Credit Card Processing Methods

Today a majority of credit card transactions are sent electronically to merchant processing banks for authorization, capture and deposit. Various methods exist for presenting a credit card sale to "the system." In all circumstances the magnetic strip is read by a swipe through a credit card terminal, a computer chip is read, or the credit card information is manually entered into a credit card terminal, a computer or website.
The earliest methods, submitting credit card slips to a merchant processing bank by mail, or by accessing an Automated Response Unit (ARU) by telephone, are still in use today but have long been overshadowed by electronic devices. These early methods used two-part forms and a manual device for mechanically imprinting the embossed card number information onto the forms.

A credit card terminal is a stand-alone piece of electronic equipment that allows a merchant to swipe or key-enter a credit card's information as well as additional information required to process a credit card transaction. A credit card terminal is a dedicated piece of equipment that only processes credit cards although it is common for related transactions including gift cards and check verification to also be performed.
A credit card terminal typically must be plugged in to a power supply and connected to a telephone line. However, some terminals may be powered by batteries and communicate over the Internet or through a cellular phone data network. When a credit card is processed (either swiped through the magnetic stripe reader or keyed-in to the keypad), it contacts the network to verify if the credit card can be authorized. The transaction is then stored on the machine until the polling window is opened. The machine will either upload the electronic funds directly to the merchant bank, or a polling service provider will dial in to collect, process then submit the data to the merchant bank. The most popular credit card terminals consist of a modem, keypad, printer, magnetic stripe reader, power supply and memory card. They have had the same basic design since the 1980s. As with computers, there is a wide range of memory capacities and other features like built-in printers and debit card pinpads that affect the manufacturing cost of a credit card terminal.

A payment gateway is an e-commerce service that authorizes payments for e-businesses and online retailers. It is the equivalent of a physical POS (point-of-sale) terminal located in most retail outlets. A merchant account provider is typically a separate company from the payment gateway. Some merchant account providers have their own payment gateways but the majority of companies use 3rd party payment gateways. The gateway usually has 2 components: a) the virtual terminal that can allow for a merchant to securely login and key in credit card numbers or b) have the website's shopping-cart connect to the gateway via an API to allow for real time processing from the merchant's website.

For any questions or to clarify these explanations please contact Naples Merchant Services


239-449-6040

Naples Merchant Services
239-449-6040
888-601-0801 fax
info@naplesmerchantservices.com

http://www.naplesmerchantservices.com/

Merchant Statement Fees Explained

Authorization fee

The Authorization fee (actually an authorization request fee) is charged each time a transaction is sent to the card-issuing bank to be authorized. The fee applies whether or not the request is approved. Note this is not the same as Transaction fee or Per Item fee.

Statement fee

The statement fee is a monthly fee associated with the monthly statement that is sent to the merchant at the end of each monthly processing cycle. This statement shows how much processing was done by the merchant during the month and what fees were incurred as a result.

Many times, the statement fee is not directly linked to "paper" statements but rather general overhead. This means that a provider would not waive this fee if a merchant chose to have a "paperless" statement.

Monthly minimum fee

The monthly minimum fee is a way to ensure that merchants pay a minimum amount in fees each month to cover costs from the provider to maintain the account and to create minimal profits. If a merchant's qualified fees do not equal or exceed the monthly minimum they will be charged up to the monthly minimum to satisfy their minimum fee requirements.

Example: A merchant has signed a contract with a $25.00 monthly minimum fee. If all the fees for the most recent month of processing total only $15.00, this merchant will be charged an additional $10.00 to meet their monthly minimum requirements. Sometimes there are fees that are charged that are not a part of the monthly minimum, such as statement fees. It is industry standard to charge a monthly minimum.

Batch fee

A batch fee (also known as a batch header fee) can be charged to a merchant whenever the merchant "settles" their terminal. Settling a terminal, also known as "batching", is when a merchant sends their completed transactions for the day to their acquiring bank for payment. Some providers perform this automatically. It is important to close a batch every 24 hours or a higher rate will be assessed by Visa or Mastercard.

Customer Service fee

The customer service fee (also known as a maintenance fee) can be charged by some providers to pay for the cost of customer service.

Annual fee

The Annual fee can be charged by some providers to pay for costs of maintaining the merchant's account. Sometimes these fees can be quarterly. The fee can be from $79–$399.

Early Termination fee

The early termination fee can be charged by some providers if the merchant ends the contract before the end of the contract term. While contract terms of 1–3 years are typical, some providers have terms of up to 5 years with a one year prior notice to cancel or the fee will be assessed. Some providers also assess all statement fees and monthly minimums remaining when the contract is terminated. Some providers may also assess a "lost profit" fee based on an assumption of profits they concluded they would have earned during the full term of the contract.

Chargeback fee

The chargeback is the largest risk that is presented to banks and providers. This is not to be confused with a refund, which is simply a merchant refunding a transaction. In the Visa and Mastercard rules, the merchant's processing bank is 100% responsible for all the transactions that the merchant performs. This can leave the provider open to millions of dollars of potential losses if the merchant operates in an illegal or risky manner and generates many chargebacks. The providers pass this cost on to the merchant, but if the merchant is fraudulent or simply does not have the money, the provider must pay all the costs to make the card holder whole. The chargeback risk is the largest part taken into consideration during the contract application and underwriting process. Some banks are much more stringent than others when assessing a merchant's chargeback risk.

