You must act quickly. The most you can lose is $50 if you report to the bank or credit union that your card is lost or stolen within two days of when you discover the loss. However, your liability increases to a maximum of $500 if you report within 60 days after you receive your bank statement.
If you don't to notify your bank within 60 days after you receive your bank statement, your liability is unlimited. You could lose all the money in your account. Check your bank statements carefully and promptly for charges you didn't make.
Some major debit card issuers provide more protection. Some state laws cap your total loss at $50.
Wednesday, September 2, 2009
Protecting Your Debit Card
A debit card is like a blank check, so you need to guard the card and the account number carefully against loss or misuse. A thief can clear out your bank account before you even know your card is missing.
If your debit card is lost or stolen, or if you think someone is using it fraudulently, call your bank immediately. Follow the phone call with a letter.
Thieves don't even need your card. As long as they have your name and card number, they can order goods by mail or over the telephone. They can wipe out your bank account before you know the card is missing, or even when you still have the card in your pocket. Protect your debit card by holding on to your debit card receipts and check them against your bank statement each month.
Memorize your PIN but don't keep it with your card. Don't choose one that a smart thief could figure out, like your phone number, address, birthday or part of your Social Security number. Never give your PIN to anyone.
If your debit card is lost or stolen, or if you think someone is using it fraudulently, call your bank immediately. Follow the phone call with a letter.
Thieves don't even need your card. As long as they have your name and card number, they can order goods by mail or over the telephone. They can wipe out your bank account before you know the card is missing, or even when you still have the card in your pocket. Protect your debit card by holding on to your debit card receipts and check them against your bank statement each month.
Memorize your PIN but don't keep it with your card. Don't choose one that a smart thief could figure out, like your phone number, address, birthday or part of your Social Security number. Never give your PIN to anyone.
What are the disadvantages of a debit card?
You need enough money in your bank account to cover each purchase.
Since you paid for the purchase at checkout and the money is out of your account, you have less protection if something goes wrong with the purchase. Your bank won't put money back into your account for items that are never delivered, don't work or were misrepresented.
You may have bank fees—such as monthly service charges, per-transaction costs or penalties—for dropping below your required minimum balance. Check with your bank to find out those extra costs.
You have less protection if your debit card is lost or misused than with a credit card.
Since you paid for the purchase at checkout and the money is out of your account, you have less protection if something goes wrong with the purchase. Your bank won't put money back into your account for items that are never delivered, don't work or were misrepresented.
You may have bank fees—such as monthly service charges, per-transaction costs or penalties—for dropping below your required minimum balance. Check with your bank to find out those extra costs.
You have less protection if your debit card is lost or misused than with a credit card.
What are the advantages of a debit card?
It is often easier to get than a credit card.
You don't have to get your check approved or show identification at stores.
You don't have to carry cash, a checkbook or traveler's checks.
Debit cards are more readily accepted than checks, especially when you are traveling.
You don't pay interest charges.
Because checkout lines move faster, storeowners like debit cards. They don't worry about bounced checks or need to take checks or cash to the bank. Debit card processing fees for the merchant are generally lower than credit card fees.
You don't have to get your check approved or show identification at stores.
You don't have to carry cash, a checkbook or traveler's checks.
Debit cards are more readily accepted than checks, especially when you are traveling.
You don't pay interest charges.
Because checkout lines move faster, storeowners like debit cards. They don't worry about bounced checks or need to take checks or cash to the bank. Debit card processing fees for the merchant are generally lower than credit card fees.
Debit Card or Credit Card?
What's the difference between a debit card and a credit card?
While a debit card looks like a credit card, it works more like cash or a personal check. You "pay now." With a credit card, you "pay later."
Debit means "subtract." When you use a debit card, you subtract money from your own checking or savings account. As with credit cards, you use it in stores for purchases. At check-out, the card reader electronically contacts your bank and subtracts the amount from your account. The money you have in your bank account limits how much you can spend. However, if you are not careful in watching your daily account balance, you can over withdraw your account. Some systems will allow you to use your debit card when you don't have enough money in your account to cover the purchase. This can result in hefty overdraft fees.
Using a credit card is somewhat like taking out a loan from a bank or other financial institution. You have to pay back the credit you used each month. If you pay back less than the full amount you owe each month, you pay interest on the amount you don't pay back. The credit card company sets the total amount you can charge based on your credit history, income, debts and ability to pay.
Some cards are dual-purpose credit/debit cards. Before you swipe the card through the reader, you select a "credit" or "debit" button on the reader. If you select "debit," you then enter your Personal Identification Number (PIN).
If you select "credit," you are given a credit receipt to sign. "Credit" charges will appear on your next charge account bill.
While a debit card looks like a credit card, it works more like cash or a personal check. You "pay now." With a credit card, you "pay later."
Debit means "subtract." When you use a debit card, you subtract money from your own checking or savings account. As with credit cards, you use it in stores for purchases. At check-out, the card reader electronically contacts your bank and subtracts the amount from your account. The money you have in your bank account limits how much you can spend. However, if you are not careful in watching your daily account balance, you can over withdraw your account. Some systems will allow you to use your debit card when you don't have enough money in your account to cover the purchase. This can result in hefty overdraft fees.
Using a credit card is somewhat like taking out a loan from a bank or other financial institution. You have to pay back the credit you used each month. If you pay back less than the full amount you owe each month, you pay interest on the amount you don't pay back. The credit card company sets the total amount you can charge based on your credit history, income, debts and ability to pay.
Some cards are dual-purpose credit/debit cards. Before you swipe the card through the reader, you select a "credit" or "debit" button on the reader. If you select "debit," you then enter your Personal Identification Number (PIN).
If you select "credit," you are given a credit receipt to sign. "Credit" charges will appear on your next charge account bill.
Understanding Debit Cards
Janet uses her bank debit card for almost all her monthly purchases. Asked why she doesn't just pay with cash, she says that she prefers the convenience of a debit card. "It's safer than carrying cash. And you don't have a huge bill to pay at the end of the month."
"I like the pay-as-you-go concept where you only spend what you have rather than borrowing" as you would with a credit card, she adds. And of course, if you don't pay off your credit card completely each month, "there are the hefty credit charges." They can run 9 percent to 20 percent.
If you want the convenience of a credit card, but don't want interest payments or a large bill to pay off monthly, then a debit card may be the answer for you, too. Debit cards work like cash or a personal check. The money you "charge" is automatically deducted from your bank account.
Yet, debit cards don't have the same protections from unauthorized use as credit cards.
"I like the pay-as-you-go concept where you only spend what you have rather than borrowing" as you would with a credit card, she adds. And of course, if you don't pay off your credit card completely each month, "there are the hefty credit charges." They can run 9 percent to 20 percent.
If you want the convenience of a credit card, but don't want interest payments or a large bill to pay off monthly, then a debit card may be the answer for you, too. Debit cards work like cash or a personal check. The money you "charge" is automatically deducted from your bank account.
Yet, debit cards don't have the same protections from unauthorized use as credit cards.
Reloadable Debit Card
A reloadable debit card can be used like a credit card but the limit a user can spend is based upon his or her own deposits into the account. Lenders that offer prepaid accounts usually wave fees if the user's check is directly deposited into the account and the total amount per month that is deposited totals a minimum amount set by the terms of the agreement. Not having direct deposit will mean paying a monthly service fee. The monthly service fees are normally lower than fees imposed by banks for checking or savings accounts. A user never has to worry about NSF fees, late fees, annual fees, or overdraft fees with a reloadable debit card. Some of the features include easy bill pay, free account alerts by email or text message, and being able to access cash from any ATM machine. Banks normally guarantee approval if the applicant can provide sufficient identification information. This can usually be accomplished with a driver's license number, social security number, or a birth certificate. Most companies will want at least two forms of identification and may ask that the applicant fax documentation for proof. Users can load cash at a retail location onto a reloadable debit card or they can have their employer directly deposit their paycheck into the account. Sites online have a direct deposit form that can be given to the user's payroll department. The information needed is similar to a regular checking account that uses a routing number for direct deposit. Many retailers allow a person to cash his or her paycheck at the register and at that time can load part or all of the funds onto a prepaid card. In addition, there are some stores that offer a prepaid card to anyone who can supply the necessary identification. "So teach us to number our days, that we may apply our hearts unto wisdom" (Psalm 90:12).Many people today find using a card instead of carrying cash easier. Cash is a little harder to keep up. The change can be very bulky and can weigh down a pocket or a handbag. In addition, it makes it easier to shop online because most online retailers take credit cards. A reloadable debit card can be used as a credit card. Using the account as a debit is possible as well but the user will have to enter a pin number at the time of checkout. This type of account is very attractive to people who do not have a checking account. Those that have a checking account but do not have direct deposit may want to consider a prepaid account for times when they may be out of town and need to cash a payroll check. Prepaid accounts can usually be accessed by the issuer online so that the account holder can view an online statement showing all of the transactions made to the reloadable debit card. Some issuers allow online electronic bill pay. One monthly fee is usually due for a specific amount of payments made. Those who would prefer having a paper check mailed to creditors can opt for this service but will normally have to pay a fee that is charged per check issued. An online statement will show all types of transactions made on the account and the statement can be printed out. In addition, a user can find out the balance left on his or her card by accessing the account online.Using the account as a debit instead of a credit may cost a small fee for each time a pin number is needed. A debit transaction allows a user to get cash back when making a purchase. This fee is usually smaller than an ATM fee would be. Accessing cash on a reloadable debit card can only be done by either going to an ATM or using it as a debit at the grocery store. ATM withdrawals have a daily limit associated with them. Using the card as a credit at any retailer is free including online purchases. Some lenders offer money sharing between members who have accounts with the issuer. This can be done by following instructions that are located on the issuer's site online. When making gasoline purchases more than the amount purchased may be held by the gasoline merchant. This just means that there needs to be extra funds in the account in case the merchant automatically holds a higher amount until the transaction is completed. Once the transaction is completed the extra funds held will be available in the reloadable debit card account. The prepaid account can also be used to make reservations for hotels and rental cars but again the merchant may place more funds on hold than the actual charge will end up being so there should be extra funds available to cover this extra amount.After making a contribution to a reloadable debit card the funds are normally available within 30 minutes after the amount is loaded. Other features include no credit check needed for approval, guaranteed approval, and free unlimited purchase transactions. Thousands of retailers participate in the program making it easy for a user to find a place to reload funds. Issuers provide customer service via online or by containing a representative through a toll free number. Prepaid cards can be used at any place that takes debit and credit cards which includes millions of locations including catalog purchases.
Money Matters: Teens' First Debit Card
Today's teens are very savvy when it comes to money matters. They are some of the top consumers in our society. Many have jobs, allowances and various sources of income. Savings accounts for college expenses are important and easy access to that money while away from home is a necessity. A recent Junior Achievement poll found that more than 11% of teens carry a credit card. Three out of ten teens have checking accounts. Becoming increasingly popular is the prepaid debit card. A debit card allows easy access to accounts without the temptation of a credit card. Using a debit card will help students get ready for credit cards as they go off to college. A debit card can be the right tool for your teen. The charge is deducted directly from an account's balance. It's a prepaid credit card that parents control.Debit cards are useful to help your teen track and manage spending money as well as keep their money safe. Prepaid debit cards are a great way to offer some parental control on how your teenager learns to be responsible with money. You can set daily, weekly or even monthly spending limits. Help your teen learn the correct way to handle their finances and to respect their money.When its time to apply for a debit card, there are a few common sense safety guidelines you'll want to share with your teen.Using an ATM (Automated Teller Machine) has become a common part of everyday life. It's fast and convenient. Help your child remember that the card is valuable and some precautions are necessary when using it. Here are 10 tips to protect your card and your money:1. Never write your PIN (Personal Identification Number) on or near your card. Keep a copy of your card and PIN at home in a safe place.2. Never give your PIN to anyone or tell it over the phone.3. Never give your card to anyone else. It's like handing them a blank check.4. Keep your card away from anything magnetized. Also, don't get it dirty, scratched, or leave it near heat.5. Be aware of your surroundings. If you notice anyone suspicious, leave the area and find another ATM. Pay attention to people who may be standing too close to you as you use the ATM.6. Before you step up to the machine, have your card ready. This will save you time, and allow you to pay more attention to your surroundings.7. Be sure to take your receipt. It contains personal information, including your account number.8. Stand directly in front of an ATM. Don't let anyone see you enter your PIN or watch you make a transaction.9. Place your cash into your wallet immediately. Do not walk away with money in plain view.10. If your card is lost or stolen, report it to your bank immediately.A debit card can help your teen get cash quickly, manage spending, and teach responsible money behavior. Share these tips with your teen as they enter the adult world of finance.
Debit card thieves get around PIN obstacle
With consumers around the country reporting mysterious fraudulent account withdrawals, and multiple banks announcing problems with stolen account information, it appears thieves have unleashed a powerful new way to steal money from cash machines.
Criminals have stolen bank account data from a third-party company, several banks have said, and then used the data to steal money from related accounts using counterfeit cards at ATM machines.
The central question surrounding the new wave of crime is this: How did the thieves managed to foil the PIN code system designed to fend off such crimes? Investigators are considering the possibility that criminals have stolen PIN codes from a retailer, MSNBC has learned.
The incident calls into question the security of the four-digit code that for years has made PIN-based transactions less subject to fraud than signature-based credit card transactions.
"This is the absolute worst hack that has happened, the biggest scam to date," said Gartner analyst Avivah Litan.
In recent weeks, Bank of America, Wells Fargo, Washington Mutual and Citibank have all reissued debit cards after detecting fraudulent activity. Smaller banks, such as Ohio-based National City Bank and Pennsylvania-based PNC Bank, have taken similar steps.
Consumers complain around the countryIn the meantime, complaints from consumers who say thousands of dollars has gone from their accounts continue to multiply. Police in Erie, Pa., say they've taken reports from dozens of residents. There are more than 100 reports of fraud in Las Cruces, N.M. In Western Massachusetts, after mounting complaints, including 147 compromised accounts at the Fitchburg Municipal Employees Federal Credit Union, the state Consumer Affairs Office issued a warning about debit card fraud.
The tales of theft are consistent and disturbing.
"Last week, I was online paying some bills and noticed several ATM transactions from Toronto, Blainville ...," wrote Dana Lark of Naples, Fla., to MSNBC.com. "By the time I called my bank and reported the problem, they had gotten $1,300 of my money. I told my husband to check his business account, which has an ATM card tied to it, and he found over $1,500 of unauthorized charges from those same places and also Bulgaria."
Criminals have stolen bank account data from a third-party company, several banks have said, and then used the data to steal money from related accounts using counterfeit cards at ATM machines.
The central question surrounding the new wave of crime is this: How did the thieves managed to foil the PIN code system designed to fend off such crimes? Investigators are considering the possibility that criminals have stolen PIN codes from a retailer, MSNBC has learned.
The incident calls into question the security of the four-digit code that for years has made PIN-based transactions less subject to fraud than signature-based credit card transactions.
"This is the absolute worst hack that has happened, the biggest scam to date," said Gartner analyst Avivah Litan.
In recent weeks, Bank of America, Wells Fargo, Washington Mutual and Citibank have all reissued debit cards after detecting fraudulent activity. Smaller banks, such as Ohio-based National City Bank and Pennsylvania-based PNC Bank, have taken similar steps.
Consumers complain around the countryIn the meantime, complaints from consumers who say thousands of dollars has gone from their accounts continue to multiply. Police in Erie, Pa., say they've taken reports from dozens of residents. There are more than 100 reports of fraud in Las Cruces, N.M. In Western Massachusetts, after mounting complaints, including 147 compromised accounts at the Fitchburg Municipal Employees Federal Credit Union, the state Consumer Affairs Office issued a warning about debit card fraud.
The tales of theft are consistent and disturbing.
"Last week, I was online paying some bills and noticed several ATM transactions from Toronto, Blainville ...," wrote Dana Lark of Naples, Fla., to MSNBC.com. "By the time I called my bank and reported the problem, they had gotten $1,300 of my money. I told my husband to check his business account, which has an ATM card tied to it, and he found over $1,500 of unauthorized charges from those same places and also Bulgaria."
Saturday, August 1, 2009
Consolidating credit cards
Credit card consolidation is a popular solution for those with significant credit card debt, usually distributed on three or four different cards. Basically, this means putting all your debts together on a single card, like transferring it all to one loan. Of course, the goal is to pick a card that offers better conditions than what you already have, in order not only to simplify, but also to reduce your payments.
