Understanding Your Electronic Payment Processing

Whether you are a web-store or a ‘brick and mortar’ merchant, you are going to need to be able to accept electronic payments for your goods and services. Credit card processing fees can be confusing and misleading. The following is a breakdown of payment processing fees associated with merchant accounts. Every electronic payment provider is different and may break out the fees differently on the monthly statement. You may see all or only some of these fees on your statement, but either way, you are paying them.

Before I break out the different costs, if you are looking to begin accepting credit cards, or if you already do accept electronic payment but are window shopping for a better plan, here are a few things to consider first:

  • Flexibility – Every business is different. Your business may provide high volume, low-cost products, or you may provide long-term, high quality services to customers. Whatever the case, It’s best to go with a provider that can give you flexibility and different options tailored to your specific needs.
  • Rate Break-out – The most important aspect I feel. Below, I will define all the different rates, but the more options associated, the better.
  • Service – When looking for a reputable service, I prefer real customer service. Whether online or a ‘brick and mortar’ retailer, it is important to have the human factor. Having an assigned account representative, close to you is invaluable. I also look for solid online customer service to include, online chat, email, forums, etc.
  • Financial Institution – An electronic payment processing merchant account serviced by a large and reputable bank is important. For example, choose a provider affiliated with Wells Fargo before going with one that services accounts for Bank-o-Save-alot.

Maintenance Fees

Application Fee – The first fee you will pay when setting up a merchant account for electronic payment processing. This fee can range from $0 to $300.00. This is a one-time fee associated with running a credit report check on new applicants, and setting up the account. Often, account executives will be flexible on the application fee depending on your business.

Statement Fee – This is a monthly fee associated with providing you this hard-to-understand statement that outlines all your costs associated with electronic payment processing. Statement fees usually range from $5 to $20 a month.

Monthly Fee – A flat rate fee associated with maintaining your payment processing account. This fee is uncommon. More common is a monthly minimum fee.

Monthly Minimum Fee – A fee assessed if your electronic payment processing rate fees do not reach a minimum dollar amount for each month. For example, your monthly minimum is $30.00, but your sales for the month only result in a total of $20.00. You will be assessed an additional $10.00 to reach your monthly minimum. Ranges vary, but are often between $20-$50 a month. With a good payment processing account, these fees may be flexible as well.

Yearly Fees – Like a credit card with a good APR, payment processing servicers may assess an annual fee associated with maintaining the account.

Per Transaction Fees – This is a dollar amount fee assessed for each transaction made. This is different from and IN ADDITION to, the Discount Rate percent outlined below. Rates vary between providers and depending on the type of electronic payment made. Typical transaction fees range from $.20 to $.50 per transaction. Typically, this rate will be lower for qualified credit card transactions, and higher for non-qualified or MOTO transactions (Explained more below)

Verification Fees – Or AVS (Address Verification Service). This is a separate per transaction fee assessed for each transaction that requires credit card verification. This service is a must for most online or telephone sales. This is a service that verifies a credit card transaction with the billing address of the credit card holder. This is REQUIRED BY LAW in some states, and is important to prevent electronic fraud. Some providers, such as PayPal, include this in their standard per transaction fees and rates. Some merchants use a different AVS than their payment processing service. I prefer to use one provider, but allow for the break-out of this fee for each transaction. For example, you are a retail shop that also has an online store. It is more cost efficient to only pay this fee for online orders, but not pay this fee in-store where the verification can be handled in person (with the person’s ID for example).

Charge Back or Reversal Fees – A fee assessed to the merchant if a transaction is charged back to the customer.

Early Termination Fee – Just like with a wireless phone provider, a merchant may be assessed a fee for early contract termination. Some fees are fixed or pro-rated. If planning to switch providers, it is a good idea to let a professional e-commerce consultant review your contract to see if it is cost-effective to switch providers now or later.

Discount Rates

The discount rate or transaction rate is a fee assessed in % for each type of electronic payment transaction processed. Again, this is where flexibility is important. An e-commerce consultant can help you determine which type of transactions you process the most and tailor a flexible processing plan to save you money. Discount rates vary based on one factor and one factor only: RISK. The higher the charge back or fraud risk, the higher the percentage rate. Again, this is also where finding a provider that breaks out these rates more, is going to be more cost-effective than one who only offers one or two processing rate plans. From the lowest risk to highest risk, the break out is as follows:

Pinned Debit or Check Card Rate – This is a payment processing rate applied if a customer makes a purchase using his/her debit card, and enters the 4-digit pin. This is considered the most secure form of payment because it is done in person, requires a security code and the funds are secured against the individual’s bank account. As mentioned, some providers only offer qualified and non-qualified rates. If you are a retail merchant, and a large proportion of transactions are processed in this method, it is important to have this fee broken out because it will always save you money. This rate is the lowest possible, yet is often NOT broken out from qualified rates as it should be.

Debit/Check Card Rate – This is the rate applied for transactions where someone uses their credit card associated with their bank account. Basically, if someone uses their debit card as a credit card. It is secured by the individual, and their bank account. This is the next lowest rate. This rate is often NOT broken out by electronic payment processing providers, as it should be.

Qualified Rate – This is the transaction rate applied to qualified credit cards. These are purchases made by the individual, in-person, and is secured by the financial institution ‘loaning’ the account holder the money for purchases. This is the most common rate applied and is more than pinned debit and check card transactions. A standard VISA or MasterCard account.

