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What Are MCC Codes and How Are They Used for Merchant Accounts?

  
  
  

Accepting credit and debit cards as a payment option can be a highly profitable choice for most merchants, as it offers customers the convenience of one of the most commonly and easily used forms of payment, thereby making it simpler for them to patronize the merchant's business and potentially spend more than they otherwise might. However, as any merchant who has applied for a payment card processing account is aware, not all merchant accounts are the same. When a business first applies to a processing institution for an account, it is assigned a merchant category code (MCC) based on the primary kind of business it offers. This four-digit code was originally implemented in 2004 as a means of simplifying tax reporting, but has since expanded to have a number of other applications.

What-is-MCC-SIC-Merchant-Category-Code-MerchantAccountMerchant category codes allow payment card processors to describe succinctly the type of market segment a given business occupies based on the primary form of goods or services it offers. A restaurant, a gas station, and a computer software store will each have a different MCC number that indicates the sort of merchant it is. The original purpose for these codes was to make 1099 reporting simpler for commercial customers, who needed to report payments made for the purchase of services, but not for goods, on their tax forms. Rather than having to review each individual transaction, they could simply refer to the merchant's MCC number to indicate whether the business was listed as a seller of goods or a service provider.

Since then, merchant category codes have been put to other uses, some of which have more immediate relevance for the merchant itself. Credit card processing companies charge an interchange fee for each transaction they process. The interchange fee is separate from the markup these companies apply for their own profit, and reflects the expected risk of chargebacks and refunds for transactions of a given type. Interchange fees vary based on a combination of factors, including the type of payment card being used, whether the transaction is keyed, swiped, or online, and what kind of business is receiving the payment. This is where your merchant category code comes into play. Certain types of businesses carry a lower risk for payment processors, and thus have lower interchange fees for the merchant. By ensuring that your merchant category code is accurate, you may discover that you qualify for a different interchange rate, which could be lower than the typical rates.

Another usage of merchant category codes is most relevant to your customers, but a savvy merchant may be able to exploit it to make their business a more appealing place to spend money. Many credit cards offer rewards, such as cash back or airline miles, to cardholders who use their card for transactions at certain types of businesses. Some will offer double or triple points when the card is used to buy groceries, gas, prescriptions, or similar everyday needs. Whether these bonuses apply is determined by the MCC number of the terminal where the transaction takes place. Which code a given merchant has been assigned isn't always obvious – often, different store locations within the same franchise will have different merchant category codes. For instance, one Target store might be categorized as a grocery store, but the Target in the next town may have the MCC of a discount store. Some stores have separate MCC numbers for their pharmacy terminals. Ensuring that your MCC number is accurate and reflects a business type that offers maximal rewards to your customers can make your business a more attractive place to shop.

We have a team of experts on hand to answer any additional questions you may have regarding MCC Codes or merchant accounts in general; we won't bite, we promise!

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eCom Merchant Accounts: What's Required for Website Compliance?

  
  
  

If you operate an eCommerce or online business and want to accept credit cards, you will need to satisfy several requirements on your site in order to be compliant with Visa and MasterCard’s standards for these types of businesses.  Most of these items are simple and can be done easily by you and with the help of a qualified gateway or merchant account specialist.  Not only are these required by most processors, but having them in place makes for a professional and welcoming experience for your customers.  After all, getting the customer to your site is only half the battle; keeping them there throughout the checkout process is the other half!

eCom Merchant Account Website RequirementBelow we will discuss all of the things that need to be in place to meet the standards set forth by Visa and MasterCard and the credit card processing banks.  The things you will need to have on your website if you are accepting credit cards on it are:

Contact Information

The website must have good contact information for your business which would include at a minimum: a Mailing Address, Monitored Telephone Number(s), and a Customer Service Email Address.  A physical address and multiple points of contact as far as telephone and email are also recommended.  

Terms and Conditions of Sale

The Terms and Conditions of Sale (T&C's), are especially important to protect you and your business and also to make sure the end consumer understands their rights.  It’s important to have sufficient legal language to protect your specific business, but don’t get to verbose on the legalese as it may scare customers away.  A search engine query for “Generic Ecommerce Terms and Conditions of Sale” will turn up a bevy of samples and templates to use.