Since there are so many offers out there, and lenders fight over your business, you can sometimes find solutions that can save you thousands of dollars per year. If you consolidate your debt to a credit card with low interest and 0% balance transfer, you can save considerably, and pay off your credit sooner (which, of course, is the main goal when dealing with credit card debt).
The most serious mistake people do when consolidating is to go though the entire process just to simplify their accounting, and they don't pay enough attention to how much they could save. Another mistake is to close your zero balance accounts when consolidating. This practically means you close some of your credit options, which is never a good idea.
When you plan to consolidate, call your banks and explain the situation. They want your business, and you'll be surprised how flexible and willing to negotiate they can be, once you explain to them that you have various options available to take your business someplace else.
There are many web sites offering solutions for debt consolidation. However, keep in mind that, while this is a comfortable and fast solution, you don't have the options to negotiate directly with the banks. Also, most often the best offers come from banks that want to keep your business, so make sure you give a change to the banks you've had a long-term relation with. If you're not pleased with the results, take your money elsewhere quickly.
Consolidation is often a necessity for students, new graduates, or people who have filed for bankruptcy some time ago. If you've handled your payments well and managed to clear up your record to a certain degree, there is no need to continue paying more than it's worth for your credit cards. Sit down and go through the numbers carefully, and think analyze the problem realistically. Don't forget to check your credit report and your credit rating before you start anything - it will help you plan and plead your case. Also, if your credit request gets rejected, don't forget to ask for your free copy of the credit report.
Of course, credit card consolidation is not a miracle solution for all your financial problems. On the contrary, you may find that it requires a lot of financial discipline to make the payment on time and to straighten things up. However, it is less confusing than having several small credits, and so it is easier to keep things under control.
There is also the option of getting credit counseling, if things get really confusing. A successful plan will make sure you make the payments on time and regularly, without putting a strain on other aspects of your life. Of course, it's a lengthy process, usually taking one or two years - but it's worth the trouble.
Sometimes, you can lower costs by consolidating your debt through a second mortgage - but be really careful about the hidden costs and problems - you may want to consult with a specialist or two before taking this step. Usually, this means that your home will become collateral, and you may lose it if things go wrong. Also, costs add up quickly and you may end up paying more than you initially thought.
Since there are so many offers out there, and lenders fight over your business, you can sometimes find solutions that can save you thousands of dollars per year. If you consolidate your debt to a credit card with low interest and 0% balance transfer, you can save considerably, and pay off your credit sooner (which, of course, is the main goal when dealing with credit card debt).
The most serious mistake people do when consolidating is to go though the entire process just to simplify their accounting, and they don't pay enough attention to how much they could save. Another mistake is to close your zero balance accounts when consolidating. This practically means you close some of your credit options, which is never a good idea.
When you plan to consolidate, call your banks and explain the situation. They want your business, and you'll be surprised how flexible and willing to negotiate they can be, once you explain to them that you have various options available to take your business someplace else.
There are many web sites offering solutions for debt consolidation. However, keep in mind that, while this is a comfortable and fast solution, you don't have the options to negotiate directly with the banks. Also, most often the best offers come from banks that want to keep your business, so make sure you give a change to the banks you've had a long-term relation with. If you're not pleased with the results, take your money elsewhere quickly.
Consolidation is often a necessity for students, new graduates, or people who have filed for bankruptcy some time ago. If you've handled your payments well and managed to clear up your record to a certain degree, there is no need to continue paying more than it's worth for your credit cards. Sit down and go through the numbers carefully, and think analyze the problem realistically. Don't forget to check your credit report and your credit rating before you start anything - it will help you plan and plead your case. Also, if your credit request gets rejected, don't forget to ask for your free copy of the credit report.
Of course, credit card consolidation is not a miracle solution for all your financial problems. On the contrary, you may find that it requires a lot of financial discipline to make the payment on time and to straighten things up. However, it is less confusing than having several small credits, and so it is easier to keep things under control.
There is also the option of getting credit counseling, if things get really confusing. A successful plan will make sure you make the payments on time and regularly, without putting a strain on other aspects of your life. Of course, it's a lengthy process, usually taking one or two years - but it's worth the trouble.
Sometimes, you can lower costs by consolidating your debt through a second mortgage - but be really careful about the hidden costs and problems - you may want to consult with a specialist or two before taking this step. Usually, this means that your home will become collateral, and you may lose it if things go wrong. Also, costs add up quickly and you may end up paying more than you initially thought.
What You Should Know About Switching Credit Cards
With U.S. credit card debt at an all time high, many savvy consumers and investors are renewing their commitments to rid themselves of this burdensome and in most cases, unnecessary debt. In doing so they are constantly searching for the next best credit card with higher credit limits, lower annual percentage rates (APRs), and zero balance transfer offers. In fact switching credit cards has become as common as changing the battery in the fire alarm for some people and it has actually worked. So if you are amongst the thousands of Americans who are thinking of making a switch to improve your financial picture, before you do there are a few things that you should consider. They include how multiple inquiries for credit will affect your credit score and if the APR that applies to balance transfers after the introductory grace period still makes it a good deal. In addition to these two things you should also, as with everything you do, conduct your own research to find the best solution to meet your needs.
It makes sound economical sense to switch credit cards to save money in interest charges and fees. Especially when you consider the fact that for most credit cards the minimum monthly payment is so low that it barely covers the interest charges reducing your outstanding balance by just a few measly dollars from month to month. Its no wonder then that we jump at any new offer that comes our way. When deciding whether to switch cards though, you should keep in mind that every time you apply for a new credit card an inquiry from that particular creditor goes on to your credit file whether you receive the credit or not. Additionally, multiple inquires by different creditors negatively impacts your credit score and any account whether closed or unused remains on your credit file for at least seven years. Last thing, switching cards and closing accounts immediately after the switch also impacts your credit score.
When considering whether to take advantage of a 0% balance transfer offer, you should consider the amount of time that you’ll have before the “normal” APR applies to that balance and whether you’ll be able to pay that in full before the grace period is over. Additionally, in the event that you aren’t able to pay off the balance prior to expiration of the grace period, you should consider if the new APR that kicks in will be a significant savings from the card that you are considering transferring balances from and whether interest will be charged on just the remaining balance or the entire amount that you initially transferred.
To ensure that you are getting the best deal, you should do a thorough search of available credit cards before making a final decision on which institution to submit a new application for credit to. By doing so you will know upfront exactly what you are getting and whether there are cost savings to be realized, leaving very little room for surprises.
Switching credit cards is a smart choice for consumers who are trying to manage and conquer their debt. For the disciplined person, this is a very effective strategy to help you reduce your debt load. If you find yourself in the situation where you are presented with an opportunity to switch credit cards, please keep in mind the negative effect that multiple inquiries will have on your credit score as well as the opening of new accounts while simultaneously closing others. When done wisely, after conducting a thorough search of available options, switching credit cards can definitely help you to achieve your financial goals.
It makes sound economical sense to switch credit cards to save money in interest charges and fees. Especially when you consider the fact that for most credit cards the minimum monthly payment is so low that it barely covers the interest charges reducing your outstanding balance by just a few measly dollars from month to month. Its no wonder then that we jump at any new offer that comes our way. When deciding whether to switch cards though, you should keep in mind that every time you apply for a new credit card an inquiry from that particular creditor goes on to your credit file whether you receive the credit or not. Additionally, multiple inquires by different creditors negatively impacts your credit score and any account whether closed or unused remains on your credit file for at least seven years. Last thing, switching cards and closing accounts immediately after the switch also impacts your credit score.
When considering whether to take advantage of a 0% balance transfer offer, you should consider the amount of time that you’ll have before the “normal” APR applies to that balance and whether you’ll be able to pay that in full before the grace period is over. Additionally, in the event that you aren’t able to pay off the balance prior to expiration of the grace period, you should consider if the new APR that kicks in will be a significant savings from the card that you are considering transferring balances from and whether interest will be charged on just the remaining balance or the entire amount that you initially transferred.
To ensure that you are getting the best deal, you should do a thorough search of available credit cards before making a final decision on which institution to submit a new application for credit to. By doing so you will know upfront exactly what you are getting and whether there are cost savings to be realized, leaving very little room for surprises.
Switching credit cards is a smart choice for consumers who are trying to manage and conquer their debt. For the disciplined person, this is a very effective strategy to help you reduce your debt load. If you find yourself in the situation where you are presented with an opportunity to switch credit cards, please keep in mind the negative effect that multiple inquiries will have on your credit score as well as the opening of new accounts while simultaneously closing others. When done wisely, after conducting a thorough search of available options, switching credit cards can definitely help you to achieve your financial goals.
Transferring a Credit Card Balance
Are you staring at that attractive advertisement for switching credit card companies by transferring your balance from one card to another? While many of these offers are truly great deals, balance transfers and card-switching is not something to jump into, eager as you may be. You need to do your homework first: Do enough research and investigating in order to determine whether it in fact is worth it or a good idea to make the transfer. First, find out if it is in fact worth it. Generally speaking, these attractive advertisements and super credit card deals advertise very low introductory rates if you transfer your current balance from an existing credit card onto this new one. You can stumble upon these offers anywhere—online, in the mail, on a flyer or via a telephone call from credit card company salespersons—and you need to determine how great these deals really are, or if you’ll just end up paying much more in fees and interest in the long run. Read the fine print. Read everything. Read it through several times so that you make sure you understand what it is saying. It may appear to be a bunch of financial jargon that you might not think is very important, but the truth is, this information is valuable and critical to your decision in whether or not you make the big switch. Call the credit card company and ask any questions you might have. If the deal is solid and they want to make a sale, generally they should be able to help you out in any way. What do you need to find out about the deal? Here is an example. Let’s say that the advertised introductory rate is 6% (a low rate) on credit card B if you transfer your balance from credit card A, where you currently rack up an APR of 18% (a standard rate). You come across another offer, showcasing credit card C with an introductory rate of 9%. At first glance you may think, “Well, let’s go with credit card B—it’s the obvious choice here.” However, after reading the fine print, you discover credit card B’s special rate only last six months, and afterward the APR is 20%, whereas credit card C’s higher rate lasts for a year and the interest rate after that is 18%, the same as yours on credit card A. In other words, you have to factor in a lot of variables when making the decision to switch your balance from one credit card to another. Besides comparing the introductory rates being offered, the length of the offer and what the regular interest rate is, you’ll also need to take into account balance transfer fees, annual fees, late fees and other fees, as well as whether the teaser rate applies to balance transfers only or also purchases, among other considerations. Something else to keep in mind is that you may not actually qualify for the special rate being offered, depending on your credit history and credit rating. Before you make the big plunge, make sure you know exactly what you, yourself, will be getting. There may also be other conditions. For example, some credit card companies may penalize you for one late payment and take you off the introductory rate onto their regular rate, which may be higher than your current card’s rate. However, many credit cards with these introductory rates offer great deals for people interested in switching credit cards and transferring their balance over and can be more than worth it. The important thing is to do your research, read the fine print and ask questions to determine which credit card and deal is the right one for you. Once you’ve selected the right credit card offer, the next step is to fill out the balance transfer application form completely and accurately. Next, make the minimum payment on your original credit card while you wait for the balance transfer to go through. When it has gone through, the new company should send you a notice, after which you’ll need to verify the transfer with your old company so they can send you a zero-balanced billing statement. Finally, cancel your old card since you don’t need it anymore—it will also save you some temptation.
Avoid These Common Credit Card Balance
Transfer Mistakes
That offer to transfer your credit card balances sounds like a pretty good deal, doesn’t it? And it is, until you take out your magnifying glass and start reading all the fine print that goes along with the offer. What a lot of people don’t realize is that the lender making such an unbelievable offer wouldn’t be doing so if there wasn’t some way to benefit financially. These lenders actually feel safe in assuming that most people transferring balances won’t pay attention to the potentially costly details that accompany the offer. Transferring balances from a high-interest rate credit card to one with no or a lower interest rate can save you a substantial amount of money if you don’t fall victim to these common mistakes. 1. Balance transfer fees Rare is the balance transfer offer that doesn’t come with some sort of balance transfer fee. It might be a flat rate like $50 or $75 but it’s usually a percentage of the total amount of each balance transferred. Maybe 3% doesn’t sound like much but if you’re transferring several thousands of dollars, that fee can be hundreds of dollars! Although you may know by now to look for such fees, there’s something else you need to look for: whether or not there’s a cap on how high the balance transfer fee can go. Avoid those without caps. Before taking advantage of an offer, always do the math. If the balance transfer fee ends up being more than you would have paid in interest had you not done the transfer, then don’t transfer! 2. Other interest rates While there might be low or no interest on balance transfers, you’re still getting a new credit card which means you’ll still be able to use it to make purchases. Purchases though, normally aren’t part of the no or low interest deal. In fact, you can expect the interest rate on purchases or cash advances to be just as high as or higher than the credit cards you’re already using to make purchases. If you’re serious about chipping away at your debt, which is really the best reason to take advantage of balance transfer offers, then you really should stop accruing credit card debt! 3. Payment allocation If you do transfer balances to the new account, and you do make purchases on this new credit account, you may be surprised to find that your payments are not allocated the way you thought (assumed) they would be. Say you transferred $1,000 and during the last month you made new purchases totaling $200. You make a payment of $300 thinking you’ll clear away the new charges and start chipping away at the balance transfer amount. Next billing cycle you get your statement and find that the $200 in new purchases is still there – plus the couple of new charges you made since then. And all those purchases are compounding interest at a rate of 16, 19, 22% or more! What happened? Well, as stated in the fine print, the credit card company allocated your entire payment to the zero interest balance because – well it’s not making any money on that amount. But it certainly is on those new purchases! 4. Interest rate after intro rate expires That low or zero interest rate won’t last forever and you need to know how much it’ll increase when the stated period expires. That’s because any balance remaining afterwards is likely to be whacked with a much higher rate. To keep this from happening – which negates any savings benefits you’ve reaped so far – make sure you have a plan for paying off whatever balance you transfer before the rate increases. Also make sure you don’t miss a payment or make payments late. If you do you might find – without warning – that your zero percent no longer applies and you’re paying more in interest than you were before.
That offer to transfer your credit card balances sounds like a pretty good deal, doesn’t it? And it is, until you take out your magnifying glass and start reading all the fine print that goes along with the offer. What a lot of people don’t realize is that the lender making such an unbelievable offer wouldn’t be doing so if there wasn’t some way to benefit financially. These lenders actually feel safe in assuming that most people transferring balances won’t pay attention to the potentially costly details that accompany the offer. Transferring balances from a high-interest rate credit card to one with no or a lower interest rate can save you a substantial amount of money if you don’t fall victim to these common mistakes. 1. Balance transfer fees Rare is the balance transfer offer that doesn’t come with some sort of balance transfer fee. It might be a flat rate like $50 or $75 but it’s usually a percentage of the total amount of each balance transferred. Maybe 3% doesn’t sound like much but if you’re transferring several thousands of dollars, that fee can be hundreds of dollars! Although you may know by now to look for such fees, there’s something else you need to look for: whether or not there’s a cap on how high the balance transfer fee can go. Avoid those without caps. Before taking advantage of an offer, always do the math. If the balance transfer fee ends up being more than you would have paid in interest had you not done the transfer, then don’t transfer! 2. Other interest rates While there might be low or no interest on balance transfers, you’re still getting a new credit card which means you’ll still be able to use it to make purchases. Purchases though, normally aren’t part of the no or low interest deal. In fact, you can expect the interest rate on purchases or cash advances to be just as high as or higher than the credit cards you’re already using to make purchases. If you’re serious about chipping away at your debt, which is really the best reason to take advantage of balance transfer offers, then you really should stop accruing credit card debt! 3. Payment allocation If you do transfer balances to the new account, and you do make purchases on this new credit account, you may be surprised to find that your payments are not allocated the way you thought (assumed) they would be. Say you transferred $1,000 and during the last month you made new purchases totaling $200. You make a payment of $300 thinking you’ll clear away the new charges and start chipping away at the balance transfer amount. Next billing cycle you get your statement and find that the $200 in new purchases is still there – plus the couple of new charges you made since then. And all those purchases are compounding interest at a rate of 16, 19, 22% or more! What happened? Well, as stated in the fine print, the credit card company allocated your entire payment to the zero interest balance because – well it’s not making any money on that amount. But it certainly is on those new purchases! 4. Interest rate after intro rate expires That low or zero interest rate won’t last forever and you need to know how much it’ll increase when the stated period expires. That’s because any balance remaining afterwards is likely to be whacked with a much higher rate. To keep this from happening – which negates any savings benefits you’ve reaped so far – make sure you have a plan for paying off whatever balance you transfer before the rate increases. Also make sure you don’t miss a payment or make payments late. If you do you might find – without warning – that your zero percent no longer applies and you’re paying more in interest than you were before.
