MOTO Credit Card Processing is Dead

(or, 3 tips to make it in MOTO business today)

Well, you heard me.  MOTO credit card processing as it was known at its inception is dead.  What comes to mind when one pictures MOTO credit card processing?  A businessperson typing a card number into a credit card terminal, right?  The technology in those terminals is approaching the age of dirt.  And, even more importantly--because some of us enjoy collecting classic items--that old technology is responsible for 85% of the card-not-present downgrades on monthly processing statements and 75% of the shoddy reports generated by harried accounting staff members.

Okay, so I’m totally lying about the numbers.  The point—that transactions are downgraded terribly and reporting tools are nonexistent with physical terminals—is absolutely valid.  If there were a way to measure shoddiness of reports as a function of harriedness of accounting staff from the general crappiness of the quality of life due to the oldness of your physical terminal, there would probably be a positive correlation.

MOTO credit card processing as you probably know it has outlived its expiration date.  If you know it as something else than what I’ve described, be happy you didn’t have to live through the golden (expensive, stressful) years.  You don’t have to take notes today.  However, if you have no idea what could ever replace your credit card terminals in the scheme of your business, you’ve arrived at the right place.  It’s time to get down and dirty.

MOTO credit card processing tips

1.  With the internet all things are possible (especially improved payment technology)

The internet has improved human life tremendously—or, rather, it’s sped everything up and made it easier to pass information around.  How does this apply to MOTO credit card processing?  Well, nowadays, you have options other than the physical terminals you might be using.  Take, for example, the virtual terminal:

If you're not familiar, it'll look something like this.  Pretty nice UI, and intuitive reporting tools.

Important to know about your virtual gateway:

• You can access your online gateway from anywhere with an internet connection, not just your office.
• Most virtual gateways are equipped with built-in searching and reporting tools, which are absolutely invaluable for copy requests, other audits, and simply reporting things at the end of the day or month.
• Some virtual gateways can be equipped to integrate to your accounting system (like QuickBooks, or wherever else you might create and reconcile invoices), which brings about a whole host of other benefits.  There’s no better way to catapult your business into the 21^st century than with a payment integration—and, your accounting staff will agree.

2. You can utilize payment channels other than mail and telephone

I know MOTO stands for Mail Order/Telephone Order, but in the past decades, that business model has expanded to include online orders, either via email or shopping cart.  Strongly consider whether or not your customers would benefit from the addition of an email payment portal, or a web shopping cart.  Maybe your website isn’t much to look at, or—good heavens—maybe you don’t even have a website.  Whereas payment integration can help almost everyone, adding a web shopping channel might not be for you if you have a well-established client base and you aren’t worried about not attracting Joe Average consumers.  But…I would wager that this idea helps more businesses than it hurts.  I mean, adding visibility and more payment methods can never hurt.

Shopping carts give you access to SO much useful data!  Makes me want to start my own business.

Important to know about an online payment method for your customers:

• This is the age of automation.  Usually, if people have the opportunity to use an email portal or shopping cart for payment, they will.  That means orders come to you without you having to answer the phone.  And, that saves time.
• You can automatically import your online payment data to your virtual gateway with information from other payment channels (like telephone) and make your reporting even easier.
• Some shopping carts (like Magento) are designed to lower the base costs of accepting certain credit cards for payment.  Depending on your potential for online orders, this could be a great windfall.

3. The importance of PCI compliance can’t be overstated, so use a compliant solution

In light of the mainstream data breaches you've undoubtedly heard or read about, this point can't be stressed enough.  Using a virtual gateway or an integrated processing solution has the potential to significantly increase your data security, and decrease your chance of becoming the next mainstream news story.

Important to know about PCI compliance:

• It’s easy to believe you’re invulnerable to hacks since you use a physical terminal—but, it simply isn’t true.  Hacking into phone lines isn’t terribly difficult; an entire subculture of phreakers could attest to that in the 1980s. 
• Using a virtual terminal secures your data, and, using a tokenized data solution makes the data even safer than with a conventional virtual terminal.
• Solutions like these are in high demand given the past few years—and, contrary to what you might believe, these solutions are usually available at no additional cost, as modern processors have adopted PCI compliance as a standard.

The beginning of something great

When something dies, something invariably takes its place, and we’re witnessing the implementation of some really cool payment processing options.  (I don't know about you, but I really like it when I can get a machine or a computer program to do instantly the work I would have spent 30 minutes doing, all while offering me a higher standard of data protection.)  Request a virtual terminal demo from the merchant services provider of your choice, and talk to several companies about what new MOTO credit card processing options will do for you.  I think if you give these options a chance, you’ll be pleasantly surprised at how much your business is improved.