Privacy Policy

Once again the Privacy Policy is important to your eCommerce store as it legitimizes your business.  A professional privacy policy helps your customer understand what privacy they have when doing business with you and what privacies they may give up to do business with you.  You can find Durango's Privacy Policy here as an example.

Refund Policy

A clear Refund Policy not only is required for online sales of products or services, but once again it helps legitimize the business.  The policy should be concise and clear about the rights that the customer has, or does not have, in regards to a refund, if any.  If you have a No Refund Policy, be sure and specifically state this. It is also recommended to have a TOS (terms of service) checkbox on your checkout page, that forces the customer to agree to the refund policy. This may prove a deciding factor in potentially winning a chargeback dispute with a customer who states that they were never made aware of your refund policies.

FAQ's:

While a FAQ page isn't required per se, we're including it here as a recommendation, since most consumers these days have become accustomed to searching for a FAQ link that quickly summarizes (or links to) the pertinent info (refund & return policies, shipping policies, etc)

Secure Checkout

This simply means that all transactions being processed in an eCommerce fashion need to be encrypted in order to not only meet the visa and MasterCard guidelines, but also to make sure your customer knows that their payment card information is safe and secure with your business.

This means using a qualified processor or processing bank, payment gateway and shopping cart provider.  The checkout pages should always be encrypted via a "https" connection, instad of the checkout page only being "http." To encrypt your checkout page with https (where the little "lock" appears on your website broser) you will need to either:

  • Use a secure/encrypted "hosted" checkout page from your gateway or shopping cart provider (where the shopping cart or payment gateway host the checkout page on their server). Click here to read about Durango's hosted checkout service: QuickClick.
  • If you are instead hosting the transaction on your server, then you are responsible for encrypting the checkout page(s). You will need to purchase a "SSL Certificate" which will be installed on your server to enable webpages to be turned https. There are many popular SSL certificate providers out there (Verisign, Comodo, GlobalSign, etc), but often the cheapest (and easiest!) option is to ask your webhost who they use by default for SSL certificates and sign up with them (honestly, even if it's $20 more a year, you'll find that registering your site with a 3rd party SSL certificate provider can take several days of effort).

You can secure every page on your entire website if you would like, but remember encrypting a page will slow the download times for the content, which may make consumers abandon their cart prematurely; that is why most ecommerce stores only encrypt the actual checkout pages where sensitive data is passed by the consumer.

That sums up the bulk of what processing banks will be looking for from your site from an underwriting perspective for approval.  As well, these are the standard features most savvy internet consumers expect to see from a trustworthy website these days, and importantly, these features will help to safeguard your business.  If you have any questions about these policies or the services we offer to help you implement these requirements, please don’t hesitate to inquire with us. 

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What is a Merchant Cash Advance?

  
  
  

Business owners know that need creates a market when supply is down. They also find that, when they need quick access to cash capital, they now encounter more restrictive lending rules. A new merchant cash advance industry is stepping up to fill that need. 

Quite simply

In a merchant cash advance, a merchant gets a lump sum cash payment in trade for a percentage of future debit or credit card profits. Restaurants, retail stores, and service providers who may have poor credit experience and little collateral, but who have strong credit-card sales are ideal candidates for a merchant cash advance. However, the most needy prospects may be those new in business, and they need to educate themselves about how the merchant cash advance works.

What-is-merchant-cash-advanceHow it works

The provider collects a percentage of the daily credit card receipts directly from the card swipe terminal. The daily collection continues until the advance is repaid. 

• ACH: The cash advance company receives its payment through automated clearing house (ACH) transfer from the merchants' checking account.

• Trust Bank Account: The merchant deposits all credit card sales into a lock box or trust bank account maintained by the advance company. Then, the agreed upon percentage transfers through ACH or electronic funds transfer (EFT).

• Split Funding: The credit card processor splits the credit card sales automatically between the merchant and the finance company. Parties to such arrangements prefer this split because it is seamless. 

Advantages

1. Because the merchant's payments fluctuate as a function of sales, this allows the merchant more flexibility to manage cash flow.