Balance Transfer Checks- Opportunities to Save
Tis' the season for credit card offers! In particular, it seems that from November through February marks an increase in marketing from credit cards you already have- particularly if you haven't been using them in awhile. Credit card companies spend quite a bit of money on marketing to attract new customers-and it's always cheaper to keep customers they have rather than trying to find new customers. What you may find waiting for you in your mailbox is a balance transfer offer from one of the credit cards you already have. The very best balance transfer offers are in the form of checks that offer 0% interest, but there are a number of other offers you might receive with 3.99% interest or 6% interest and no balance transfer fees. All of these offers may actually offer you a good deal depending on what you decide to do with them. For example, if you were to use a balance transfer check with 3.99% interest and a fee of 3% of your total amount to pay off a credit card or loan with 11% interest- as long as the dollar amount you borow from the balance transfer check is high enough, you're going to be saving enough money to make that a worthwhile fee to pay. You'll also be able to pay off the balance much sooner with the lower interest rate even by making the same amount of payments each month- since more of your payment goes to principal What many people don't realize is that they can actually get a balance transfer check from one of these low or no interest offers, and deposit the check into their own, personal checking accounts. Once you've deposited the money, you can use it to pay off a variety of debts that you owe that are costing you more than 3.99% interest (or whatever the interest rate is on the balance transfer check offer you've received); and save quite a bit of money! There have been people who purchase cars using a balance transfer check offer. If you're lucky enough to receive an offer for 0% interest on the life of the balance transferred (with checks); you can buy and pay for a car without any cash up front and without paying any interest. How great is that?! Other uses for the low or no interest balance transfer check offers: a buy now, pay later holiday shopping season! If you deposit the check from the balance transfer offer into your own account, you could use that money to finance your holiday shopping. This is a good idea if you get a 0% interest offer; or if you were planning to use a higher interest credit card to make your purchases. By using the balance transfer checks in your own checking account, you save on interest and have more time to pay for the purchases which means you aren't hurting your wallet too much. Home improvement is another good candidate for using balance transfer checks. Once again, just deposit the balance transfer check that you write to yourself into your own account, and then hit the home improvement store for the items you need to make the repairs or complete your latest project. As long as you make your monthly payments on time, you'll be able to keep your 0% or low interest offer on the balance transfer. Making even one payment late can be grounds for a rate increase, as well as late fees, and the financial gains of using the offer will be wiped out!
Are 0% Balance Transfer Offers Really Free?
Paying off credit card debt with 0% interest is a dream come true – which is exactly why a large number of credit card companies offer the promotions. They know it will attract new customers who have debt with other credit card companies to transfer that debt to their cards. But where is the value to the company offer the credit card balance transfer offer; if they let you repay that debt with 0% interest? Whenever you see credit card promotions that sound like they're going to be a good deal for you, it's best to look into them closely and make sure you read all of the “fine print”. A 0% balance transfer is typically good for a specific length of time, six months or twelve months are the most common terms. If you have several thousand dollars of debt on a higher interest credit card and take advantage of a 0% balance transfer offer for twelve months, the credit card company is betting on you still having a balance once the promotional period ends. When the six or twelve months of no interest repayments end, the balance will start being repaid with interest. A common mistake many people make when transferring balances under the six or twelve month 0% promotional offers, is not checking what the interest rate will be after the promotion ends. If you're moving a balance that you are currently paying 9% interest to a card with an interest rate of 19% after the promotional period ends - unless you are able to pay it off completely during the 0% interest period, you are not likely to benefit financially over the long term. You would have to start looking for another 0% balance transfer offer, or pay the higher interest until the balance is paid off. The other often overlooked factor of balance transfer offers with 0% interest is that most of them charge a transfer fee. The fee can range from 1% to 5% of the amount transferred. This fee can add up, depending on how much money you are transferring. There are some instances when the amount you pay for the balance transfer fee will result in more money paid than if you had just kept your balance on the card it was on and paid interest. To ensure you're actually getting a good deal, you'll want to play with the numbers and determine how much you'll spend for the life of the balance if you keep it on the card it's currently on, or if you move it to the new card with the 0% balance transfer offer, and don't forget to factor in a transfer fee if you have to pay one, and what the interest rate will be at the end of the promotional offer. Interest free balance transfer offers are also only good as long as you make your payments on time. This is important to keep in mind if you sometimes have difficulty keeping up with your payments, because if you send one a few days late you can lose your 0% interest rate and start paying a much higher interest rate. In order to make balance transfer fees work for you financially, it's actually better to find a low interest balance transfer offer that is fixed for the length of the balance. If you can transfer a few thousand dollars from a credit card with 9% interest or higher, to a card with 1.99% or 3.99% fixed interest on the balance transfer for the life of that balance, you will save hundreds of dollars in interest and actually make out better than the 0% offers (provided you know you can't pay off the entire balance before the 0% offer ends).
How Balance Transfers Affect Your Credit Score
Transferring balances with high interest rates to a credit card with a lower interest rate (or a 0% interest balance transfer offer) is a great way to pay your debt off faster and save money in the process. It's not as cut and dry as transferring the money from one place to another though, there are some other considerations to work out before you rush into the next balance transfer offer you qualify for: primarily, how does a balance transfer affect your credit score? Balance Transfers and Credit Scores – What's the Connection? Due to the formula used to calculate an individual's credit score, moving money from one credit card to another can actually cause some negative issues with your credit score that you may not have even realized. Credit scores are calculated with a top-secret formula, but we do know how much weight each component of our credit carries in the calculation:
Payment History – 35%
Outstanding Debt – 30%
Established Credit – 15%
New Credit – 10%
Type of Credit - 10%As you can see, the two biggest factors contributing to your credit score calculation involve how well you make your payments and how much debt you currently have. When considering balance transfers and how it will affect your credit score, first you should realize that most people mistakenly close out the old credit card once the balance has been moved to the new card – this is bad because it lowers the average age of your accounts and this accounts for 15% of your credit score. If most of your credit is recent, and you close your old account(s) as you transfer balances, you've suddenly decreased the average length of time you've had credit and your credit score will decrease as a result. In addition, if you close out your old credit card account after transferring the balance, you've lowered your debt to credit ratio, which accounts for a whopping 30% of your credit score. Closing the account gives you less credit available to you, which means you are suddenly using more of your available credit even though you haven't spent any more money. It's also true that opening a credit card account – like the one you want to transfer your higher interest balances to, will result in a lower credit score. New accounts make up 10% of your FICO credit score, so it's possible that opening the new account will take a hit on your account, but since it's only 10% of your overall score calculation, it shouldn't be as big of a factor as closing out the older account. If you transfer a balance to a new card, and leave the old card open – it will actually appear as if you owe less money because you have a higher available credit amount. You may experience a bit of a credit score increase from this which can counteract the decrease from opening a new account. Goals for Balance Transfers Your goal is to have less than 30% of your available credit (all cards included) utilized. You should always look to transfer balances to cards that give you the best rates, and leave your old accounts open. In the meantime, don't charge any more money until your total balance is well below the 30% utilization, and you'll soon see your credit score affected positively for these responsible financial decisions. In order to get a better understanding of where you stand with your credit score, don't forget you're entitled to a free credit report from each of the three credit reporting agencies annually. With the report, you can see how much credit you're using, and whether or not looking for a new balance transfer offer might help you raise your score and save money on interest.
Payment History – 35%
Outstanding Debt – 30%
Established Credit – 15%
New Credit – 10%
Type of Credit - 10%As you can see, the two biggest factors contributing to your credit score calculation involve how well you make your payments and how much debt you currently have. When considering balance transfers and how it will affect your credit score, first you should realize that most people mistakenly close out the old credit card once the balance has been moved to the new card – this is bad because it lowers the average age of your accounts and this accounts for 15% of your credit score. If most of your credit is recent, and you close your old account(s) as you transfer balances, you've suddenly decreased the average length of time you've had credit and your credit score will decrease as a result. In addition, if you close out your old credit card account after transferring the balance, you've lowered your debt to credit ratio, which accounts for a whopping 30% of your credit score. Closing the account gives you less credit available to you, which means you are suddenly using more of your available credit even though you haven't spent any more money. It's also true that opening a credit card account – like the one you want to transfer your higher interest balances to, will result in a lower credit score. New accounts make up 10% of your FICO credit score, so it's possible that opening the new account will take a hit on your account, but since it's only 10% of your overall score calculation, it shouldn't be as big of a factor as closing out the older account. If you transfer a balance to a new card, and leave the old card open – it will actually appear as if you owe less money because you have a higher available credit amount. You may experience a bit of a credit score increase from this which can counteract the decrease from opening a new account. Goals for Balance Transfers Your goal is to have less than 30% of your available credit (all cards included) utilized. You should always look to transfer balances to cards that give you the best rates, and leave your old accounts open. In the meantime, don't charge any more money until your total balance is well below the 30% utilization, and you'll soon see your credit score affected positively for these responsible financial decisions. In order to get a better understanding of where you stand with your credit score, don't forget you're entitled to a free credit report from each of the three credit reporting agencies annually. With the report, you can see how much credit you're using, and whether or not looking for a new balance transfer offer might help you raise your score and save money on interest.
Easy Guide To Transferring a Credit Card Balance
Transferring a high interest credit card balance to one with a better interest rate and/or better overall terms and features is usually a good way to reduce the amount of money you pay back on your existing debt. Depending on the “better” credit card you select, you may also be able to benefit from a rewards program or gain other features you didn't already have – including travel accident insurance coverage or an extended warranty program for new purchases made with the card. There are a few instances when a balance transfer is not the great deal it appears at first glance though, so it's important to do your research before moving your accounts around. If you want to take advantage of a balance transfer offer, use this guide for a smooth transition from one card to the other, and avoid costly or time consuming mistakes: Step One: Find a better credit card with a balance transfer offer. There is no point moving money from one credit card to another unless you are going to benefit from it in some way. Sometimes people are mislead by the introductory rates and promotional offers – so it is important that you dig a little beneath the surface to see what sort of rates you'll be charged once the promotional period ends. When looking at possible cards to replace your existing credit card, make sure you find out the following information in order to make an accurate comparison between your existing card and the new card: What is the introductory rate and when does it end? Does the introductory rate apply to new purchases only? Does it apply to balance transfers? What is the cards APR (annual percentage rate) once the introductory offer is over? Does the card have an annual fee? How much is it? This is an important consideration when looking at a card to move your existing balances to - What does the card charge for a balance transfer fee? Many cards charge 3-4% fees for transferring balances. If you've got a $4,000 balance on your card that you're moving to a new card, you're looking at a fee between $120 and $160 just to move the balance. If you're going to pay a balance transfer fee, you're going to need to save a whole lot of money in interest over the life of the balance on the new card in order to make that fee worth it. Step Two: What are your chances of getting approved for the new card? Just because a credit card offers a 0% or 2% interest rate on balance transfers does not mean that you will be approved for that offer. Cards always put their best foot forward; but sometimes people are approved for the cards under different terms, based on their credit scores and payment histories. Take a close look, because often the credit card you apply for will tell you that if you don't qualify for the terms of the offer they will issue you a credit card with higher interest rates or different overall terms. If this happens, will the higher rates be beneficial to you, or will you just end up with a second credit card that charges a fortune in fees and interest and the temptation to spend more because you have a new credit line available? Step Three: Apply If you find a card with a great offer that you've compared closely to your existing card and feel that you will save money through the new, lower interest rate and/or through the rewards program the new card offers – AND you've considered your realistic chance of being approved for that card and all seems ready to go; it's time to apply. When applying for the new card, make sure to fill out the balance transfer portion at the time of application. The reason for this is sometimes the balance transfer offers are only good for immediate balance transfers that occur at the time of account opening. Balance transfers that are initiated later may be considered a cash advance and do not enjoy the same promotional terms your initial transfers do. Step Four: Stop Using Old Card If you've transferred the balance to a new and improved credit card, stop using your old credit card. Cut it up or put it away so you aren't tempted to charge on it. If you transfer the balance and then continue to use your old card, you've completely defeated the purpose of moving the money and now have TWO credit cards to pay off!
PIN versus signature conundrum
As for which method of debit card use -- PIN or signature -- is most secure, consumers are bit schizophrenic. According to a STAR/First Data study in 2005, 47% of consumers preferred PIN debit because they felt it was more secure. But the December 2005 issue of the Chicago Fed Letter, published by the Federal Reserve Bank of Chicago, noted that "cardholders perform twice as many signature-based debit transactions as PIN-based debit transactions. Cardholders in the United States performed 10.3 billion signature-based transactions and 5.3 billion PIN-based transactions in 2003."
And with all that activity, only 20% of those surveyed in the STAR/First Data study were aware that their debit cards have the same zero liability coverage as their credit cards.
"While debit cards offer much in the way of convenience, with equal protection against fraud and loss, they don't appeal equally to everyone," McBride says. "Consumers who always pay their credit card balances in full will find that a rebate credit card is far more attractive than a debit card due to the higher rewards and additional float time on the money."
Debit card use will continue to grow because consumers find them an efficient way to manage money. Nevertheless, there are still a few aspects, such as daily usage limits, overdraft risk and blocking, that need to be considered.
Here's how blocking works, according to the FTC: You use a credit or debit card when you check into a $100-a-night hotel for five nights. At least $500 of your available credit or available amount in your checking account is immediately reduced by that amount. In addition, hotels and rental car companies often add anticipated charges for "incidentals" like food, beverages or gasoline to the blocked amount.
And with all that activity, only 20% of those surveyed in the STAR/First Data study were aware that their debit cards have the same zero liability coverage as their credit cards.
"While debit cards offer much in the way of convenience, with equal protection against fraud and loss, they don't appeal equally to everyone," McBride says. "Consumers who always pay their credit card balances in full will find that a rebate credit card is far more attractive than a debit card due to the higher rewards and additional float time on the money."
Debit card use will continue to grow because consumers find them an efficient way to manage money. Nevertheless, there are still a few aspects, such as daily usage limits, overdraft risk and blocking, that need to be considered.
Here's how blocking works, according to the FTC: You use a credit or debit card when you check into a $100-a-night hotel for five nights. At least $500 of your available credit or available amount in your checking account is immediately reduced by that amount. In addition, hotels and rental car companies often add anticipated charges for "incidentals" like food, beverages or gasoline to the blocked amount.
How to get money back
So what happens if a cardholder has a problem and wants her money back?
"The process varies by issuer," Krattli says. "Call the bank, let them know there's a discrepancy -- that they didn't receive what they ordered, didn't like it, etc. A customer service representative will talk them through some of the steps that will be taken. In most cases, they get the money back in their checking account within five business days."
Sloane thinks consumer concern about loss will continue to push the debit card business. "Zero liability hasn't worked itself all the way out on the debit side, and the next phase will be offers of recovery. A bank will say, 'We'll help you recover accounts.' Maybe five years from now the banks will offer some kind of insurance policy for the best customers."
"The process varies by issuer," Krattli says. "Call the bank, let them know there's a discrepancy -- that they didn't receive what they ordered, didn't like it, etc. A customer service representative will talk them through some of the steps that will be taken. In most cases, they get the money back in their checking account within five business days."
Sloane thinks consumer concern about loss will continue to push the debit card business. "Zero liability hasn't worked itself all the way out on the debit side, and the next phase will be offers of recovery. A bank will say, 'We'll help you recover accounts.' Maybe five years from now the banks will offer some kind of insurance policy for the best customers."
Equal protection
Another feature of credit cards that has been added to debit cards is fraud and loss protection. Discover Card, Visa and MasterCard branded debit cards now have the same fraud and loss protections as credit cards. In Bankrate's survey, every bank that offers debit cards provides fraud and loss protection.
The Fair Credit Billing Act and the Electronic Funds Transfer Act provide procedures for consumers to follow if a credit or debit card is lost or stolen.
Under the Fair Credit act, your maximum liability for a stolen credit card is $50.
