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What is credit card merchant service processing? Which merchant service processor/provider should I use?

Credit Card Processing

For a traditional brick and mortar store, the credit card merchant service processor is the company (or bank) that provides you with the equipment (terminal) to accept credit cards from your customers, processes the credit card transaction, then deposits the funds into your store's bank account. All processors charges fees for their service. With the advent of the Internet, the "equipment" can be a browser such as Internet Explorer, but you still need a processor to accept credit cards.

Accepting credit cards on the Internet can be as simple as allowing customers to enter credit card information in a form on your web site (secured by SSL, of course). The form is manually processed - you personally review the form, manually copy the credit card number from the form into your terminal (or web site), etc.. If you need to ship physical goods and you already have a credit card processor, then this is a good option.

Alternatively, you may want to automate the processing of credit cards accepted on your web site. Most Internet store owners use shopping cart software to allow their customers to browse and make purchases. In this case, your processor must allow you to use an Application Programming Interface (API) that is compatible with the shopping cart software you are using. Most shopping cart software supports Verisign's PayflowPro and Authorize.Net. These are the two biggest players.

Recommended Vendors

We have in the past recommended our customers use Verisign's PayflowPro API in conjunction with a credit card merchant account from Wells Fargo Bank. Verisign bought most of the Internet based API players and consolidated them under PayflowPro, so this API is one of the best supported Internet gateways. It is also one of the most reliable. Last time we did a survey, Wells Fargo Bank had the least expensive PayflowPro solution (Wells Fargo merchant services via the PayflowPro API). I haven't researched this in a while. I would guess that they still have a competitive program.

You should compare setup fees (they should be minimal, $200 or less, or you may be getting rooked by a reseller), all monthly fees (including statement fees, etc.), per transaction fees and the actual percentage charged to process a transaction ("discount rate" in credit card processor lingo). You will pay a substantially higher discount rate for a mail order business ("card not present" in credit card processor lingo). It is possible to leverage an existing bank contact to get closer to retail discount rates for a mail order business. I have used NOVA and Card Service International, but they were expensive and may push their own APIs instead of PayflowPro. We have used Authorize.Net. They had reliability issues, and their API was poor, but over time, they have gotten these issues straightened out. They were still more expensive last time I checked.

Fraud Screening and Charge Backs

Fraud screening credit card mail orders is complex, but often it is a very important risk management strategy. When a customer "charges back" on a mail order, you have less leverage with the credit card processor than in a retail "card present" transaction. Verisign offers some kind of fraud screening service. I don't know if Wells Fargo Bank offers this on their own or through Verisign. Ask the sales representatives about it. I wouldn't get too hung up on marketing terms like "fraud scrubbing". Instead, evaluate fraud screening services based on what the service really does and how much it costs.

We have found that asking for credit card CVV numbers helps cut down on fraudulent purchase. Also, consider asking for the credit card type (VISA, MasterCard, etc.) and using pattern matching to verify that the card number entered matches the credit card type selected. Both of these measure help ensure (but don't guarantee) that the person making the purchase has the actual card (not just the number(s)). Finally, if you ship physical goods, use AVS (address verification system) and don't ship to any address other than the credit card's billing address.

When to Apply

If you are just getting started on your web site, apply for the merchant account as soon as possible. The processor is effectively extending you credit (if the customer charges back, they want to be able to get the money back from you!), so your application will take time to process. 



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