2. Cash advances are processed much faster than conventional loans putting capital in the hands of the merchant sooner.

3. Cast advance providers pay more attention to the merchant's sales performance than to the business owner's credit history.

4. The merchant pays less during slower months and usually repays the advance within 12 to 24 months.

5. There are neither due dates nor late fees. 

Because the money is an advance on the purchase of future income, the merchant cash advance is not deemed to be a loan. And, that puts the process outside of banking regulations, which presents some risk of abuse by lenders that concerns some financial experts.

As with any business financial decision, a business should opt for the merchant cash advance after fully informed research. In some circumstances it is the best and only choice, but any decision affecting cash flow should be taken with consideration and good advice. As always if you have questions about cash advance programs or any of our services please inquire with us.

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What is Level II Card Data, & lowering fees on "Purchase Cards?"

  
  
  

For merchants that sell only to corporate or government customers using "P-Cards" or "Purchase Cards," significant savings can be realized by processing their credit card transactions with Durango Merchant Services!

Visa and MasterCard created a special type of credit card (Purchase Cards) used primarily by government agencies and businesses. Increasingly, corporations and government agencies are relying on this form of payment to purchase supplies & services, as the typically complicated nature of submitting a purchase invoice on Net-30 or Net-60 can be reduced to "Next Day." Merchants benefit by receiving their funds quickly on competitive bids and government contracts where purchasing cards are the required form of payment.

The downside, however, is the increased costs associated with receiving these payments. These costs will usually be much higher than accepting a standard consumer credit card, at least for merchants that are on a traditional "Tiered Pricing" merchant account, since with a traditional merchant account, all corporate & government cards typically fall into the "Non-Qualified" discount rate (which can be 1% to 2% higher than your qualified discount rate).

Level-II-Card-Data-Government-Purchase-Card-Merchant-AccountThe solution is to switch to an "Interchange Plus" (or "Cost Plus") merchant account with Durango, and passing "Level II Card Data." If you are not familiar with Interchange Plus pricing, don't worry it's not terribly scary. Please click on this link to read more about Interchange Plus pricing on merchant accounts.

Once you have an Interchange Plus merchant account setup, merchants can qualify their Purchase Card transactions with "Level II Card Data," which will allow them to pay lower interchange rates on these transactions. The following details need to be included on each transaction in order to qualify for Level II interchange rates: Order ID, Order Description, PO Number, Shipping, and Tax. Those fields are required in addition to the standard information (billing details, such as name, address, etc.) If all the required data is not collected and passed with the transaction, the transaction will fall into a higher interchange rate.

The following are current (as of April 2014) Interchange Rates for Visa:

  • 2.65% + $0.10: Purchasing CNP
  • 2.40% + $0.10: Purchasing Retail
  • 2.10% + $0.10: Purchasing B2B
  • 2.05% + $0.10: Level II Data Rate

And Interchange rates for MasterCard:

  • 2.50% + $0.10: Data Rate II - Fleet
  • 2.40% + $0.10: Data Rate II - Purch
  • 2.20% + $0.10: Data Rate II - Business
  • 2.15% + $0.10: Data Rate II - Corp
  • 2.05% + $0.10: Data Rate II - Petro

As you can see, even once you include the 0.15% to 0.30% and $0.15--$0.20 rates that the processing bank will charge you to both service your account as well as to assume the risk on your transactions (in addition to/plus the interchange costs), these rates are much better than paying a non-qualified discount rates of 3.5% to 4.5%!

Level II Card Data is supported by default in Durango's Gateway using our online "Virtual Terminal," and via most of our integration methods (except for QuickBooks and iProcess mobile apps).

Level II Card Data is not that complicated to include on your credit card transactions, it is simply the details from the purchase invoice, and Durango's gateway has the following fields which you would populate using our Virtual Terminal online:Level-II-Card-Data-Purchase-Card-Merchant-Account-Government-Corporate

Note: It is very important that you include a tax amount. Merchants with non-taxed orders will not be able to enjoy Level II card rates, as the card issuing banks do not accept $0 tax amounts any longer.

If you would like any additional information on Level II Card Data Merchant Accounts, please contact Durango today!