The Electronic Funds act, which covers debit cards, says liability is dependent on how quickly you report the loss or theft. If you report the theft within two business days, you are liable only for $50 in unauthorized use. If you don't report the loss in two business days, according to the Federal Trade Commission, "you could lose up to $500 because of an unauthorized transfer. You also risk unlimited loss if you fail to report an unauthorized transfer within 60 days after your bank statement containing unauthorized use is mailed to you. That means you could lose all the money in your bank account and the unused portion of your line of credit established for overdrafts."
While the FTC's warnings about losing a check card are dire, the reality may be much less scary. Over the past few years, Discover Card, Visa and MasterCard have extended their zero-liability protection to debit cards. In effect, check cards now have the same protections as credit cards.
For Visa, offering zero liability "makes sense," Krattli says. "We make sure you have acceptance wherever you shop and make you feel as secure as you can be about your purchase. That's part of our brand promise: payment options, acceptance, comfort and security for purchases."
Despite the coverage, McBride has a caveat for consumers. "While many debit card issuers offer the same protection against fraud as that of credit cards, it still means closing the barn door after the horse is already out. It may take some time to restore the funds to the account, unlike a credit card where the cardholder can withhold payment on any fraudulent purchases."
Sloane also advises consumers to find out how their bank processes debit transactions.
"Visa has extended zero liability, but the banks have to agree. A transaction must go through the Visa or other network in order to be covered. You have to ask your bank whether zero liability applies to that debit card. Otherwise, they'll say you're exposed to the FTC rules. What is not discussed much is how long it takes to get the money back into the checking account rather than credit back."
The Fair Credit Billing Act and the Electronic Funds Transfer Act provide procedures for consumers to follow if a credit or debit card is lost or stolen.
Under the Fair Credit act, your maximum liability for a stolen credit card is $50.
The Electronic Funds act, which covers debit cards, says liability is dependent on how quickly you report the loss or theft. If you report the theft within two business days, you are liable only for $50 in unauthorized use. If you don't report the loss in two business days, according to the Federal Trade Commission, "you could lose up to $500 because of an unauthorized transfer. You also risk unlimited loss if you fail to report an unauthorized transfer within 60 days after your bank statement containing unauthorized use is mailed to you. That means you could lose all the money in your bank account and the unused portion of your line of credit established for overdrafts."
While the FTC's warnings about losing a check card are dire, the reality may be much less scary. Over the past few years, Discover Card, Visa and MasterCard have extended their zero-liability protection to debit cards. In effect, check cards now have the same protections as credit cards.
For Visa, offering zero liability "makes sense," Krattli says. "We make sure you have acceptance wherever you shop and make you feel as secure as you can be about your purchase. That's part of our brand promise: payment options, acceptance, comfort and security for purchases."
Despite the coverage, McBride has a caveat for consumers. "While many debit card issuers offer the same protection against fraud as that of credit cards, it still means closing the barn door after the horse is already out. It may take some time to restore the funds to the account, unlike a credit card where the cardholder can withhold payment on any fraudulent purchases."
Sloane also advises consumers to find out how their bank processes debit transactions.
"Visa has extended zero liability, but the banks have to agree. A transaction must go through the Visa or other network in order to be covered. You have to ask your bank whether zero liability applies to that debit card. Otherwise, they'll say you're exposed to the FTC rules. What is not discussed much is how long it takes to get the money back into the checking account rather than credit back."
Debit cards: A good deal gets better 2
With most debit cards, however, points are earned only on signature purchases and aren't earned in specified cases, including ATM withdrawals, balance transfers or payments made to prepaid or reloadable cards.
"I guess consumers have shown that they do respond to rewards, even when those rewards are less substantial than on the credit side," Sloane says. "I still believe the primary consumer motivation is better management of their finances. Secondary motivation is the thought that, 'as long as I'm using my debit card, I might as well get something back from that.' "
Regardless of the differences between credit card and debit card reward programs, one has to evaluate how one uses them.
"Credit card reward programs only work if you use the rewards and pay off the balance every month," McBride says. "If you do pay off your balance every month, you have no need to use a debit card. You can use the issuer's money until the bill comes and keep your own cash in an interest-earning account."
"I guess consumers have shown that they do respond to rewards, even when those rewards are less substantial than on the credit side," Sloane says. "I still believe the primary consumer motivation is better management of their finances. Secondary motivation is the thought that, 'as long as I'm using my debit card, I might as well get something back from that.' "
Regardless of the differences between credit card and debit card reward programs, one has to evaluate how one uses them.
"Credit card reward programs only work if you use the rewards and pay off the balance every month," McBride says. "If you do pay off your balance every month, you have no need to use a debit card. You can use the issuer's money until the bill comes and keep your own cash in an interest-earning account."
Rewards a mixed bunch
Though not as robust as reward programs on credit cards, debit card reward programs are still a good thing for those who use debit as an alternative to credit cards, cash or checks.
For example, the Citi ThankYou program awards one point for every $3 using a PIN and one point for every $2 spent for a signature transaction. The ThankYou program with the Citi Diamond Preferred Rewards Card gives five points for every dollar spent at grocery stores, gas stations and drugstores, and one point per dollar at every other type of retailer, including online and phone purchases.
Comerica Bank's World Perks travel rewards program has two tiers: For a $20 annual fee, cardholders earn one mile for every $2 spent, and for $55 annually, they earn one mile per dollar spent.
The variety of rewards is also broad. Washington Mutual's free checking account gives 3 cents on every purchase up to $250 per year. It also offers "WaMoola for Schools," which earns a point per purchase for the designated school. Points are converted to cash once a year and donated to the school.
Chase has three types of debit card awards. Debiters can earn miles with a Continental Airlines Banking Card (two tiers: $25 annual fee equals one mile for every $2 spent; $65 annual fee brings one mile per dollar) or a United Mileage Plus Check Card ($25 annual fee, one mile per $2 spent). Or they can sign up for free for Chase Visa Extras, which gives one point for every dollar spent on qualifying purchases.
For example, the Citi ThankYou program awards one point for every $3 using a PIN and one point for every $2 spent for a signature transaction. The ThankYou program with the Citi Diamond Preferred Rewards Card gives five points for every dollar spent at grocery stores, gas stations and drugstores, and one point per dollar at every other type of retailer, including online and phone purchases.
Comerica Bank's World Perks travel rewards program has two tiers: For a $20 annual fee, cardholders earn one mile for every $2 spent, and for $55 annually, they earn one mile per dollar spent.
The variety of rewards is also broad. Washington Mutual's free checking account gives 3 cents on every purchase up to $250 per year. It also offers "WaMoola for Schools," which earns a point per purchase for the designated school. Points are converted to cash once a year and donated to the school.
Chase has three types of debit card awards. Debiters can earn miles with a Continental Airlines Banking Card (two tiers: $25 annual fee equals one mile for every $2 spent; $65 annual fee brings one mile per dollar) or a United Mileage Plus Check Card ($25 annual fee, one mile per $2 spent). Or they can sign up for free for Chase Visa Extras, which gives one point for every dollar spent on qualifying purchases.
Convenience and security
The rise of debit card use is attributable to several factors, primarily money management, convenience and security. "Significant awareness was raised about the high interest rates charged by credit cards and the fees for late payments," Sloane says. "Consumers have been educated about the benefits of debit cards. Consumers see it as a way to budget their money more effectively."
"The No. 1 reason consumers are using debit cards is convenience," says Nancy Krattli, the vice president of consumer debit products at Visa. "They provide convenient money management -- you don't have to carry cash, have exact change, and there is no record-keeping because it's on the bank statement."
She says Visa's cardholder surveys indicate that people choose debit for day-to-day transactions such as gas, groceries and drugstore purchases. But, increasingly, they're using them for smaller-ticket transactions such as fast food, coffee at Starbucks, even parking. "The average ticket has gone down," Krattli says. "In 2004 the median was $24, and it has come down to $22 now."
A Visa survey from August 2006 showed that 55% of debit card holders use their cards for purchases of less than $25, and 86% cited convenience as their primary reason.
"The No. 1 reason consumers are using debit cards is convenience," says Nancy Krattli, the vice president of consumer debit products at Visa. "They provide convenient money management -- you don't have to carry cash, have exact change, and there is no record-keeping because it's on the bank statement."
She says Visa's cardholder surveys indicate that people choose debit for day-to-day transactions such as gas, groceries and drugstore purchases. But, increasingly, they're using them for smaller-ticket transactions such as fast food, coffee at Starbucks, even parking. "The average ticket has gone down," Krattli says. "In 2004 the median was $24, and it has come down to $22 now."
A Visa survey from August 2006 showed that 55% of debit card holders use their cards for purchases of less than $25, and 86% cited convenience as their primary reason.
Debit cards: A good deal gets better
With no fees for transactions, no debt added to high-interest credit cards, "zero liability" fraud protection and new rewards programs, the debit, or check, card is proving to be a grand slam for consumers.
Debit card fees for transactions, whether PIN or signature, have nearly disappeared, according to Bankrate.com researchers who surveyed the 10 largest banks and thrifts in each of 10 top markets. Only seven of the 100 institutions charge a point-of-sale fee for PIN transactions. Five of those charge per transaction and two charge a monthly fee.
The public loves them Debit cards have become nearly universal. Of the 100 banks surveyed, only three do not offer them. Of those that do, only two banks, Bank of the West in San Francisco and Firstrust Bank in Philadelphia, charge an annual fee to have a card.
This is very good news for consumers, who have embraced debit cards as their preferred purchasing plastic. According to the Federal Reserve, since 2003, debit cards, which draw money from your checking account, have been used to make more purchases than credit cards, which are used to borrow money.
"The competitive environment for banks demands that they position themselves to the consumer as offering low-cost checking accounts," says Tim Sloane, the director of the Debit Advisory Service at Mercator Advisory Group, a payments-industry research firm. "Core to the value proposition for consumers is debit cards. The once-common practice of charging transaction fees on debit cards has disappeared."
Greg McBride, a senior financial analyst at Bankrate, agrees.
"Point-of-sale fees for PIN-based debit card transactions appear to be more myth than reality," McBride says. "Nonetheless, cardholders should always verify the terms with their issuers to avoid being surprised."
For signature transactions, only Wells Fargo has a fee, and that is $1 per month for some customers, regardless of the number of transactions. "Some customers -- depending on account type and applicable waivers -- are charged a $1 usage each month in which they make a purchase using their check card or their ATM card," says Lisa Westermann, a spokeswoman for Wells Fargo. "The fee is charged for unlimited PIN-based and signature-based point-of-sale transactions and is only charged if either card has been used for point-of-sale purchases during the statement cycle."
Debit card fees for transactions, whether PIN or signature, have nearly disappeared, according to Bankrate.com researchers who surveyed the 10 largest banks and thrifts in each of 10 top markets. Only seven of the 100 institutions charge a point-of-sale fee for PIN transactions. Five of those charge per transaction and two charge a monthly fee.
The public loves them Debit cards have become nearly universal. Of the 100 banks surveyed, only three do not offer them. Of those that do, only two banks, Bank of the West in San Francisco and Firstrust Bank in Philadelphia, charge an annual fee to have a card.
This is very good news for consumers, who have embraced debit cards as their preferred purchasing plastic. According to the Federal Reserve, since 2003, debit cards, which draw money from your checking account, have been used to make more purchases than credit cards, which are used to borrow money.
"The competitive environment for banks demands that they position themselves to the consumer as offering low-cost checking accounts," says Tim Sloane, the director of the Debit Advisory Service at Mercator Advisory Group, a payments-industry research firm. "Core to the value proposition for consumers is debit cards. The once-common practice of charging transaction fees on debit cards has disappeared."
Greg McBride, a senior financial analyst at Bankrate, agrees.
"Point-of-sale fees for PIN-based debit card transactions appear to be more myth than reality," McBride says. "Nonetheless, cardholders should always verify the terms with their issuers to avoid being surprised."
For signature transactions, only Wells Fargo has a fee, and that is $1 per month for some customers, regardless of the number of transactions. "Some customers -- depending on account type and applicable waivers -- are charged a $1 usage each month in which they make a purchase using their check card or their ATM card," says Lisa Westermann, a spokeswoman for Wells Fargo. "The fee is charged for unlimited PIN-based and signature-based point-of-sale transactions and is only charged if either card has been used for point-of-sale purchases during the statement cycle."
Friday, July 17, 2009
Selling Nothing Of Your Own
The push of many work from home programs is the idea that an individual can sell products that he or she does not own, and the promise is that they can make a profit doing this. This idea seems to defy human logic, as one questions how a profit can be generated when there is nothing to sell. In most cases, the idea that one can sell things that are not personally owned is an allusion to affiliate marketing, the process of selling products that other people own and earning commissions from the product owner. In this process, the sale is generated by the affiliate, and the merchant takes it from there. When the sale is completed, the affiliate earns a commission. Many people make money doing this, as it is a very good business model if one is able to perfect the strategies involved. However, there is another way to make money selling nothing of your own, and it includes the process of drop shipping. Drop shipping, which existed long before the internet, breathed a new type of life once eBay and the internet turned e-commerce on its head. Drop shipping is simply the process of selling a product that is owned by someone else at an inflated price. For example, if an individual is able to find products at a wholesale price, he or she can place it on eBay or their own store and sell it at a premium. In the process, one can avoid having to own anything, and the shipping is taken care of by the company that manufactures the company. While this process is similar to affiliate marketing, it differs in the fact that the product actually passes through the hands of the individual. Furthermore, affiliate marketing is often applied in the digital product industry, while drop shipping can only be done with physical products. And, while the product does pass through the hands of the individual, it does not do so physically. Because the manufacturer handles the shipping, the middleman does not need to package the item, ship it, or store it anywhere. Instead, he or she simply completes the order and earns the profit that is taken on the sale of the item. This type of a business model is very simple, easy to understand, and repeatable. For these reasons, people flock to study this strategy to see if they can make money by implementing it. While not everyone finds it to be a profitable venture, many in fact are able to generate solid income streams from drop shipping.Article Source: http://www.articlesbase.com/ecommerce-articles/selling-nothing-of-your-own-234071.html
-------------------------About the Author:To learn more about the strategy of drop shipping, read more in the Dropship Crash Course. Then, check out one of the best drop ship sources around, Worldwide Brands.
-------------------------About the Author:To learn more about the strategy of drop shipping, read more in the Dropship Crash Course. Then, check out one of the best drop ship sources around, Worldwide Brands.
Steps To Accept Credit Cards In Your Business
1. What Are You Selling?
The reason for this is because VISA/MASTERCARD does not accept every type of business there is. Because of high return and charge back risks, each sponsored bank has a criteria of what kinds of business they will and will not accept. That is why when you check with your local bank there is a very good chance that your application will be denied if you are anything but retail.
2. What Is The Criteria For Acceptance?
The less risk your business is to the bank, the greater your chance of acceptance. If you were operating a retail store selling stationary, your chances for approval is many times greater than if you were operating the same business from your home or over the Internet. To the bank the retail store is far more secure than your home based business.
3. What Do I Do Then To Accept Cards? I Am Not A Retail Store.
The answer is that you need to work with a company or a bank that can approve these kinds of businesses. They have met the criteria and the requirements from VISA/MASTERCARD to approve businesses other than your standard walk in Retail store such as Mail Order, Phone Order, and Internet related businesses.
4. What About The Costs? Are They Any Different For A Retail Vs. Home Based Business.
The answer to this goes back to the "Greater The Risk, The Higher The Cost." In almost every case the cost (discount rate) to process a transaction is going to be more to you than if it was done in person. Most home based businesses process sales over the phone, through the mail, and over the Internet. There is no signed sales receipt in all of these types of transactions. This invites the high possibility of chargebacks. Hence, more risk, higher cost than if it was retail.
5. What Kinds Of Typical Startup Costs Can I Expect?
You should expect to invest a startup amount of between $190.00 - $300.00 from most companies in our industry. These amounts can include application, setup, equipment rental lease deposits as well as additional costs for poor credit, higher risk, etc.
6. What About Equipment. What Will It Cost?
This is going to vary depending on the kind of equipment you choose. If you lease your equipment, your payments should range anywhere from $35.00 to $49.00 per month for a complete processing system including a terminal and an automatic printer, and in many cases software. If you are looking to process Online Internet Realtime transactions, and want to add on Shopping Carts, etc, amounts will increase according to the amount of customization you need.
7. Is It Really Necessary To Accept Credit Cards To Be Successful?
Yes, it is. Here are just a few reasons why:
The average cash sale amount is $9.00. The average credit card sale is $40.00. That is a 450% increase per transaction. Is it any wonder why you do not see VISA/MASTERCARD signs disappearing from store windows? This is no different in a home based, and more importantly an Online business.
