Category Archives: News Update

if you are taking an order over the phone or internet this form is invaluable

The amount of caution you use in avoiding fraud with phone, fax and internet orders is a function of your historical track record and time you want to spend. If you only get one fraud attempt and/or chargeback per year you may not want to spend a lot of time on fraud prevention especially with repeat customers. The one exception is you would of course always want to be cautious with any large order. In order to protect yourself as much as possible you’ll want an AVS match on the billing street address and zip code. Than if you get this form (attached) signed and faxed back to you with a picture state issued id you are in great shape to fight any chargeback.


Bill Hoidas
District Sales Manager
Larger B2B/MOTO/Internet Accounts
Product Development Manager
Matrix Payment Systems
(847) 381-3482 office
(847) 381-4289 fax
http://paymentconsulting.net
John 3:16 For God so loved the world, that he gave his only begotten
Son, that whosoever believeth in him should not perish, but have
everlasting life.

Accelerating cash advance

February 25, 2008 • Issue 08:02:02

Accelerating cash advance

T he merchant cash advance industry has evolved dramatically since The Green Sheet’s initial lead story on the phenomenon just over two years ago (“Merchant cash advances open doors,” Oct. 10, 2005, issue 05:10:01″). The basic concept is simple: The cash provider buys future credit card receivables, which the merchant provides as a daily percentage of those revenues.

“Say a merchant desires 100K in working capital,” The merchant “would sell 135K in future credit card sales. Twenty percent of the merchants’ daily deposit is split-settled to fund the receivables which were purchased.”

Not every transaction would be identical to this, but this is an indicative example.

While cash advances on receivables is not a new concept, advancing cash for credit card receivables of goods or services not yet purchased was rare before the turn of this century, mostly because it was risky for cash providers.

And that risk is what most providers cite when explaining the fairly hefty fee that accompanies this type of transaction – the equivalent of 17%-35% if it were a loan in the same amount as the advance.

But the fairly simple concept of taking a split off the top as the credit card payments are processed makes the repayment of the advance simpler and slightly less risky.

Funders in, funders out

“I think in the next year or two we’ll see larger ISOs and even banks entering this market.”

Woochae Chung, American Microloan Managing Director, said once the court ruled against AdvanceMe’s patent “the floodgates opened. We saw at least a dozen new companies enter the market.”

But while the court case freed companies from the threat of litigation or paying patent royalties, the liquidity crisis drove others out.

Significantly, experiences with the economic downturn in the last 90 to 120 days have negated perceptions that the industry has wide margins and plenty of room for error.

Recession wins, recession woes

Given current economic conditions, it’s likely organic business growth – which occurs when existing customers prosper and grow – will not be particularly robust in 2008.

Some firms fund merchants with a Fair Isaac Corp. (FICO) score as low as 411 or as high as 817. “The recession won’t change that on the lower end, but we are seeing more merchants with high FICOs applying,”

The recession will spur increased demand for cash advance services. “Merchants who could take out loans against the value of their home will have a harder time getting needed cash that way, and they’ll turn to merchant cash advances,” They’ll be better credit qualified applicants.

“But there will also be merchants who are hurt by the recession that will be higher-risk and will take longer to repay or even be driven out of business. Hopefully, those two trends will balance each other out, but it’s a crapshoot.”

In addition, the subprime lending industry crisis has driven a large number of former subprime mortgage brokers into the industry

The adolescent merchant cash advance industry is grappling with growth issues, too.

“In the second and third quarters of 2007, we walked away from a lot of business because we couldn’t rationalize the terms being offered merchants. That discipline paid off in the fourth quarter when we grew 75% and closed out a record year.”

Changing economic conditions have led American Microloan to change its structure; “We monitor our accounts diligently, and we’ve tightened our underwriting,” Chung said.

“A fair allocation of risk and reward is simply better all the way around.”

Fraud expansion, fraud detection

Chung has also seen two or more funding companies overlap funding for the same merchant. “No one can sustain that level of debt,” he said. “Eventually it will bankrupt the merchant.

