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Tuesday, August 22, 2006

A Quick Guide to Third-Party Credit Card Processors



If you've ever looked into getting your own merchant account,
you already know how expensive it can be. Application fees,
setup fees, standard monthly fees, transaction fees... they
all add up fast! It can be too much for a business that's
just getting started.

There is an alternative. Third-party credit card processing
companies handle your credit card transactions for you in
return for a cut of your profits. Setup is typically
either free, or there's a small, one-time fee.

Here's here it works: once you've applied and/or been
approved and paid any applicable setup fees, you create
ordering links for your products. These ordering links
lead to the third-party processor's server, where they
handle orders on your behalf. Credit cards and online
checks are common ordering options provided by third-party
processors. Some also offer a telephone ordering option.

After your customer places an order, that sale is
automatically credited to you, minus the company's
commission. You are paid by the third-party processor
at regular intervals, according to their pay schedule.

So what's the big deal? Why would third-party processors
appeal to startup businesses? Aside from the setup fee,
you are only ever charged IF and WHEN you make a sale.
If you don't sell anything, you're not charged anything.

Here are a few things to consider when researching third-
party processors:

* How much is the setup fee? Don't be put off if there
is one; three of the four processors I use charge a
setup fee, and they've been well worth the small cost.

* Transaction fees. After paying these fees, do you
still make a reasonable profit? I've seen fees
ranging from around 5% to about 30%, with the average
somewhere in the middle.

* Are there additional fees for accepting online checks
or telephone orders? Does the processor even offer
these as options?

* Settlement fees. Does the company charge to cut you
a check each pay period, or to wire transfer your funds
to you?

* How much is the reserve? A 'reserve' is the amount held
back from each pay check as a "slush fund" against future
refunds, returns, or chargebacks. What percentage do they
hold as a reserve, and for how long? It's commonly 10%,
10%, held for 6 months before being released back to you.

* Pay frequency. Most pay either every two weeks, or
once a month.

* Reliability. Talk to others who have used the service
to see if they've had any problems. If your order
processor is 'down', your customers can't buy!

* Restrictions and limitations. For example, is there a
minimum monthly sales quota you must reach? Is there a
maximum product price you can set? Does the company
restrict what the type of content you can sell? Do
they handle only tangible or intangible products?

* Customer service. Does the company respond promptly
and helpfully when you contact them?

* 'Extras'. For example, are there reporting or tracking
capabilities? Free use of a shopping cart?

Finally, here's a short reference list of several third-
party processing companies:

* Clickbank, http://clickbank.com/
* GloBill, http://globill.com/
* Digibuy, http://digibuy.com/
* Revecom, http://revecom.com/
* iBill, http://ibill.com/
* 2Checkout.com, http://2checkout.com/
* Verotel, http://verotel.com/
* CCNow, http://ccnow.com/

As you can see, there are many options, so don't let a
tight budget prevent you from taking orders online! Third-
party processors are both convenient and affordable -- even
for startup businesses.

ABOUT THE AUTHOR
______
Angela is the editor of Online Business Basics, a practical,
down-to-earth guide to building an Internet business on a
beginner's budget. If you enjoyed this article, you'll love
the book! Visit http://onlinebusinessbasics.com/article.html
or request a series of 10 free reports to get you started:
mailto:businessbasics@workyourleads.com

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Alice in Credit Card Land



Your credit card is stolen. You place a phone call to the number provided in your tourist guide or in the local daily press. You provide your details and you cancel your card. You block it. In a few minutes, it should be transferred to the stop-list available to the authorization centres worldwide. From that moment on, no thief will be able to fraudulently use your card. You can sigh in relief. The danger is over.

But is it?

It is definitely not. To understand why, we should first review the intricate procedure involved.

In principle, the best and safest thing to do is call the authorization centre of the bank that issued your card (the issuer bank). Calling the number published in the media is second best because it connects the cardholder to a "volunteer" bank, which caters for the needs of all the issuers of a given card. Some service organizations (such as IAPA � the International Air Passengers Association) provide a similar service.