Until next time,

Jeremy

What on earth is EMV?

He's ready to learn.  Let's get moving.

These days, EMV chips are all the rage in Europe, and, with their official USA ETA in October 2015, they’re coming on over to stay in the United States as well.  You might have an EMV card now, or maybe you’ve seen a few of your customers present them to you for payment.  But, aside from looking high-tech and probably having to do with security, just what’s going on with these EMV chips?  Here are five quick details to take with you.

1.   EMV chips don’t significantly change how cards are used, but they really only work for card-present transactions

As the EMV chip is a physical feature of a card, it interacts with another physical object for its security: an EMV chip reader.  For card-not-present transactions, all information is transmitted manually over a phone line or the internet, so the chip’s security won’t have any use at all in those situations.  Aside from the physical aspect of having EMV chips, newer credit cards look the same as their older counterparts.  (Eventually, the magnetic stripe on EMV cards will fall out of use as businesses update their hardware, as all pertinent transaction information can be gathered through an EMV chip anyway.)

2.   The EMV shift will cost businesses and banks a good deal to implement

Replacing a couple of credit card terminals might be annoying, but it isn’t terribly expensive–I’ve seen EMV-equipped terminals for $300, give or take about $50.  But, what if you own a retail store with four credit card terminals?  What if you operate an independent grocery store and you need to replace ten?  Considering those possibilities, it’s no wonder many business owners are trying to shelve their updates for as long as possible.  And, it isn’t just retail businesses that are feeling the pain.  Banks have their work cut out for them, what with the nearly billion older credit cards in circulation now.  And, let’s not forget their ATMS, which will all have to be equipped to read new EMV debit cards.

3.   October 2015 is the deadline to update your card-reading hardware, but you probably won’t see overall compliance until much later

October 2015 marks the liability shift—the point at which businesses become responsible for fraudulent charges resulting from EMV-equipped credit cards used with standard mag stripe-reading terminals.  Some businesses will be slow to adapt to the new rules, however dire the punishment for not doing so, simply because of the expense of updating hardware.  You may very well have $1200 lying around to spend on four new EMV terminals, but, you may not want to part with it because you don’t see the need—not yet, anyway, because you haven’t been hit by fraud… It’s a waiting game, though.

4.   EMV chips do prevent fraud nicely, but it’s still possible to pull a fast one on card-issuing banks

In October of this year, a fraudster team in Brazil reportedly captured credit card data from a real EMV-equipped credit card, and then manipulated information like credit card numbers, issuing banks, and acquirer IDs, to fabricate other transactions on the fly that looked quite real with the addition the captured EMV information.  According to this article, the fraudsters played off the notion that banks’ fraud controls would be looser for EMV-signed transactions—and, indeed, they were, as banks automatically approved the charges due to the presence of the additional EMV information, however false it was.  These so-called replay attacks aren’t so common, but can occur from time to time if someone’s head is turned away at the wrong time.

5.   There are two different potential EMV systems to put in play, each with distinct advantages and disadvantages

When businesses choose to upgrade to EMV technology, they will have another choice to make: whether to use a chip-and-PIN system or a chip-and-signature system.  Chip-and-PIN systems are the inherently more secure option because their requiring a PIN (verified by the EMV chip) with every transaction makes it much, much harder for thieves to use a card fraudulently at that kind of credit card terminal.  As expected, a chip-and-PIN system requires the use of a special PIN pad, which costs businesses money to use.  Bearing that in mind, there is another, somewhat less secure method businesses can use to secure their EMV transactions: the chip-and-signature system.  The major factor chip-and-signature systems bring to the table is their lack of a PIN feature.  Signatures add a small veil of security, much like signatures for purchases with conventional credit cards, but the problem is signatures can always be replicated, and, as anyone who’s ever used one of those battered electronic styli and pads at a grocery store can attest, it really doesn’t matter what the hell you sign.  Predictably, businesses tight on cash will opt for the less secure chip-and-signature method in the interest of cutting costs—until they’re affected by fraud themselves.  So it goes!