“Funding companies have to be on the lookout for that and check to be sure that the previous funding has been repaid. It’s not good for the merchants; it’s not good for the funders. Sooner or later it will go bad for everyone.”

Application fraud is already on the rise. “From an underwriting standpoint, you really need to be utilizing your ‘A’ game,” Gardner said. “You can really take a loss if you don’t successfully filter out fraud.”

Recently instituted are a number of fraud detection procedures that include sending stealth shoppers equipped with camera phones to do random checks of inventory or count the number of POS terminals. The company also has a rigorous identity fraud detection process.

The growing understanding of the merchant cash advance business has made it easier to sell because merchants no longer need much explanation of how it works. But it has a downside.

“Unscrupulous agents have been coaching merchants on how to abuse the system: installing two or more terminals and running only a fraction of the purchases through the designated terminal, for example,”

Loans denied, cash approved

The biggest criticism the industry faces is the very high cost merchants pay for cash. And those who are eligible for traditional bank loans would probably be better off going that route.

But traditional banks are not meeting the needs of small businesses that might have few material assets but healthy receivables – mostly pledged through credit card debt.

And retailers with strong but seasonal sales may prefer a merchant cash advance because traditional loans are paid back monthly in even amounts, whereas with a cash advance, merchants’ payments are proportional to their sales. They pay more in strong sales months and less in weak ones.

“No one is denying that this is expensive capital,” The point is for some merchants, it’s the only capital they may be able to get. It’s a fraction of the cost of a consumer payday advance.”

For example a repeat customer that obtained cash advances to expand his pizza franchise. “He told me that he considered it much less expensive than his previous friends and family funding,” When you fund that way you often give away a piece of your business. The 35% he gets here can be bought out in time, and he still owns 100% of his business. Independence is important to entrepreneurs.”

2008 practices, predictions

American Microloan’s growth has remained steady, and strong, at 50% a year. Chung doesn’t anticipate that changing in 2008, though he said the default rate for the industry on the whole has risen sharply over the past couple of years. He anticipates the funders that survive the recession will be those that underwrite carefully and monitor their accounts consistently.

“It takes a challenging economy to weed out the stronger players and test their business models,”

2008 “could go either way, but I think overall it will be a positive year for the merchant cash advance industry. Demand for the product will continue to grow, especially with the recent credit crunch.

Industry leaders are forming a nonprofit trade association for the merchant cash advance industry, which they hope to debut soon. They are in the process of establishing best practices to protect merchants and cash providers.

“It’s important for the industry for cash advance companies to have a ‘MATCH list,’ to combat the serious problem of fraud,” MATCH derives from the Member Alert to Control High-Risk database. It contains information on merchants who have been terminated for cause.

“Successful cash advance providers must have three things: access to competitively priced funds; solid scoring and underwriting models; and the most critical of all, a fundamental understanding of best practices,”

“You must know your customer; understand his business; and never, ever, supply more capital than they can support … and not one dollar more.”

Cash advance is clearly a growing trend in the payments industry. But, down the road, will cash advance reach a saturation point?

If so, a different trend will likely take hold, and time will tell what that will be.

Bill Hoidas
District Sales Manager
Larger B2B/MOTO/Internet Accounts
Product Development Manager
Matrix Payment Systems
(847) 381-3482 office
(847) 381-4289 fax
http://paymentconsulting.net
John 3:16 For God so loved the world, that he gave his only begotten
Son, that whosoever believeth in him should not perish, but have
everlasting life.

Requirement 10: PCI’s Everest

Requirement 10: PCI’s Everest

C omplying with the Payment Card Industry (PCI) Data Security Standard (DSS) is a mandate for all merchants, regardless of acceptance channel and transaction volume. However, some requirements of the PCI DSS are more difficult to comply with than others.

In fact, my investigation of payment card compromises and PCI DSS audits of various merchants demonstrate that requirement 10 – track and monitor all access to network resources and cardholder data – proves especially difficult for merchants involved.

In my research of 350 card compromise cases, more than half of the merchants involved failed to comply with requirement 10. Also, during initial PCI DSS audits of Trustwave’s customers, 70% of them needed to remediate deficiencies within their network environment to comply with the 10th rule.

