Credit Card Processing 101

Merchant Account Set-up

Q: How do I setup my shopping cart with a merchant account for credit card processing?
A: Most shopping cart systems are "pre-programmed" to allow easy credit card processing. Most shopping cart companies integrate with something called "virtual terminals" or "gateways." In order to use these gateways you need to signup with a gateway company directly such as Authorize.net or Verisign. Some merchant account providers bundle a gateway with the merchant account. Monster Merchant Account is a specialty online merchant account provider that bundles a gateway and merchant account into one package. These bundled programs are an excellent choice as they limit headache and provide for single phone call support.

Credit Card Processing Terminology

Q: What is a gateway or virtual terminal?
A: Gateways are special pieces of online software that securely pass credit card information from the shopping cart to the merchant bank. Gateways are also sometimes called virtual terminals because they perform the same function virtually that credit card swipe machines perform in brick and mortar stores. The shopping cart will pass all the credit card information directly to the gateway via a secure SSL encrypted channel. The gateway then passes all of the information directly to the merchant bank (also known as the merchant account provider) will then process the card and arrange for the funds to be deposited in your business checking account (usually within 48 hours). Read more

Merchant Account Rates

Q: I see a lot of advertising that says "no hidden fees." What does this mean?
A: Merchant accounts have always carried many small and some large "extra" fees. If you think about it, processing a credit card and depositing money into a bank account is not a cheap task. In the Internet age, merchant account companies are all trying to appear to have the best deal when in reality all merchant account providers have similar costs and there really isn't a provider who can undercut the competition significantly. You have probably heard the saying, "if it looks to good to be true, it probably is." This is absolutely the case with online merchant accounts.

Think of the costs associated if the merchant account provider is doing things right: Software and virtual gateway development costs, network costs, security costs, fraud examiners cost, customer service reps, administrative costs, hardware costs, mailing costs, bank fees, etc. The list is never ending. It is important to read the contract that comes from the merchant bank. This is where you will finally see all the real costs. A few crazy things I have seen lately surround early termination fees. Last week I spoke with a customer who read his contract and found that there was a $795 fee if he cancelled the account before the year contract was up! You can always expect to see a gateway fee, a statement fee, a transaction fee (both flat and percentage), a charge back fee, and a monthly minimum fee and there is sometimes variation based on how much information is sent through the gateway when the card is processed.

The bottom line is if you go with a reputable merchant account provider, it will, no matter what, cost more than you think, BUT you are not likely to get scammed like you are with some of the smaller merchant account companies just struggling to compete.

Chargebacks - Defeating credit card fraud

Q: What are chargebacks and how do they work?
A: A chargeback occurs when a credit card owner decides that he/she is not responsible for a charge appearing on their card. Different credit card companies handle this type of claim differently. When a Visa or MasterCard user submits a charge back, the merchant who made the sale is given a chance to rebut the chargeback. This means the merchant can submit evidence showing why the chargeback is inappropriate. Once the merchant has submitted this, a review committee from Visa/MasterCard reviews the complaint and the rebuttal and makes a decision.

The decisions in these cases are usually fair. American Express on the other hand, has a much different policy and heavily favors the consumer. If an American Express user submits a chargeback, depending on the type of goods, Amex usually debits the merchant's bank account right away and awards a victory to the consumer, no questions asked. This type of policy makes it very difficult for Internet merchants to accept American Express as many consumers are catching on to this trick and using it as a way not to pay! In addition to this policy, American Express allows a cardholder to charge back if they were "dissatisfied with the good or service." This allows an Amex cardholder to make a purchase, not return the item, and then claim that they were dissatisfied.