Online Merchant Accounts: Why Your Business Needs One

One of the easiest and most common ways to shop online is to use a credit or debit card, and customers expect this option when they want to make a purchase on your website. In order to accept and process these transactions, you'll need an Internet merchant account. Even if you already have a brick-and-mortar store where you process credit card transactions made in person through a traditional merchant account, the same merchant account cannot be used for online credit transactions, because the regulations governing internet transactions are very different, and trying to process online credit orders using a standard retail merchant account is likely to get your account terminated. Also, if you process card-not-present transactions on your card-present (retail) merchant account, you'll end up paying higher discount rates than if you got properly setup for an internet merchant account. Whether your company is based entirely on e-commerce or your online store simply augments your brick-and-mortar business, you need an Internet merchant account to process your online credit transactions.

The reason for the additional regulations with online merchant accounts is that sending credit card information over the Internet is inherently risky, and as such merchants (or their processing companies) are required to conform to much more stringent standards to maintain network security, control access to systems holding card information, and protect cardholder data. This is one reason why it's important to choose your processing company carefully, but it's not the only factor to consider.

From the perspective of the credit card processing company, Internet merchant accounts represent a significant gamble. Because you never interact with the customer face-to-face – you can't check a signature or an ID, or even see them holding the physical card – the risk of fraud or other causes of chargebacks is much greater when doing business online. Because the online merchant account provider is responsible for all transactions in the event of fraud or other chargebacks, they charge higher rates for an Internet merchant account than they would for a comparable standard merchant account, to buffer themselves against the greater financial liability the online merchant account represents.

Not all Internet merchant account providers are created equal, so it's important to choose your processing company with care. The industry is extremely competitive, and some providers fail to disclose all of the fees associated with their merchant accounts, or don't measure up in terms of service and support.

Many companies will quote a "standard" discount rate in response to initial inquiries, but that rate is usually based on the most optimistic possible set of circumstances.  Look for a provider that is honest about the rates your account will typically be charged, and is upfront about all fees associated with your account. Be wary of processing companies that require long contracts; the service the company offers should be good enough to keep your business without trapping you in a lengthy contract.

Find out about the provider's reputation for service and support as well. Any technology-based industry will suffer its share of glitches; are they good at getting service back up quickly, and preventing interruptions? Do they have 24-hour customer support? Can they provide different services if your business expands? Make sure you have satisfying answers before signing up for your online merchant account.

Durango Merchant Services has been providing internet merchant accounts since 1999, and has experience with thousands of web businesses across the country and internationally. When setting up an internet merchant account, choose someone like Durango Merchant Services that has the expertise, experience, and know how to set you up with the correct merchant account and gateway system for your business.

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

Reserves: Why Many High Risk Merchant Accounts Require Them

From the perspective of a credit card processing bank, each transaction processed for a merchant represents a measure of financial risk. Chargebacks and other issues can result in losses for the processing bank; in order to insulate themselves from such losses, many credit card processing banks may require a reserve on your merchant account.

A reserve is similar to an escrow account, and allows the processing bank to establish a cash reserve in relation to the merchant's monthly processing volume. These funds are used to cover losses from chargebacks, uncollected fees and merchant fines if the merchant is unable to cover these expenses from their own checking account. Since customers have six months to file a chargeback, the reality for the processing bank is that each cleared transaction is essentially a loan to the merchant for the six-month period during which the transaction is vulnerable to being chargedback; the reserve acts as a cushion for the processing company in case that "loan" ends up going unpaid. The funds in the reserve still belong to the merchant, but are inaccessible for the period of time during which they are held in reserve. A processing bank will often require reserves from clients it determines to be high risk merchants.

Reserves can take a number of different forms, depending on the type of business and the individual situation of the high risk merchant in question.

• A rolling reserve is one of the most commonly used reserve models for high risk merchant accounts. For every deposit made to the merchant's account resulting from a cleared transaction, a fixed percentage of that deposit (typically 5-10 percent) will be held back for a period of six months. Funds that were held back in the first month will be released to the merchant account in the seventh month, and so on.

• A capped reserve holds back a percentage of each deposit resulting from a cleared transaction (usually 5-15 percent of the transaction) until a fixed "goal" amount is reached. The amount of that goal is typically one-half the merchant's monthly processing volume, up to one full month's processing volume. After that goal is reached, that money remains in reserve but nothing further is held from future transactions.

• An upfront reserve is also based on a percentage of a merchant's expected monthly volume (though not necessarily the same goal amount as a capped reserve), but that reserve is required upfront, at the beginning of the merchant's relationship with the credit card processing bank. This upfront reserve can be collected in one of three ways: either 100 percent of transaction deposits will be held in reserve until the target goal is met, the merchant will be asked to wire the requisite amount from their checking account, or a letter of credit will be required from the merchant's own bank.