Follow the basics

Tracking and monitoring all access to network components and cardholder data is no easy feat. For example, the PCI DSS requires that audit trails record the following network events:

  • Access of cardholder data by individual user
  • Actions taken by users with root or administrative privileges
  • Access of audit trails
  • Invalid access attempts
  • User log-in
  • Audit log initialization
  • Creation and deletion of system-level objects

The PCI DSS also requires that for each of these events, the following information, at the least, be recorded:

  • User
  • Type
  • Date and time
  • Success or failure
  • Origin
  • Name of affected data, component or resource

Any entity that processes, stores or transmits payment card information must comply with the PCI DSS. Thus the standard’s requirements are at the front of many merchants’ minds, but monitoring and logging are basic tenets of any data security plan.

Bulk up on security

Monitoring and logging network events can strain any organization’s resources, but the difference between implementing and not implementing logging measures can determine the severity of a security breach.

Critical files, such as those containing cardholder data or other sensitive information, must be monitored for unauthorized changes. If attackers are able to penetrate a network, they may attempt to add additional user accounts with administrative privileges.

Once attackers have gained administrative privileges, many times they can then access any asset on a network and begin copying sensitive information and sending it off-site.

Regular review of audit logs would alert a merchant or network administrator to foul play. But hackers do not work from 9 a.m. to 5 p.m. It’s more likely that an attack on cardholder data will take place at 3 a.m. – the perfect time to invade a smaller merchant who doesn’t have the resources to maintain a 24/7 security staff. And without continual, real-time monitoring of the logs, an alert may come too late.

Many operating systems provide default software programs that can log this information. However, requirement 10 calls for more than just the recording of events. Merchants must also review firewall, router and wireless access points and authentication server logs at least daily for unauthorized traffic and access attempts.

To complicate matters, depending on the systems running on a merchant’s network, each device may perform its own form of logging. Without information technology (IT) staff expertise, it’s unlikely these logs would make sense to the average merchant.

Even with in-depth IT knowledge, consolidating logs from multiple devices deployed across an entire network and presenting them in a way conducive to analysis would require a full-time IT employee, if not an entire staff.

The complexity of a merchant’s environment also affects the amount of logs that need monitoring.

Without a centralized process by which event logs can be correlated, it becomes increasingly difficult for merchants to gain insight into what’s occurring on their networks. While they may have enabled logging on their network devices, they find themselves buried in log data rather than at a vantage point with actionable information.

Fortunately, a number of information security companies have developed automated solutions to help merchants address the challenges of log tracking and monitoring around the clock. By allowing an outside data security expert to take over the monitoring of logs, a merchant not only saves money, but gains peace of mind.

While merchants may be baffled by the barrage of data streaming from their network devices, an experienced data security company monitoring merchants’ logs can provide insight into the security status of their networks, and maintaining in-house staff becomes unnecessary.

To show that you’re concerned about your merchants’ needs, consider using an information security service, along with your payment solutions. Merchants will know you have their well-being in mind because you will be offering not only secure payment services and technology, but also data security solutions that protect their businesses.


Michael Petitti is Chief Marketing Officer of Trustwave and is responsible for all of the company’s marketing initiatives. He serves on the Merchant Risk Council’s board of advisers and on The Green Sheet Inc. Advisory Board. Call him at 312-873-7291 or e-mail him at mpetitti@atwcorp.com.

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.

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Bill Hoidas
District Sales Manager
Larger B2B/MOTO/Internet Accounts
Product Development Manager
Matrix Payment Systems
(847) 381-3482 office
(847) 381-4289 fax
http://paymentconsulting.net
John 3:16 For God so loved the world, that he gave his only begotten
Son, that whosoever believeth in him should not perish, but have
everlasting life.

Gift Card Low Down

February 11, 2008 • Issue 08:02:01

Gift card muscle flex

G ift cards have long been my favorite value added solution. When you mention stored value, gift cards jump to the minds of most merchants. Gift cards store value very well and usually permanently. Name any other product that is purchased and then often goes unused. Go on, I dare you.

