What to Expect when You're Expecting (to start a new business and need credit card processing)

We’re going to start with the summary and work backwards for those of you who prefer the Cliffs Notes version:

So let’s summarize:

1.     You may know and trust your bank or big company but you generally will not get the best deal.

2.     There’s no right way of acquiring a machine. Just know why you’re doing whatever you’re doing to acquire it. But make sure it’s PCI compliant.

3.     Shop around to see what tiered rate plans are offered and try to determine what kind of cards you’ll be accepting before you lock into a rate plan.

4.     Look at the totality of the contract and don’t get caught up on any one part unless you find it totally unreasonable.

5.     Processors are looking for lower ticket, high volume, swiping (not internet or phone sales) merchants, so if you fit that profile, ask for better rates.

6.     Negotiate. Don’t just focus on your debit rate (the low, often quoted rate).

True story: Once upon a time, a nice young, reasonably intelligent man decided he wanted to sell the t-shirts he designed and screen-printed at local street fairs and eventually he knew he wanted to open his own little shop. He also knew that nobody carries cash these days and he’d lose purchase-ready customers if he couldn’t accept payment cards. He also knew the mobile technology exists to accept cards pretty much anywhere. But how exactly does it all work?

So he Googles the following phrase, “How do I get started in credit card processing?”

What did he find? Advertisements. Self-interested, cluttered websites with big promises about the lowest rates, terminology he wasn’t familiar with, and no reliable information whatsoever about how to get started. Sound familiar?

So, figuring that the big corporation that sells everything in bulk gives him the best deals on everything else, it must be the place to go for the best processing deals. Well, maybe… He gets average rates and average equipment. It works. It’s fine. Gets the job done. But only after he signs the contract does he find out he could have done much better if he’d been able to find a little more information.

Now, perhaps you’re saying, it may not be the best deal but at least I know if I have a problem, I’ll know where to go and I trust them. If you’d prefer to pay a little more with a bigger company you’ve heard of and worked with, such as your bank, that’s totally understandable. But we will give you some general guidelines that will guide you in the right direction if you choose to seek out the best deal for your merchant processing.

The Funds Transfer Alliance only processes credit and debit (and gift cards, checks, etc.) for low risk merchants that have proven long-term success and established track records. However, we have heard the following questions time and time again from our entrepreneurial friends, “Should I just process with so and so’s recommended processor?” “Why is this process so confusing?” “What should my rates be?” “Why can’t I just get a quote?” “What is interchange?” “Should I take American Express?”

Hopefully, this blog will answer those questions and more.

Let’s start with a little lesson on the general operating principles of the payment card industry from the merchant perspective. 

To process credit cards you need a merchant account. A merchant account is essentially a contract between You, the merchant, and the acquiring bank (for example, The Funds Transfer Alliance) to allow you to take credit cards for payment. The acquiring bank is a financial institution affiliated with Visa/Mastercard or a processing team that communicates on your behalf, through your terminal, with your customer’s bank to make certain they have enough money or credit in their account to buy your product or service. At the end of the day, the acquirer totals up all the money you’ve authorized that day, collects it from your customers’ banks, and deposits it your account.

Now, this process requires incredible levels of security, technology, and manpower, including tech support, auditors, analysts, data input, admin, equipment specialists, merchant support specialists, underwriters, etc. Processing credit cards is far more than swiping cards and waiting for a receipt. There are vast human and electronic networks behind the terminal to make sure each transaction runs smoothly. Needless to say, it’s not free. So you, the merchant, pay a small fee to Visa/Mastercard, etc. and to your processer for the work they perform to get you your money each day.

The fee structure associated with this is called Discount or Discount Rate, the largest portion of which is called the interchange fee. Interchange is the electronic exchange of financial and non-financial data regarding credit card sales. The interchange fee is a fee paid by an acquiring bank to an issuer such as Mastercard and Visa for transactions entered into interchange. The interchange fee is a percentage applied to each dollar transacted, based on Visa/Mastercard regulations. While Visa, Mastercard, AmEx, and others have their own unique interchange regulations, generally, you will be charged one of several different rates based on what type of card you have accepted.  This is a called a tiered system and it drastically simplifies your statement by using card type ranges instead of listing a different fee for every unique type of card you have accepted. These tiers are called qualified (cheapest), mid-qualified, and non-qualified (most expensive).

