MERCHAT BANKING

7/30/2019 MERCHAT BANKING

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ashort guide to an important process

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Begin


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Definitions

Credit Card

Terminal

Merchant

Merchant Account

Processor

Card Issuing Bank

ISO

Definitions

Processes

Resellers

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In this section you will learn the terminology you

will need to sell merchant services properly.

Pay close attention to the terms because often, the

merchants will only understand the process to a

very limited extent.

If you can arm them with knowledge they willtrust you, and trust is the beginning of every sale.


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Definitions ProcessesResellers

Terminal

Merchant

Merchant Account

Processor

Card Issuing Bank

ISO

Any card issued by a banking or lending institution,which can be swiped or otherwise interfaced with aterminal and carries the cardholders bank or

lending account information for the purpose oftransferring funds.

Credit Card

This includes any bank card with a magnetic strip, smart card (which contains a microchip

that houses the cardholders information), or Speed Pass out on the market today. Therates that the merchant is charged for accepting these cards are set by Visa and MasterCard, based on the number of disputed charges or charge-backs.

There are several different types of cards, all classified by the networks:

1. Debit/Check CardsCards issued by banking institutions which are tied directly to a cardholders bankaccount. These are considered the most secure type of cards because they are tied directly to verifiedstored funds, and have a very low chance of being disputed (or charged back)

2. Standard Credit Cards Cards issued by banks or lending institutions, which normally represent fundswhich are loaned or deposited specifically to build credit. This is considered to be the second most secureand least costly type of card.

3. Corporate Cards Cards issued by lending institutions or banks to corporations for the purposes oftracking spending, issuing rewards, or allowing multiple signers on accounts. These cards normally have alittle bit higher rates because they are normally linked with business spending accounts or tied to rewardsprograms.

4. Rewards Cards Cards issued by banks or lending institutions which generate a value per transactioncalled points which can be redeemed by the card holder for some value or rewards for the usage of thecard. These are the most expensive type of card to be processed (higher rates set by Visa/Master Card)because the rates must be paid for.

Definitions

FACT: It is not commonly known that the rewards that some cards offer their cardholders are normally paid forby the merchant who took the card in the form of higher rates paid for that card.

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A Credit Card Machine, other device or software

which reads the magnetic strip on a credit card orotherwise interfaces with a card, thencommunicates that information to the processorusing such types of communications as wireless,internet, land-line, or website.

Terminal has become a general term to represent one of the many mediums through which transactions canbe run:

1. Landline Credit Card Machine a basic credit card machine which uses a regular phone line to runtransactions. These machines are best for small, low volume merchants on a budget. (avg. cost $100-$200)

2. Internet Credit Card Machine these machines are setup to run transactions through an internetconnection, sometimes with a landline back-up. The transactions are very fast (typically 2-3 seconds)and are best for high volume merchants where long lines are typically formed. (avg. cost $200-$400)

3. Wireless Credit Card Machine these machines utilize cell phone networks (either CDMA or GPRS)to run transactions wirelessly. Best for mobile merchants or merchants who operate at events orfestivals where communications are non-existent. Just like a cell phone, they normally require a data

plan and are very expensive. (avg. cost $600-$900)4. eCommerce There are several different types of eCommerce but the most popular types are Website

processing and Virtual Terminals (a software which mimics a credit card machine.5. POS System/Software This is what you typically will see in large restaurants, bars, and hotels. POS

Systems are normally a single or network of computers with touch screen monitors that run softwarethat helps the merchant track sales, employee hours, inventory, and allows them to customize menusand specials.

Credit Card

Terminal

Merchant

Merchant Account

Processor

Card Issuing Bank

ISO

Definitions

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A business which accepts payment in return forgoods or services; this includes Retail,Restaurant, MOTO (mail order/telephone order),eCommerce and B2B (business to business).

Credit Card

Terminal

Merchant

Merchant Account

Processor

Card Issuing Bank

ISO

There are many different types of merchants today:

1. RetailThe most typical storefront merchant who sells items directly off of their shelves to consumers.2. Restaurant/Service Most bars and restaurants fall into this category if they accept tips. Other examples are

cab/taxi services, hair and nail salons, or delivery services.3. MOTOThis term stands for Mail Order/Telephone Order but this old term has expanded to include e -

Commerce and B2B (business to business). The reason for this category is because the security of thetransactions associated with these merchant accounts is a lot lower be cause the card is not present. Thismeans that the merchant is not swiping the card and therefore the identity of the cardholder cannot be verified.These are normally higher risk. Examples of MOTO accounts would be online merchants, manufacturers,insurance agencies, and merchants who sell via catalog or newspaper.