The Tower Group Inc. estimated Americans spent $97 billion in gift cards in 2007. Most likely, you received at least one card between your last birthday and the holiday season. And the holidays slightly edged out birthdays for the number one reason for gift card purchases. Mother’s Day, Father’s Day and graduations are also some of the biggest gift card selling days of the year.

Imagine what the initial group of merchants must have thought when they first heard of the gift card idea. MLSs gave them the bare facts: The cards are paid for upfront; 20% of consumers never use cards given to them; 50% use their cards only a few times within a year of purchase.

With such extremely favorable statistics, how many of your merchant customers would turn down offering gift cards? Not many, I believe. Gift cards can be one of the best things to ever happen to a merchant’s cash flow. This is why I truly feel that gift cards are an underrated service. They can increase merchants’ sales, while merchants may never have to exchange the value on the cards for merchandise.

Feeling the bulge

Gift cards can generate sizable profits for merchants. Most research shows that two-thirds of all holiday shoppers planned to give someone else a gift card this past holiday season. According to Comdata Corp.’s adult card study, the average amount for a gift card purchase is $45.

The Tower Group’s research placed breakage, the industry’s term for card value that was purchased and never redeemed, at $7.8 billion for 2007. Best Buy Co. Inc. had the highest amount of breakage at $16 million. A recent article in The New York Times stated $3.5 billion in gift cards went unclaimed during the 2007 holiday season alone.

There is also what retailers call up-spending: Most customers who use their gift cards often spend some of their own money to purchase merchandise that is more expensive than the value of their cards. Of those who receive cards, a whopping 51% spend more than the cards’ initial values.

One of my favorite gift card facts is that merchants retain any unused balance, depending on state laws. For example, Vermont consumers can only cash out cards if the value is less than $1. (For more information, see “California chomps on gift card leftovers,” Jan. 14, 2008, issue 08:01:01)

With the older relative of the gift card, the paper certificate, cash was given back if the purchase was under the value of the certificate. There are quite a few states that require the merchant to give back cash if the value on the card is under $5.

Gift cards are also far safer than gift certificates because they are harder to counterfeit. And if a box of gift cards gets lost or stolen, the merchant need not worry: Cards can only be activated at the POS terminal.

According to KeyCorp., switching from paper certificates to plastic can result in two to four times the average revenue growth because plastic cards are more visible and widely publicized. Additionally, carrying around a gift card that has a brand name on it gives merchants another opportunity to advertise.

Holding strong

Gift cards can do an amazing job of enhancing merchant retention. We all know the more value added services your merchant has, the lower your attrition.

Evidence has shown that merchants with gift card programs switch processors with 50% less frequency. And with recent law changes concerning gift cards, many merchants find it difficult to leave their current merchant service provider because gift cards with existing balances must be honored.

The real opportunity to offer gift cards is with your installed base of merchants. It’s fairly cheap and easy to sell to merchants with whom you are already doing business; you can make a case that the value added service will increase their sales.

If they are satisfied with the products you’ve given to them thus far, chances are they’ll take your suggestion and add gift cards to their sales floor. Some companies now offer basic cards in addition to customizable cards – designed with logos, pictures, lights, music and so forth.

Basic cards appeal to mom-and-pop merchants looking for the lowest cost to offer gift cards. These programs are great for merchants who aren’t interested in purchasing a gift card package until completing a trial run.

Some MLSs offer the first bulk of basic cards for free to all merchants as bait. This helps get merchants hooked on the cards’ revenue and benefits. Then MLSs steer them toward investing in gift card packages. This is when they mention that gift cards also capitalize on impulse purchases. Merchants who set up grab items at the POS are more likely to sell a gift card and a small item – maybe a stuffed animal, lip gloss or candy.

Online reporting and many new custom, interactive designs, such as cards that double as kaleidoscopes, have been added recently to give merchants more power and flexibility when choosing what gift cards to sell to their consumers.

