The first thing that most look for in a credit card is the interest rate. Cards may have a low introductory rate and offer great rates on balance transfers, but these may be nothing more than teaser rates. Reading the fine print can save some from paying as high as a 30 percent APR. Look in the fine print for the variable rate or how high the rate will go after the introductory period.

For some time, banks have been offering rewards cards. These cards give a chance to accumulate points that you can trade in for products, such as airline miles, gas, and even cash.  Even with these cards, due to the amount of money that has to be spent to qualify for any of these rewards programs, people may be better off just buying their own plane ticket or coffee maker. Rewards cards also cost business owners more to accept because they typically have a higher Interchange rate. In the end, the biggest rewards on these cards go to the banks and associations.

Often people with bad credit assume they are not eligible for a credit card. People with poor credit can consider prepaid cards or secured cards. Prepaid cards allow you to deposit a set amount of money onto the card and then the card can be used just like a traditional credit card, even making purchases online. Prepaid cards are a good way for parents to allot money to kids in college without having the risk of them going over the limit like with a traditional credit card.

Secure cards are cards backed by a paycheck. The bank that issues the card is ensured payment because any due funds are typically deducted from the person’s paycheck. If someone simply has bad credit and needs a credit card, they can always opt for a high interest, low limit card. But if they are in a bad credit situation, my advice is to opt out of a credit card altogether.

Some cards are considered specialty cards. There are business cards, contactless cards, and high roller platinum cards. Banks claim that platinum cards have high limits, low fees, and great rewards programs. But like I said before, the color of the card doesn’t matter.

Most may think that banks are not taking on these types of credit card accounts because of the financial state of our banks. There is a big difference between the acquiring side of banking and the issuing side. In fact the acquiring side that handles credit card processing in the banking industry seems to be the only piece still making money and I predict they will continue to generate revenue. There are acquirers out there that are designed to specifically cater to high risk types of online businesses and have flourished in these industries. To make sure your new venture does not turn out to be a big loss, it is important to look for more than just a card processor to partner with.

Some important items to look for when starting a high risk business online:

• Most acquirers that are approving online high risk businesses set limits to how much you can process through your account. It also difficult to avoid a reserve account. Be prepared to have about 10 percent of your monthly Visa and MasterCard processing held for a minimum of 6 months. Also, be sure to pick a partner that provides load balancing services. This will ensure that your account is properly monitored and you are not over burdening one account with transaction amounts that are over your limit,which could result in your account being shut off.
• When you are running a high risk business in a card not present environment, you run a greater risk of chargebacks. An acquiring bank typically does not allow for more than 1 percent in chargebacks. Look for a system that can monitor your disputes and provide quick and easy responses to your bank to prevent them from turning into a chargeback.  This will drastically reduce the percent of chargebacks you get and allow you to continue growing your business.
• Look for a partner that has fraud monitoring systems. With all of the identity theft these days, you want to make sure your transactions are safe and valid cards are being used.
• Make sure to pick a system that is easily modifiable for business growth.

Businesses that fall into the high risk categories are legitimate businesses and can prove to be lucrative if monitored properly. This will contribute to merchant processing  continuing to be a profitable and lucrative arm of banking.

Credit card acceptance has been said to add many different benefits to a business. Most business owners report large increases in profits when they begin accepting credit cards. Credit cards allow customers to make a purchase, despite a shortage of cash.

Services businesses, such as IT professionals, will see a large decrease in the number of past due accounts. It is also historically true that people will even spend more because they don’t have to part with cash. It is less expensive for you to accept a $50.00 payment by credit card, than the costs of labor, supplies and postage required to mail an invoice.

If you are a web based business, approximately 90% of web purchases are made using credit cards. If you sell on the web and you don’t accept credit cards, then you are potentially eliminating 90% of your potential profits.

Many businesses are using value added solutions, such as gift cards, to draw in customers. I knew a bar owner who purchased 1000 gift cards, and loaded $5 on each card. He then sent out girls to his competition to hand them out, saying the first beer at his bar is on the house. Gift cards and loyalty cards are a great way for a business to advertise. Most gift card reporting systems store contact information so that the business owner can send the customer free promotions, or even load free birthday items onto their loyalty card.

Businesses today that feel that accepting credit cards and value added solutions are too expensive, or not cost effective for them, are not seeing the big picture. The fees associated with processing credit cards are small compared to the business and revenue that could be lost.

Technology in the payment card industry has grown tremendously in just the last 5 years. Merchants are able to accept payment using any java enabled cell phone, and can even turn their laptop into a credit card terminal. But the best is yet to come.

