Present or Not Present Card Transactions?

When plastic cards become digital tokens, they become virtual. So how do you say that the Card is Present or Not Present.  The legendary regulatory difference that the cards industry has relied on to differentiate between interchange fees for Card Present and Card Not Present transactions.

Apple secured Card Present preferential rates for transactions acquired by iTunes on the basis that the card’s legitimacy is verified with the issuer at the time of registration and the token minimizes probability of fraud. If an API call to the issuing bank is sufficient to say that the Card is Present, who is to say that the same logic can’t apply to online merchants who also verify the authenticity of Cards on File when they tokenize them? How can one arbitrarily say that the transaction processed with token from an online merchant is Card Not Present, but the one processed with Apple Pay is Card Present even though both might have made the same API call to the bank to verify the card’s validity?

In the Apple case, a physical picture of the card is taken and used to verify that the person registering the card has it. It is not that hard for an online merchant to verify that the Card on File converted as a token does belong to the person performing an online transaction.

As we move towards chip and pin the card present merchants will spend substantial money upgrading their hardware and POS systems. That expense will be offset by that savings in losses due to fraud. MOTO and e-commerce transactions ( card NOT present ) will always have a higher cost because the nature of processing is NON face to face transactions. Of course the fraud and losses are higher when the card is manually entered or given to someone over the phone……Face to face will always have the lowest cost per transaction because it is usually the final step in the sale. Restaurants are low risk because you had the transaction AFTER you eat. If there is a dispute it happens before the merchant even sees the credit card.

In the long run, as cards become digital and virtual through tokens, we are all going to wonder if card is present or not present. May be some will say. Card is a ghost.

Posted in Best Practices for Merchants, Credit card Processing, EMV EuroPay MasterCard Visa, Visa MasterCard American Express Tagged with: (POS) systems, API call, Apple secured Card Present, bank, Card Not Present transactions, card present, card present merchants, cards, cards industry, chip, credit-card, digital and virtual, digital tokens, e-commerce transactions, fees, fraud, hardware, industry, interchange, interchange fees, issuer, issuing bank, low risk, Merchant's, moto, NON face to face transactions, online, online merchants, online transaction, PIN, Processing, Rates, token, transactions

More About High Risk Credit Card Processing

High risk credit card processing is electronic payment processing for businesses deemed as HIGH RISK by the MERCHANT SERVICES INDUSTRY

The high risk segment of payment processing has become more important as banks and ISO’s have begun to tighten up their credit restrictions and underwriting policies. Businesses are classified as high risk primarily because of their product or service and the way they go to market. In merchant services, risk is related to CHARGEBACKS or customer disputes.

The more likely a business to have chargebacks, the higher risk the business. For instance, online businesses selling a weight loss product through a free trial offer, is more likely to have chargebacks than a retail store selling the same weight loss product.

Merchants are often unaware their business falls into the high risk category when they first start shopping for a merchant account. Getting a high risk merchant account can be difficult.

These providers have more stringent requirements and the application process is longer compared to traditional merchant account providers.

High risk businesses should expect to pay higher rates and fees for payment processing services. As a general rule of thumb, merchants should count on paying at least more than a traditional merchant account. Most high risk merchant accounts also require a contract of at least 18 months, whereas low risk providers offer accounts without cancellation fees or contracts.

ROLLING RESERVES are also a big part of high risk credit card processing. Most high risk merchants have some sort of rolling reserve placed on the account, especially new accounts without any processing history. A Reserve refers to an account where a percentage of the funds from transactions are held in reserve to cover against any chargebacks or fees that the processor may not be able to collect from the merchant. This is similar to a security deposit, but merchants don’t have to pay it up front. Reserves are a pain point for many small high risk merchants, but they are definitely necessary and without them, processors would not accept any high risk merchants at all.

What Businesses Are High Risk?

As mentioned earlier, businesses are usually classified as high risk due to the product or service they offer, however merchants with severely damaged credit or a recent bankruptcy can also be considered high risk. Below are just of the few common high risk merchant categories:

Adult Websites

Cigars & Pipe Tobacco Online

Collection Agencies

Credit Repair

Debt Consolidation

E-Books & Software

Electronic Cigarettes

Firearms – Online

High Ticket & High Volume

Medical Marijuana Dispensaries

Multi Level Marketing & Business Opportunities

Nutraceuticals like weight loss supplements, cleansers etc.

Penny Auctions

Sports Betting Advice

Ticket Brokers – Online Tickets

TMF Merchants

Travel & Timeshare

Unfortunately this list is growing and some credit card processing companies even classify any start up Internet business, that doesn’t have extensive financials to be high risk. With the recent economic recession in the United States, there has been an increase in these start up Internet ventures. People are either looking to supplement their income or start their own business instead of looking for work.

How To Protect Your Business

Accepting credit cards is the single most important part of most online businesses. Unfortunately, many successful businesses go under after having their merchant account shut down. High risk merchants should always be cognizant of their merchant account and pay attention to chargeback percentages. Below are some tips for high risk merchants looking for payment processing solutions.

Be Upfront: Make sure your processor knows exactly what you sell and how you market the product/service. If they don’t accept your business type, keep shopping for a new merchant account provider. Many merchants will try to fly under the radar by not revealing all their products or fully disclose their marketing methods to the processor. This is a bad move, the processor will eventually find out the details about your business. This is usually from doing an audit on your transactions and contacting your customers.

Negotiate Every 3 Months: Credit card processing companies underwrite applications based on previous processing history. If there is no previous history, the account is riskier and the terms offered are usually more expensive and restrictive. You can always re-negotiate your rates, reserves and other contract terms with your current processor. Once they have 3 months of history to evaluate, they may be able to offer you a better deal. Three months of history is the magic number for most processors. If you applied without the previous history and were declined, there is a chance the same processor will approve your application if you provide 3 months of previous statements.

Prepare For The Worst: All high risk merchants should keep at least 2 active merchant accounts, from different providers. You never know when underwriting guidelines might change, or you may have an influx of chargebacks. Having a backup account or even multiple back up accounts is a good idea. Many high risk providers offer a load balancing gateway, which allows for multiple merchant accounts to be integrated into one payment gateway. This way you can spread transactions across multiple accounts, through one shopping cart/gateway.

 

Posted in Best Practices for Merchants Tagged with: account, account providers, accounts, banks, card, chargebacks, contract, credit, credit card processing, credit restrictions, customer, customers, deposit, electronic payment, fees, financials, gateway, High risk credit card, High Ticket & High Volume, ISOs, low risk, marketing, merchant, merchant account, merchant services, multiple accounts, payment gateway, payment processing, processing services, processing solutions, processor, product, Rates, reserves, retail store, risk, ROLLING RESERVES, Security, security deposit, service, shopping cart, statements, terms, TMF Merchants, transactions, travel, underwriting