So, if you take a debit card and the customer enters their pin, that is considered a safe transaction. And the least expensive. If you take someone’s card over the phone or Internet portal and don’t require any additional information about the cardholder such as address, etc., that is considered much less secure and therefore more expensive. Additionally, have you ever had an airline or other type of rewards credit card? Who do you think pays for those rewards? It’s not the issuer. It’s You, the merchant who accepts the card, in the form of a higher interchange fee. American Express cards are more expensive for merchants as well, which is why some merchants choose not to accept them. However, many of your customers will value their ability to use AmEx cards so you should think long and hard about whether or not you will accept them.

In addition to the discount rate, which includes a transaction fee bundled in the interchange fee portion, you will also be charged a transaction fee for each transaction that hovers around $.20-$.30. This fee is standard in the industry and goes towards maintaining the acquirer’s infrastructure.

Ok, so how do you know if you’re getting a good deal? Well, unfortunately, it’s hard to make blanket generalizations because there are so many variables. However, human nature seems to generally suggest that the less you pay for a quality product the happier you are so we’re going to assume that you want to pay the least for your transactions and offer the best and most reliable service to your customers. This means low rates, low transaction fees, few additional fees, and reliable service.

Typically, a merchant service provider (acquiring bank) seeking the business of rate shoppers will quote one rate and in little legal print there will be some information about the other rates. The rate they quote boldly is the rate for debit, which is obviously their cheapest rate. Sometimes, this rate leads you to believe you are finding a great deal, however, higher than usual mid and non-qualifying rates more than make up for the low debit rate. On the flipside, if the preponderance of your cards are debit, this may be the best deal for your business.

We would love to be able to tell you that you should have at least X.XX% rate for debit and this rate for your quals and mid-quals, etc., but a lot of the confusion for new merchants stems from the fact there is truly no “one size fits all” solution. Let’s just say this, if your debit rate is above 2.5%, you may not be getting the best deal. If you have any rates in the 4% range, unless there’s a very good accommodating factor, that’s just too high. How good your merchant account fee structure is depends completely on how well it fits your customer card use profile. You could have a rock bottom debit rate but if all of your customers use rewards credit cards there is potentially no benefit. So it helps if, in advance of opening your shop, you have an idea of who your customer base will be how they’ll be paying. Do a little research with your competitors. If it’s business travelers, the mid and non-qual rates will be important to you. If it’s students and young professionals buying your t-shirts, you have a decent combination of debit and credit. Ultimately, you want the best rate at every level but there is always room for negotiation.

In terms of equipment, it is very important that its security features are up to date (having a secure machine is part of PCI compliance, which every merchant must demonstrate). If you have a data breech because your equipment is noncompliant, that is very bad news. So you want new, up to date equipment and nowadays all processors are aware of PCI compliance regulations and will (hopefully) set you up with a compliant machine.

There are many ways to procure a terminal or Point of Sale system (typically for restaurants or companies with vast inventories), including outright purchases, rentals, leases, and deferral programs. Each method has its advantages and disadvantages. Our advice is to shop around and make sure the plan you choose fits your needs. There are as many unique procurement plans as there are companies. One thing to keep in mind is that you don’t necessarily have to put any money down to open a merchant account, including the necessary equipment.

Other factors to consider:

Will your money be in your account the next day? It is definitely possible to have your money in your account the next day as long as you “batch” before a set time. Batching out is the process of telling your acquirer and the banks, “Ok, I want to submit all of these transactions for payment.” Your terminal can be programmed to automatically batch or you can manually batch each business day.

Sometimes your own bank will tout next day deposit of your funds as an advantage of processing with them, but it is definitely possible with many different processors. Additionally, it may appear to be more convenient to process with the bank where your business checking accounts are located but it is definitely not necessarily more cost effective. Usually, it’s not. It is not uncommon for The Funds Transfer Alliance to save merchants a significant amount off their processing fees for those who were processing with their bank for the perceived convenience and trust of the known commodity. Ultimately, your processing system should be something that you shouldn’t even have to think about no matter who the processor is, so convenience should be a non-issue.

Many people find it counter intuitive that the prospective merchant needs to be approved for credit worthiness when you’re the one accepting money from others. However, we live in an opportunistic world and honorable merchants are very important to a functional system. Credit card fraud is a huge industry and is possible at every level of the transaction. That is why when you apply for a merchant account, you’re asked how much your average transaction will be, are your products or services seasonal, etc. Each transaction is monitored by various algorithms to make sure it falls within a certain range that is determined to have a high probability of legitimacy.

