Merchant Account Services

Archive for the 'Merchant Accounts' Category

Yahoo and Paypal Take on Google Checkout

Tuesday, April 17th, 2022

Yahoo and Paypal have announced that merchants that accept Paypal as a form of payment will have a special shopping cart icon displayed with their listing in Yahoo Sponsored Search results. It will look like this:

Paypal Icon in Yahoo Search Results

This is similar in concept to Google’s display of a special icon in the Adwords listing of merchants who accept Google Checkout as a form of payment. Interestingly enough, the Paypal logo is a shopping cart that looks strikingly similar to the original Google checkout logo before they changed it to is current version.

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What Exactly is Adult Content?

Monday, April 2nd, 2022

Anyone who has attempted to open a traditional merchant account from the same provider as their retail store while offering “adult content” on their website can tell you how quickly they are told “sorry, but we cannot establish an account for adult content”. But what is “adult content” and why can’t you get a typical merchant account for it?

Adult content is usually describe as offering pornography for download or for sale through a website. Videos, full length movies, and photographs of sexual acts and nude models are your typical examples of adult content. Websites that offer this kind of material traditionally have much higher rates of chargebacks versus traditional businesses. There are various reasons for this including:

1) Some people don’t feel guilty scamming a pornography website.

2) Some people purchase content from these websites and have their spouse discover what they have done. To cover their tracks, and save their butts, the claim the card was stolen and charge back their transaction.

3) A disproportionate number of porn sites are scams relative to other websites and help to ruin it for everyone else.

The result of this high chargeback potential is all adult websites must seek a high risk merchant account. These accounts work in a similar fashion to a traditional merchant account but the fees are usually higher and include a large set up fee (but not always) and usually some of the merchant’s funds are held in reserve as “insurance” against fraud and chargebacks.

But just because a product is adult in nature doesn’t mean it necessarily is adult content. What isn’t adult content are tangible adult products that aren’t pornography. Stores that sell adult toys and apparel typically can establish a merchant account without any extra work or hassle. This is because those kind of products do not share the same high rate of chargebacks as pornography does.

So, if your product is of an adult nature, you will need to determine whether it is pornography or just an adult product. If it is pornography, you will need a high risk merchant account. If it tangible products aimed at adults, a traditional merchant account should work just fine. Keep in mind the policies of merchant account providers do vary so some may consider adult products as adult content, too. In those cases just look for another provider who doesn’t. They’re definitely out there.

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Opening a Merchant Account Without a Personal Guarantor

Friday, March 16th, 2022

When applying for a merchant account most small and medium-sized merchants will notice that a personal guarantee is required to establish the merchant account. A personal guarantee basically says that if the business cannot fulfill its obligations to the processing bank then the processing bank can legally pursue the guarantor to fulfill those obligations. This basically means if your business owes the processor money and it does not or cannot pay then the bank can come after the guarantor seeking those funds.

The reason why the processing bank does this is because of the high risk they are exposed to due to the nature of their business. If a new merchant commits fraud or just mismanagements their business and merchant account, the processing bank can be on the hook for a large sum of money. Naturally they wish to protect them from this scenario as best they can.

But what if a merchant does not wish to give a personal guarantee? What if they started their corporation with the explicit intent of separating personal assets from business assets? What are they to do? Some merchant account providers will allow you to use alternative forms of guarantees in place of a personal guarantee. These options include:

  1. A Corporate Resolution

    Instead of using your personal financial strength to back up your business, you use your business’ financial strength instead. To do this your business must be in a strong financial position. This typically means you have been in business for at least one year, although two or more is typically required, and have documentation to show your business’ financial strength. Typical examples of satisfactory documentation include balance sheets and any financial statements prepared by a third party.

  2. Provide a Letter of Credit

    A letter of credit basically is money that your bank promises to give your merchant account provider at a future date up to a certain amount if certain criteria are met (which are detailed in the letter). Basically, if you owe the processing bank money they can invoke this letter of credit and receive that money. This in turn essentially turns into a loan from your bank to you. It’s basically allows the processor to have a guarantee that funds will be available to them if they need it but you don’t actually have to take out a loan or front any money. As long as you don’t owe your processor money the letter of credit is never invoked.

  3. A Reserve

    In cases where the above two options are not practical or possible, simply allowing the processing bank to hold some of your funds in reserve may be enough to allow you to process without a personal guarantee. Basically if they have your money, they know they can get to it if they ever need. The amount the processing bank will want to hold will depend on many factors but it all boils down to how much exposure they calculate they will be subject to with your merchant account. Funds held in reserve are typically held for six months after a merchant account is closed although it is possible that can be extended depending on the product or service being offered.

Keep in mind not all processors offer these alternative although most offer at least one of them.

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Authorize.Net is NOT a Payment Processor

Wednesday, February 14th, 2022

One of the biggest misconceptions out there right now is that Authorize.Net is a payment processor. Often times I will hear or read about someone who is looking for a new payment processor and a common answer is, “try Paypal or Authorize.Net”. While I am sure Authorize.Net is thrilled that they are so commonly considered by merchants as a payment solution, unfortunately by itself their product is useless.

What most people do not seem to understand is exactly what Authorize.Net offers. Authorize.Net primary service is their payment gateway. A payment gateway connects a merchant’s website (usually through their shopping cart) to their merchant account. The payment gateway takes the transaction information, passes it on to the processing bank. It then receives the results of that transaction and presents it back to the originating website so it may react accordingly. Basically, it performs the same function as a credit card terminal does in a retail store.