If a merchant encounters a chargeback they may be assessed a fee by their acquiring bank. A potential chargeback is presented on behalf of the card holder's bank to the merchant's credit card processing bank. A reason code is established by the card issuer to properly identify the type of potential chargeback based on the card holder's complaint. The most common complaint is that the card holder can not remember the transaction. Usually, these potential chargebacks are corrected when the merchant's processing bank sends over more details about the transaction. Some providers charge a fee for this service, known as a "Retrieval Request". A chargeback can also be related to a fraud or similar dispute that the card holder is claiming to the merchant. This fee can be charged by some providers whether the chargeback is successful or not and is not dependent on the amount of the chargeback.

Currently both Visa and Mastercard require all merchants to maintain no more than 1% of dollar volume processed to be chargebacks. If the percentage goes above, there are fines starting at $5000 – $25,000 to the merchant's processing bank and ultimately passed on to the merchant.

In all cases, a chargeback will cost the merchant the chargeback fee, typically $15–$30, plus the cost of the transaction and the amount processed.

Payment Card Industry Data Security Standard (PCI DSS)

PCI DSS was created by the Security Standards Council as a set of rules merchants must adhere to in order to reduce fraud throughout the industry. The goals of the PCI DSS Standards and corresponding rules are as follows:

• Build and Maintain a Secure Network
• Install and maintain a firewall configuration to protect cardholder data
• Do not use vendor-supplied defaults for system passwords and other security parameters
• Protect Cardholder Data
• Protect stored cardholder data
• Encrypt transmission of cardholder data across open, public networks.
• Maintain a Vulnerability Management Program
• Use and regularly update anti-virus software or programs
• Develop and maintain secure systems and applications
• Implement Strong Access Control Measures
• Restrict access to cardholder data by business need-to-know
• Assign a unique ID to each person with computer access
• Restrict physical access to cardholder data
• Regularly Monitor and Test
• Track and monitor all access to network resources and cardholder data
• Regularly test security systems and processes
• Maintain an Information Security Policy
• Maintain a policy that addresses information security for employees and contractors

For any questions or to clarify these explanations please contact Naples Merchant Services

239-449-6040

Naples Merchant Services
239-449-6040
888-601-0801 fax
info@naplesmerchantservices.com

http://www.naplesmerchantservices.com/

Credit Card Pricing Explained - 3 Tier Method

3-Tier Pricing

The 3-Tier Pricing is the most popular pricing method and the simplest system for most merchants. In 3-Tier Pricing, the merchant account provider groups the transactions into 3 groups (tiers) and assigns a rate to each tier based on a criterion established for each tier.

First Tier - Qualified Rate

A qualified rate is the percentage rate a merchant will be charged whenever they accept a regular consumer credit card and process it in a manner defined as "standard" by their merchant account provider using an approved credit card processing solution. This is usually the lowest rate a merchant will incur when accepting a credit card. The qualified rate is also the rate commonly quoted to a merchant when they inquire about pricing. The qualified rate is created based on the way a merchant will be accepting a majority of their credit cards. For example, for an internet merchant, the internet interchange categories will be defined as Qualified, while for a physical retailer only transactions swiped through or read by their terminal in an ordinary manner will be defined as Qualified.

Second Tier - Mid-qualified Rate

Also known as a partially qualified rate, the mid-qualified rate is the percentage rate a merchant will be charged whenever they accept a credit card that does not qualify for the lowest rate (the qualified rate). This may happen for several reasons such as:

A consumer credit card is keyed into a credit card terminal instead of being swiped
A special kind of credit card is used like a rewards card or business card
A mid-qualified rate is higher than a qualified rate. Some of the transactions that are usually grouped into the Mid-Qualified Tier can cost the provider more in interchange costs, so the merchant account providers do make a markup on these rates.

The use of "rewards cards" can be as high as 40% of transactions. So it is important that the financial impact of this fee be understood. So therefore, merchants will be charged the qualified plus the mid qualified rate. Example) If your qualified rate is 1.5% and the mid qualified rate is 1 %, your effective rate would be 2.5 %.

Third Tier - Non-qualified Rate

The non-qualified rate is usually the highest percentage rate a merchant will be charged whenever they accept a credit card. In most cases all transactions that are not qualified or mid-qualified will fall to this rate. This may happen for several reasons such as:

A consumer credit card is keyed into a credit card terminal instead of being swiped and address verification is not performed
A special kind of credit card is used like a business card and all required fields are not entered
A merchant does not settle their daily batch within the allotted time frame, usually past 48 hours from time of authorization.
A non-qualified rate can be significantly higher than a qualified rate and can cost the provider much more in interchange costs, so the merchant account providers do make a markup on these rates.

For more information:

Naples Merchant Services

239-449-6040

888-601-0801 fax

info@naplesmerchantservices.com

www.naplesmerchantservices.com