Another factor is this. Without giving your customers the convenience of accepting payment via credit cards, your sales are going to be far less than your competitors that do accept credit cards. This is a basic fact of business.
The bottom line?... If you are going to be in business, it is vital to the success of your business to offer your customers the convenience of paying by credit cards.
The reason for this is because VISA/MASTERCARD does not accept every type of business there is. Because of high return and charge back risks, each sponsored bank has a criteria of what kinds of business they will and will not accept. That is why when you check with your local bank there is a very good chance that your application will be denied if you are anything but retail.
2. What Is The Criteria For Acceptance?
The less risk your business is to the bank, the greater your chance of acceptance. If you were operating a retail store selling stationary, your chances for approval is many times greater than if you were operating the same business from your home or over the Internet. To the bank the retail store is far more secure than your home based business.
3. What Do I Do Then To Accept Cards? I Am Not A Retail Store.
The answer is that you need to work with a company or a bank that can approve these kinds of businesses. They have met the criteria and the requirements from VISA/MASTERCARD to approve businesses other than your standard walk in Retail store such as Mail Order, Phone Order, and Internet related businesses.
4. What About The Costs? Are They Any Different For A Retail Vs. Home Based Business.
The answer to this goes back to the "Greater The Risk, The Higher The Cost." In almost every case the cost (discount rate) to process a transaction is going to be more to you than if it was done in person. Most home based businesses process sales over the phone, through the mail, and over the Internet. There is no signed sales receipt in all of these types of transactions. This invites the high possibility of chargebacks. Hence, more risk, higher cost than if it was retail.
5. What Kinds Of Typical Startup Costs Can I Expect?
You should expect to invest a startup amount of between $190.00 - $300.00 from most companies in our industry. These amounts can include application, setup, equipment rental lease deposits as well as additional costs for poor credit, higher risk, etc.
6. What About Equipment. What Will It Cost?
This is going to vary depending on the kind of equipment you choose. If you lease your equipment, your payments should range anywhere from $35.00 to $49.00 per month for a complete processing system including a terminal and an automatic printer, and in many cases software. If you are looking to process Online Internet Realtime transactions, and want to add on Shopping Carts, etc, amounts will increase according to the amount of customization you need.
7. Is It Really Necessary To Accept Credit Cards To Be Successful?
Yes, it is. Here are just a few reasons why:
The average cash sale amount is $9.00. The average credit card sale is $40.00. That is a 450% increase per transaction. Is it any wonder why you do not see VISA/MASTERCARD signs disappearing from store windows? This is no different in a home based, and more importantly an Online business.
Another factor is this. Without giving your customers the convenience of accepting payment via credit cards, your sales are going to be far less than your competitors that do accept credit cards. This is a basic fact of business.
The bottom line?... If you are going to be in business, it is vital to the success of your business to offer your customers the convenience of paying by credit cards.
Real-Time Credit Card Transactions
When customers press the 'Purchase' button on an order form, the information is transferred to the server. But, what happens after the server receives the information? The diversity of technical solutions is enormous. The solutions differ by price, security features, level of automation, and many other factors. This article discusses which solutions are better.
The major difference between solutions is real-time processing versus deferred processing. With real-time processing, credit cards are immediately approved and the customer sees the results immediately. With deferred processing, the order is forwarded to the merchant who then processes the order. Both methods have advantages and disadvantages.
Real-Time Processing
The most important advantage of real-time processing is that the customer sees the results immediately. If you sell software or information that you can deliver electronically, this feature is priceless because it lets you fill the order within minutes. This is a strong selling point,and you can conceivably sell more of your product if you can fill your orders immediately. If you have to ship your product through the regular mail, this feature probably won't make any difference.
Real-time processing also makes your customers more confident because they know that their card has been approved. So, if there is a mistake, like a wrong expiration date, they can correct it immediately. Half of the Internet buyers are impulse buyers, and they may not re-order if they are told about the mistake the day after they place their order. However, the probability of this kind of mistake is small. The credit card number is checked by the software, so the customer cannot enter an incorrect number. However, the expiration date and the address can be entered incorrectly in 1-2% of the orders.
The possibility of seeing immediate results may also attract hackers. The hackers may have some incomplete credit card information. For example, they may pick up a discarded credit card slip, which contains almost all of the information they need. They can then use your order form to guess the rest of the information. If you do not give them an answer right away, this will not work. So, real-time processing may have a higher percentage of fraudulent transactions.
If you use real-time processing, you can leave the system unattended. All you need to do is to receive e-mails that will inform you about the orders made and the products sold.
There are two ways to do real-time processing. The most common way is to use processing providers (the largest is CyberCash) who specialize in Internet transactions. These companies usually provide you with a set of scripts to build your storefront so you can easily integrate their processing with your storefront software. However, their services are expensive. You usually have to pay a setup fee between $200 to $800 plus 10 to 30 cents per transaction and/or $20-$50 per month. All of these costs are in addition to your bank charges. This solution is easy to transfer if you change your ISP.
The other solution is to install your own credit card processing software on your server. Most processing software vendors have solutions that let you integrate their processing with your storefront software. If you prefer this solution, you will have to install a modem on your server and connect it to a dedicated phone line. You can expect to pay $50 for a modem (you do not need a fast one) and about $300 to your ISP to install this system. The credit card processing software will cost another $350-400. However, since you paid to have the system installed on your server and bought the processing software, your only recurring cost will be the phone line.
Some Internet Service Providers already have a credit processing software installed on their servers, so you will be able to easily plug in your store. But, you will have to pay about $200 for the setup and a per-transaction or per-month fee for using their system. With this solution, you won't be able to transfer your system if you change your ISP.
If you use real-time processing, make sure that the software does not keep the transaction log on the server, because the log containing all the credit card numbers, may become a target for hackers. If your Internet Service Provider hosts several merchants, it may store thousands of credit card numbers. If hackers break into their system, the merchants will be responsible for card numbers' loss.
Deferred Processing
If you defer credit card processing, you cannot fill the orders immediately. So, this processing method is more suitable for businesses that cannot deliver their goods over the Internet.
The advantage of using deferred processing is that you can inspect your orders manually, and correct them before you ship the order. For example, a customer called you and told you that he is from a non-profit organization, and arranged a 20% discount on his purchase. He can still use the order form, and then you can correct his order. You can do any discounts or surcharges for any orders, or otherwise edit the orders, before you process them. Real-time processing doesn't provide this convenience.
When order cards are processed, the credit card issuer's network may be down. This is especially true, if your customers are in China, Brazil, or other distant countries. In these cases, the credit card processor returns the 'CALL CENTER' answer, which means that you must call the center to authorize the transaction. If you do real-time processing, these transactions will be reported to the customer as declined. Not only do you loose a sale, but the customer may be confused by the answer.
Deferred processing is much cheaper than real-time processing because you do not have to pay anybody for any special processing. All you need is a credit card processing software, which you can buy for $350-400. You can use this software for both Internet and phone orders, which is a big advantage. You do not incur any additional costs for processing. The orders are delivered to you by your storefront software and then processed. However, deferred processing requires daily attention because you need to download your orders and process them every day. This may be just a single mouse click, but it needs your attention every day.
If you use deferred processing, the orders stored on the server must be securely encrypted. If the orders are just e-mailed to you, then anyone with administrative privileges on the server can read the orders and steal card numbers. So, before you use the system, ask your ISP or storefront software vendor how the orders are encrypted to secure the orders against hackers.
It is not easy to decide which method is the best for you because you have to choose a storefront software consider integration issues. at the same time, and We will talk about storefront software in one of our next issues.
The major difference between solutions is real-time processing versus deferred processing. With real-time processing, credit cards are immediately approved and the customer sees the results immediately. With deferred processing, the order is forwarded to the merchant who then processes the order. Both methods have advantages and disadvantages.
Real-Time Processing
The most important advantage of real-time processing is that the customer sees the results immediately. If you sell software or information that you can deliver electronically, this feature is priceless because it lets you fill the order within minutes. This is a strong selling point,and you can conceivably sell more of your product if you can fill your orders immediately. If you have to ship your product through the regular mail, this feature probably won't make any difference.
Real-time processing also makes your customers more confident because they know that their card has been approved. So, if there is a mistake, like a wrong expiration date, they can correct it immediately. Half of the Internet buyers are impulse buyers, and they may not re-order if they are told about the mistake the day after they place their order. However, the probability of this kind of mistake is small. The credit card number is checked by the software, so the customer cannot enter an incorrect number. However, the expiration date and the address can be entered incorrectly in 1-2% of the orders.
The possibility of seeing immediate results may also attract hackers. The hackers may have some incomplete credit card information. For example, they may pick up a discarded credit card slip, which contains almost all of the information they need. They can then use your order form to guess the rest of the information. If you do not give them an answer right away, this will not work. So, real-time processing may have a higher percentage of fraudulent transactions.
If you use real-time processing, you can leave the system unattended. All you need to do is to receive e-mails that will inform you about the orders made and the products sold.
There are two ways to do real-time processing. The most common way is to use processing providers (the largest is CyberCash) who specialize in Internet transactions. These companies usually provide you with a set of scripts to build your storefront so you can easily integrate their processing with your storefront software. However, their services are expensive. You usually have to pay a setup fee between $200 to $800 plus 10 to 30 cents per transaction and/or $20-$50 per month. All of these costs are in addition to your bank charges. This solution is easy to transfer if you change your ISP.
The other solution is to install your own credit card processing software on your server. Most processing software vendors have solutions that let you integrate their processing with your storefront software. If you prefer this solution, you will have to install a modem on your server and connect it to a dedicated phone line. You can expect to pay $50 for a modem (you do not need a fast one) and about $300 to your ISP to install this system. The credit card processing software will cost another $350-400. However, since you paid to have the system installed on your server and bought the processing software, your only recurring cost will be the phone line.
Some Internet Service Providers already have a credit processing software installed on their servers, so you will be able to easily plug in your store. But, you will have to pay about $200 for the setup and a per-transaction or per-month fee for using their system. With this solution, you won't be able to transfer your system if you change your ISP.
If you use real-time processing, make sure that the software does not keep the transaction log on the server, because the log containing all the credit card numbers, may become a target for hackers. If your Internet Service Provider hosts several merchants, it may store thousands of credit card numbers. If hackers break into their system, the merchants will be responsible for card numbers' loss.
Deferred Processing
If you defer credit card processing, you cannot fill the orders immediately. So, this processing method is more suitable for businesses that cannot deliver their goods over the Internet.
The advantage of using deferred processing is that you can inspect your orders manually, and correct them before you ship the order. For example, a customer called you and told you that he is from a non-profit organization, and arranged a 20% discount on his purchase. He can still use the order form, and then you can correct his order. You can do any discounts or surcharges for any orders, or otherwise edit the orders, before you process them. Real-time processing doesn't provide this convenience.
When order cards are processed, the credit card issuer's network may be down. This is especially true, if your customers are in China, Brazil, or other distant countries. In these cases, the credit card processor returns the 'CALL CENTER' answer, which means that you must call the center to authorize the transaction. If you do real-time processing, these transactions will be reported to the customer as declined. Not only do you loose a sale, but the customer may be confused by the answer.
Deferred processing is much cheaper than real-time processing because you do not have to pay anybody for any special processing. All you need is a credit card processing software, which you can buy for $350-400. You can use this software for both Internet and phone orders, which is a big advantage. You do not incur any additional costs for processing. The orders are delivered to you by your storefront software and then processed. However, deferred processing requires daily attention because you need to download your orders and process them every day. This may be just a single mouse click, but it needs your attention every day.
If you use deferred processing, the orders stored on the server must be securely encrypted. If the orders are just e-mailed to you, then anyone with administrative privileges on the server can read the orders and steal card numbers. So, before you use the system, ask your ISP or storefront software vendor how the orders are encrypted to secure the orders against hackers.
It is not easy to decide which method is the best for you because you have to choose a storefront software consider integration issues. at the same time, and We will talk about storefront software in one of our next issues.
Accepting Credit Cards Online
Accepting online credit card orders is a must for everyone who does business on the Internet. If you do not accept credit card orders you could lose at least 85% of your potential orders. Most online businesses report that 95% of their orders are through online order forms.
Accepting online credit card orders is easier than it appears. To accept online credit card orders, you need three basic things:
Merchant Account
Software
Internet Service Provider
Merchant Account:
A Merchant account is a special account that you have with a financial institution in order to accept credit cards. Even if you already accept credit cards for your offline transactions, that may not be enough. Credit card companies consider Internet transactions to be riskier than other standard transactions; so, not all accounts permit Internet transactions. If your current account does not allow Internet transactions, you have to contact your financial institution to correct this.
There are many brokers available who can open a Merchant account for you. Their conditions for opening an account may vary drastically, which can make it difficult for you to decide which account is best for you. Most brokers will offer to sell or lease expensive equipment to you, when they open your account. Do not be fooled; That is how they make their money. You do not need any software or equipment to open a Merchant account. . To open an account, all you should have to do is pay is processing fee, which should not be more than $100. That should be enough for you to start accepting credit cards.
To maintain your merchant account, you must pay the following monthly fees:
Discount fee - For Internet sales, this fee should be between 2.5% and 2.9%. You should be suspicious of any discount rate that is less than that.
Transaction fee - This fee should be between $0.20 and $0.30 per transaction.
Address Verification Fee (AVS) - This fee should be $0.05 per transaction. Some (very rare) financial institutions may not require this service, but it is a must for you because it helps to prevent fraud.
Statement fee - This fee is usually between $10 and $15 per month.
For example, if you sell software applications for $20 , and you sell 20 applications per month, your fees are only $25-30 per month, which is approximately 7%. So, even with a small sales volume of $400 per month a Merchant account is not expensive. We will discuss how to select the best account in one of the next issues of our newsletter.
Software:
Most brokers who open Merchant accounts offer software or hardware to process credit cards. If you want to accept credit cards over the Internet, you need a software solution, not a hardware solution. Even though a hardware solution saves you $50-$100, you will have to enter all your transactions manually. With a software solution, you will never have to enter your transactions manually.
Be aware! Some brokers offer software solutions for as high as $2,000, which is way overpriced. The software should cost about $400. Sometimes, brokers may also offer you programming or software setup services at an additional cost. Do not pay for these services. All of the software comes with technical support from the manufacturers, and the bank will give you all the information you need.
Instead of selling you a processing software, you may be offered a processing software lease at a certain price per month. The lease may seem like a good solution, but it's not. For example, if you pay $29.95 during 3 years (sometimes 4), you will pay $1,078.20. Isn't that too much to pay for $400 software?
You don't have to lease or buy your own software if you decide to do real-time processing by plugging into an Internet Service Provider (ISP) that has the processing software on its server. However, you may end up spending too much on an ISP. You must calculate all of the costs and benefits carefully before making that decision.
Internet Service Provider:
Choosing an Internet Service Provider (ISP) is not easy. Some providers will provide you full service and all of the software to process your credit card orders, while others will provide only basic services. Some providers will charge $150-200 per month, or even more, while others will charge $9.95 per month.
What are the basic things that you need from an ISP? The first thing you need is a Secure Server. Many people believe that you must have a Secure Server for security and they will not place an order unless you have a Secure Server. Yet, a Secure Server is not expensive. You do not have to pay $100 a month to use a Secure Server. Many ISPs provide this server for free. In any case, you should never pay more than $10 per month for this service. The best way for you to gain access to a Secure Server is through the ISP that hosts your Web site, which is usually the least expensive; however, you may use any ISP that you want. If you have your own domain name and you want to use it as a secure server, you must buy your own certificate, which costs between $100 and $350 per year. We will discuss Secure Servers and certificates in detail in the next issue of our newsletter.
After you have your Secure Server running, you need the software to display order forms, store orders etc. You can use anything from homemade scripts to sophisticated shopping carts. The price for this kind of software ranges from $30 to $20,000, or more. The price depends on what you need. There are thousands of products available, which makes choosing the right product for your needs very difficult. When we were looking for a software to process our orders, we did not find a product that would meet our needs, so we developed our own software, and we are planning to make it available by the end of 1998.
However, you do not have to have any software to process your orders. You can easily find an ISP that will process your orders for you, but it will cost you more money. Instead of paying $20-30 per month for an excellent Web Site with a Secure Server, you may have to pay $100-200 per month. This processing service is a waste of money. For example, if you buy a software for $500 and then only pay your ISP $20 per month for Secure Server services instead of paying $100 per month for Secure Server and processing services, your initial software investment will be paid off in six month, and the software is yours. That way, if you decide to change your ISP, you will not have to invest again.