What is important to note about this is scenario is that without the merchant account on the other end, the payment gateway is useless. Without someone to send the transaction to the payment gateway cannot function as by definition the gateway serves to connect the website to the merchant account. Having no merchant account means an incomplete

An important reason why this is important to know is some merchants may sign up for an Authorize.Net account thinking they are getting everything they need to process credit cards online. In reality they are missing the most important piece and have even more fees in store for their business. This might not be the best option for their business especially if they will be a low volume business.

So, when you see someone recommending Authorize.Net as a payment processor, keep in mind they are only a tool for processing payments. They are not the ones actually processing the payment. That is the role of the merchant account.

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An Example Of Why Merchants Find It Hard To Get Good Information

Tuesday, January 30th, 2022

While aimless wandering the Internet I stumbled upon a brief article that titled, “Shopping for a Payment Gateway and Merchant Account“. Seemed like another harmless attempt to explain the basics of accepting credit cards over the Internet that reiterated the basics that are pretty available from any website related to the topic.

It started off okay and did a decent job of summarizing the basics. The term “hybrid solutions” was a little odd to read considering that the terms “third party processor”, and to a lesser degree “Internet Payment Provider”, are already very well known names for companies like Paypal that provide the ability to process credit cards through their merchant account. But it wasn’t bad name to use if you didn’t know about the more common names for them.

Then is started to go downhill.

The first piece of information that was disappointing to read was:

If you are setting up a new online business then it is unlikely that your business will have a positive credit history. Under these circumstances it can prove difficult to gain access to a merchant account.

What this basically says is that if your business is new, its lack of credit history may make it difficult to establish a merchant account. While not entirely untrue, it is misleading. While having established business credit is a positive thing, it can be easily overcome in the vast majority of cases. In fact, most merchant accounts are established based on the credit of the owner(s). A bigger factor in preventing a new business from establishing a merchant account is the product they are selling and the environment they are selling it in. A business selling t-shirts in a retail stores is very low risk and would have to go out of their way to prevent a merchant account from being established for them (in other words, it would be really hard to be turned down). However, a business selling high end electronics over the Internet would find credit playing a larger factor due to the increased exposure to fraud and chargebacks they would face due to the nature of their products.

The next section that caught my attention discussed the fees associated with payment gateways:

Unfortunately, fees can be complicated with some accounts. It may be necessary to pay a setup fee, and you will also be required to pay a percentage of any transactions, generally equivalent to between 1.5 percent and 2 percent. A fixed fee per transaction that’s usually less than 50 cents may also be required as well as a monthly management and administration fee, which could be anywhere up to $100.

Different accounts offer different options and your sales figures will determine the right choice for you. If you sell a small number of higher value items then you should try to find a payment gateway that charges a fixed fee. In contrast, if you sell large amounts of items for minimal cost, then you should avoid this fixed fee and concentrate on accounts that offer fees based on a percentage of transactions.

Where do I begin? It seems they have confused the rates associated with a merchant account with that associated with a payment gateway and even then I am not so sure about some of the fees they mentioned. Although there are various payment gateway providers, there is generally a common set of fees charged and the major gateways (Authorize.Net, Verisign) are no exception. When establishing a payment gateway it is typical to encounter a setup fee (although it is not uncommon to have this waived), a monthly fee (typically around $10 - $20), and possibly a flat transaction fee. Payment gateways typically do not take a percentage of your sales. This is typically done by third party processors or hosted ecommerce solutions like Yahoo Stores. The monthly management and administration fee is alien to me. I am assuming that they are referring to an entirely different service and are once again confusing it with the services offered by payment gateways. If you know what they are talking about please comment below.

Payment gateways that do not require a merchant account do generally incur greater costs, because they combine the two required aspects of processing a payment. While some services charge as much as 50 cents per transaction plus a 4 percent to 5 percentfee, PayPal is one of the cheapest available options with a 30-cent and 1.9 percent to 2.9 percent fee on all transactions. With no set-up fee and no gateway fees. this makes PayPal genuine value for money. Similar services like NoChex offer similar rates. Another point worth noting is that services like these do not tend to charge refund fees, monthly or annual fees or regular administration fees.

Individual merchant accounts have similar fees to PayPal but they also generally require a set-up fee and a monthly payment. Ultimately the choice is yours and while PayPal does offer good overall value, it is more difficult to integrate into a Web site despite recent additions to its merchant tools section.

The statements above are mostly fair. But it should be noted that Paypal, while clearly the best third party provider for those it is available, isn’t always the best choice for a merchant. Many factors come into play. Our article Merchant Account Comparison goes into much more detail about that. But it should be noted here that few merchant accounts nowadays require a setup fee. This is usually reserved for very high risk businesses nowadays. Plus, as covered in our article, although true merchant accounts have a monthly fee and most third party processors do not, this does not mean they will cost more or that third party processors are the best option, even not considering integration issues.

What bothered me the most is their conclusion:

For convenience and affordability, hybrid solutions tend to offer the best option. They work out much cheaper because the payments are combined and with competition heating up in this area, things are only likely to improve in the future. PayPal is one of the most widely used of the hybrid solutions because its rates are among the cheapest available.

This is based on the incorrect information we dissected above and poor assumptions. As outlined in the Merchant Account Comparison article there are a lot more factors to be considered and a merchant account can be cheaper then Paypal quite easily.

I applaud the author for trying to offer information to merchants. It clearly was unbiased which is refreshing. Unfortunately it was inaccurate and may only confuse merchants or worse, cause them to make a bad decision for their business.

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