If you don’t sell gift cards to your merchants, others will. If that happens, your merchants will likely leave you and take their businesses to competitors with more enticing offers. Why take that chance?

Gift cards pack a punch in the payments industry, especially in the profit margin.


Bill Hoidas
District Sales Manager
Larger B2B/MOTO/Internet Accounts
Product Development Manager
Matrix Payment Systems
(847) 381-3482 office
(847) 381-4289 fax
http://paymentconsulting.net
John 3:16 For God so loved the world, that he gave his only begotten
Son, that whosoever believeth in him should not perish, but have
everlasting life.

There is money available if your bank credit line is used up

Hi,

Lately I have been doing advance funding using credit card future sales. I have now found three sources that I feel comfortable with and feel are the best. Each one has it’s own specialty that I can match my clients up with. While you often can qualify for more money as a rule of thumb figure that you can receive an advance equal to your average one month volume of MC/Visa sales. In other words if you do about $25,000 monthly MC/Visa you can receive in a few days funding of $25,000.00.

I want all of my merchants to use utmost caution when borrowing money. Make sure you have exhausted your conventional sources first because the rates are higher for cc advance funding. The rates will vary according to your credit. However it can make sense for the right situation. I just had a merchant use the funding to buy almost new equipment for a fraction of what it is worth. He will be able to turn a nice profit on his purchase. In this situation it makes sense.

For more info go to http://paymentconsulting.net/adv_funding.html


Bill Hoidas
District Sales Manager
Larger B2B/MOTO/Internet Accounts
Product Development Manager
Matrix Payment Systems
(847) 381-3482 office
(847) 381-4289 fax
http://paymentconsulting.net
John 3:16 For God so loved the world, that he gave his only begotten
Son, that whosoever believeth in him should not perish, but have
everlasting life.

American Express is now charging you for your monthly statement-how to get it rebated

Hi,

Amex has never charged a monthly fee before for it’s regular accounts. It’s been officially 7 months now but they didn’t actually start until 3 months ago. This charge came to the best of my knowledge unannounced.

They are now charging $4.50 per month per merchant account.

To get it removed you should call 800-528-5200 /key in your merchant account # and than keep pressing “0” to wade through the multiple voice prompts.

Tell the rep that you weren’t aware of this new charge and do not need paper statements. They will enroll you for their website and to also receive your statement by email. Make sure you find out how many months you have been charged and have them rebate the charges.

You can also enroll on their website below but you won’t than get to ask to have the $4.50 monthly fees you’ve already been charged rebated.
https://home.americanexpress.com/homepage/merchant_cm.shtml

Bill


Bill Hoidas
District Sales Manager
Larger B2B/MOTO/Internet Accounts
Product Development Manager
Matrix Payment Systems
(847) 381-3482 office
(847) 381-4289 fax
http://paymentconsulting.net
John 3:16 For God so loved the world, that he gave his only begotten
Son, that whosoever believeth in him should not perish, but have
everlasting life.

great flow chart showing what really happens with a chargeback

Hi,

This is the best single thing I’ve ever seen that shows what happens when a cardholder (justifiably or not) calls their bank to do a chargeback. Contrary to popular opinion your processor doesn’t give up without a fight and does (or should) check for validity and to see if you’ve already issued a credit.

However if they can’t automatically reject it the ball’s in your court and you must fill out an answer and include all possible documentation. It’s just a sad fact of life that a cardholder can often get their bank to roll over and issue an unfair chargeback.

If your response does not succeed and the sum is large enough I do work with a consulting firm that specializes in chargebacks and can also recommend attorneys that specialize in cc law. As you can see the card holder and card issuing bank can be pushed to arbitration and whoever loses can be liable for all arbitration fees.


Bill Hoidas
District Sales Manager
Larger B2B/MOTO/Internet Accounts
Product Development Manager
Matrix Payment Systems
(847) 381-3482 office
(847) 381-4289 fax
http://paymentconsulting.net
John 3:16 For God so loved the world, that he gave his only begotten
Son, that whosoever believeth in him should not perish, but have
everlasting life.

CB_RetrvlProcessFlowChart.pdf
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