There are two methods that you can use to process credit card orders. The method you use depends on what happens when the customer presses the 'Purchase' button on the form. With the first method, the credit card is authorized immediately and the customer receives an immediate answer. With the second method, the information is delivered to you, so that you can process the order later. Both methods have their advantages and disadvantages; however, they are not in the scope of this article. We will discuss these topics in one of the next issues of our newsletter.
Accepting online credit card orders is easier than it appears. To accept online credit card orders, you need three basic things:
Merchant Account
Software
Internet Service Provider
Merchant Account:
A Merchant account is a special account that you have with a financial institution in order to accept credit cards. Even if you already accept credit cards for your offline transactions, that may not be enough. Credit card companies consider Internet transactions to be riskier than other standard transactions; so, not all accounts permit Internet transactions. If your current account does not allow Internet transactions, you have to contact your financial institution to correct this.
There are many brokers available who can open a Merchant account for you. Their conditions for opening an account may vary drastically, which can make it difficult for you to decide which account is best for you. Most brokers will offer to sell or lease expensive equipment to you, when they open your account. Do not be fooled; That is how they make their money. You do not need any software or equipment to open a Merchant account. . To open an account, all you should have to do is pay is processing fee, which should not be more than $100. That should be enough for you to start accepting credit cards.
To maintain your merchant account, you must pay the following monthly fees:
Discount fee - For Internet sales, this fee should be between 2.5% and 2.9%. You should be suspicious of any discount rate that is less than that.
Transaction fee - This fee should be between $0.20 and $0.30 per transaction.
Address Verification Fee (AVS) - This fee should be $0.05 per transaction. Some (very rare) financial institutions may not require this service, but it is a must for you because it helps to prevent fraud.
Statement fee - This fee is usually between $10 and $15 per month.
For example, if you sell software applications for $20 , and you sell 20 applications per month, your fees are only $25-30 per month, which is approximately 7%. So, even with a small sales volume of $400 per month a Merchant account is not expensive. We will discuss how to select the best account in one of the next issues of our newsletter.
Software:
Most brokers who open Merchant accounts offer software or hardware to process credit cards. If you want to accept credit cards over the Internet, you need a software solution, not a hardware solution. Even though a hardware solution saves you $50-$100, you will have to enter all your transactions manually. With a software solution, you will never have to enter your transactions manually.
Be aware! Some brokers offer software solutions for as high as $2,000, which is way overpriced. The software should cost about $400. Sometimes, brokers may also offer you programming or software setup services at an additional cost. Do not pay for these services. All of the software comes with technical support from the manufacturers, and the bank will give you all the information you need.
Instead of selling you a processing software, you may be offered a processing software lease at a certain price per month. The lease may seem like a good solution, but it's not. For example, if you pay $29.95 during 3 years (sometimes 4), you will pay $1,078.20. Isn't that too much to pay for $400 software?
You don't have to lease or buy your own software if you decide to do real-time processing by plugging into an Internet Service Provider (ISP) that has the processing software on its server. However, you may end up spending too much on an ISP. You must calculate all of the costs and benefits carefully before making that decision.
Internet Service Provider:
Choosing an Internet Service Provider (ISP) is not easy. Some providers will provide you full service and all of the software to process your credit card orders, while others will provide only basic services. Some providers will charge $150-200 per month, or even more, while others will charge $9.95 per month.
What are the basic things that you need from an ISP? The first thing you need is a Secure Server. Many people believe that you must have a Secure Server for security and they will not place an order unless you have a Secure Server. Yet, a Secure Server is not expensive. You do not have to pay $100 a month to use a Secure Server. Many ISPs provide this server for free. In any case, you should never pay more than $10 per month for this service. The best way for you to gain access to a Secure Server is through the ISP that hosts your Web site, which is usually the least expensive; however, you may use any ISP that you want. If you have your own domain name and you want to use it as a secure server, you must buy your own certificate, which costs between $100 and $350 per year. We will discuss Secure Servers and certificates in detail in the next issue of our newsletter.
After you have your Secure Server running, you need the software to display order forms, store orders etc. You can use anything from homemade scripts to sophisticated shopping carts. The price for this kind of software ranges from $30 to $20,000, or more. The price depends on what you need. There are thousands of products available, which makes choosing the right product for your needs very difficult. When we were looking for a software to process our orders, we did not find a product that would meet our needs, so we developed our own software, and we are planning to make it available by the end of 1998.
However, you do not have to have any software to process your orders. You can easily find an ISP that will process your orders for you, but it will cost you more money. Instead of paying $20-30 per month for an excellent Web Site with a Secure Server, you may have to pay $100-200 per month. This processing service is a waste of money. For example, if you buy a software for $500 and then only pay your ISP $20 per month for Secure Server services instead of paying $100 per month for Secure Server and processing services, your initial software investment will be paid off in six month, and the software is yours. That way, if you decide to change your ISP, you will not have to invest again.
There are two methods that you can use to process credit card orders. The method you use depends on what happens when the customer presses the 'Purchase' button on the form. With the first method, the credit card is authorized immediately and the customer receives an immediate answer. With the second method, the information is delivered to you, so that you can process the order later. Both methods have their advantages and disadvantages; however, they are not in the scope of this article. We will discuss these topics in one of the next issues of our newsletter.
Ecommerce Solutions Compared
There are dozens, perhaps hundreds of businesses and organizations eager to assist you sell your product online. Basically, they fall into four categories: credit card transactions, digital cash transactions, electronic fund transfers and telephone billing systems. No solution is perfect and each comes with its own set of pros and cons. The right choice for you depends upon your specific business requirements.
1. Merchant Internet Accounts.
If you have a merchant status, you will need to consider the following factors:Pros:
Consumers are familiar with credit cards
With credit card transactions, consumers don’t have to download and install special plugins.
Credit card sales lends itself to impulse buying.
You have the customers' contact information for follow up sales and marketing purposes. (This is a pro for the merchant but a con from the point of view of many customers, who prefer anonymity.)
Cons:
Consumers still have concerns regarding providing financial information online.
Not everyone has a credit card.
This method does not lend itself well to the purchase of down loadable soft goods, such as software, art, graphics, etc. Vendors wanting to sell down loadable soft goods will will need to find a way to ensure the product is paid for, once downloaded.
You will have to deal with chargebacks.
If you can’t or won’t get a merchant account through your regular banking institution, you still have the broker option open to you. Brokers can often arrange merchant accounts for businesses who are deemed high risk. Setup fees and discount fees apply.
2. Electronic Cash Transactions
Electronic money is an arrangement whereby the customer pays for the merchandise using, well, electronic money. Examples of this are the well known DigiCash, Cyberbucks, CyberCash, etc. As consumers become more comfortable providing credit card information over the Net, these methods are less utilized.
The Pros
No credit card transactions are required.
No concerns re chargebacks.
Lends itself well to micropayments.
Cons
Many people are unfamiliar with the concept and shy away from unknown entities.
The process is perceived as "a hassle" to some shoppers who prefer to simply give credit card information.
Both merchant and customer must be participating in the same scheme before this method of ecom can be used.
Eliminates the possibility of impulse buying, unless both customer and merchant are already in same scheme.
May not be available globally.
Check out Digicash and Cybercash
3. Electronic Fund Transfers
Funds are transferred electronically from the customers bank account to yours. (This is a highly simplified explanation, and is accurate in the most general sort of way. However, the bottom line is that the customer buys, and at some point the funds are removed from his or her account and ultimately deposited into yours.)
The best known method is the issuing of electronic checks
Customers pay for merchandise by writing an electronic check that is transmitted by email, fax or phone. The "check" is a message that contains all of the information that is found on an ordinary check, but it is signed digitally, or indorsed. The digital signature is encoded by encrypting with the customer’s secret key. Upon receipt, the merchant or "payee" may further indorse by encoding with a private key. When the cheque is processed, the resulting message is encoded with the bank’s secret key, thus providing proof of payment.
NetCheck or Cybank are examples.
Pros
No credit card worries
Available to persons who don’t have credit cards
Cons
A very new technology that some perceive as being less secure than other forms of ecommerce.
Many customers aren’t set up to issue electronic cheques; time required to make the arrangements eliminates impulse buying.
May not be available to international consumers.
4. Telephone Billing Systems
A very new approach, telephone transactions allow the customer to purchase an item or service, and the amount is billed to his or her telephone bill. To date, this is being used for the sale of soft items such as downloads, time measured services (i.e. time spent at a Web site) or for making charitable donations online. eCharge Corporation is a pioneer in the use of this technology.
Pros
Eliminates worries about credit cards (for both consumer and merchant)
Safeguards soft merchandise – no possibility of theft or pirating.
Available to customers without credit cards
Coverage includes the US and points in Europe. Canadian coverage is expected soon.
Cons
Customer is required to download and install a plugin.
Currently only available for soft merchandise but can do some limited transactions for hard goods.
Not currently available for Mac users.
Currently available for sales using telephone modems, and will not work for transactions over cable modems and ISDN lines.
5. One-Stop Shops
More recently, with the huge interest shown in ecommerce, a multitude of services and products have become available. It's now a possibility to find a service that will broker your Internet Merchant Account, as well as providing web site storage, a template for designing your site, shopping cart software, a form generator, a secure line for safe online ordering, and more. IBM, ICAT and Vantage are examples of businesses offering these all-encompassing services. They are excellent starting points for the entrepreneur who wants to delve into ecommerce.
1. Merchant Internet Accounts.
If you have a merchant status, you will need to consider the following factors:Pros:
Consumers are familiar with credit cards
With credit card transactions, consumers don’t have to download and install special plugins.
Credit card sales lends itself to impulse buying.
You have the customers' contact information for follow up sales and marketing purposes. (This is a pro for the merchant but a con from the point of view of many customers, who prefer anonymity.)
Cons:
Consumers still have concerns regarding providing financial information online.
Not everyone has a credit card.
This method does not lend itself well to the purchase of down loadable soft goods, such as software, art, graphics, etc. Vendors wanting to sell down loadable soft goods will will need to find a way to ensure the product is paid for, once downloaded.
You will have to deal with chargebacks.
If you can’t or won’t get a merchant account through your regular banking institution, you still have the broker option open to you. Brokers can often arrange merchant accounts for businesses who are deemed high risk. Setup fees and discount fees apply.
2. Electronic Cash Transactions
Electronic money is an arrangement whereby the customer pays for the merchandise using, well, electronic money. Examples of this are the well known DigiCash, Cyberbucks, CyberCash, etc. As consumers become more comfortable providing credit card information over the Net, these methods are less utilized.
The Pros
No credit card transactions are required.
No concerns re chargebacks.
Lends itself well to micropayments.
Cons
Many people are unfamiliar with the concept and shy away from unknown entities.
The process is perceived as "a hassle" to some shoppers who prefer to simply give credit card information.
Both merchant and customer must be participating in the same scheme before this method of ecom can be used.
Eliminates the possibility of impulse buying, unless both customer and merchant are already in same scheme.
May not be available globally.
Check out Digicash and Cybercash
3. Electronic Fund Transfers
Funds are transferred electronically from the customers bank account to yours. (This is a highly simplified explanation, and is accurate in the most general sort of way. However, the bottom line is that the customer buys, and at some point the funds are removed from his or her account and ultimately deposited into yours.)
The best known method is the issuing of electronic checks
Customers pay for merchandise by writing an electronic check that is transmitted by email, fax or phone. The "check" is a message that contains all of the information that is found on an ordinary check, but it is signed digitally, or indorsed. The digital signature is encoded by encrypting with the customer’s secret key. Upon receipt, the merchant or "payee" may further indorse by encoding with a private key. When the cheque is processed, the resulting message is encoded with the bank’s secret key, thus providing proof of payment.
NetCheck or Cybank are examples.
Pros
No credit card worries
Available to persons who don’t have credit cards
Cons
A very new technology that some perceive as being less secure than other forms of ecommerce.
Many customers aren’t set up to issue electronic cheques; time required to make the arrangements eliminates impulse buying.
May not be available to international consumers.
4. Telephone Billing Systems
A very new approach, telephone transactions allow the customer to purchase an item or service, and the amount is billed to his or her telephone bill. To date, this is being used for the sale of soft items such as downloads, time measured services (i.e. time spent at a Web site) or for making charitable donations online. eCharge Corporation is a pioneer in the use of this technology.
Pros
Eliminates worries about credit cards (for both consumer and merchant)
Safeguards soft merchandise – no possibility of theft or pirating.
Available to customers without credit cards
Coverage includes the US and points in Europe. Canadian coverage is expected soon.
Cons
Customer is required to download and install a plugin.
Currently only available for soft merchandise but can do some limited transactions for hard goods.
Not currently available for Mac users.
Currently available for sales using telephone modems, and will not work for transactions over cable modems and ISDN lines.
5. One-Stop Shops
More recently, with the huge interest shown in ecommerce, a multitude of services and products have become available. It's now a possibility to find a service that will broker your Internet Merchant Account, as well as providing web site storage, a template for designing your site, shopping cart software, a form generator, a secure line for safe online ordering, and more. IBM, ICAT and Vantage are examples of businesses offering these all-encompassing services. They are excellent starting points for the entrepreneur who wants to delve into ecommerce.
Facts About Accepting Credit Cards Online
Before you can accept credit cards (either online or offline), you must have a Merchant Account, which is a special arrangement with a banking institution. Small and home businesses often experience difficulties qualifying for a merchant account, and Web based businesses run into even more problems.
The situation is this: Online transactions don’t take place at the point of sale (POS). They are considered to be "non-face-to-face" transactions. Since there is no way of ascertaining the customer’s identification, there is no way to be sure that the customer is the legitimate card holder. Therefore, financial institutions are leery about the high potential for fraud.
Moreover, the major credit card companies offer their card holders the right to contest charges on their statements that may be the result of theft, fraud or error. A contested charge is referred to as a chargeback. When a chargeback occurs, merchant will end up paying the charge to the issuing bank, in addition to a chargeback fee that can be as high as $30 or more. For example, if you sell a book for $20 through a credit card transaction, and the cardholder later contests the sale, you will end up paying your bank the $20 PLUS a chargeback fee of $10 to $30 dollars.
Consequently, many banks require a reserve fee when issuing merchant status. Typically, face to face sales have a chargeback rate of 1% of all sales. The potential for chargebacks is greater when it is an online sale, so the risk to both bank and merchant increases.
To minimize their risks, most banks have stringent requirements that a business must meet to establish eligibility for merchant status. Factors considered include cash reserves, length of time in business, tax returns, credit history, debt load, refund policies, volume of business, cost of item being sold, and other sources of income.
High Risk Processors are merchant acquirers that specialize in high risk business. They offset their risks by charging you higher transaction fees and higher rates. In the US, the Electronic Card Systems Inc. and Card Service International are two of the better known examples. Merchants living outside the US will be required to find a service that works with their own banking institutions.
Other Associated Expenses
The chargeback expense is the first and foremost concern for a merchant hoping to acquire a merchant account. Chargebacks can result in serious financial loss to the would-be merchant. Also, merchants who encounter too many chargebacks are at risk of losing their merchant account.
However, there are other charges and expenses to factor into the budget as well. Merchants will need to investigate hidden equipment costs, setup fees, line charges, bank transactions fees, holdbacks, and discount rates, etc. These vary considerably among service providers, so compare, compare, compare!
The situation is this: Online transactions don’t take place at the point of sale (POS). They are considered to be "non-face-to-face" transactions. Since there is no way of ascertaining the customer’s identification, there is no way to be sure that the customer is the legitimate card holder. Therefore, financial institutions are leery about the high potential for fraud.
Moreover, the major credit card companies offer their card holders the right to contest charges on their statements that may be the result of theft, fraud or error. A contested charge is referred to as a chargeback. When a chargeback occurs, merchant will end up paying the charge to the issuing bank, in addition to a chargeback fee that can be as high as $30 or more. For example, if you sell a book for $20 through a credit card transaction, and the cardholder later contests the sale, you will end up paying your bank the $20 PLUS a chargeback fee of $10 to $30 dollars.
Consequently, many banks require a reserve fee when issuing merchant status. Typically, face to face sales have a chargeback rate of 1% of all sales. The potential for chargebacks is greater when it is an online sale, so the risk to both bank and merchant increases.