Certain industries entail a greater degree of built-in risk for credit card transactions. Any merchant that operates in an environment involving transactions that are not primarily conducted face-to-face is at greater risk for chargebacks and other payment issues, like eCommerce and direct marketing businesses. Merchants that typically process large volumes or have large average tickets are also often considered high risk merchants (these risks are magnified for new businesses that operate solely online). A merchant's personal credit history will also be considered during the underwriting process; having bad credit can lead to a reserve being required for the merchant account approval. If your business was previously placed on the TMF or MATCH list by a previous credit card processor, a reserve is likely going to be required on a new account. Further, offshore processing providers will typically require a reserve from high risk merchants applying with them, as well as charging higher processing rates.

Because high risk merchants are evaluated on an individual basis, and different processing banks will have different criteria for setting reserves and processing rates, it is best to speak with an account manager at Durango-Direct.com to discuss the best possible solution for your processing needs. Click on the button below to apply for a no-obligation free quote!

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

Bad Credit Merchant Account

A bad credit merchant account is used when your personal credit does not fall within the underwriting guidelines set by the financial institution offering the merchant account. Believe it or not, your "personal" credit is one of the most important factors in the approval process; underwriting for a merchant account does not rely on D&B business credit. It is not impossible to obtain a merchant account if you have bad credit, but you may pay more in service fees compared to someone with a stronger credit profile, or the processing bank may need to establish a "reserve" to offset the risk of taking a loss on your account.

You run into problems with bad credit if you are behind on payments to your credit accounts, you have defaulted on loans, your business or yourself has declared bankruptcy, or you have judgments and liens in place against the business or yourself personally. All of these factors can decrease your credit rating. You may not have to go after a bad credit merchant account with one or two bad marks on your credit report, but it depends on the specific bank or financial institution that you're using.

Co-signing and other options exist in order to open a merchant account as a merchant with bad credit . However, this does require asking another person to shoulder the risk, should you have an issue with the merchant account down the road (excessive chargebacks, unpaid fees, etc) .

Another option is to apply for a smaller monthly volume, which represents less overall risk to the merchant account provider, and then over time you can grow the account limits.

High-risk merchant accounts is a category that includes bad credit merchant accounts. You don't need to worry about standing out from other businesses simply due to using a high-risk merchant account, as these types of merchant accounts are prevalent among several specific industries, and your customers will never know the approval conditions between you and the financial institution.

Bad credit merchant accounts may not be your first choice for a merchant account, but if you're trying to recover from financial problems, they can be a lifesaver. The service fees and terms may not be as good as a typical merchant account, but the financial institutions are willing to take a risk on your business that other companies may not touch at all.

Once you have established a history with the processing bank, and solidified your finances, you may be able to apply for an account with better terms elsewhere; however, ask the bank that initially approved you if they can review and improve the merchant account's terms first: since the bank was able to get you approved in the first place, its fair turn to allow them an opportunity to keep your business since they stuck their neck out for you when no one else would.

Talk to the merchant account provider before you apply in order to avoid being denied. Some merchant account providers will not work with high-risk or bad credit merchants, and you don't want to waste your time simply to end up with no merchant account at all; also, each time that you apply for a merchant account, an inquiry is lodged against your personal credit, which reduces your credit score further! The companies may have a specific high-risk department you can speak with to determine your eligibility prior to applying for the account, or better yet, speak with an experienced account manager at Durango-Direct.com today!

 

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

Internet Payment Gateway: How they work!

Point, click, approved; point, click, declined. Many of us don’t even consider there could be another way because so many of us have grown up around online payments; that’s all we’ve ever known! But indeed there was a time before online payments. There was even a time before direct deposit when the lines would snake around the bank lobby at 4:30 on Friday afternoons!

Be that as it may this is the 21^stCentury and we are a long ways away from that time. Online payments are enabled by what’s known as an internet “payment gateway.” The payment gateway is basically what handles the “approved/denied” part of the online shopping experience by communicating between the merchant and the customer's card issuing bank. But how does the payment gateway even work? How do you know that the customer's credit card is valid and you can ship their order?

Shopping Cart – The payment gateway begins with what you’re selling. Most online retailers have adopted the grocery store “shopping cart” icon to indicate the items they would like to purchase. In the shopping cart customers should be able to verify item, size, quantity, color, and any other identifying characteristics. They should also be able to enter in their shipping information, payment information, and “submit” the order. That’s when the customer's data is sent to the payment gateway.

Payment gateway – This is the place where the magic happens. The payment gateway is where customers transaction is approved or denied. The gateway could best be classified as an area where the transaction information is read, encrypted for security, and sent to their card issuing bank (like CapitalOne) for approval or denial. Its called a "gateway" then, since the gateway determines which transactions can pass through, and are ultimately approved or declined. Three things are done inside the gateway: Customers credit cards are processed for authorization, the transaction is settled, and the transaction is recorded in the reporting section.

