Archive for the 'Merchant Accounts' Category

Accepting tips is a customary practice at restaurants and salons. But it is not as simple as it may seem. Both Visa and MasterCard have guidelines as to how tip adjustments (adding the tip after the card has already been processed) are handled. Their guidelines do differ in some respects and they will be outlined below.

First, let us take a look at the chart from where we will get our data. This chart summarizes Visa and MasterCard’s guidelines for tip adjustments. We will explain in further detail below.

MCC/SIC Code: This four digit number is used by processing banks, amongst others, to classify businesses by type. For example, all restaurants, from the family restaurant on the corner to national chains like T.G.I. Fridays, have a MCC/SIC Code of 5814.

Description: This is the kind of business associated with a MCC/SIC Code. (See above).

MasterCard Amount Edit Rules: MasterCard has set minimums for which a sale may be adjusted. For example, MasterCard does not allow a caterer to adjust a transaction for a tip if the transaction is less then $10. Doing so will result in the transaction automatically downgrading to a non-qualified rate.

MasterCard Amount Tolerance: MasterCard has set maximum amounts for how much a consumer may tip a business. For example, MasterCard allows a restaurant to accept a tip of up to 25% of the sales value (e.g. if a tansaction is $50 the maximum amount allowed to be tipped is $12.50). If a tip exceeds the maximum allotted amount will result in the transaction automatically downgrading to a non-qualified rate.

Visa Amount Tolerance: Like MasterCard, Visa has set maximum amounts for how much a consumer may tip a business. Additionally Visa is more strict in which business types it will allow to accept tips. Unlike MasterCard, Visa will not allow caterers, bars, hair salons, and beauty salons to adjust their sales for tips. Doing so will result in the transaction automatically downgrading to a non-qualified rate. Additionally, Visa does not allow any transactions paid for with a check card (a.k.a. offline debit) to be adjusted for tips. Any Visa transaction paid for with a check card that has a tip added to it will result in the transaction automatically downgrading to a non-qualified rate.

If your business is listed on this chart as not being able to adjust sales for tips it does not mean that you cannot receive tips on credit card payments. Visa and MasterCard do allow another form of tipping. It is called “tip at the time of sale”. In this situation, during the transaction the terminal will prompt the user to enter the amount the customer wishes to tip. If the tip is added at this time it is considered part of the original transaction (the total amount of the sale is the original sale value plus the tip amount). As a result, no tip adjustment is necessary. Your business is able to add the tip to the sale with no potential for downgrading.

Just because you have a merchant account doesn’t mean you can do anything you want with it. Visa and MasterCard has guidelines governing their use. Here are some things you cannot do:

• Personal Use – Visa and MasterCard do not allow their services to be used for personal reasons. All accounts must be established for one business and to be used only for that business’ products and services. An account cannot be established for an individual nor can a merchant use their merchant account for personal reasons.
• Factoring – Visa and MasterCard do not allow more then one business to use a merchant account. All accounts must be established for one business and to be used only for that business’ products and services. When a business processes transactions for another business, even if they own that business, they are “factoring”.
• Charge More for Credit Card Transactions – Visa and MasterCard does not allow a merchant to charge more for products/services paid for by their credit cards. They do not want paying by credit card to be seen in a negative light.

  If a merchant wishes to offset the additional costs of accepting credit cards, they should do one of the following:

  • Increase prices on their products/services for all purchases
  • Increase prices on their products/services and then offer a cash discount

  Charging a convenience fee for accepting credit cards is not considered acceptable.

• Set a Purchase Minimum – Visa and MasterCard do not allow merchants to set a minimum purchase amount for which credit cards may be used. For example, a merchant may not declare that a purchase must be at least $50 in size in order to use a credit card for payment.

The Match File is a database file used by MasterCard and Visa processing banks to identify specific merchants and owners who have had their merchant accounts terminated. Once a merchant is on this list it is highly unlikely that future merchant account applications will be approved. The Match File is essentially a BLACKLIST from which it is almost impossible to be removed.

For a business or merchant to be added to the Match File they need to violate Visa and MasterCard rules in some way. The most common reasons include:

• Fraud
• Factoring (ringing sales for another business)
• An excessive number of chargebacks
• The processing bank concludes that serious violations of the merchant agreement could result in increased loss exposure to itself or the credit card community.

Once a merchant has been placed on The Match File only the processing bank that added them can remove them from it. The merchant must work with them directly to accomplish this.

You do not want to be on the Match File!

Visa and MasterCard’s July 1st deadline for implementing credit card number truncation is only two weeks away. On this date all credit card terminals must be compliant or risk fines starting at $5,000 per violation.

The first phase of this new security initiative was implemented on July 1st, 2003 and required all new terminals to be programmed to use credit card truncation. Existing merchants were unaffected. However, all existing merchants must be compliant as of July 1st of this year. If you are an existing merchant and have not been contacted by your processing bank to have your credit card terminal reprogrammed for credit card truncation, you should contact them immediately and request this to be done. This is important not only because of the potential fines you face if you are not compliant, but you may own a piece of equipment that is not capable of credit card truncation. If this is the case, you will need to account for the time it takes to acquire one and have it programmed. Known terminals that are not credit card truncation compliant include the popular Hypercom T7P with 256K of memory.

Credit card truncation is the removal of the first twelve digits of a consumer’s credit card number from a consumer’s transaction receipt leaving only the last four digits intact. Typically the first twelve numbers of the consumer’s credit card number is replaced with twelve X’s (Example: XXXX-XXXX-XXXX-1234). The purpose of credit card truncation is to prevent fraudsters from being able to use stolen receipts to make fraudulent purchases. Combined with the removal of expiration dates from consumer receipts implemented a few years this should reduce the opportunity for credit card fraud.

It should be noted that credit card truncation only applies to the consumer copy of the transaction receipt. The merchant’s copy can still have the full credit card number present and un-truncated. Also, many states have enacted laws requiring credit card truncation. Besides the fines imposed by Visa and MasterCard you may also face legal action from your state if you fail to comply.

Google’s Gbuy is set to launch in a limited capacity on June 28th. It will take six to eight weeks for new implementations to be completed but existing Beta testers will be ready to go immediately. Initially the merchants will not pay any fees for transactions processed through Gbuy. Rates are then expected to be between 1.5% and 2.0% which makes Gbuy a lower cost alternative to Paypal.

Gbuy will not offer a transparent checkout system like Paypal Pro what can be achieved with a true merchant account and gateway. Customers will be taken to Google’s Gbuy website where they will complete their transactions.