To minimize their risks, most banks have stringent requirements that a business must meet to establish eligibility for merchant status. Factors considered include cash reserves, length of time in business, tax returns, credit history, debt load, refund policies, volume of business, cost of item being sold, and other sources of income.
High Risk Processors are merchant acquirers that specialize in high risk business. They offset their risks by charging you higher transaction fees and higher rates. In the US, the Electronic Card Systems Inc. and Card Service International are two of the better known examples. Merchants living outside the US will be required to find a service that works with their own banking institutions.
Other Associated Expenses
The chargeback expense is the first and foremost concern for a merchant hoping to acquire a merchant account. Chargebacks can result in serious financial loss to the would-be merchant. Also, merchants who encounter too many chargebacks are at risk of losing their merchant account.
However, there are other charges and expenses to factor into the budget as well. Merchants will need to investigate hidden equipment costs, setup fees, line charges, bank transactions fees, holdbacks, and discount rates, etc. These vary considerably among service providers, so compare, compare, compare!
Beginner's Guide to Ecommerce
Whether you call it Internet commerce, or ecom, or ecommerce, or immerce, it basically means the same thing. These terms mean buying or selling something electronically, and the time has never been better to jump in. If you have something you'd like to sell on the Net, new technologies have opened up an array of ecom options -- there's one to suit every need and requirement. Most importantly, ecom is safe. Experts tell us that online transactions are every bit as safe as face to face transactions-- although neither can be guaranteed to be 100% risk free. You're just as likely to be mugged on your way to the Bank Machine as you are to run into security problems with Internet commerce!
But ecommerce can be a confusing subject and many of us need a little help sorting it all out. If some of the jargon is confusing you, read on and I’ll explain some of the basic concepts. This document contains three categories of information:
Definition of Terms
Facts About Accepting Credit Cards Online
Ecommerce Solutions Compared
Definitions
Commerce Service Providers (CSP)
CSPs are business or web sites that provide ecommerce solutions.
Digital or Electronic Cash or E-cash or Ecash or Digital Money
These terms are also used interchangeably, and they refer to any of the various methods that allow a person to purchase goods or services by transmitting a number from one computer to another. The numbers are issued by a bank and represent sums of real money. Digital cash is anonymous and reusable. Unlike credit card transactions, the merchant does not know the identity of the shopper. Yahoo’s Listing of Companies Providing Digital Cash Cybercash and Digicash are two well known methods.
Electronic Checks or Cheques
Customers pay for merchandise by writing an electronic check that is transmitted electronically by email, fax or phone. The "cheque" is a message that contains all of the information that is found on an ordinary cheque, but it is signed digitally, or indorsed. The digital signature is encoded by encrypting with the customer’s secret key. Upon receipt, the merchant or "payee" may further indorse by encoding with a private key. When the cheque is processed, the resulting message is encoded with the bank’s secret key, thus providing proof of payment.
Various companies are selling Electronic Check software and services.
Electronic Wallet
Electronic Wallets store your credit card numbers on your hard drive in an encrypted form. You then make purchases at Web sites that support that particular type of electronic wallet . By clicking on a Pay Button, customers initiate a credit card payment via a secure transaction enabled by the electronic wallet company’s server.
Electronic Commerce or Ecom or Emmerce or EC
These terms are used interchangeably, and they all mean the same thing — the paperless exchange of routine business information using Electronic Data Interchange (EDI) , email, electronic bulletin boards, fax transmissions and Electronic Funds Transfer. It refers to Internet shopping, online stock and bond transactions, the downloading and selling of "soft merchandise" (software, documents, graphics, music, etc.), and business to business transactions.
Extranet
An extranet is an extension of a corporate intranet. It connects the internal network of one company with the intranets of its customers and suppliers. This makes it possible to create e-commerce applications that link all aspects of a business relationship, from ordering to payment.
Disintermediation
Disintermediation is the process of bypassing retail channels or mail order houses and selling directly to the customer.
Hard Goods vs Soft Goods
Hard Goods are items that exist in the real world, as opposed to soft goods, which exist virtually or electronically. For instance, an Internet merchant selling a book that is shipped to the customer in a print version is selling hard goods; a merchant offering a book for download in electronic format is selling soft goods.
High Risk Processors
High risk processors (or brokers) are financial institutions or companies that that issue merchant status accounts to high risk businesses. They offset their risks by charging higher transaction fees and higher rates than traditional banks do. However, the initial outlay of cash that you will be required to put up is usually much less than the large deposits required by traditional banking institutions. Some brokers may offer other added features such as shopping cart software, web site templates, forms or secure lines for ordering.
Immerce
Immerce is the new term being used for commerce that is transacted totally over the Internet.
Merchant Account
A Merchant Account is a relationship between a business (i.e. a merchant) and a merchant bank which allows the retailer or merchant to accept credit card payments from customers. Many banks or financial institutions, especially in Canada, have stiff requirements and regulations regarding the issuing of a merchant account. Many small or home based businesses report that they have great (sometimes insurmountable) difficulties acquiring Merchant Status. If Merchant Status is obtained, the merchant then rents or buys special software that is used to process the transaction. In some cases, depending on the bank and depending on the type of business that you are operating, you will also need to purchase or rent a piece of hardware known as a processing terminal.
An Internet Merchant Account is a special account that permits the acceptance of credit cards online. Transactions are processed online, in real time. While the customer waits, the system checks the credit card to be sure that it has not been reported stolen, has not expired, and is listed to the same address that the customer has given. If the card is approved, the customer and the merchant are both automatically notified that the sale has transpired. This type of account is a stricter banking relationship than one involving face-to-face transactions. Web transactions do not gather signatures from purchasers and therefore there is a higher risk of fraud.
Merchant Brokers specialize in obtaining credit card accounts for online businesses. Brokers charge a setup fee and lease or sell the software and hardware as needed. Expect to pay a discount rate, which is the percentage you pay for each transaction processed, as well as various other charges that differ among services. If obtaining a merchant account through a traditional bank is proving to be a problem, merchant brokers are a good alternative. Yahoo’s List of Credit Card Merchant Services
Microtransactions or Micropayments
Microtransactions are transactions of tiny amounts – a few cents or a few dollars, typically made in order to download or access graphics, games, and information.
Phonecash
Still under development at the time of this writing, Phonecash allows customers who prefer not to use credit cards to buy items on-line by having the value of the purchase transferred from their account to another account within the Internet Banking System. For details, visit Cybank
Telephone Billing Systems
A very new approach, telephone transactions allow the customer to purchase an item or service, and the amount will be billed to his or her telephone bill. To date, this is being used for soft items such as downloads, time measured services (i.e. time spent at a Web site) or for making charitable donations online.
But ecommerce can be a confusing subject and many of us need a little help sorting it all out. If some of the jargon is confusing you, read on and I’ll explain some of the basic concepts. This document contains three categories of information:
Definition of Terms
Facts About Accepting Credit Cards Online
Ecommerce Solutions Compared
Definitions
Commerce Service Providers (CSP)
CSPs are business or web sites that provide ecommerce solutions.
Digital or Electronic Cash or E-cash or Ecash or Digital Money
These terms are also used interchangeably, and they refer to any of the various methods that allow a person to purchase goods or services by transmitting a number from one computer to another. The numbers are issued by a bank and represent sums of real money. Digital cash is anonymous and reusable. Unlike credit card transactions, the merchant does not know the identity of the shopper. Yahoo’s Listing of Companies Providing Digital Cash Cybercash and Digicash are two well known methods.
Electronic Checks or Cheques
Customers pay for merchandise by writing an electronic check that is transmitted electronically by email, fax or phone. The "cheque" is a message that contains all of the information that is found on an ordinary cheque, but it is signed digitally, or indorsed. The digital signature is encoded by encrypting with the customer’s secret key. Upon receipt, the merchant or "payee" may further indorse by encoding with a private key. When the cheque is processed, the resulting message is encoded with the bank’s secret key, thus providing proof of payment.
Various companies are selling Electronic Check software and services.
Electronic Wallet
Electronic Wallets store your credit card numbers on your hard drive in an encrypted form. You then make purchases at Web sites that support that particular type of electronic wallet . By clicking on a Pay Button, customers initiate a credit card payment via a secure transaction enabled by the electronic wallet company’s server.
Electronic Commerce or Ecom or Emmerce or EC
These terms are used interchangeably, and they all mean the same thing — the paperless exchange of routine business information using Electronic Data Interchange (EDI) , email, electronic bulletin boards, fax transmissions and Electronic Funds Transfer. It refers to Internet shopping, online stock and bond transactions, the downloading and selling of "soft merchandise" (software, documents, graphics, music, etc.), and business to business transactions.
Extranet
An extranet is an extension of a corporate intranet. It connects the internal network of one company with the intranets of its customers and suppliers. This makes it possible to create e-commerce applications that link all aspects of a business relationship, from ordering to payment.
Disintermediation
Disintermediation is the process of bypassing retail channels or mail order houses and selling directly to the customer.
Hard Goods vs Soft Goods
Hard Goods are items that exist in the real world, as opposed to soft goods, which exist virtually or electronically. For instance, an Internet merchant selling a book that is shipped to the customer in a print version is selling hard goods; a merchant offering a book for download in electronic format is selling soft goods.
High Risk Processors
High risk processors (or brokers) are financial institutions or companies that that issue merchant status accounts to high risk businesses. They offset their risks by charging higher transaction fees and higher rates than traditional banks do. However, the initial outlay of cash that you will be required to put up is usually much less than the large deposits required by traditional banking institutions. Some brokers may offer other added features such as shopping cart software, web site templates, forms or secure lines for ordering.
Immerce
Immerce is the new term being used for commerce that is transacted totally over the Internet.
Merchant Account
A Merchant Account is a relationship between a business (i.e. a merchant) and a merchant bank which allows the retailer or merchant to accept credit card payments from customers. Many banks or financial institutions, especially in Canada, have stiff requirements and regulations regarding the issuing of a merchant account. Many small or home based businesses report that they have great (sometimes insurmountable) difficulties acquiring Merchant Status. If Merchant Status is obtained, the merchant then rents or buys special software that is used to process the transaction. In some cases, depending on the bank and depending on the type of business that you are operating, you will also need to purchase or rent a piece of hardware known as a processing terminal.
An Internet Merchant Account is a special account that permits the acceptance of credit cards online. Transactions are processed online, in real time. While the customer waits, the system checks the credit card to be sure that it has not been reported stolen, has not expired, and is listed to the same address that the customer has given. If the card is approved, the customer and the merchant are both automatically notified that the sale has transpired. This type of account is a stricter banking relationship than one involving face-to-face transactions. Web transactions do not gather signatures from purchasers and therefore there is a higher risk of fraud.
Merchant Brokers specialize in obtaining credit card accounts for online businesses. Brokers charge a setup fee and lease or sell the software and hardware as needed. Expect to pay a discount rate, which is the percentage you pay for each transaction processed, as well as various other charges that differ among services. If obtaining a merchant account through a traditional bank is proving to be a problem, merchant brokers are a good alternative. Yahoo’s List of Credit Card Merchant Services
Microtransactions or Micropayments
Microtransactions are transactions of tiny amounts – a few cents or a few dollars, typically made in order to download or access graphics, games, and information.
Phonecash
Still under development at the time of this writing, Phonecash allows customers who prefer not to use credit cards to buy items on-line by having the value of the purchase transferred from their account to another account within the Internet Banking System. For details, visit Cybank
Telephone Billing Systems
A very new approach, telephone transactions allow the customer to purchase an item or service, and the amount will be billed to his or her telephone bill. To date, this is being used for soft items such as downloads, time measured services (i.e. time spent at a Web site) or for making charitable donations online.
Merchant Account Basics
Boost Your Business With A Merchant Account
It's a fact. Companies who accept credit card payments for goods and services tend to generate higher revenues than those who only accept cash. According to industry statistics, the average credit card sale is $40 versus just $9 for the average cash sale.* If that isn't enticement enough, consider the disadvantage you may face if competitors offer credit card payment options and you do not.
"These days, the credit card payment option is a must, whether you have a physical retail outlet, take telephone orders or sell products over the Internet," says Diann Joblonski, a relationship manager, at Michigan Bankard Services, a leading merchant card processor serving over 30,000 businesses nationwide. Besides the potential revenue boost, credit cards may well be a cheaper alternative to cash and checks. In a case study prepared by Coopers & Lybrand, credit card processing costs average 2.7% of any transaction, checks 4.0% and cash 4.8%.** These figures make sense when you consider how many times paper money and coins must be counted and recounted by different individuals. While each business would vary in that respect, cash and checks still require more handling than plastic alternatives.
Establishing A Merchant Account
To offer the credit card payment option, you need to set up a merchant account-a bank account established by your company to receive the proceeds of credit card purchases. Typically, along with the account, you will also need to lease equipment and software to facilitate the transactions and ensure payments flow to your operating account. The process is slightly more complicated if you wish to accept credit cards online. In particular, you will need to sign-up with a payment gateway such as CyberCash or VirtualNet. These services allow for real-time credit card authorization for online transactions. It is essential that the payment gateway you choose is compatible with your software and financial institution so transactions flow properly.
Any number of financial institutions offer merchant accounts, but you should look for a provider who has demonstrated expertise in working specifically with small and growing businesses. These organizations can often structure accounts faster and at better rates than those who cater to larger companies. As you shop around, you should also look for institutions that work with customers to combat fraud and reduce chargebacks. And if you are conducting online transactions, you will want to work with a provider who has expertise in setting up and processing Internet merchant accounts.
The next step is the application process which can take anywhere from 48 hours to two weeks or more. Your chances of being approved relate to the nature of your business and the credit rating of your business and/or its principal owner(s). While existing retail establishments are the easiest to be approved, mail order and Internet businesses, with their higher rates of chargebacks and fraud, pose more of a challenge. "We look at the merchant, the nature of the business or the product, the refund policy, and the business financials or a sole proprietor's own credit history," states Joblonski. The cost of a merchant account will vary based on the perceived risk a business poses.
A Word About Costs
As you shop for a merchant account provider, you should be mindful of the costs involved with establishing and processing a merchant account. "You can expect to pay between $190 to $300 in start-up costs which includes the application, setup and equipment and rental lease deposits," notes Joblonski. Processing fees can range from around 2.0% of annual sales volume for a retail establishment to 2.75% of annual sales volume for online transactions. Additional fees may also apply. Ask your merchant account provider for a complete list of fees so there are no surprises.
Putting It All Together
Congratulations, you can now accept credit card transactions. But are you maximizing the benefits of those proceeds? Maybe not, if those funds are being routed to a bank account that pays no interest on that money. Worse yet, you may have to wait a full month to get details on those credit card transactions, and have to pay for the privilege.
Is there a better way? Yes. Some financial institutions specialize in providing value-added merchant account services. For example, OneCore, a leading provider of online financial services for small business, pays money market rates on credit card proceeds. You can also view batch transactions (and transaction details) online by the next business day, free of charge.
*Source: "Jumping Through the Merchant Account Hoops," Khera Communications.** Source: United States Postal Service, Coopers & Lybrand as quoted in Credit Card Management, August 1997.
It's a fact. Companies who accept credit card payments for goods and services tend to generate higher revenues than those who only accept cash. According to industry statistics, the average credit card sale is $40 versus just $9 for the average cash sale.* If that isn't enticement enough, consider the disadvantage you may face if competitors offer credit card payment options and you do not.
"These days, the credit card payment option is a must, whether you have a physical retail outlet, take telephone orders or sell products over the Internet," says Diann Joblonski, a relationship manager, at Michigan Bankard Services, a leading merchant card processor serving over 30,000 businesses nationwide. Besides the potential revenue boost, credit cards may well be a cheaper alternative to cash and checks. In a case study prepared by Coopers & Lybrand, credit card processing costs average 2.7% of any transaction, checks 4.0% and cash 4.8%.** These figures make sense when you consider how many times paper money and coins must be counted and recounted by different individuals. While each business would vary in that respect, cash and checks still require more handling than plastic alternatives.
Establishing A Merchant Account
To offer the credit card payment option, you need to set up a merchant account-a bank account established by your company to receive the proceeds of credit card purchases. Typically, along with the account, you will also need to lease equipment and software to facilitate the transactions and ensure payments flow to your operating account. The process is slightly more complicated if you wish to accept credit cards online. In particular, you will need to sign-up with a payment gateway such as CyberCash or VirtualNet. These services allow for real-time credit card authorization for online transactions. It is essential that the payment gateway you choose is compatible with your software and financial institution so transactions flow properly.
