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How Much Does PayPal Charge To Process Credit Card Sales?

PayPal is a full-service, internet merchant account service specifically designed to allow you to process credit card payments on-line. Like any merchant account, PayPal does charge a fee to the seller for this service. But most businesses owners will agree that these fees are actually a small price to pay in order to offer this convenient payment option to their customers.

Much like a traditional merchant account provider, PayPal’s services are free for your buyer. So when a buyer makes a purchase and opts to pay for it from his personal PayPal account, there is no charge to him for this portion of the transaction. Before the money is transferred to your PayPal account, PayPal takes a fixed fee per transaction and a percentage of the total amount of the sale. There are no monthly statements or other service fees. The amount deposited into your PayPal is the total you receive from the sale.

What Are PayPal’s Fees?

Before we can answer that question, you must understand that PayPal serves several different purposes and so they offer several different kinds of plans. For the purposes of this article we will only discuss in overall terms the basic fees for their basic business merchant account.

On Sales: Like any other fee charged for a service, these numbers do change, but at the time of this writing, PayPal’s fees for a basic US business account are listed as follows:

1. 1. For sales within the US: 2.9% of the sale + $0.30 per transaction
2. 2. Discounted rated for volume: As low as 2.2%
3. 3. International sales: a fixed fee based on the currency received for the sale, + 3.9% per transaction

PayPal also offers a card reader for sellers who want to be able to accept PayPal transaction on-the-go. When you use a PayPal Here card reader you pay 2.7% when you swipe a credit card at time of purchase, or 3.5% + $0.15 is you manually enter the credit card information.

On Returns: Your buyer made a purchase and paid for it through his PayPal account. PayPal processed the transaction and deposited the purchase price into your account, less their fees. But now your buyer wants to return the merchandise for a refund. How much does he get back?

Well, you can’t very well penalize your buyer for the fees you paid for the convenience of using PayPal. So PayPal debits the total amount of the sale from your account to return to the buyer. They refund the 2.9% you paid on the total of the sale (or a percentage of this amount if the buyer is only returning a portion of the original sale), however, the $0.30 per transaction fee is non-refundable and comes out of your account to make up the total refund to the buyer. In other words, returns actually cost you an additional $0.30 per transaction.

The Pros and Cons.

There are definitely some financial benefits to choosing PayPal over a traditional merchant account or third-party credit card processing provider.

However, there are some negatives as well.

PayPal can be integrated into your credit card processing system in several ways. It can be used as your single means of processing credit cards, it can be integrated with your on-line payment gateway, or it can be used in addition to your present credit card processor. But however you use your PayPal account, you will find that offering this payment option can really pay off.

How Do I Get Out Of My Merchant Account Agreement?

Your best solution is going to be to select a merchant account provider that does not require you to sign a contract. However, if you already have a contract with a merchant account provider follow these steps:

1. 1. Read your contract. It will clearly state what information is needed to cancel your merchant account and whether you can cancel your contract by phone or if you must send a written request by mail or fax.
2. 2. Read your contract. Some credit card processing companies require a 30 or 60 day notice before the cancellation takes effect. You are required to continue to process credit card transactions during that period. If you don’t, you may be subject to additional fees.
3. 3. Read your contract. You will need to provide certain information in order to cancel your account, including your name and account number, security and other questions as required.
4. 4. Read your contract. If you cancel your account, you may be subject to an early termination or buy-out fee.
5. 5. Read your contract. And if you leased credit card processing terminal(s) from your provider, there may also be a fee to cancel your lease agreement early.

Are you seeing a pattern here? All the information you need to know to cancel your merchant account is set out in the terms and conditions of your merchant account contract. Why didn’t you notice that before? Because just like the honeymoon stage of any relationship, when you signed up for your merchant account, you were far more interested in knowing how much it was going to cost to process credit card transactions than what it was going to take to get out of your relationship with your merchant account provider. But these terms and conditions govern your merchant account, and it’s in your best interest to become familiar with these terms.

So you see, how you get out of your merchant account agreement is actually right there in black and white for you to reference. It’s been there all the time. But there are a few steps you can take prior to cancelling your provider contract that can smooth the way.

Preparing To Cancel a Merchant Account Agreement.

Read your contract! Because if you have agreed up front to an early termination fee (ETF), you may have some options.

1. 1. Check your statements to see if any of your fees have been raised within the last three month. Some states have a law that says if your fees have been raised at any time during your contract, you can cancel within a certain period after the increase with no ETF.
2. 2. Some contracts waive ETF’s if you close your business before your contract expires. If this is not stipulated in your contract, make sure your credit card processing company knows the circumstances surrounding your business closing, and ask to be released from your ETF.