The "catering bank" accepts the call, notes down the details of the cardholder and prepares a fax containing the instruction to cancel the card. The cancellation fax is then sent on to the issuing bank. The details of all the issuing banks are found in special manuals published by the clearing and payments associations of all the banks that issue a specific card. All the financial institutions that issue Mastercards, Eurocards and a few other more minor cards in Europe are members of Europay International (EPI). Here lies the first snag: the catering bank often mistakes the identity of the issuer. Many banks share the same name or are branches of a network. Banks with identical names can exist in Prague, Budapest and Frankfurt, or Vienna, for instance. Should a fax cancelling the card be sent to the wrong bank � the card will simply not be cancelled until it is too late. By the time the mistake is discovered, the card is usually thoroughly abused and the financial means of the cardholder are exhausted.

Additionally, going the indirect route (calling an intermediary bank instead of the issuing bank) translates into a delay which could prove monetarily crucial. By the time the fax is sent, it might be no longer necessary.

If the card has been abused and fraudulent purchases or money withdrawals have been debited to the unfortunate cardholders' bank or credit card account � the cardholder can reclaim these charges. He has to clearly identify them and state in writing that they were not effected by him. A process called "chargeback" thus is set in motion.

A chargeback is a transaction disputed within the payment system. A dispute can be initiated by the cardholder when he receives his statement and rejects one or more items on it or when an issuing financial institution disputes a transaction for a technical reason (usually at the behest of the cardholder or if his account is overdrawn). A technical reason could be the wrong or no signature, wrong or no date, important details missing in the sales vouchers and so on. Despite the warnings carried on many a sales voucher ("No Refund � No Cancellation") both refunds and cancellations are daily occurrences.

To be considered a chargeback, the card issuer must initiate a well-defined dispute procedure. This it can do only after it has determined the reasons invalidating the transaction. A chrageback can only be initiated by the issuing financial institution. The cardholder himself has no standing in this matter and the chargeback rules and regulations are not accessible to him. He is confined to lodging a complaint with the issuer. This is an abnormal situation whereby rules affecting the balances and mandating operations resulting in debits and credits in the bank account are not available to the account name (owner). The issuer, at its discretion, may decide that issuing a chargeback is the best way to rectify the complaint.

The following sequence of events is, thus, fairly common:

The cardholder presents his card to a merchant (aka: an acceptor of payment system cards).
The merchant may request an authorization for the transaction, either by electronic means (a Point of Sale / Electronic Fund Transfer apparatus) or by phone (voice authorization). A merchant is obliged to do so if the value of the transaction exceeds predefined thresholds. But there are other cases in which this might be either a required or a recommended policy.
If the transaction is authorized, the merchant notes down the authorization reference number and gives the goods and services to the cardholder. In a face-to-face transaction (as opposed to a phone or internet/electronic transaction), the merchant must request the cardholder to sign the sale slip. He must then compare the signature provided by the cardholder to the signature specimen at the back of the card. A mismatch of the signatures (or their absence either on the card or on the slip) invalidate the transaction. The merchant will then provide the cardholder with a receipt, normally with a copy of the signed voucher.

Periodically, the merchant collects all the transaction vouchers and sends them to his bank (the "acquiring" bank).

The acquiring bank pays the merchant on foot of the transaction vouchers minus the commission payable to the credit card company. Some banks pre-finance or re-finance credit card sales vouchers in the form of credit lines (cash flow or receivables financing).

The acquiring bank sends the transaction to the payments system (VISA International or Europay International) through its connection to the relevant network (VisaNet, in the case of Visa, for instance).
The credit card company (Visa, Mastercard, Diners Club) credits the acquirer bank.
The credit card company sends the transaction to the issuing bank and automatically debits the issuer.
The issuing bank debits the cardholder's account. It issues monthly or transaction related statements to the cardholder.

The cardholder pays the issuing bank on foot of the statement (this is automatic, involuntary debiting of the cardholders account with the bank).

Some credit card companies in some territories prefer to work directly with the cardholders. In such a case, they issue a monthly statement, which the cardholder has to pay directly to them by money order or by bank transfer. The cardholder will be required to provide a security to the credit card company and his spending limits will be tightly related to the level and quality of the security provided by him. The very issuance of the card is almost always subject to credit history and to an approval process.

ABOUT THE AUTHOR

Sam Vaknin is the author of Malignant Self Love - Narcissism Revisited and After the Rain - How the West Lost the East. He is a columnist for Central Europe Review, United Press International (UPI) and eBookWeb and the editor of mental health and Central East Europe categories in The Open Directory and Suite101.
Web site:
http://samvak.tripod.com/

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