• Google recently announced the Android smartphone, and Visa is planning to develop e-payment applications for the device. This technology will allow merchants to receive notifications of account activity to their mobile device, locate ATMs that accept Visa, and Google maps to quickly locate a wide arrange of merchants to redeem visa rewards.  Soon, you will be able to make purchases at retail locations using your mobile smart phone.
• Visa also plans to release a money transfer pilot program by the end of 2008, which will allow Visa cardholders to use their mobile phones and PDAs to send funds directly to another visa card holder. I guess you better make sure you are not dialing the wrong number.
• MasterCard is introducing Chip and PIN.  Instead of swiping a card with the magnetic strip on the back, you will insert a card that has a computer chip embedded on the front. Instead of signing to verify a payment, you will enter a PIN.
• PayPass is MasterCard’s “contactless” payment technology. A tap of your card is all it takes to pay at the checkout; however your purchase must be under the pre-specified floor limit.

I am still a big fan of Biometrics. I believe that we will be able to pay for items using our finger print or a retinal scan. Although there have been recent failures by some companies to create the technology, my opinion is it’s the future of payment processing.

In New York, in 1950, the first credit card was released by Franklin National Bank of Long Island. It was also in New York in 2001 that our entire outlook changed. The World Trade Center was attacked and Homeland Security was created to protect our nation from terrorism. The government put in place The Patriot Act, which affected the merchant services industry by putting stricter guidelines on account approvals. Merchants are now required to submit a copy of government issued documents identifying themselves and their business.

The following items are considered acceptable (you will need a minimum of one from each category):

Business

• Corporate resolution including date and place filed
• Articles of Incorporation
• Business license (fictitious name statement)
• Business Financials
• Partnership agreement

Personal

• Copy of driver license
• Passport
• Resident Identification card
• Military Identification

Processors may ask business owners to provide monthly volume, average ticket, years in business, and even personal bank statements. The processor is ultimately trying to protect themselves and the merchant from losing money. By putting these types of fraud controls in place, credit card processors can monitor suspicious activity. They can monitor frequent declines and large transactions that your business does not typically do. There are many different acquiring banks and each has their own criteria for approving a merchant account. Most processors can provide you with their underwriting guidelines. Check with your processor on what criteria your account may need to get approved for a merchant account. 

In nature we have the cycle of life – in card processing we have the life of a transaction. It is important to understand where the fees come from and know who all the players are.

• The process starts with the consumer making a purchase via a terminal or website.
• The merchant’s terminal transmits the transaction, via DSL or phone line, to the acquiring bank.
• The acquiring bank routes the transaction to a processor, and then to the card associations via Visa’s system (VisaNet) or MasterCard’s system (INET).
• The association’s system requests an approval from the issuing bank.
• The issuing bank sends back a response. If the card is approved, an authorization code is sent back to the association. The association sends the code to the acquiring bank, and then to the merchants terminal.

Issuing banks charge Interchange fees to the acquiring banks. These fees are part of the costs that merchants pay to their bank. Whether you are using a big bank or a smaller provider as your card processor, there is a mark up on Interchange fees. This mark up (basis points) pays for your application process, customer service, risk monitoring, and of course your sales rep.

Both acquiring and issuing banks are charged fees by the card associations. Assessment fees are Visa and MasterCard’s primary source of revenue. You may have seen these on your merchant statement as 0.0925% and 0.0950%. These are typically less confusing because they are standard and don’t vary based on criteria.

Since there are many different processing categories for Interchange rates, they can be confusing to most merchants. Merchants pay higher or lower rates depending on, but not limited to, whether or not it was a rewards card, purchase card, or debit card. Rates can also be assessed based on your SIC code and how often you batch your terminal.

I would recommend that all merchants become familiar with the Interchange rate for their industry, as well the manner in which they take their cards (swiped or keyed). This way you can negotiate your rates with your merchant services provider accordingly. Just because your payment processor claims the rates went up does not mean they went up for your type of business. Some processors may even entice merchants with low rate like 1.11%, only to have you start processing and realize that rate does not pertain to your type of business.

Fortunately there are a lot of processors out there that don’t hide fees from their merchants. It is important for merchants to be educated about card processing fees.

If you have received a statement with an increase notice on it, be sure to do your research so you know exactly what is being increased.

I am continually shocked by the number of Visa and MasterCard violations made by merchants I shop with a daily basis.

Here are a few mistakes I’ve personally witnessed merchants make:

1.       Many cards say “Check ID” on the back instead of a signature, because many consumers feel that not signing the back of their card will make it harder for their signature to be forged. Merchants typically ignore the fact that the card says “Not Valid Unless Signed.”

2.       There are no direct rules that keep a merchant from asking for a cardholder’s ID. A merchant cannot refuse to complete a purchase because a customer does not have valid ID. In most contracts that I have read between a merchant and their acquirer, merchants are required to follow specific Visa and MasterCard procedures. The ones I have reviewed clearly state in the terms and conditions of the agreement that a merchant is prohibited from refusing a sale due to a customer not having a valid ID.