Mid-Qualified Rate – This is a rate assessed on transactions using mid-level risk cards. This rate is assessed IN ADDITION to the Qualified Rate. Again, this is often NOT broken-out by providers, but should be. An example of a Mid-Qualified card is a Rewards card. Why is it more? The rewards cards, such as Air-mile or award point offers pass the costs associated with the plans, to you the merchant, and to the card holders in the form of higher interest rates.

Non-Qualified Transactions – A rate applied to electronic payment transactions IN ADDITION to the Qualified Rate. This is the second highest risk transaction and is applied to transactions of high risk. For example, when the card is run without the person being there, (keyed entry), or Corporate Credit Cards. For example, automated monthly fees, or transactions where the card holder is not there when the card is processed. Corporate cards are higher risk because they may often default; imagine an employee who is laid-off or fired. He/She is more likely to run up charges on the card before the account is terminated.

MOTO and Internet Rate – Manual, telephone, or online transaction rates. This is the highest risk transaction and so is also the highest cost to the merchant. This includes online purchases, or over the phone transactions where the individual card holder cannot be verified in-person. This rate is often assessed with an AVS fee as well. Again, flexibility is important, depending on volume and type of business.

Summary: No matter what your business, it is in your best interest to find an electronic payment processing plan that is customized to meet your needs.

Should We Be Concerned When Using Electronic Payment Systems?

The world now operates largely through the World Wide Web. New internet based companies are springing up all the time to offer consumers products for less and without the hassle of having to pop down to the shops to pick the item up.

All of these websites need to have some form of electronic payment system to allow the customers to securely pay their money to the company in question and possibly the biggest single issue with shopping on the internet is the threat of your bank details being hacked by some online virus or tracker.

Obviously there will always be people that will attempt to hack peoples bank details, just like there will always be people who attempt to rob banks or perform muggings. But thankfully there are a number of individuals that have the task of constantly coming up with new ways to make the electronic payment systems more secure.

There have been several variations of the online electronic payment system, but the standard version that most people use today is PayPal. This service works as a go between for the client and the company selling products. The money is transferred securely to PayPal who then hold the money before passing it on to the company. Because of this there is no exchanging of bank details between the two individuals. All the bank details are stored on PayPal’s secure servers.

Other variations of the electronic payment system involve using a series of security number and passwords. For instance VISA’s latest version of their online electronic payment system includes using the three digit security code from the back of the card and also uses a specified password that the owner sets to verify that the card hasn’t been stolen.

Obviously you will never really eliminate all card crime, because as quickly as these companies can manufacturer new methods of keeping us all safe, someone is coming up with a way to crack the code and give the advantage back to the thieves.

If you really want to make sure that you stay safe when ordering your products online, then there are a number of rules that you should follow. Firstly, online shop on sites that you know are genuine and you trust, secondly ensure that you machine is updated with the latest security patches from your software manufacturer, and thirdly ensure when purchasing that the web address starts with https. As long as you follow these steps you should have a happy and safe online purchasing experience.

Pros and Cons of an Electronic Payment System

During this highly technological age, cash is trying hard to compete with electronic money, since nowadays a lot of people choose to use their virtual wallets. Here, you will read about the pros and cons of using an electronic payment system.

It is plain to see that electronic payment systems have more advantages than traditional banking services. Let’s see:

  • Saves on time

Money transfer from one virtual account to another may only take a few minutes, whereas a wire or postal transfer may take a number of days. Besides, you have to spend some time to go to the bank or post office and wait in line.

  • Controls expenses

Even if a person is willing to control his disbursements, it can take a lot of patience to jot down all the expenses, and this takes up a huge part of the total amount. On the other hand, the virtual account comprises the history of all the transactions, including the store name and amount spent. Best of all, you can check it whenever and wherever you like. In this case, an electronic payment system works to your advantage.

  • Reduced loss and theft risks

You will not make the mistake of losing or leaving your virtual wallet behind, and it can never be taken by robbers.

  • User- friendly

All services aim to reach out to a greater number of audiences and so, their interface should be easy for users to understand. Moreover, users can always ask help from the support team since they work 24/7. You can receive an answer by means of the forums as well.

  • Convenient to use

As long as you have access to the Internet, you can carry out transfers anytime, anywhere.

After discussing the advantages that come with using an electronic payment system, it is essential to talk about its disadvantages as well:

  • Restrictions

In every payment system, there is a limit with regard to the number of transactions you can do per day and the maximum amount you can withdraw.

  • Risk of Getting Hacked

Risks can be reduced when you follow the security regulations. This is comparable to the risk of being robbed. The situation can get worse when the processing company’s system breaks down, since this may lead to the leaking of confidential information on the online cards, as well as its owners. Though some electronic payment systems do not launch plastic cards, they can however be involved in Identity theft scandals.

  • The problem of money transfer from one payment system to another

Most of the time, electronic payment systems do not cooperate with one another. If that is the case, you can use e-currency exchange services. However, it can consume a lot of time when you do not have a service you can trust for this purpose.

  • Lack of Anonymity

Since the database of the payment system stores all your transactions – like the name of recipient, amount and time – the intelligence agency can access all your information. Decide on whether that is good or bad.

  • The Need for Internet Access

When you have no Internet connection, you cannot transact on your online account.