Your processor may charge you fees on top of your processing fees. I’m going to say it like this: in many cases, these fees are negotiable. We have been in the industry a long time and have seen a lot of additional fee categories. There are perfectly plausible reasons why these fees are legitimate and sometimes these fees are padding. As always, each case is unique. It’s definitely in your best interest to ask for many of the additional fees to be removed. Worst case, your processor explains why the fee is necessary.

Cancellation Fees

Cancellation fees are fairly standard in the industry but, again, if you have an issue or feel uncomfortable with it, ask your prospective provider and see if they’re willing to work with you. There are legitimate costs associated with bringing new merchants onto a network, which they attempt to prevent losing by including these in contracts, but everything is negotiable. Don’t be afraid to ask.

Paypal, etc.

Many people are inclined to use Paypal, Google Checkout, Square, and other for their online processing needs. Typically these are easy to install and customers feel comfortable with them because they feel there are certain safety mechanisms built into them. The downside is that they are universally expensive. Very expensive. They typically have standard set fees, which run a little bit above 3%. If you conduct one transaction a year, these may make sense, but if you’re running a lot transactions or for high dollar amounts, you can do much better with a smaller, more competitive processor.

After reading all this and you’re still unsure and you’ve got a contract and you want to know if it’s a good deal, email us at info@the-fta.org and we will answer your questions to the best of our abilities. This is not an attempt to win your business. We will not attempt to sell, persuade, or influence you in any way. Just the facts, as we see them.  We hope you take advantage of it. 

When Google Suggests...

scam [skam]  Show IPA noun, verb, scammed, scam·ming.

–noun

1. a confidence game or other fraudulent scheme, esp. for making a quick profit; swindle.

–verb (used with object)

2. to cheat or defraud with a scam.

Origin:

1960–65; orig. carnival argot; of obscure orig.

—Related forms

scammer, noun

One of the newest cottage industries to spring up in the Internet age is Reputation Management. Sure, marketing companies have been doing versions of this forever. For many business owners, though, the recent explosion in the industry is one of those head scratchers that you hear about and picture dollar bills with little wing affixed just flying out the door or you think, “That’s only for oil companies spilling millions of gallons of oil into the Gulf Coast region.” That is, until something happens to your business’ online reputation.

While this blog is intended to help you with merchant processing information, we thought we would share an experience, how it can happen to you more easily than you think, and what you can do to help your company’s online reputation if something like this should happen. Because, based on The Funds Transfer Alliance’s experience, it’s more common than you might think.

Here at The Funds Transfer Alliance, we’re unfortunately being connected to the term “scam” in a Google search before you even see any results. Yes, unfortunately, when you type “funds transfer alliance” in the Google search bar, ten suggested searches drop down and scam and fraud following our name are in the top 10. These suggestions, aptly, are called Google Suggest results.  

So, like us, you’re asking how these Suggest results got erroneously associated with our trade name and how prevalent this problem is for other well-respected American corporations? We at The Funds Transfer Alliance obviously had those questions, too. Furthermore, you’re rightfully wondering how easily this can happen to you… Well, after months of research regarding how Google’s algorithms create these search and Suggest results and cataloguing countless other entities and corporations and not-for-profits who suffer from the same search or suggest result plight, we have discovered that a wide variety of factors combine to lead to these results gaining Google Suggest traction.

Like many companies in many industries, we had no thought of or desire to monitor our online reputation until a few months ago. By researching other companies’ situations, we know we first became aware of the search suggestion in a common way, from a source outside of our company. After all, who sits around and Google’s their company. But you should. Do it. Now. It’s easy to just assume everything out there is a reflection of your integrity but you’d be wrong. This is exactly like checking your personal credit.

In our case, a sharp young recruit unexpectedly backed out of an offer we thought was very solid. Because the hiring process had gone so well up until that point, we inquired about why they seemed to have changed their mind. Well, after a simple Google search of our name and bearing witness the “Funds Transfer Alliance Scam” and “Funds Transfer Alliance Fraud” suggested results, the applicant relayed their immediate reconsideration of our offer and chose in the end not to leave their current employer. That was several months ago and since then these results have actually risen higher in Suggest.