By now you understand I’m full of it; brevity isn’t my strong suit

Those weren’t fast facts at all, but, hopefully they were substantial facts and you come away from this ready to win some bar bets.  In all seriousness (I know!  In this blog?!), EMV is a big deal because it’s the first real update to the credit card itself since its (mainstream) inception in the ‘70s.  Cards are going to look a little different, and business owners and banks will have to front the cost of these upgrades; that’s just the system we’ve built.  Security will likely be much better in the future, though, and we won’t have as many of these nasty fraud stories to talk about.

Cheers,

Jeremy

Understanding Advertised Processing Rates!

(Why total processing cost is (usually) not equal to the percentage you’re promised.)

Short answer: Because there’s much more that goes into your total price than a rate.  If you ask for a rate, you’ll get a rate, sure.  But that’s like asking a car dealership how much an engine costs and expecting to walk out with a whole car after paying.  Unfortunately, the rate can be deceptively small or completely made up.  How often do you see stuff like this?

It sounds fantastic, and it would be if it were possible 100% of the time without National Bank Card, salesmen that they are, losing money on processing costs.  The reality is it ain’t.

Long answer: Your total costs are comprised of much more than a single percentage—unless you’re using a flat rate pricing program, but we can get into that later.  Unfortunately for you, single percentages sell a lot better than a block of fine print, and, with those nifty contracts that MSPs dole out like candy, it’s pretty easy for them to get away with promising you something lovely and sweet and then delivering something slightly sour. 

Single advertised percentages can mean a few different things, but hardly ever the full price.  A single percentage can refer to:

• The interchange (base) cost to accept a credit card.  It’s not likely a processor would come out and tell you this, not only because interchange isn’t in everyone’s vocabulary (“You mean the freeway junction?”) so it’s easier to avoid talking about it, but because interchange costs fluctuate rapidly depending on what credit cards your customers use.  For a full breakdown, you can click here.  Let’s just say it doesn’t read like The Catcher in the Rye, though.  (Brief synopsis: Consumer credit cards and debit cards aren’t so expensive.  Business-type credit cards and government purchasing cards are.)

• The total cost to accept credit cards.  This is more likely what a processor wants to convey when advertising “Card Processing under 1%.”  However, as we can see by skimming over that Interchange Guide above, even interchange costs are rarely below 1%.  So, do we really expect National Bank Card (or any other processor, for that matter) to eat cost on your transactions?  Good heavens, no.  We’ll see some companies like Sage Payment Solutions advertising 1.85% on “qualified” transaction costs, too.  While 1.85% is a tad more realistic than <1%, it still doesn’t account for a big number of card types in that interchange guide—anything over 1.85%.  What happens if you don’t get that 1.85%?  SPS can just say your transactions didn’t qualify.  Better luck next time!  Here is the picture as it appeared December 1^st, 2014:

(FYI, the folks at QuickBooks Payments love to do this too.  Remember, though: hate the game, not the player.  Both Sage Payment Solutions and Intuit Merchant Services are using a pricing formula that's been tried and proven over years: the fewer numbers you show someone, the better off everyone is.)

• The markup on your transactions.  This is usually what a given processor is trying to convey with an ad like that of our friends at National Bank Card, much as they may not want you to realize that.  A markup of 1% on top of an interchange cost is no small chunk of change, especially as your processing volume rises.  (That’s why it’s more common for smaller companies to have higher markups and larger companies to have smaller ones.  Somewhere down the line, someone realized that 1% of $3 million per month was $30,000 and that their company was helping to finance someone’s country house and yacht every month.)  “Under 1%” is of course better than 1%, but how much better?  We can’t tell, of course.  As long as they keep you below a 1% markup, though, they’ve kept their promise.  Get ready for a nice 0.95%!

A note on flat rate pricing

The only situation where I would trust a processor reading me one number over the phone or on the internet would be after they've thoroughly analyzed the trends for credit card usage among my customers--that is, they'd have to tell me what kinds of card types are coming in and how they arrived at that single cost.  For example, if I'm in the B2B realm, accepting a good number of corporate cards every month, it wouldn't be out of the question for someone to quote me a flat rate of 3%.  It's a little high, yes, but it covers the real expenses of the credit cards I accept.  You'll never see those kinda of quotes advertised on "credit card processing" Googles, though, because everyone's already advertising <1%.

Back to business...

Those are your options when you see ads like the one I mentioned.  They’re everywhere, and you’ll get a rotation of them whenever you Google “credit card processing.”  And, going back to the short answer, the reason they’re so popular is they’re a lot easier to read and process than a mass of fine print  And, since this explanation wasn’t written in size 6 font, I hope it helped you a little more than a big ol’ text block would have.

Cheers,

Jeremy