Some Miscellaneous Stuff

Here are a few bits of news important to credit card processing, that may be relevant to your business.

Omni 3740 and 3750 say goodbye. Nearly every processor I know of says they will no longer support these terminals, most as of October 2012. That means if you have one, come November, it will no longer process cards. The most common replacements are the Verifone VX510 (for dial up accounts) and the VX570 (internet processing.) Those are Central Payments free terminals, so if you have an old Omni you can upgrade for free.

Visa is introducing a new fee in April. A 'fixed acquirer network fee, it will add $2.00 to $2.90 to most merchant accounts. Theoretically a business can recoup the costs through a lowered network fee, but don't count on it. When this was first announced it seemed some processors (including Central Payment) were leaning toward assuming the fee on behalf it's merchants, but now all the processing companies are treating it as a pass-through. The fee can be very expensive for companies with thousands of locations that process millions of dollars (read: Wal Mart and McDonalds) and if the processors assume the $2.00 for Bob's Diner they will have to assume the hundreds of thousands of dollars for the mega-merchants also.

And finally, The IRS formally drives processors to the brink of ruin for no good reason.  As most of you are probably aware, the IRS decided "it would not require merchants to explain how and why their business income differs from their credit card receipts in 2012, nor do we intend to require reconciliation in future years.

Now that processing companies have spent millions of dollars, and hundreds of thousands of man hours, trying to match merchant information with what the government had on file, not to mention scaring the beJesus out of merchants with the punishment nightmares they (the merchants) would face for non-compliance- the IRS says "Just kiddin." This comes after some processing companies spent a year charging merchants up to $20.00 a month for 'IRS compliance', too.

That's what's happening in my world- if you have any questions about any of the above, or electronic payment processing in general, holler to me at bswitzer@cpay.com.

Is There a Merchant Revolt Brewing Against the Credit Card Companies? Part 2

If you accept credit/debit cards at your business there is a lawsuit that goes to trial this fall in New York that you should keep on your radar. The suits began as approximately 55 lawsuits filed in various jurisdictions, with all but ten of them seeking class action status. Plaintiffs range from local and regional retailers to national trade associations and chains such as Kroger, Walgreens and CVS. Losing could cost Visa and Mastercard  billions of dollars, and a negative outcome for the credit card companies could change the way you accept credit and debit cards at your business.

A merchant's agreement with the card companies is thick enough to choke a Brahma bull and written by lawyers for lawyers. Most of the items in the rules and regulations section are centered around the Big Three Rules- 1) a merchant can't have a 'minimum amount', but must accept a card as payment for any transaction, no matter how small, 2) a merchant can't add a surcharge onto a transaction to recoup his processing costs, and 3) if you accept a card for any transaction type you must accept them for all transaction types. That means that a business that accepts credit cards can't refuse a certain type of card, a 'rewards' card or a business card for example, because the processing costs for that type of card are higher than other types.

Numbers two and three is the reasons behind the lawsuits.

The suits cite the Sherman and Clayton antitrust acts as well as state law and depict the U.S. credit and debit card interchange process as a price-fixing scheme operated by the card issuers to the detriment of merchants. They are challenging the legality of rules that prohibit surcharges on credit card transactions and prevent the steering of customers to the merchant's preferred transaction types. Merchants are demanding changes in business terms that could potentially include cuts to credit card fees and recognition by the card companies of merchant's rights to surcharge. They also want rights of 'steerage', or the ability to offer an immediate discount, rebate, or free or discounted product or service to cardholders for using a particular low cost card or other form of payment.

In other words a merchant with an average transaction of $200 knows a rewards card costs them four percent of a transaction and a debit card costs them one percent. They are suing for the right to offer a free gift to the cardholder in exchange for using the less costly card, or to refuse to accept the more expensive card at all and ask for nother form of payment.

A jury verdict against the card companies could be catastrophic to them. Mastercard has estimated it's cost to settle the claims individually at $500 million. But that does not reflect the 'class component' of the case- it is considerably more expensive to settle a class action than a series of individual cases. Some observers estimate they card companies could owe billions in damages should they be found liable for the alleged counts, which are subject to trebling under anitrust law.

Visa has not commented on estimated expenses but their financial reports list $2.93 billion held in escrow for litigation expenses.

But monetary damages are only part of the story- a plaintiff's verdict would effectively blow up a business model that has been in place for decades. Indeed, the non-monetary aspects of card acceptance are among the issues most merchants have concerns about.