And our investigation began… We hope that the very intriguing information we unraveled will aid you and your business. Like you, we come to work every single day believing in the value and integrity of our services and products. We know you do too. There’s no other way to be successful. But when you’re fighting a hidden online enemy or enemies or a super secret algorithm, and there’s no one blame and it feels like it’s you against Google, which for all intents and purposes owns the Internet, it feels like you’re stranded on an island.

Based on our research, here’s some advice if you haven’t started your company or picked your website yet: make up a word or phrase. Think about our name: The Funds Transfer Alliance. As an incorporated entity in the electronic monies transfer and merchant acquiring industry, you are probably not surprised that our name signifies both our position in the industry and our role and, as you can expect, The Funds Transfer Alliance name holds deep meaning. However, to Google’s search spiders, which are artificially “intelligent” coded arachnoids that register the entire World Wide Web and their cousin, the devilishly complicated search algorithm, those words have neither relevance nor real meaning by themselves. But the fact that we use such common words has definitely hurt us severely. As you will see below, each word in our name is frequently associated with words in the typical “Nigerian email scam.”

So for Google to provide consistently usable results, with meaning and quality that will keep searchers coming back, logic is, from time to time, overshadowed by frequency and probability. As demonstrated below, there are inaccuracies and inconsistencies in the Google Suggest results that we have discovered through extensive testing since the time we originally saw the suggestion. While theoretically blending mathematical objectivity and computer scientist-outlined subjectivity, everything below exemplifies how short it can fall.

But first, the best way to keep track of what’s being said about your company online is a Google alert for your company’s name. This will give you an almost real time view of what is being said about your company. But don’t panic when you get one, if you’re anything like us, you’ll mostly receive something like this:

MoneyGram and Visa Introduce Cash-to-Visa Card Money Transfer ...
By Collections Recon
Once funds are sent to the card, recipients can access the money 24-hours-a-day, anywhere Visa is accepted. “Visa money transfer services simplify the way people send and receive money both domestically and across borders,” said Jim McCarthy, Global Head of ... “We are glad that we had made an alliance of this type with Visa and MoneyGram, an alliance that will provide Guatemalans in the United States and in Guatemala, access to a new way of sending and receiving money.

See how it contains our name but doesn’t refer to us? Some do, some don’t. Definitely worth keeping track of… But this is why you should use a made up name for your company or product lines when possible. Avoid associations!

Speaking of associations, you are hopefully familiar with the now infamous Nigerian, Russian, or Indonesian funds transfer scams. Hopefully EVERYONE is familiar with these scams by now! There are many. Often arriving by email because they can send hundreds of thousands at once and with promises of untold gobs of cash for the taking with just a little investment on your part, some poor, unfortunate traveler who is the niece of a wealthy aristocrat wants to create a strong alliance with while she’s in the states that will fund your every whim… if you could just please accept her cashier’s check and then transfer several hundred dollars in funds back for her plane ticket… This is pretty typical funds transfer scam. There are quite literally 1000s and 1000s of examples of “funds transfer” scams and fraud descriptions online because every person on Earth with an email account gets one of these emails occasionally.

Now, chances are your business doesn’t suffer from this exact problem. It’s definitely unique to us. But the examples below will show how you are not necessarily safe.

Like we said above, we’re definitely not alone with this problem. A noteworthy example is Locks of Love, which is a public, non-profit providing hairpieces to financially disadvantaged children in North America suffering from long-term medically-related hair loss. Many are familiar with this organization and perhaps you even know someone who has donated hair to this cause. Unfortunately for Locks of Love, “Locks of Love scam” and “Locks of Love fraud” are both popular search suggestions:

Another popular non-profit suffering from the same Suggest fate is The Hunger Project, which is a well-known, international, non-profit attempting to fight world hunger.

If the preceding two examples are less familiar, perhaps the most prominent example we witnessed is the Susan G. Komen Race for the Cure Foundation? They have the same scam and fraud suggestion as many others.

After seeing these search results, one could argue Google searchers are simply concerned about non-profit abuses. You often hear statistics like 90-95% of donated funds should be directed to the cause and only 5-10% should be used for administration.  So maybe people are hyper vigilant towards nonprofit abuses? Well, very large corporations we all do business with in some form everyday are treated no differently. Because they are so heavily represented on the Web, the first Suggest results are not “scam” for huge multinational corporations, but they still get hit with the same suggestions. Try searching a company in your industry and see if the scam suggestion autopopulates. Look at the communications industry competitors below. “Scam” is suggested fourth for both.