4. Fuel/PetroleumThese merchant accounts are classified as such because they will typically pre-authorizea card for $1 or some minimal amount to make sure the card is valid, and then settle the full amount charged

later at the end of the day.

Depending on how the merchant accepts payment, they should fall into one of these categories, but it is importantto note that new business types are created every day and that it may not always be clear as to which type ofmerchant account should be set up for them.

Definitions

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The merchants credit card processing account,

managed by a merchant services company or ISO.All merchants are required to go through anapplication process and, upon approval, are issueda Merchant ID (MID). This account holds all theinformation about the merchants fees, rates, and

deposit bank account information.

Credit Card

Terminal

Merchant

Merchant Account

Processor

Card Issuing Bank

ISO

It is important to understand that a merchant accounts primary functions are:

1. Provide Processing The merchant account is what links the terminal to the processor so that theprocessor knows which merchant the transaction is being run under, and also which bank account todeposit the credit card charges into every day.

2. Asses Rates and Fees The merchant account is setup with all the monthly, yearly, per item and contractfees agreed to by the merchant at the time the account is set up. Normally, all fees are auto-debited out ofthe merchants bank account once a month. Merchants will not receive a bill for any fees other than acancellation or early termination fee sometimes. They will however receive a monthly statement detailingall of the credit cards transactions run and a detail of the fees and rates as well. Typical fees are listedbelow:

- Statement Fee a monthly fee that helps to provide everything that goes intogenerating the merchants statement.

- Monthly Minimum a monthly fee that is charged in place of the per transactionsrates if those rates dont result in an amount greater than the minimum.

- Security Fee a yearly fee the merchant must pay as part of their PCI Complianceprogram. *see PROCESSES section under security.

- Service Fee normally a monthly fee the merchant must pay if they required anexcessive amount of service or equipment repair.

- Charge-back Fee to discourage disputed charges on a card, merchants arenormally penalized per incident if a customer starts the charge-back process and wins.

Definitions

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Definitions

Processes

Resellers

The company which physically handles alltransactions between the merchant and thecard issuing banks. The Processor alsohandles the technical aspects of the merchantaccount and prepares configuration data forterminals to be programmed for a merchant toaccept credit cards.

Credit Card

Terminal

Merchant

Merchant Account

Processor

Card Issuing Bank

ISO

Processors normally handle a large load of the merchant services work:

1. Customer Service processors will handle many customer service issues such as answering questionsfor merchants about transactions or account questions.

2. Technical Support there are many issues that a credit card terminal can experience such ascommunication failures, invalid batch sequences, wrong receipt headers, or programming problems. Theprocessor is normally there to field a lot of these calls. They can fix a lot of problems over the phone andhelp to reduce the work load of the merchant services companies.

3. Terminal Programming once a MID (merchant ID) has been issued to a new merchant, they can thenhave their terminal programmed to accept cards under their account. A lot of times the processor can dothis for some different types of terminals.

4. Account Support - on top of supporting the merchants, the processor also supports its ISOs and Sub-ISOs, helping them set up new accounts, make changes to accounts, and close accounts.

Definitions

Some examples of Processors are as follows:1. Global Pay2. First Data3. Chase Paymentech4. Merchant One

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Definitions

Processes

Resellers

A merchant services company which has directauthorization from the Processor andVisa/Master Card to facilitate the merchants

credit card processing program.

Credit Card

Terminal

Merchant

Merchant Account

Processor

Card Issuing Bank

ISO

Definitions

ISO/Merchant Services companies are charged with selling merchant accounts and are

the intermediaries between the merchant and the processor. They handle such accountissues as

1. Banking Changes This is a change to the deposit bank account where the credit card transactionfunds are deposited everyday.

2. Address Changes3. Terminal Preparation Once the account is approved and the configuration file has been created by the

processor, many time the ISO/merchant services company will physically download that information intothe terminal for processing,

4. Support - the merchants will need support, and many times it is up to the ISO to keep their customershappy by providing excellent support or help with anything else they may need.

