will make a purchase then return to the store to make another purchase shortly after.

Visa and MasterCard both have security features in place on their cards that I believe all retail sales people should be trained on. For example, all Visa Cards have a Dove or Flag Hologram on the front, or a mini Dove on the back.  It is important to become familiar with the items (or lack thereof) that can easily signal an instance of fraud. 

Visa requires that every sales associate check card security features, request an authorization, and obtain a signature.  Below are some steps to follow so you can minimize fraudulent purchases:

1. Make sure the card has not been tampered with or altered. Look for a scratched magnetic strip or shavings on the numbers.
2. Run every card through your point of sale terminal in one direction only. Needing to run the card repeatedly or in multiple directions can be a sign that the card has been tampered with.
3. If you get an “Approved” response after swiping a card, make sure to get the card holder’s signature on the sales receipt. It is important to check that the card holder’s signature matches that of the signature on the card. Keep in mind that it is against Visa and MasterCard’s rules and regulations for a merchant to make a picture ID a condition of purchase.
4. If you receive the response “Pick up” you should confiscate the card. Inform the customer that the card has been reported lost or stolen, and you have been instructed to take it. Only attempt to take the card if you feel safe doing so.

If you suspect fraud, you can make a Code 10 call. A Code 10 authorization request alerts the card issuer to suspicious activity without alerting the customer. You would call your voice authorization number and tell them you have a code 10. You will be transferred to the issuing bank to answer a few questions and await instructions.

If a card’s magnetic strip appears to be worn, and it needs to be key-entered, make sure to be extra cautious. Make sure to get an imprint of the card, as well as a signature. Also check the expiration date.  With the fast pace of the holidays and the number of customers, it can be easy to miss fraud, but if we all do our part we can enjoy the holiday season.

Overseas, many organizations have formed campaigns against Visa and MasterCard. In Canada, ad campaigns are being run by The Retail Council of Canada telling Visa and MasterCard to “stop sticking it to retailers.” The Retail Council of Canada is a non-profit association that represents more than 40,000 stores of all retail formats.

In Europe, ongoing Interchange battles have reached boiling points. EuroCommerce, the retail and wholesale governing body, is accusing MasterCard of raising interchange rates 160% after the release of MasterCard’s new interchange fee structure. On December 19^th, 2007, an agreement was signed prohibiting MasterCard’s multilateral interchange fees (MIF). These fees apply to almost all cross-border card payments in the European Economic Area (EEA). This card type was prohibited because it is said to inflate the base on which acquiring banks charge. Since 85% of businesses accept these card types in Europe, it is said to potentially harm businesses and their customers. Naturally, MasterCard will raise other card type fees in order to compensate for money lost on fees from MIF.

Australia has already won their battle against interchange. Fees in Australia are capped, and in some cases they pay half a percent. Of course lower interchange rates, in my opinion, have been the result of fear. Card associations are afraid that regulations will be imposed if they do not lower their fees.

It’s only a matter of time before Visa and MasterCard will have similar regulations imposed upon them. But, are these fees price gauging or just a fair network of profit? It seems to me that we are all happy with our sky miles and rewards point, but are oblivious to where money for these rewards comes from. The people that are coming up with these regulations could be forgetting we are in a capitalistic society. Would we haggle over the price of our dinner at a high end restaurant saying the restaurant charged too much, after we already read the price on the menu? Merchants are aware of the rates they are going to pay before they sign their agreements. Perhaps we need to do a better job of educating merchants about Interchange fees and what they are used for.

Consumers in the United States spend billions of dollars over the internet each year, and it is reported by MasterCard that the majority of the purchases are made without using SET. Most merchants who sell over the internet are using Secure Sockets Layer (SSL) for their internet stores. Typically this would be enough, but fraud is on the rise.  The economy is contributing to increased instances of internet theft and identity theft.

SET was created back in 1997 to take the process of security a step further by allowing the use of digital IDs to vouch for the identity of the merchant selling the product, as well as the consumer making the purchase. SET is widely used in Europe and is said to be a headache to use. The process is tedious and requires the buyer to place electronic software on their PC to obtain the digital ID from their credit card issuer to vouch for their identity. It is difficult to distribute this many digital IDs and software loads without hiring access staff.

Here we are over a decade later and this technology is still on the back burner, even though it is highly recommended that SET be used by everyone. In order for SET to work, the customer must have a SET-enabled browser and the transaction provider or storefront must have a SET-enabled server. The customer will receive a digital certificate that functions as an electronic credit card for online purchases. It will include a public key with an expiration date and will have been through a digital switch to a bank to ensure its validity.

For more detailed information about SET you can visit Visa, MasterCard or your bank’s website.

Many merchant services providers have begun offering card processing for high risk business types. Some of such business types require additional information to get approved and can also be associated with higher rates. If you are looking to get card processing for a high risk business you are in luck and now have many choices. Some of the criteria to get a high risk account approved are as follows:

• Your credit report will place a large role in the approval process. Companies will look at past loans and how quickly they were repaid.  They will also look for liens, judgments, and bankruptcies.
• Being able to show strong previous financials and assets will go a long way in the approval process. It is common to have to provide 2 years personal tax returns and 6 months of bank statements.
• It is often good to have a tangible product that is sent to your customers. For example, if you sell mortgage restructuring services, you should have a welcome package that goes out to new customers. Having a tangible product reduces the risk of chargebacks.

However, even with strong financials be prepared to pay higher rates or be required to have a reserve account.

Even the high risk business types are seeing a decline in business. A recent Allstate poll found that half of all Americans plan to cut back on travel in 2009. Travel and tours have previously been considered a high risk business type. The travel industry is getting ready to take a big hit in the coming year. In addition, mortgage restructuring companies are seeing a drop in business despite the amount of people facing losing their homes. Many cannot afford the fees associated with getting themselves out of debt.

One safe option for these high risk business types is to accept Automated Clearing House (ACH) transactions. This allows for an actual bank account to be charged as opposed to taking a credit card from someone who is already in debt.

There are still many options that will enable businesses to accept Visa and MasterCard payments. As long as credit is being issued Americans will continue to use it.