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What is the TMF or MATCH List?

  
  
  

For the financial institutions that offer them, merchant accounts represent a certain level of risk; irresponsible, unreliable or fraudulent merchants can create a financial loss for the processing bank that approved those merchants. In order to protect themselves, many merchant account providers refer to a list known as the Terminated Merchant File (TMF) list when considering new clients. Otherwise called the MATCH (Merchant Alert To Control High-Risk) list, the TMF is a list compiled and managed by MasterCard, of business owners (merchants) whose accounts have been terminated in the past 5 years for any of a variety of reasons.

As useful as the TMF is to banks and other account providers to protect themselves from approving a merchant who could cause a loss, it can make life quite difficult for a merchant who finds himself listed in the file. Many merchants are unaware that their name even appears on this list until they apply for a new merchant account and are turned down. Because the name of the business, it’s principal signers, and both their addresses are recorded in the MATCH file, a business cannot simply substitute a new signer to get approved elsewhere; a merchant's problems can even follow them to unrelated business ventures. The TMF effectively works as a blacklist against merchants who banking institutions deem too high-risk – so it's important to understand how the list is operated and what a merchant can do if they find themselves on it.

TMF-TMF'd-MATCH-Blacklist-Merchant-AccountWhen a merchant whose name appears on the MATCH file applies for a merchant account through a new financial institution, their application will be flagged, and it is likely that the new processing bank will turn down the application, deeming it too high-risk. The processing bank may choose to contact the institution that added the merchant's name to the list and inquire about the circumstances that led to the account termination. Using that information, they may choose to accept the merchant's application, reject it, or offer a conditional acceptance with restrictions.

What kinds of problems can cause a merchant to be listed on the TMF? In short, any sort of activity that causes the account holder to appear to be a bad risk. This can include excessive chargebacks, or excessive fraudulent transactions; noncompliance with PCI-DSS (payment card industry data security standards), the compromise of merchant account data; laundering, fraud, or collusion on the part of the account holder, or evidence that he was engaged in illegal transactions; an inability of the merchant to meet financial obligations due to bankruptcy or insolvency; or evidence that the account was opened fraudulently and that the identity on the account was stolen, lastly a merchant can be listed for violation of standards (agreement).

Though the MATCH system is managed by MasterCard, individual acquiring banks have the power to add or remove the names of merchants from the database if they have justification. There is little oversight in this process; MasterCard explicitly states in its Security Rules and Procedures that it does not attempt to verify the accuracy of, or basis for, the listing of any merchant on the TMF list, and that the data contained therein may be inaccurate or the circumstances giving rise to a merchant's inclusion on the list may be under dispute.

It can be hard for a merchant to get his or her name off the TMF list, depending on the reason he or she was listed initially – fraud is a particularly difficult hurdle to overcome. The only recourse is to contact the banking institution that listed you in the first place and try to resolve whatever issue led to the termination; only the processing bank that placed you on the TMF has the power to remove your name. Alternatively, if you feel the TMF listing is unfair, there are lawyers who specialize in this niche. Otherwise, your listing will remain active for five years.

Here at Durango Merchant Services we are often able to assist merchants that may be on the TMF list, however each case is unique.  Please inquire with us about the processing options for your business.

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PayPal Vs. A Traditional Merchant Account

  
  
  

When beginning or expanding your business's online sales, one of the most important decisions to make is how you will accept payments from your customers. There are different options available to the eCom merchant for payment processing. In particular, PayPal has grown beyond its roots as an eBay payment platform and become very popular among small online businesses. When considering payment processing options for your business, it's necessary to understand how PayPal stacks up against traditional merchant accounts.

Payments accepted through a merchant account for online transactions are similar to face-to-face transactions. You have an account with a bank or other financial institution, and the payment processing company accepts your customers' card information through your website's payment gateway, securely processes it, and deposits the transaction funds directly into your bank account. These funds are available for your use typically within 2 business days. Some kinds of businesses, including travel services & future fulfillment, are deemed to carry higher levels of risk and may have more difficulty in opening a merchant account (although if your company is considered higher risk, Durango specializes in these types of accounts, click here to read more about high risk merchant accounts).