"One issue that merchants have complained about is the extraordinary restrictive rules we have to operate under," says Mallory Duncan, senior vice president and general counsel at the National Retail Federation.

Both sides point to a antitrust suit over many of the same issues brought by seven states and the Department of Justice in 2010. In a settlement Mastercard and Visa agreed to allow merchants in those states (including Missouri) that process more than a million transactions a year to offer an immediate discount or rebate or  free or discounted product or service for using a particular low cost card or other form of payment. Opponents of the card companies say the settlement effectively establishes precedent; card industry insiders say it will allow the companies to say, "We gave them nearly everything they wanted in the settlement. It would be unfair to add surcharge into the mix now."

As complicated as the facts of the case are, it seems inevitable that once the dust clears merchants will be better off. Any settlement will almost certainly include lower card fees. A plaintiff's verdict could open the doors for each merchant to craft card acceptance guidelines according to what best serves his own business.

And in the event of a verdict for the card companies, they will have little time to catch their breath; other lawsuits are working their way through courtrooms across the country. Merchants are slowly coming to realize that you can demand fair business practices from the card companies. Let's hope it continues.

It's the Wave of the Future; It's Free; And Your Competitors Ain't Doing It

Suppose someone offered you a piece of equipment that could double or even triple your revenues. Would you be interested? What if the equipment were free? And what if your competitors were blissfully unaware the equipment even existed? Would you jump at the chance to own it? Of course you would.

Good news! Such an item really exists. It's known as 'business social media', and it's the wave of the future.

Business social media (bsm) is the use of social web sites like Facebook, Twitter and LinkedIn- not to broadcast your latest bowling score to your friends, but as a marketing and sales tool for your company. In much of the country bsm has supplanted newspaper and radio as a business owner's preferred method of marketing. Over three quarters of the respondents to a Constant Contact poll said they used social media, predominately Facebook, as the most important part of their marketing strategy. In San Francisco, where the company I work for is located, a merchant would no more try to start a business without a Facebook and LinkedIn page then they try to start one without electricity hook-ups.

But the Joplin are hasn't caught the wave yet.

A study by a MSSU business group estimates that just 2.3 percent of the locally owned businesses in the Joplin Metropolitan Statistical Area have active business Facebook pages. ('Active' is defined as a page that gets more than eight posts a week). The Joplin LinkedIn group has 96 members, and only four local members have posted on it over the last 30 days. The Carthage group has six members, none from Carthage. (One hales from the Netherlands). Northeast Oklahoma and Southeast Kansas don't have LinkedIn groups for business owners at all. I couldn't find any numbers for local businesses on Twitter, but there are only a handful of locally owned Twitter business accounts that are easy to find. The nearest Groupon (a social site dedicated to promoting a business's 'deals') accounts are in Tulsa.

I could go on, but you get the drift- business social media, the biggest advancement in marketing since the creation of the daily paper, the way business will be done in the future, is in it's nascent stage in the Joplin area.

And that creates an incredible opportunity for local businesses.

The dominant businesses in Joplin in five years are going to be the ones that are the biggest players on the bsm sites. Right now almost no one is vying to be that leader. And that's why you need to get started right now, today, building your social media presence.

It's easy, and it's free. All you need is a computer and an internet connection. Really- that's it. And it's free.

Start with Facebook. DON"T start putting business posts on your existing Facebook page. At the bottom of your Facebook site there is a menu that includes the option 'create a page'. Click on that, and follow the directions. Twitter, LinkedIn, Google+ and YouTube are all as easy as pulling up the site and clicking on 'create an account.'

Look at pages that you like on the bsm sites, see what others are doing, to get an idea what sort of content others are posting. Follow my blog, sekcreditcardguy.blogspot.com- about every other post will be orientated toward business social media. Jeffrey Gitomer has written the definitive book for starting out in bsm- it's called Social Boom. Read it and learn well. Hubspot has more good material than you can read in two lifetimes. And it's free.

Business social media is the best opportunity to grow your business and beat your competition that you have ever had. It's just sitting there, waiting for you take advantage of it. And it's free.

Sign on. Establish an account on each major site. Post something. Tweet something. Connect with someone. Post value messages every day. If you do it every day, and do it right, you will create loyal customers and profit from your ability to expose yourself, your thoughts, your and value-driven message to your market and around the world.