• Authorization – This is the first step in the payment gateway. The customer's credit or debit card data must be encrypted, and then sent to the credit card issuing bank so that the transaction can be approved or denied. In the modern era this transaction time has gotten extremely efficient with most transactions getting an up or down in an average of 2 seconds. The gateway can also help you set rules on whether or not to check with the card issuing bank if the customer has supplied the correct billing address or CVV (3 digit code on back of the credit card), to help you prevent credit card fraud. Additional fraud protection measures such as IP blocking and velocity filters can also be enabled.

• Settling – As transactions are authorized during the day, the authorization places a temporary hold on the funds available on a customer's card. At the end of the day, the gateway will "Settle" all of the previous day's authorizations; this finalizes the credit card sale.  All the transactions from a business day are then sent in one batch together to your processing bank (merchant account), and these funds will then be deposited to your checking account within 2 business days (except over the weekends or holidays of course).

• Reporting – Reporting is where merchants can view their transactions. This is where you can review settlement batch reports, or search for a transaction in case you needed to issue a refund to a customer. Reporting is an effective tool for reconciling monies coming in as the settlement batch report should match the monthly merchant account statement from your processing bank.

Once you’ve received the authorization, your payment interaction with that customer is complete, just have to ship their order now! The authorization will settle later that evening, but once you've received the authorization you are clear to ship their order. Visa & MasterCard's regulations require merchants to ship the products as soon as a transaction is authorized, not wait until the funds are received in your checking account 2 business days later. It is always a good idea to keep accurate records and communication which comes through for every transaction so that you’re always clear about exactly what’s happened with every customer.

Click here to log into Durango's Internet Payment Gateway and take a tour! The demo logins are listed on the login page, and if you have any questions please feel free contact us!

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

Don't Judge a Merchant Account Solely on Rates!

Sometimes You Get What You Pay For:

When looking around for a merchant account service, the lure of low merchant account rates can be a great temptation. But before signing a contract for any service, do your homework. The promise of such low merchant account rates may have strings attached. There are other methods of charging you on the account you haven't anticipated. Low rate promises can be bait to lure you into a situation that can cause other problems -- such as having them nickel and dime you to death on other aspects of the service, or worse, you may be stuck with horribly unresponsive merchant support...remember, you get what you pay for. Ask if you will have a dedicated account manager; often that responsive sales guy won't be heard from again after the ink dries!

Typical Problems:

Blindly signing a contract based solely on the promise of great merchant account rates is like the story about the love potion. A gentleman buys a love potion for only a penny. After the transaction, the lady of his dreams falls madly in love with him; so much in love that he eventually becomes constricted and trapped in the relationship. He goes back to the dealer for an antidote to the potion. There, he finds the cost for the antidote to be thousands of dollars. Getting out of something is often harder than getting in, which leads us to:

• Termination Fees -- Cheap rates may lure you in but, once you determine there are problems you may want to end your relationship. Check beforehand to determine how much it will cost to end your contract.
• BBB Rating -- Checking with the Better Business Bureau is always a good first step. Find out if others have had problems with the service and what rating the merchant service has.
• Hidden Costs --  Ask if there are minimum monthy transaction fees.  Make sure your rates are not subject to arbitrary increases during the length of the contract. Those initial "low" merchant account rates may jump after only a few months with no warning.
• Customer Service Aspects -- Does the merchant account service have a good customer service record? Does someone actually answer the phone when you call or do you get a "please leave a message" recording ? Are you assigned a personal account manager to handle any issues you may have for the life of the account ? Having someone who is familiar with your account to contact is very helpful.  Determine if the company outsources customer service to foreign lands. Often, Georgia ears may not correctly understand Sri Lanka accents. Such complications can be frustrating and slow responses to critical account issues.

At Durango-Direct.com, you will work with the same account manager from the initial application through the life of the account! We don't farm our customer service off to an 800# after you sign up. Dedicated account managers are the reason Durango has a high merchant retention rate.
The bottom line is, read you contract all the way through. Don't just rely of the promise of merchant account rates. Make sure the contract is something you can live with for the duration of the term before you jump in. Great merchant account rates are only the tip of a submerged iceberg. The part you don't see can often cause the greatest problems.
Service You Can Count On, People You Can Trust - Durango Merchant Services

What is a High Risk Merchant Account?

High-Risk Merchant Accounts

A merchant account is a type of  account, approved by a bank or financial institution, that allows businesses to accept credit or debit card payment from their customers. However, the type of business applying for a merchant account may affect the level of risk associated with that merchant account. More and more companies are applying for “High-Risk Merchant Accounts” because of the nature of their business. Let’s look at the most common reasons accounts can be high risk and what are the issues associated with opening this type of account.