With PayPal, things work differently. When a customer makes a purchase on your website via PayPal, they are redirected to PayPal's payment gateway (away from your website) to enter their financial information, where you are not in control of the customer's checkout experience. In the past, the customer had to have a PayPal account of their own, but now they can use their credit or debit card as well. The payment is processed through PayPal's own merchant account, and enters their system. The transaction funds appear in your company's PayPal account, but transferring that money to your bank account can take up to a week.

PayPal VS Merchant Account

PayPal is a tempting option for many start-up companies and small businesses because they do not charge monthly fees and is free to set up. Instead, PayPal charges a fee for each transaction they process. Companies with a lower transaction volume might save money by using PayPal as their primary payment avenue, but a greater transaction volume means that PayPal's higher transaction fees can cost your company more.

Most merchant accounts come with a secure payment gateway to use on your website. You can customize the security levels that determine what kinds of transactions are flagged or declined through your payment gateway, and you can be confident in the security that protects your customers' data because it never leaves your own website except through the payment processor's secure gateway. Payment card processing companies are held to strict industry standards about privacy, and will never share any of your customers' data.

PayPal is a private company, and has different policies about customer privacy. They openly state that they will share customer information with third-party market research companies and their parent company, eBay. Security with PayPal also operates differently: when a customer makes a purchase through PayPal, they are redirected to the PayPal website to enter their financial information, which can be a significant source of abandoned shopping carts in an ecommerce environment since the consumer has to go through more steps to check out. A streamlined and efficient checkout process is crucial for garnering online shoppers in today’s fast paced world. Additionally PayPal sets the security settings, potentially refusing international transactions or those with AVS/CCV mismatches. PayPal also reserves the right to shut down your account, locking away your money, if they suspect fraud; resolving this issue can be lengthy and difficult, and your funds are inaccessible for the duration.

Accepting PayPal transactions is convenient for many customers, especially habitual online shoppers. However, traditional merchant accounts carry greater customer confidence, as they are backed by decades of experience and regulation. They also will have more customization in the security offered, as well as controlling the checkout process so that your customer is not diverted away from your website.  Having a merchant account confers an appearance of professionalism that a business relying solely on PayPal might lack.

Finally, at least in comparison to Durango Merchant Services, PayPal does not offer a dedicated account manager. If you encounter any trouble with PayPal, you will not have one person that you can rely upon to both call and email for immediate assistance. PayPal is a very useful and convenient payment option, but for most businesses, it should not be the only option.  For more information on the various types of accounts we are able to provide, please submit a brief pre-application here. 

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Common Chargeback Reasons Explained

  
  
  
We have previously discussed chargebacks in depth here on our blog, however we thought we would take this opportunity to discuss a few of the most common reasons for receiving a chargeback, and what you can do to hopefully prevent them from occurring in the first place.  The two we will focus on here are Services Not Provided or Merchandise Not Received, and, Not as Described or Defective Merchandise.  These two are by far the most common types of chargebacks for merchants to receive, either legitimately or by accident.

Chargeback Reason: Services Not Provided or Merchandise Not Received

Chargeback Reasons ExplainThis type of chargeback occurs when the card issuing bank receives a claim from the cardholder that merchandise or services requested where not received or the card holder canceled the order as the product or services where not received within the anticipated time frame.  Some of the reasons this chargeback would be received are:

•           Issues with fulfillment centers or drop shippers

•           Shipping delays by the carrier

•           Not fulfilling in a timely manner

•           The merchandise was not available for pickup

•           The services or product where misrepresented by the merchant

There are a number of ways to combat these types of chargebacks such as using only reliable and reputable fulfillment centers or drop shippers.  Always try to provide the end consumer with realistic time frames for fulfillment of the product or service, don’t tell them it will be 3 business days for receipt when it will realistically be 5-7.  Always try to be fair and transparent in your marketing of the products or services so there is not miscommunication regarding what they are receiving for their hard earned money.  When selling physical products always use reliable shipping providers and get a delivery confirmation from them in case the consumer says they did not receive the products (for higher ticket items, requiring signature delivery or delivery confirmation may be a good idea as well).  Another good way to combat some of these is to use the tools at hand to verify what you can on the transaction, for example the Address, Zip code and the CVV/CVC code on the back of the card, read more here about using AVS & CVV Filters