Any number of financial institutions offer merchant accounts, but you should look for a provider who has demonstrated expertise in working specifically with small and growing businesses. These organizations can often structure accounts faster and at better rates than those who cater to larger companies. As you shop around, you should also look for institutions that work with customers to combat fraud and reduce chargebacks. And if you are conducting online transactions, you will want to work with a provider who has expertise in setting up and processing Internet merchant accounts.
The next step is the application process which can take anywhere from 48 hours to two weeks or more. Your chances of being approved relate to the nature of your business and the credit rating of your business and/or its principal owner(s). While existing retail establishments are the easiest to be approved, mail order and Internet businesses, with their higher rates of chargebacks and fraud, pose more of a challenge. "We look at the merchant, the nature of the business or the product, the refund policy, and the business financials or a sole proprietor's own credit history," states Joblonski. The cost of a merchant account will vary based on the perceived risk a business poses.
A Word About Costs
As you shop for a merchant account provider, you should be mindful of the costs involved with establishing and processing a merchant account. "You can expect to pay between $190 to $300 in start-up costs which includes the application, setup and equipment and rental lease deposits," notes Joblonski. Processing fees can range from around 2.0% of annual sales volume for a retail establishment to 2.75% of annual sales volume for online transactions. Additional fees may also apply. Ask your merchant account provider for a complete list of fees so there are no surprises.
Putting It All Together
Congratulations, you can now accept credit card transactions. But are you maximizing the benefits of those proceeds? Maybe not, if those funds are being routed to a bank account that pays no interest on that money. Worse yet, you may have to wait a full month to get details on those credit card transactions, and have to pay for the privilege.
Is there a better way? Yes. Some financial institutions specialize in providing value-added merchant account services. For example, OneCore, a leading provider of online financial services for small business, pays money market rates on credit card proceeds. You can also view batch transactions (and transaction details) online by the next business day, free of charge.
*Source: "Jumping Through the Merchant Account Hoops," Khera Communications.** Source: United States Postal Service, Coopers & Lybrand as quoted in Credit Card Management, August 1997.
Plastic Fantastic - A Beginner's Guide to Accepting Credit Cards
Face it, the cash economy is winding down. Credit cards are ubiquitous, and if you're selling anything more than gum and newspapers, you probably should be accepting plastic. If you're ready to enter the world of "merchant acquiring", (the strange name for the process of merchants accepting credit cards), we've put together a little introduction here.
Credit Card processing starts at the point of sale. Say your customer wants to buy a new widget. She hands you a Visa card. The store clerk swipes the card through the electronic terminal, maybe punches some numbers, and waits for "authorization." After a few seconds, the authorization is received, a receipt is printed, the customer signs, and off she goes with her widget.
Here's how Authorization works: after swiping a card, the card number and related data go through an Acquiring Processor (who handles the merchant's side of a credit card transaction), which channels the transaction to the credit card company (e.g., Visa). The credit card company requests authorization from the Issuing Bank (the bank that issued the card). After the Issuing bank approves the transaction, it transmits an approval code back through the credit card company to the Processor and the Merchant at the point of sale.
It's a long electronic trip, but it takes only seconds. And the story isn't over yet — the merchant hasn't been paid! That doesn't happen until "settlement" takes place.
Settling usually happens at the end of the day by either taking paper sales receipts to the bank (common in ancient times) or transmitting the receipts electronically from the card terminal in a batch. The receipts go down the line to the Acquiring Processor, which plays traffic cop, routing the transactions to the different credit card companies. The credit card companies funnel the transactions to the Issuing Banks for posting to cardholders' accounts. At the same time, the Processor credits the merchant's account and a processing fee is deducted, better known as the "discount rate" (typically 1.75% to 3% of the sale).
There's more to credit card processing than our point-of-sale example. What about phone orders, mail orders, e-commerce orders? These are known as "MO/TO" or mail order/telephone order transactions, and the dynamics are different, the risks higher. These orders don't have the benefit of signature verification to ensure the customer's identity. Many financial institutions require that such transactions be covered under separate "Card Not Present" merchant accounts. Expect discount rates to be higher for MO/TO.
Avenues of Pursuit
When you're shopping for a merchant account, spend some time and ask the right questions. Understand the whole package — don't just look at at the discount rate, for instance.
Here are some things to look for, in addition to the discount rate offered:
Check to see when settlement occurs. After all, this is when you get your money. You might get a discount rate advantage, but if you don't get your money for days, you lose the value of the cash flow.
What kind of technical and customer support does the processor offer? (Anyone remember Murphy's Law?) Is support available 24x7?
Some processors offer customized services for certain businesses: retail, hotels, restaurants, doctors and lawyers, telephone sales, etc. In some cases this can reduce administrative and operational costs substantially. See what the specialized offering is, look for the fine print, and compare it to a generic offering.
Keep an eye peeled for hidden costs such as statement fees and voice authorization charges. Many of these fees are a part of doing business, but they can vary a lot, and if you need extra support, you don't want to be paying excessively each time you use it.
Above all, read and understand the terms and conditions before you sign up. Merchant processing is a complicated endeavor, and you need to know exactly what you're signing up for.
Even if you're starting out simple, make sure your merchant provider is flexible enough to accommodate transactions. Even though you may just have a simple store today, tomorrow even simple stores may turn out to be e-commerce players.
COSTS AND RISKS
Chargebacks
If there's a downside to accepting credit cards for payment, it can be encapsulated in one word — chargeback. A chargeback occurs when a transaction is reversed, and the amount of the transaction, previously credited to the merchant's account, is then deducted.
Chargeback rules were originally created to protect cardholders from erroneous transactions, which were more common when transactions were processed using little slips of paper. Now chargebacks occur for many reasons: unauthorized credit card user, no signature on the receipt, double-charging errors, credit card expired, bank error and customer disputes. Be careful with chargebacks; too many will risk losing your merchant credit card account.
Precautionary tactics are the best preventative medicine. Make sure you follow the rules set by the bank/processor. You need a routine for processing credit cards, and your sales staff must follow it religiously. For phone and Internet orders, get the customer's home and work phone numbers, and verify that info before sending merchandise.
A great way to head-off customer disputes (and chargebacks) is to provide a liberal return policy. In those cases where you can't avoid a customer's attempt for chargeback, you'll need to provide suitable documentation (sales and shipping receipts) to refute any claims.
Up-Front and Hidden Costs
Yes, there are costs associated with credit card processing — no gain without a little pain. Below are typical costs you might face, with some ballpark estimates. All of these should be taken into consideration when you're comparison shopping for a merchant account.
Application fee ($0 — $300) Installation/setup fee ($0 — $100) Bank setup fee ($0 — $75)Terminal costs ($200 — $2000)Statement fee ($0 — $10 per month) Minimum account billing (varies...often not required) Chargeback fee ($0 — $25) Voice authorization fee ($0 — $1 per call) Transaction fee (Varies, usually around .20 per transaction) Daily close-out fee (Varies...often not required) Discount rate (1.75% to 3% of sale)
Despite the costs, consider the upside: credit card sales are a customer-centered service; they'll love you for the privilege of paying by plastic. Plus, customers tend to buy more per sale when paying by credit than cash.
And don't forget, there are also costs associated with handling cash — counting, trips to the bank, the hassle of keeping adequate change on hand, and even potential losses through mishandling currency.
A PLAN TO BUILD ON
1. Understand the credit card process before making any decisions. Apply new knowledge to your unique circumstances — ask questions, network, e-mail your colleagues, explore the links on BizzedSM and other websites.
2. Shop around, and keep a running list of the features and benefits of each provider, plus the costs. Start with the costs on the previous page, but be sure to dig deep to uncover any potential costs with each provider. Don't overlook the benefits of working with a world-class full-service provider (like Express Merchant Processing Services, a BizzedSM partner). The added operational and technical support you might receive can be well worth a slightly higher discount fee.
3. If you are a small home or mail order business, you might have some difficulty getting approved. If so, you might start with your existing bank, or another small to medium-sized bank. When you apply for an account, expect to be asked for full financial disclosure — banks are quite sensitive to credit card fraud.
4. If your bank or another processor turns down your request for a merchant account, never give up! Try other banks/processors — there are lots to choose from. You could also opt for an Independent Service Organization (ISO), which shoulders the risk and contracts with a bank on your behalf. Buyer beware though — always explore all the costs, fees, and charges associated before entering into any agreements.
5. Keep your eye on where you're headed and where you want to grow. The goal with credit card processing is getting the infrastructure in place so you can sell smoothly, conveniently, affordably, without glitches and holdups — a process scaleable to your aspirations.
For instance, currently you may run a cash-only business and want to grow into point-of-sale credit card transactions. Fine. But where do you want to be in a six months, a year? Do you foresee accepting orders over the phone or setting up an e-commerce store on the net? This kind of forward-thinking will help you make the right up-front decisions.
When You're Up and Running
When you get your merchant account and begin accepting cards, be sure to establish and follow good operational procedures. Your provider will assist you in understanding required procedures. Key items are signature verification, authorization procedures, and physical card inspection.
Be careful — different cards may require different procedures (e.g., American Express v. Visa/Mastercard), and there will be different procedures per transaction type (point-of-sale, phone, mail, and e-commerce orders).
More than anything else, following the correct operational procedures will protect your business against chargeback losses. Make sure everyone handling transactions for your business knows the procedures. Training is key, although posting reminders and "cheat sheets" at the point-of-sale can be very beneficial as well.
Credit Card processing starts at the point of sale. Say your customer wants to buy a new widget. She hands you a Visa card. The store clerk swipes the card through the electronic terminal, maybe punches some numbers, and waits for "authorization." After a few seconds, the authorization is received, a receipt is printed, the customer signs, and off she goes with her widget.
Here's how Authorization works: after swiping a card, the card number and related data go through an Acquiring Processor (who handles the merchant's side of a credit card transaction), which channels the transaction to the credit card company (e.g., Visa). The credit card company requests authorization from the Issuing Bank (the bank that issued the card). After the Issuing bank approves the transaction, it transmits an approval code back through the credit card company to the Processor and the Merchant at the point of sale.
It's a long electronic trip, but it takes only seconds. And the story isn't over yet — the merchant hasn't been paid! That doesn't happen until "settlement" takes place.
Settling usually happens at the end of the day by either taking paper sales receipts to the bank (common in ancient times) or transmitting the receipts electronically from the card terminal in a batch. The receipts go down the line to the Acquiring Processor, which plays traffic cop, routing the transactions to the different credit card companies. The credit card companies funnel the transactions to the Issuing Banks for posting to cardholders' accounts. At the same time, the Processor credits the merchant's account and a processing fee is deducted, better known as the "discount rate" (typically 1.75% to 3% of the sale).
There's more to credit card processing than our point-of-sale example. What about phone orders, mail orders, e-commerce orders? These are known as "MO/TO" or mail order/telephone order transactions, and the dynamics are different, the risks higher. These orders don't have the benefit of signature verification to ensure the customer's identity. Many financial institutions require that such transactions be covered under separate "Card Not Present" merchant accounts. Expect discount rates to be higher for MO/TO.
Avenues of Pursuit
When you're shopping for a merchant account, spend some time and ask the right questions. Understand the whole package — don't just look at at the discount rate, for instance.
Here are some things to look for, in addition to the discount rate offered:
Check to see when settlement occurs. After all, this is when you get your money. You might get a discount rate advantage, but if you don't get your money for days, you lose the value of the cash flow.
What kind of technical and customer support does the processor offer? (Anyone remember Murphy's Law?) Is support available 24x7?
Some processors offer customized services for certain businesses: retail, hotels, restaurants, doctors and lawyers, telephone sales, etc. In some cases this can reduce administrative and operational costs substantially. See what the specialized offering is, look for the fine print, and compare it to a generic offering.
Keep an eye peeled for hidden costs such as statement fees and voice authorization charges. Many of these fees are a part of doing business, but they can vary a lot, and if you need extra support, you don't want to be paying excessively each time you use it.
Above all, read and understand the terms and conditions before you sign up. Merchant processing is a complicated endeavor, and you need to know exactly what you're signing up for.
Even if you're starting out simple, make sure your merchant provider is flexible enough to accommodate transactions. Even though you may just have a simple store today, tomorrow even simple stores may turn out to be e-commerce players.
COSTS AND RISKS
Chargebacks
If there's a downside to accepting credit cards for payment, it can be encapsulated in one word — chargeback. A chargeback occurs when a transaction is reversed, and the amount of the transaction, previously credited to the merchant's account, is then deducted.
Chargeback rules were originally created to protect cardholders from erroneous transactions, which were more common when transactions were processed using little slips of paper. Now chargebacks occur for many reasons: unauthorized credit card user, no signature on the receipt, double-charging errors, credit card expired, bank error and customer disputes. Be careful with chargebacks; too many will risk losing your merchant credit card account.
Precautionary tactics are the best preventative medicine. Make sure you follow the rules set by the bank/processor. You need a routine for processing credit cards, and your sales staff must follow it religiously. For phone and Internet orders, get the customer's home and work phone numbers, and verify that info before sending merchandise.
A great way to head-off customer disputes (and chargebacks) is to provide a liberal return policy. In those cases where you can't avoid a customer's attempt for chargeback, you'll need to provide suitable documentation (sales and shipping receipts) to refute any claims.
Up-Front and Hidden Costs
Yes, there are costs associated with credit card processing — no gain without a little pain. Below are typical costs you might face, with some ballpark estimates. All of these should be taken into consideration when you're comparison shopping for a merchant account.
Application fee ($0 — $300) Installation/setup fee ($0 — $100) Bank setup fee ($0 — $75)Terminal costs ($200 — $2000)Statement fee ($0 — $10 per month) Minimum account billing (varies...often not required) Chargeback fee ($0 — $25) Voice authorization fee ($0 — $1 per call) Transaction fee (Varies, usually around .20 per transaction) Daily close-out fee (Varies...often not required) Discount rate (1.75% to 3% of sale)
Despite the costs, consider the upside: credit card sales are a customer-centered service; they'll love you for the privilege of paying by plastic. Plus, customers tend to buy more per sale when paying by credit than cash.
And don't forget, there are also costs associated with handling cash — counting, trips to the bank, the hassle of keeping adequate change on hand, and even potential losses through mishandling currency.
A PLAN TO BUILD ON
1. Understand the credit card process before making any decisions. Apply new knowledge to your unique circumstances — ask questions, network, e-mail your colleagues, explore the links on BizzedSM and other websites.
2. Shop around, and keep a running list of the features and benefits of each provider, plus the costs. Start with the costs on the previous page, but be sure to dig deep to uncover any potential costs with each provider. Don't overlook the benefits of working with a world-class full-service provider (like Express Merchant Processing Services, a BizzedSM partner). The added operational and technical support you might receive can be well worth a slightly higher discount fee.
3. If you are a small home or mail order business, you might have some difficulty getting approved. If so, you might start with your existing bank, or another small to medium-sized bank. When you apply for an account, expect to be asked for full financial disclosure — banks are quite sensitive to credit card fraud.
4. If your bank or another processor turns down your request for a merchant account, never give up! Try other banks/processors — there are lots to choose from. You could also opt for an Independent Service Organization (ISO), which shoulders the risk and contracts with a bank on your behalf. Buyer beware though — always explore all the costs, fees, and charges associated before entering into any agreements.
5. Keep your eye on where you're headed and where you want to grow. The goal with credit card processing is getting the infrastructure in place so you can sell smoothly, conveniently, affordably, without glitches and holdups — a process scaleable to your aspirations.
For instance, currently you may run a cash-only business and want to grow into point-of-sale credit card transactions. Fine. But where do you want to be in a six months, a year? Do you foresee accepting orders over the phone or setting up an e-commerce store on the net? This kind of forward-thinking will help you make the right up-front decisions.
When You're Up and Running
When you get your merchant account and begin accepting cards, be sure to establish and follow good operational procedures. Your provider will assist you in understanding required procedures. Key items are signature verification, authorization procedures, and physical card inspection.
Be careful — different cards may require different procedures (e.g., American Express v. Visa/Mastercard), and there will be different procedures per transaction type (point-of-sale, phone, mail, and e-commerce orders).
More than anything else, following the correct operational procedures will protect your business against chargeback losses. Make sure everyone handling transactions for your business knows the procedures. Training is key, although posting reminders and "cheat sheets" at the point-of-sale can be very beneficial as well.
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