If you refuse to pay any early termination fees, your credit card processing provider has the right to take serious legal actions that can damage your credit rating and keep you from getting another merchant account. The same goes for any legitimate fees you owe your provider, such as monthly fees or any remaining processing fees. These are valid fees, clearly stated in your contract and you are legally responsible for them no matter that you want to cancel your account.

Your credit card processor is clearly protected by the terms and conditions of the contract you signed. What can you do to protect yourself when closing your merchant account?

1. 1. Be sure you know when your contract is due for renewal. This information is clearly stated in your contract. If you follow the terms of your contract and give the proper cancellation notice to coincide with the end date of your contract, you can avoid any early termination fees.
2. 2. Gather any information that supports your reason for why you should not pay any early termination fees.
3. 3. Keep records of each call you make to your credit card processor during your cancellation or cancellation dispute period. You may get conflicting information from different customer service representatives. Be sure you have all this detailed.
4. 4. Review your bank statement and final merchant account statement to be sure no waived fees have been deducted in error.

The terms and conditions of your merchant account agreement are actually there to protect both you and your credit card processing provider. In the final analysis, it’s your responsibility to know what’s in your merchant account agreement in order to understand how these terms and conditions can actually benefit you.

Why Does American Express Cost So Much?

Before we answer the question, let’s flesh it out a bit. The real question here is: Why does it cost merchants more to process American Express credit card transactions than it does to process MasterCard and Visa transactions? The answer is simple. American Express operates on a different business model. Now… let’s flesh out the answer.

The American Express Business Model

Unlike MasterCard and Visa, both large credit card brands that are distributed through issuing banks, American Express issues their cards directly to the end user. With MC and Visa, the bank that issued the card takes on any financial risks from a credit card transaction, regardless of the card brand, while the card brand associations make their money from charging a processing fee called an interchange fee. This fee is eventually covered by the merchant, along with a number of other processing fees charged by their credit card processor.

American Express acts as its own card brand and bank, so the debt from any charges made on their card brand is due directly to them. By using their own network for processing credit card transactions, the only fees they receive are from the merchant for the use of their processing network. On the surface of things, it would seem that American Express fees should be less. However, even though American Express cuts out the middle man, their internal processing network costs a lot to maintain and the company does need to offset those costs. But that’s not considered the number one reason for why AmEx processing fees are higher than they are for MasterCard and Visa.

So Why Does American Express Have Higher Processing Fees?

The American Express business model is based on the rewards they offer for using their card brand to pay for purchases. And because they believe they attract a more affluent customer, they claim their cardholders make more purchases and buy higher priced items. The cost of these perks have to be covered somehow. American Express justifies charging merchants a higher processing fee to cover the benefits they offer to their cardholders because of their claim that they attract more affluent cardholders who charge more higher priced items. No, you’re not imagining it…and no we haven’t mistakenly copied over a sentence. Read on and, hopefully, this will all make more sense!

Basically, other credit card brands make their money in a direct line: a charge is processed, it’s approved, the issuing bank pays a fee to the brand association for being allowed to process that brand’s card, and then the brand association is out of the loop (unless, of course, there’s a chargeback dispute, and then the card brand charge more fees to cover those costs). Remember, we’re only describing here how the brand association makes its money… not where the money comes from. Because in the end the merchant is the one who actually pays this fee as a cost of being able to accept credit cards.

American Express works on a circular model, where every part of their process supports the next part. They call their model the “Spend Centric Model” and it works basically like this:

American Express offers a wide array of awards and perks for using their card brand…

…these premium perks attract a more affluent customer base…

…this level of customer base has a higher spending average…

…which leads to better sales for the merchant, who in turn pays a premium rate so American Express can afford to offer these quality perks.

Based on this description of their business model, it does seem that you pay higher transaction fees to American Express to subsidize their rewards program. But have you looked carefully at your monthly credit card processing statement lately? If you have, you’ll notice you can actually pay a higher processing fee for credit card transactions using a MasterCard or Visa rewards card. And more and more savvy shoppers prefer to use their rewards card for…well, for the rewards! So when you process other rewards cards, you may not be paying that much less in fees then you would to accept the American Express card.

We could quote a lot of figures for MasterCard and Visa processing fees versus American Express rates. But these figures change and if you want the up-to-date numbers to compare, you can find them with a quick search or ask your credit card processor.

But that’s not the question we’re answering here. The question is not how much more does it cost to accept the American Express card brand at your place of business, but why does it cost more? American Express charges higher processing fees and claims the giveback to the merchant is more discriminating customers who spend more money. It’s left to you to decide if it’s worth the extra cost.