Not as Described or Defective Merchandise

This Chargeback reason is used when the end consumer feels that they did not receive the merchandise as it was marketed or the services where not rendered to their satisfaction.   It can also be received when the customer takes delivery of defective or damaged products and the merchant has not made sufficient action to remedy the problem.  It should be noted that for this type of chargeback to apply the card holder must have attempted to resolve the issue or return the merchandise.  It can also occur when the merchandise has been returned but the merchant has not issued a timely refund. Sending the wrong merchandise or substituting items without disclosing the changes to the card holder can result in this chargeback being received as well. This chargeback reason can also be used in the case of quality disputes (i.e. Poor accommodations or faulty auto repair).  Some of the things that merchant can do to prevent this type of chargeback are:

•           Always make sure the marketing material is easily understood, clear and transparent – misrepresentation (either intentional or accidental)  is the most common reason for this chargeback to be received

•           Ensure that a qualified shipping partner is contracted to prevent damage during transit

•           Always make sure the end consumer knows what they are getting for when they pay for a service – set their expectations appropriately

•           Consistently attempt to resolve any issues that the card holder has

•           Offer refunds on returned merchandise in a timely manner

•           If there is a restocking fee for returned merchandise – always make this clear at the time of purchase

•           Whenever possible confirm the contents of the shipment are what the customer wanted

By following these steps a credit card processing merchant can greatly reduce the amount of wrongful chargebacks.  Remember the burden of proof is on the merchant in the case of a chargeback so doing everything you can to verify the consumers intention and their information will be invaluable.  If something sounds fishy or off about a transaction pick up the phone and call the consumer to confirm their information and order.  The 5 minutes it takes to do this on suspicious or odd transactions will easily pay for itself in the prevention of chargeback fees and the lost time it takes you to dispute them. As always if you have questions or comments regarding chargebacks and the dispute process please feel free to contact us.

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International Multi-Currency Credit Card Processing

  
  
  

The internet has helped break down many of the conventional borders to commerce, including national boundaries, making it easier for businesses to become truly global. However, many payment processing companies haven't caught up with this more cosmopolitan business world, and make it expensive or impossible for merchants outside the United States to get accounts, because they are regarded as carrying a higher risk for the processing institution than U.S. merchants do. In addition, doing business with customers in other countries remains challenging due to language and currency barriers. These obstacles make it harder to realize the full potential of global commerce offered by online sales.

That's why we've partnered with a worldwide leader in international multi-currency credit card processing. Their service unites the most necessary and convenient elements of global payment processing, helping merchants and customers all over the world connect easily and securely. We understand the need that merchants have to provide flexibility in payment options to their customers, to allow them to make purchases in their own currency, and to offer a payment gateway in their own language. An international multi-currency credit card processing account will allow you to accept payments via MasterCard, Visa, Discover, American Express, Diner's Club, PayPal, JCB, and debit cards (in the U.S.) through a single payment gateway, which is translatable into 15 languages and is compatible with 26 international currencies used by buyers and sellers in more than 200 countries globally.

That payment gateway itself is also an important part of the service you can access. When a buyer clicks the checkout button to place their order and is directed to a page that looks completely unrelated to the website of the business from which they're buying, it tends to confuse or unsettle the customer. A checkout system that appears consistent with the rest International-multi-currency-merchant-accountof the company's website is more trustworthy to most buyers. With this payment gateway we offer, you have the ability to customize your gateway to match your website's background and color theme using the Direct Checkout service. You can upload logos that will appear on your checkout pages, and include your business's contact information and links to your shipping and return policies, which increase customer confidence and make them feel more secure in completing their purchases.