And two years from now when your biggest competitor decides it's time to find out what Facebook is all about he will quickly discover you own his ass.

What Is This Nonsense In My Statement?

When you get your credit card processing statement at the first of the month it is full of mysterious terms like 'mid-qual', 'non-qual', 'discount' and 'auth.fee'. Understanding this terminology is the first step to fully understanding what it is costing you to process your credit cards.

The vast majority of statements are 'tiered'- that is, the processing company has taken the hundreds of types of credit card transactions and grouped the similar types into like categories, or tiers. The most common tiers are as follows:

Pin-Based Debit or On Line Debit- transactions made with a debit card and with the card holder entering their pin number into a pinpad or terminal. This tier usually has the lowest rates. However, the debit companies that own the networks these transactions run on charge the processing companies usage fees that are almost always passed on to the merchant (A fact seldom mentioned by the processing company rep). Look for Debit Network Fees, Network Access Fees or just Network Fees on your statement, and add those to your pin-based debit charges to get the true cost for this tier.

Debit, Off Line Debit, or Bank Card- transactions made with a debit card, but without a pin number being entered.


Qualified or Credit- a transaction in which a credit card is swiped, not hand entered. The most common type of transaction.

Mid-Qual or Mid Qualified- a swiped transaction with a credit card that has some sort of award for the card holder; cash back or airline miles or anything of value. The credit card companies pay for those awards by charging you, the merchant, a surcharge on the transaction. There are several lawsuits winding through the courts to try and end the practice of charging the merchants for these types of transactions, or at least let the merchant choose to not accept rewards cards.

Non-Qual or Non Qualified- transactions that are 1) keyed into a terminal, rather than swiped, or 2) held by a business rather than an individual, or 3) transacted with a card that is backed by a non-US bank, such as The Royal Bank of Scotland or Credit Suisse. More of these types of charges end up fraudulent than other types, so a surcharge is added to them, also.

So there you have it- what just a few of the terms you see on your statement mean. Down the road we will talk about what interchange fees are, and what all the add-on fees are for, and PCI, and IRS fees, and it goes on and on. Fortunately Central Payment doesn't nickel and dime our merchants to death with fees, so I don't get a lot of "What the heck is this??!!" phone calls. But when I'm out talking to merchants that work with other processors all sorts of things can come up. Learning the terminology behind the fees will help you keep your processing costs as low as possible.

Know When Your Processing Contract Really Expires

Last week I was visiting with the owner of a small manufacturing company in Parsons.

I had shown him how to reduce his processing costs by sixteen percent, thus freeing up almost $60,000 a year to invest back into operations. His current rep had come down from Overland Park, and the last time they had spoken had been the day he signed the paperwork. His staff despised calling his current processor's customer service line; they said it was a mess of auto-messages, phone trees, and long hold times. Simply put, we were ready to do business together. All that remained was to verify that his contract with the other guys was expired, which he was confident had happened last June.

Well, it turns out he was right- sort of. And wrong- sort of. Nearly every processing company out there has a "rollover " provision in their contract- a fact that few processing reps even know about, much less inform their merchants of.

Say you sign a 3 year agreement with a $400 early termination penalty set to expire on May 1, 2012. Come May 1, you have a window, the length of which varies between processors, to notify the company in writing that you no longer wish to use their services. If the window is 30 days, when June 1 comes around and you haven't canceled, you are automatically rolled into another year's contract replete with the same early termination penalties you had in the first three years. Some companies roll you over once, some twice, and some roll their merchants until they cancel within the window or pay the penalty.

Dig out the fine print in your processing agreement, or have your company send you a copy. Find your rollover clause. Knowing how it works will save you some scratch should you ever desire to fire your credit card company.

Is There a Merchant Revolt Brewing Against the Credit Card Companies? Part 1

As credit cards increasingly take the place of hard cash businesses find themselves increasingly at the mercy of the credit card companies. Accordingly, the card companies have more leverage over merchants than ever before. When the life or death of your business is dependent on keeping Visa happy, if Visa institutes 'Slap A Merchant Fridays' then on Friday you line up to get slapped.

That's been the case until recently, when their have been a couple of signs that businesses have had enough. One such business is a Park City, Utah restaurant called Cisero's.

Visa and MasterCard both claimed that Cisero's allowed fraudulent credit card charges and broke the card companies security rules by keeping information on too many card accounts in the restaurant's computers.