Vi-Tel is a Sub-ISO meaning we are below another ISO and could not setup merchants without a CertifiedISO above us.

North American Bancard is our certified ISO by Visa/MC and can therefore setup new merchants forprocessing.

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Any banking or lending institution that hasauthorization from Visa/Master Card to issuecredit cards with their logo/brand on it. A creditcard must be on a network (i.e. Visa/MasterCard/Discover/Amex/others) which the processorrecognizes before the transaction can take place.

Credit Card

Terminal

Merchant

Merchant Account

Processor

Card Issuing Bank

ISO

Definitions

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There are literally thousands of lending institutions and banks out there that issue creditcards and debit cards but these only pertain mostly to Visa and Mastercard. AmericanExpress and Discover do not normally allow very many institutions to issue their cards forthem. It gives them better control over their brand.

A lot of times what youll see is a merchant being able to accept Visa, Mastercard, andDiscover at the rates the Merchant Services Company has defined, but American Expresshas a different rate schedule and a completely different set of monthly fees. This isimportant to explain to a merchant. American Express has a LOT of control over their

merchant accounts. They go through their OWN approval process for merchants andsometimes will turn down a merchant even if the merchant has been accepted onVISA/MC/DISC.

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Processes

Account Setup

Security

Authorization

Settlement

Chargeback

Account Closure

Account Maintenance

Definitions

Processes

Resellers

This section is designed to teach you the basics ofmerchant services and its processes.

Its important to remember that understanding the

process by which something works is the key to

taking full advantage of it.

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ProcessesDefinitions

Resellers

1. Approved Accounts will be issued a Merchant ID number (MID)2. Declined Accounts will normally be provided a reason why the Decline occurred (due to credit or

fraud history or problems with the application).3. Pended Accounts, need further review. They may sometimes come back and ask for clarification on

the application or for some further paperwork from the merchant such as their articles ofincorporation.

Account Setup

Security

Authorization

Settlement

Chargeback

Account Closure

Account Maintenance

Processes

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Once the merchant agrees to rates, fees and selects aterminal, the merchant and reseller must fill out anapplication. (either online or on paper)

1. A quick app will be provided to you that you can print out and hand to the merchants to fill out foryou to enter later, or you can take them to the VI-TEL Online Quick App and have them enter in theinfo there.

2. Once the App has been entered into the Vi-Tel website, the app will be received by Vi-Tel and then

submitted for approval by North American Bancard.

The Merchant must also provide a copy of avoided check of the deposit bank accounthe/she wishes his processing funds to bedeposited into.

The processor reviews the application and

either approves, declines, or places it in apending status if they need more informationor further review.

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Resellers

You may have heard from time to time on thenews where cardholder data (particularlycredit card numbers and expiration dates)have been stolen in very large numbers. It isnow common place to hear that thousands ofcard numbers have been stolenelectronically.

1. Merchants may not store (or have access to) any full credit card numbers.2. Terminals must not store full card numbers, and can not display card numbers on their displays or

print out on receipts or reports.3. Merchant Services Companies must run Audit Programs to Certify that the merchant is compliant to

PCI Standards.

4. New Encryption Standards are now required to be met to protect cardholder pin numbers. (This hasmade many credit card machines obsolete)

5. Passwords must be present on any function of the terminal which would allow even the most limitedaccess to cardholder data through reports.

6. Any computer network with internet access which facilitates the transaction must be behind afirewall.

Account Setup

Security

Authorization

Settlement

Chargeback

Account Closure

Account Maintenance

Processes

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This presents a very large liability particularly on Visa and Master Cards part, sorecently new standards have been instituted by Visa and Master Card to protect cardholder data called PCI Compliance. The following guidelines must be met beforemerchants may process:

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Processes

Definitions

Resellers

Terminal Processor Card Issuing Bank

Steps:

1. The card is run and the terminal contacts the processor with an AuthorizationRequest.

2. The Processor verifies everything is setup correctly with the terminal and merchant

account and then either routes the transaction to the Card Issuing Bank, or sends anerror message back to the terminal describing the problem.

3. The Bank checks the availability of the funds and issues an Approval or Decline.4. The terminal then adds the authorization to the list or batch of authorizations it has

received since the last settlement was run.