Of course, making your customers feel secure is only half the battle; you also need to ensure that your online transactions are protected and that your customers' financial data is safe. Both domestic and international multi-currency credit card processing companies are subject to the Payment Card Industry Data Security Standard (PCI-DSS), a set of regulations that establish standards for the protection of customers' financial information. This solution is PCI Level 1 certified, the highest available level of PCI certification, which reflects the investment and effort made to protecting your customer data. There are redundant data centers which store and encrypt millions of payment card accounts, enabling merchants to focus on serving their clients rather than on data security, while knowing that their customers' financial information, and their own reputation as a reliable business, remains safe. Also employed is a set of proprietary fraud-prevention algorithms and techniques tailored to specific industries and regions, enabling the system to identify fraudulent activity therefore reducing its impact on your business.

Merchants who apply for an international multi-currency merchant account through us are also able to take advantage of an industry-leading recurring billing system. One-time customers are certainly valuable, but long-term clients are the foundation of many industries, and an easy and reliable recurring billing system is essential to support their continued business. It's simple to set up any billing interval your company requires, allowing you the flexibility to step outside the more conventional time increments as needed.

Business owners have enough complicated tasks to keep track of simply by virtue of running their company; payment processing should be as simple as possible. By using this system, you can enjoy the benefit of bundling the payment gateway and merchant account into a single service without needing to deal with the intermediary of a merchant bank or juggle multiple contract agreements. You will have access to reliable call center support to help address any issues that may arise, and you will be able to transact business from essentially anywhere in the world, save for OFAC listed countries (North Korea, Cuba, Iran, Syria, Sudan, China, and Myanmar, etc.). The internet offers nearly limitless flexibility and freedom to businesses, allowing smaller merchants to operate on a global scale. With our international multi-currency credit card processing solution, your business can take advantage of that promise of free commercial enterprise.

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Interchange Plus Pricing: Transparent Fees on Merchant Accounts

  
  
  

Having the ability to accept customer credit and debit cards is a substantial asset for merchants, whether they conduct business from a brick-and-mortar store, over the phone, online, or through a combination of these. However, understanding the cost of credit card processing can be complicated, below we will try to explain the difference between traditional "Tiered" merchant account rates, and "Interchange Plus" merchant account fees, the latter of which provides the most transparent pricing to merchants.

In an effort to simplify the pricing system for credit card processing, many merchant account providers have established a system of "tiered pricing," in which transactions are typically sorted into 2 or 3 categories (or tiers) based on the type of card, the type of transaction, and other traits. Each tier has a flat pricing rate assigned to it. These are usually called "Qualified Discount Rate, Mid-Qualified Discount Rate, & Non-Qualified Discount Rates," and an example of this pricing would be 2.39%, 3.39% and 3.89%, respectively. In grouping transactions into tiers, the complexity of interchange rates is simplified, but the transparency of the pricing is lost. Under the tiered system, many merchants are left wondering why some transactions don't meet the criteria for the lower discount rate (tier).

Interchange plus pricing, on the other hand, although being more complicated, offers the most transparent pricing available to merchants, as well as considerable potential savings on merchant account rates. Let's examine what "Interchange" is so that this is less confusing: Visa and MasterCard set fixed "buy rates," which are given to the processing banks for the processing of transactions with their payment cards. Interchange therefore is the "cost" charged to your processing bank by Visa or MasterCard to process each transaction, and all interchange rates are publically available for viewing online for any merchant to confirm. The interchange fee is determined by a number of factors, and there literally are several dozen different card types with hundreds of possible transaction fee rates. This maze of transaction types led to the tiered pricing system, simply because understanding interchange plus pricing can tax even the sharpest accountant!

Interchange-Cost-Plus-Pricing-Merchant-Account

With interchange plus pricing however, there is no categorizing of transactions. The "transparency" here is that the same interchange rate set by Visa & MasterCard, is "passed through" directly to you the merchant, by the processing bank & itemized on your merchant account statement. As such, your monthly statements will grow by a few pages if you switch from tiered rates to interchange plus pricing! But, you can now easily see the "buy rates" that the bank was charged by Visa & MasterCard. Of course, the processing banks exist to make a profit, and do carry considerable risk in underwriting your business as well as costs in servicing your account, so in addition to the interchange rates passed through to you, a flat % and transaction fee is charged by the processing company to cover the costs and risks associated with facilitating the transaction. Voila! This explains the "PLUS" in the phrase "Interchange Plus Pricing."