So what is a High Risk Merchant Account?

Merchants are usually considered high risk for one of the following reasons:

1. Worst-case scenario of taking a loss on your account, due to your personal credit or company finanacials not able to support the sales volume that you are applying for
2. Your service or product has a longer chargeback liability period. If you are offering annual memberships, customers have 18 months to issue a chargeback (6 months from the end of the service date)
3. You are in an industry that has a history of high-chargebacks. The bank feels they will spend too many resources managing your account, and eventually have to turn you off regardless if/when you exceed chargeback thresholds
4. The account has a “reputational” risk, such as the adult industry
5. If you are on the TMF or MATCH list

If a merchant is considered high risk, they will have a more difficult time obtaining a merchant account, but Durango-Direct.com has the experience and the relationships in place to assist you!

Types of businesses that need a High Risk Merchant Account

• Annual memberships
• Adult products
• Bail bonds
• Business opportunities
• Electronics sold online
• Debt service
• Home-based
• Horoscope/Fortune telling
• Firearm dealers
• Mail order or telephone order
• Multi-level marketing (MLM)
• Online auctions
• Online dating sites
• Software downloads
• Telemarketing
• Telecommunications (VOIP or Calling Cards)
• Timeshare Advertising
• Travel services

High-Risk Merchant types

Though these businesses may be profitable, they can run into problems taking payments due to the non-availability of high-risk merchant accounts. Businesses with one or more of the following features make them a high risk merchant business:

1. The business has been black listed by credit card companies on the TMF or MATCH lists.
2. The business' guarantor has poor personal credit
3. Products or services that the business sales are deemed to be prohibited by some but not all banks
4. The business sells future deliverable products, like a hotel reservation, tickets to an event, etc.
5. The business sells expensive items, like furniture or custom auto parts, etc.
6. Industries with historically high chargebacks
7. Memberships with automated recurring billing
8. Businesses with high sales volume, without having established company financials to support the chargeback liability

Opening a high risk merchant account

It can be perplexing for a high risk business to find a merchant account provider because most financial service providers follow stringent guidelines for approving a business’s merchant account services. Again, this is caused any number or combination of the factors discussed above.

Contact Durango-Direct.com today to discuss your account needs with one of our merchant account specialists!

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

Fraud Protection: Tips to Prevent and Avoid Chargebacks

As a merchant you know that chargebacks can happen for several reasons.  Some of these include fraud, authorization issues, or customer disputes. Chargebacks aren't always due to an error of  the merchant, but the more information you have about the payment processing procedure the better equipped you will be to prevent this from occurring. Besides suffering a financial loss from chargebacks, getting too many chargebacks increases the possibility of losing your merchant account!

Durango-Direct.com offers the following steps to consider:

For Card-Present (Mobile or Retail) Merchants:

1. While processing the transaction be sure to continue to hold onto the card. During this time look the card over and check out the expiration date. Also compare signatures from the back of the card with the receipt the customer signs.

2.Remember not to process the payment transaction if the request for authorization has been declined.

3. Don't process an expired card.

For Card-Not-Present (eCommerce or MoTo) Merchants:

4. After the completed sale, on the confirmation page, make sure the customer has your company name and phone number that will appear on their credit card statement, so they can easily recognize their purchase. Unrecognized transactions are the #1 reason for a chargeback from the customer.

5. If a person uses a stolen credit card the chances of them using the correct billing address of the card holder is low. By using AVS (Address Verification System settings) to verify the billing address you may be able to prevent a fraudulent sale.

6. Always be sure to examine all foreign purchases. A stolen card will always result in a chargeback by the original card holder.

7. Require the 3 digit CVV number on the back of the card for every transaction (and setup your payment gateway to require the CVV code to match). Having a CVV match on transactions is important if you need to fight a dispute. Here is a screenshot of the CVV settings available within Durango-Direct.com's gateway:
8. Make sure you have a warning message on the order page about IP addresses being logged. This can cut down on fraudulent orders.

9. Review transactions with different "Ship To" and "Bill To" addresses.

10. Be mindful of any order that appears suspicious or "too good to be true," or where a 1st time customer seems to be in an extreme rush. Do your due diligence by attempting to contact the  customer by email or phone to investigate.

11. And it's always good practice to plainly post all refund and  return policies. This can prevent misunderstandings and disputes which in turn may keep the level of chargebacks at a lower level.

12. Utilizing Verified by Visa and MasterCard SecureCode is another great security feature available to merchants which can dramatically reduce your chargeback liability (see our Fraud Protection page).

Merchants can help to protect themselves, by using as many of the steps provided above,  to prevent the occurrence of a chargeback.

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