Account Setup

Security

Authorization

Settlement

Chargeback

Account Closure

Account Maintenance

Authorization Request

Error Messages

Approval or Decline

Processes

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This is the first step in every credit card transaction. The Authorization processsimply verifies the funds are available, and tells the cardholders bank that it mayneed to set aside or hold the funds for a transfer later.

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Processes

Definitions

Resellers

Settlement Request

Error Messages

Settlement Confirmation

Card Issuing Banks

1. The Batch is run and the terminal sends a list of all authorizations to be settledto the processor.

2. The Processor verifies everything is setup correctly with the terminal, merchantaccount and batch and then requests all card issuing banks to transfer funds, orsends an error message back to the terminal describing the problem.

3. The Processor issues a settlement confirmation and a batch report of all closedtransactions.

Account Setup

Security

Authorization

Settlement

Chargeback

Account Closure

Account Maintenance

Terminal Processor

Steps:

Processes

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This is the second and final step in every credit card transaction. The Settlement processtells the cardholders bank to transfer funds from one bank to another.

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Resellers

A Chargeback is the process by which a card-holder disputes a charge on their credit cardaccount. The following is what takes place duringa chargeback:

1. The card-holder calls their bank to dispute a charge and the bank begins the chargeback process.2. The processor then requests a retrieval of the signed sales receipt from the merchant and any other

proof the merchant can provide for validation.3. The merchant faxes or sends in the signed slip and the processor either awards the dispute to the

customer or declines to refund the sale.4. If the dispute is won by the customer, the merchant has the funds removed from his bank account and

is typically charged a fee for the chargeback.

Account Setup

Security

Authorization

Settlement

Chargeback

Account Closure

Account Maintenance

Processes

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Remember: Excessive chargebacks are a very negative thing on a merchant account.It typically means that the merchant is either misrepresenting who they are,misrepresenting their products, or misrepresenting their pricing. Although mistakes dohappen, a chargeback is not something to take lightly. Merchant accounts can beFORCED CLOSED by the processor for too much charge back activity. The merchantcan even be put on a TMF or MATCH list and will never be able to accept cards

again.

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Resellers

1. Banking Changes A change of the account that the merchants processing isdeposited into.

2. Address Changes A change to the location or corporate addresses.3. Fee Changes Occasionally circumstances require a fee to be added or dropped

from a merchants account.4. Name Changes Changes to the DBA or corporate name associated with the

account.5. Many more.

Account Setup

Security

Authorization

Settlement

Chargeback

Account Closure

Account Maintenance

Processes

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There are several routine maintenance items

every merchant account will go through fromtime to time:

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Resellers

Account Setup

Security

Authorization

Settlement

Chargeback

Account Closure

Account Maintenance

Processes

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It is very common for merchant accounts to close due tovarious reasons. These could be that the merchant is goingout of business, the merchant is switching processors, orthat the processor has decided to close the merchant due toexcessive risk or possibly fraud. When a merchant accountneeds to be closed there are a few things the merchantneeds to keep in mind:

1. Am I under a contract? It is considered industry standard practice formerchants to be under a contract for their processing account. A standardcontract is 3 years.

2. If so what is my cancellation fee? If the merchant IS on a contract, no doubtthere is a cancellation fee. This will normally be equal to the monthly minimum

fee on their account multiplied by the remaining months on their contract.3. Why am I cancelling? If the merchant is not going out of business, its possible

they are going to another merchant services provider because of better rates orequipment or service related issues (merchants should ask themselves can my

merchant services company possibly match rates I am being offeredelsewhere?)

4. Do I own my equipment? Something the merchant needs to understand ismany times they are given free equipment, but in reality the equipment is only

theirs if they stay with their merchant services provider for the full term of theircontract. If not, they could be facing hefty fees if they do not return the equipmentafter they cancel.

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Resellers

Opportunity

Regulations

Compensation

Potential

Definitions

Processes

Resellers

This section is designed to explain to you the insand outs of being a reseller of merchant services

products.

The Merchant Services Division of Vi-Tel Wireless,

through North American Bancard is unique among

all of our other product lines.

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ResellersDefinitions

Processes

Resellers

Opportunity

Regulations

Compensation

Potential To be completed

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Processes

Resellers

Opportunity

Regulations

Compensation


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Processes

Resellers

Opportunity

Regulations

Compensation


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Processes

Resellers

Opportunity

Regulations

Compensation


MERCHAT BANKING

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