3.       I eat lunch at many places that say I have to purchase a minimum amount in order to use my credit card.  It is actually in violation of the credit card companies’ terms and condition to refuse a transaction because it is below the “minimum”. Both MasterCard and Visa clearly state that a maximum or minimum transaction amount cannot be a requirement when accepting cards.

4.       You may have noticed gas stations charging a surcharge on credit card transactions. I often get calls from merchants asking to add a surcharge to offset the cost of taking credit cards. According to Visa’s card acceptance guide you many not charge a consumer a fee because they used a credit card. You can however offer them a discount for paying with cash or a gift card. There can also be convenience fees that can be charged to consumers who choose to place a telephone order or an internet order. This fee can’t be a percentage of the sale – it must be a flat amount, and it must be disclosed to the customer before it is assessed.

5.       Factoring is strictly prohibited by the card associations. You must process cards only for the type of business your merchant account is under. For example, I had an auto body shop that one day decided to fix abandoned cars. The merchant started to sell the cars in a lot they purchased next door. In this case the merchant should have opened a second merchant account. Their funds were held and their account was almost shut off.

Merchants found in violation of Visa and MasterCard rules can be reported by completing a violation form with either the bank that issued the customer their card, or on Visa or MasterCard’s website. Merchants can be fined or shut down. Make sure you do research before you decide to create and post a store policy, so you can avoid getting reported for violating card association rules.

Let’s face it – we all strive to have that BMW as opposed to a Dodge Neon, and even shop around for the best appliances. Knowing this, have you ever stopped to wonder why we, as business owners, opt for the lowest bidding credit card processor for something as important as our business?

As with other products, cheaper does not necessarily equate to better. How about reliability? If your customers are charged the wrong amount, or transactions are declined due to an unreliable or inaccurate gateway, who do you think they will blame? That’s right, YOU! Consider this – is the money you’re saving using the cheapest solution worth the cost of losing future business?

Let me share with you this example, a few weeks ago, a merchant was having trouble getting cards approved on his website. He then had his funds held by his processor. His merchant services provider told him it was his gateway and conversely, the gateway provider told him it was his merchant services provider. Needless to say, this merchant chose his provider based on the lowest bid, and what he got as far as service and reliability was a whole lot of finger-pointing and denial of liability.

I’m sure as business owners you are bombarded with calls and mailers from merchant services companies on a daily basis claiming their fees are the lowest. Fees for merchant services are an unfortunate reality, irrespective of the processor you choose, so it is important to choose the right company to partner up with. Here are some things you should know when deciding on a merchant services provider:

• Make sure whatever gateway you choose is compatible with your shopping cart software.
• Rates and fees are determined by many factors: length of time in business, percentage of sales made over the phone or the internet, type of business, personal credit rating, and dollar amount of sales per month. A typical rate should be about 2.30% to 3.5%, but some companies charge as high as 6%. Poor personal credit or business type may warrant a much higher rate.
• Do not agree to a high discount unless you are sure no other company will process your charges for lower.
• Be sure to ask about all fees involved such as Gateway fees, ACH fees, monthly minimums, Address Verification Fees, transaction fees and statement fees.
• Read all agreements closely to determine the circumstances for which your money can be put on hold.
• Find out if there will be a hold or reserve on your account. If so, how much with be held and how long will it be held for?
• What types of fraud and risk monitoring does the processor and gateway provide?
• Who do you call when you have questions? For instance, a processor offering its own gateway is a better choice since there will be fewer support calls to make in the event of service interruption.

In my experience in this business, I have come across numerous merchants that got exactly what they paid for – very little.

Take my advice, do your homework and don’t settle for the lowest bidder.

First, it is important to understand the different types of transactions that can occur when running a credit card sale:

• Retail swiped account transactions will get a Qualified Discount Rate, which is the lowest rate possible. In this type of transaction the card holder is present, they are using a standard consumer credit card, and once the card is swiped the transaction is batched within 24 hours. If any of these criteria change, you could downgrade to a MID-Qualified or a Non-Qualified transaction, thus increasing your rate.
• A keyed transaction, or manually entered transaction, will get a MID-Qualified Rate. This can also occur if AVS (Address Verification Service) is not entered when the customer uses a rewards card, or if the transaction is not batched within 24 hours.
• A Non-Qualified transaction occurs when a card is key-entered with no AVS info, or if a Corporate, Government, or International Card is used.

If you are not able to swipe a card because you are using an online payment gateway, how can you also take advantage of better pricing? When processing a MOTO (Mail Order Telephone Order) or Ecommerce transaction make sure to do the following.

• Make sure all required AVS information is entered
• Set your payment gateway or terminal to batch or settle within 24 hours
• Enter an Order or Invoice number
• Make sure to enter the CVV2 number

Many different factors can determine the rate you are assessed on your transactions. If you know you are going to be taking card types that will typically fit into the Non-Qualified category described above, be smart when setting up your credit card processing account – make sure to find out what your Non-Qualified rate will be. Be sure to find out all the fees involved before signing on the dotted line.