If you take the “scam” and “fraud” search a letter further for Visa and MasterCard searches, the larger picture of the funds transfer and merchant acquiring industry’s dilemma becomes very apparent: tons of scams and fraudulent activity-based suggestions.

The Funds Transfer Alliance’s research on this topic has engendered a degree of cynicism in this product. For example, type the word “why” in the Google search bar and wait for the Suggest results. As of the time of this writing, the top search suggestion is “why can’t I own a Canadian.” While this may be amusing to some, on a grander scale it is disappointing because it’s very unlikely that the majority of Google searchers who are about to ask “why…” are truly interested in inquiring about owning a Canadian. This is irrefutable evidence the results can be manipulated by a select few using various search engine optimization techniques. This one is called Google Bombing.

In a mountain of research, we were unable to find many organizations that were free of a scam or fraud suggestion altogether. In most cases, Suggest led to results that talked about scams and frauds using their names, etc. But it still suggested and it’s hard to discern exactly the cause. So we started thinking long term. Who is the most universally revered person in the last century (Ghandi, The Pope, Martin Luther King Jr.), and does that revered person endure from the same Google treatment? If Mother Teresa is a choice that comes to mind, then the answer is yes. The Dalai Lama? Same thing. And when one searches for “Google” and “scam,” there are about 15.7M results, which just about the most.

The Funds Transfer Alliance is not insinuating that Google Suggest is a scam or a fraud. But it is not perfect. A French Court recently mandated the removal of the translation of “scam” and “fraud” Suggest results for some genuine French businesses. But that’s France. We are not waiting with baited breath for U.S. courts to do the same any time soon. In fact, we use Google Suggest and think it’s a valuable tool to refine many searches. However, it can also serve as the eternal propagator of a negative, self-reinforcing, feedback loop. While Google’s algorithms are similar the ever moving pot of gold at the end of rainbow, most search optimization experts believe the Suggest results are based minimally on content and extremely heavily on what people are actually searching. So it’s safe to assume that searchers click on these scam and fraud suggestions for no other reason than that they see them. As evidence, the only meaningful result for some scam suggestions is one individual’s blog ranting about their bad experience. They don’t need to provide proof or financial statements or anything of any substance whatsoever. It’s a free for all. Often no real facts are offered impugning the uprightness of the organization. One search engine optimization expert with whom we consulted claims sometimes search results exist in the top 10 simply because there’s nothing to return for a particular search that’s any better. In the case of the Funds Transfer Alliance, we have at least three results we describe as totally nonsensical in our top 10 scam results.

So, very simply, here’s how this can happen to you and what you can do about it:

Someone has a bad experience. They write about it in their moderately well read blog calling you a scam. Google already indexes their blog and provides it as a search suggestion. Now, suppose across the entire United States there are 1000 searches for you’re your name every day. Out of 1000 clicks, 100 times the first day scam or fraud becomes present in Suggest that suggestion is clicked and moves up one spot. The next day, because it’s higher and is gaining Suggest visibility, it’s clicked 250 times and on and on until it’s the top Suggest result. Now, not only is it clicked far more frequently, but accordingly, if the person has not heard of you, they won’t even bother clicking because they assume the very suggestion means there must be a plethora of scam content so what’s the point!?

In the message boards about this on Google.com, Google’s employees respond to business owners complaining about this exact problem with the notion that if the search results do not substantiate scam suggestion, organizations shouldn’t be worried. In an idealized world, yes, that makes sense. However, in our opinion, it is not intellectually rigorous. What Google fails to appreciate is that the very suggestion of a scam or fraud for businesses or charities with low visibility is enough to stop many researchers dead in their tracks.

In order to combat this reality if you find yourself with a bad search or suggest result, start by getting your business on Facebook, Linkedin, Twitter, and even foursquare. They have all helped us… Google has been giving more and more weight to Facebook results recently because the site is so popular. Additionally, having an online presence will prevent that one person who has one bad experience from dominating the online discussion about your company. Take control. It’s not enough to simply hope it drops off because there’s nothing to substantiate it. Take our word for it. The suggestions only get worse, not better.

Hire a consultant if you can afford it. There are people and companies who test these various tactics all day on Google and have a good idea about how it works. While the Suggest is based on what people are searching, hiring an SEO consultant can help you control what the search results produce.

We hope to have shed light on how this can happen to a legitimate businesses. If your business has suffered from the same fate, we’d love to hear from you and the steps you took to resolve it.

Email: info@the-fta.org