When a business owner signs the contract with a credit card processing company, almost all of the fine print in the contract deals with the relationship between the business, the processing company (the processing company is a middleman who's job is to move the money around between all the parties involved in a credit or debit transaction) and the banks. Your agreement with the credit card companies, known as an operating contract, usually arrives one to three weeks later in the form of a Processing Terms and Conditions, Funds Transfer Instructions and Association Rules. It is 30 dense pages of illegible fine print and is unreadable by anyone except for top notch contract  attorneys.

This treatise, that a business owner either agrees to follow sight unseen by signing the processing contract or 'agrees by deed' when he processes his first credit card, is the source of grief for Cisero's. MasterCard and Visa used arcane provisions buried in the operating contract to fine the restaurant enormous sums of money and debit the funds from it's bank account with no warning, notice, or explanation. The credit card companies never proved their allegations nor gave the business an opportunity to answer the charges.

At first Visa said the amount of the 'actual fraud' was $1.26 million and Cisero's total liability was $1.33 million. The liability changed to $511, 513 when court papers were filed, and finally Visa said the restaurant owed $55,000. For their part, MasterCard said they could assess charges totaling $100,000 but was only imposing $15,000. They later added another $13,823 in 'loss claims'.

In Cisero's law suit against Visa and MasterCard it's lawyers point out that these shifting dollar amounts imply that the card companies were simply making the numbers up as they went along and contend that the whole mess is less about fraud than randomly taking money from small business owners that they don't expect to fight back:

"These various shifting numbers based on unexplained calculations” show that the “process is little more than a scheme to extract steep financial penalties from small merchants,” reads the suit.

The suit also brings up the operating contract:
"When the restaurant entered their first contract arcane operating rules- over 1000 pages in length- were not publicly available to merchants and didn't contain  provisions on data security."

Observers expect the card companies to settle rather than to expose and try to explain their operating procedures in open court and possibly providing more ammunition to interested trial attorneys.

Later in the week in Part 2 will be the story of a merchant based class action suit that caused MasterCard to cry 'Uncle".

You Can Keep Your Resolutions This Year.

It's January second. The tinkling noises you will hear over the next two to twelve weeks is the sound of 2012’s New Year's resolutions being broken all around you.

Year in and year out January is the month that gyms get the highest number of new members. Jenny Craig, Nutri-Systems and Weight Watchers all have their best months. AA and NA groups see more new faces in January than any other two months of the year combined, and on line book sellers deliver self-help books by the truckload. 

And next year will be the same, because statistics tell us that by the end of March only three percent of the people who made resolutions will still be following them.

What makes us unable, year after year, to make the changes we know we need to make in our lives, for our health, for our families, for our careers? It's not what you think. It's not laziness, or complacency, or sloth. It's because making those changes is damn near impossible.

Scientist who study the brain don't agree on much, but one thing they all seem to line up on is that when we have done an activity or engaged in a behavior enough to hard wire it in our brain as a habit then it becomes incredibly hard to unwire. This was very useful back when our food hunted us while we hunted it and hesitation was the difference between eating supper and being supper. But in modern times it means that dropping twenty pounds so you'll have a shot when you ask out the hot redhead in the next cubicle it near impossibly hard.

Near impossible, but not impossible. Remember, three percent of the people that set New Year's resolutions are still living by them three months later. That begs the question- what is different about that three percent, what do they do differently than the vast majority? Studies have given us two answers.

The first is that the three per centers are goal setters who write their resolutions down and refer to them often. Many successful resolution setters tell of leaving Post-its with their goals on the bathroom mirror, on the refrigerator, on the TV screen. One man made his cell phone ringtone a recording of his resolution, to be reminded every time his phone rang. It is hard to settle back into the old habits when the new ones are staring you in the face wherever you go.

Secondly, the people in the three percent know that changing their own behavior is going to be an enormous undertaking. They approach it with the single-mindedness of a tired marathoner approaching a steep hill. One foot after the other, keep plodding, don't quit, don't stop, must not let up. No matter the difficulty or the pain, unflaggingly putting one foot in front of the other. Until finally the hill is crested, the old habit falls away, and a new one snaps in to take its place.

That's the sort of effort it takes to make changes in our brain's hard drive. Very few are willing to put forth that effort. But the ones that do find success.

If you made a New Year's resolution (and are serious about wanting to make the change), write it down so that it is always on the periphery of your thoughts. And start running your hill. Good luck- hope to see you on the downhill side