Now that the merchant can easily see what the processing banks "costs" are (the interchange rates) and what the processing banks "profits" are (the flat % and transaction fee), the merchant can now easily & transparently see the processing bank's markup for their services and assuming the risk for underwriting the merchant's business. The merchant cannot be charged more for a transaction simply by dropping it into a less-qualified tier with a higher rate, because the exact interchange rate set by Visa & MasterCard is used to determine the transaction charge, and the flat % and transaction fee in addtion to interchange from the bank is not variable.

"Interchange Pass Through" (also known as "Cost Plus" pricing) was originally only offered to bigger companies that processed large volumes of credit transactions, as processors needed to worry less about the profit they would make from each individual transaction. Now interchange plus pricing is becoming more widely available to merchants regardless of their transaction volume (some restrictions still can be found to exist), leveling the playing field and making smaller businesses more able to compete with industry giants. When the cost of the transaction is passed directly on to the merchant rather than being obfuscated by an inflated tier system, merchants can be confident that they are getting the best rate possible for transaction processing.

With a merchant account statement that makes it clear where each charge is coming from, it's easier to identify the necessary costs and separate out the bank's fees, which are often more negotiable. The transparency of interchange plus pricing reinforces the merchant's confidence and trust in their account provider, that the rates being charged for their transactions are fair.

If you are interested in additional information (such as where to view Visa & MasterCard's interchange rates) or working with a dedicated account manager that is an expert on this pricing model, contact Durango Merchant Services today!

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Refunds or Voids: Which Is Best to Use & When?

  
  
  

Void-Refund-Merchant-Account-Payment-Gateway-Better-Best-Credit-CardOne key distinction that new (as well as old) business owners should be aware of on their merchant account is that there are two different ways to cancel a recently processed sale, and that  the two have clear distinctions. While a refund & a void both accomplish the same task in the end (nullifying a payment from a customer), their effects are not the same, and a void is always the more preferred method of the two. We'll explain why in detail below!

REFUNDS:

All merchants are familiar with the concept of a "refund." A refund can be processed on a merchant account against a previously processed sale. There are a few items to be aware of when issuing a refund though:

  • The customer's card issuing bank can take from 3-7 business days to credit the funds back to your customer (time varies by the card issuing bank). You should state this to the customer when issuing the refund, so that they are not upset when they don't see the credited amount on their online statement the very next day.
  • Your merchant account provider (processing bank) typically charges the discount rate % on all refunds as well as the original sale (effectively, you pay the discount rate twice; once on the sale, and again on the refund).
  • A merchant with a high percentage of refunds will be considered higher risk. Generally, 5% is the threshold that merchants should remain under for their refund percentages compared to sales. Of course, refunds are always preferred over chargebacks, but high refund ratios often point to a problem in the merchant's advertising practices or product fulfillment.

VOIDS:

Voids are the ideal method to cancel a recently processed sale, but their is a time-limit: you can only void a sale before that sale settles in the settlement batch at the end of each day. Once a sale transaction settles, you can no longer void it, you must refund it. The benefits of a void (as opposed to a refund) include:

  • The customer is never actually charged, so it does not take 3-7 business days for the funds to be credited back to their account (the customer may see a "pending authorization" on their card for several business days, but this will eventually expire & fall off of their card).
  • The merchant will not be charged the discount rate on the sale nor the refund!
  • If you have a reserve on your higher risk merchant account, voiding a sale will prevent the reserve holdback % from being collected from the settled transaction, which can benefit your cash flow (reserve %'s are not credited back on refunded transactions).

In summary, always issue a void as opposed to a refund whenever possible, as the void clearly benefits both the consumer and the merchant. However, there is a short window available to issue the void, so its important to catch billing errors or process customer refund requests as quickly as possible. Most payment gateways will not offer the void functionality once the sale transaction has settled (in Durango's payment gateway, the void button will be "grayed out").

If you have any other questions regarding voids & refunds, or merchant account issues in general, and had to google your answer because your sales rep is too hard to get ahold of, try contacting Durango for a free proposal! Our merchant accounts come with dedicated account managers; we don't farm you off to an 800# for "support" after approval.

Service You Can Count On, People You Can Trust - Durango Merchant Services
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