What Is Batch Processing?

Batch processing is a method used to process a day’s worth of credit card transaction all at once. The term batch processing, or batching out, actually originated long before credit card processing terminals, processing software, or electronic payment gateways were ever conceived. Back in the days when computers used punched cards to store data similar to today’s software programs, these cards were sorted into groups that had similar program requirements and run through the mainframe together as a batch. From these humble beginnings comes the concept of batch processing for credit card transactions, where sales authorizations are stored throughout the day in your point-of-sale terminal or online, and sent to your processor as one file to be cleared and settled. Simply put, after making a sale, batching out is the next step in the credit card payment process towards getting paid for your merchandise or service.

How Batch Processing Works

Batch processing works the same way whether your customer swipes his card at your POS terminal or you input the information from an on-line or phone sale. Let’s say you are the owner of a charming, 4-star Italian restaurant. A customer comes in, enjoys his meal, and, after lots of compliments to the chef, you present him with his check. He discreetly slips his credit card into the check folio, and you take it to your credit card payment terminal for processing. When you swipe the card, the information is relayed to your credit card processor, then on to the bank that issued the card, and within seconds you get back an authorization code.

At this point in the process, it would seem like the transaction is settled. But that’s not the case. All you have is an approval or decline code. If it’s approved, you know the card is valid. It’s gone through all the security checks and it’s not stolen, being used fraudulently, or over the limit. If the transaction is approved, this authorization record is stored in your POS terminal (or processing software or electronic payment gateway) to be sent along with the rest of your day’s receipts in one batch to your processor. Of course, if you get back a decline code, you must go back to your customer to request another form of payment.

Now when it comes time to batch out your day’s receipts, you transmit all the stored authorization codes to your credit card processing company. They in turn sort the transactions and present them to each individual issuing bank for payment. Usually within the space of a 48-hour time period, the issuing bank sends the funds back to your credit card processor, and it’s deposited into your account, less the fees involved for the transaction. Meanwhile, the issuing bank bills the cardholder, who sees the charge on his next monthly statement. You get your money, the issuing bank gets their money, and your customer is still raving about your special of the day. Everyone’s happy.

Obviously, this is an abbreviated version of how batch processing works. Other information needs to be added to the stored transaction before it gets batched out, for example a tip for the server, which is added after the card has been approved.  But it helps to point out what an important step batch processing is in the overall scheme of credit card processing.

The Benefits vs. The Pitfalls

Of course, there both positives and the negatives associated with batch processing. Some merchants prefer to batch out their credit card transactions because:

1. It’s an automated process that is so convenient. Batching out can be done at the end of the business day when computers or phone lines are free, or you can automate your system so sales transactions are batched out at specific times during the business day.

2. Batching out makes it easy to go back and find a specific transaction. If a customer wants a refund on his purchase or has some other issue, you can find the transaction with a simple search of the batch number.

3. If you process recurring transactions, such as monthly service or subscription fees, you can set up a computer program that automatically sends a file to your processing company with all the information on the customers to be billed that month.

4. By sending credit card transactions in batches, instead of individually, there is less of a security risk. Fewer connections made to transfer credit card transaction to your processor during the day means less of a change your files could be compromised.
Batch processing fees can save you money over the cost of processing each transaction individually.

However, there are two major pitfalls when using batch processing:

1. If you forget to batch out at least once within a 24-hour period, your transactions could be subject to higher fees.

2. As we explained above, an authorization from the issuing bank for a credit card transaction is not the same as settling the transaction and starting the money transfer. It simply means at the time you swiped the card or keyed in your customer’s information, there was enough money in the account to cover your charge. If you batching out at the end of the day, you won’t know about any problems with the payment until the next day after the transactions are processed by the issuing bank. So you risk losing the profits from the sale if you can’t reach the customer and ask for another form of payment.

Is there a way to avoid this risk? Yes, by using a method called Real-Time processing. Real-Time processing is exactly what it sounds like: If the final amount of the sale is known at the time of processing, then all the data needed to get authorization for the credit card and the data to settle the transaction is sent to the issuing bank at one time. The issuing bank processes the charge and bills the cardholder immediately.

The way you choose to process your credit card transactions can depend on a lot of factors, for example: how much credit card business you do in a day, what kind of processing equipment or software you use, how much phone or internet access you have. But whether you have an e-commerce site, or you own a small business, or you run a large retail operation, you will find that batch processing can be the most efficient and cost effective way to process your daily credit card transaction.

How Can I Accept American Express Cards?

Each merchant account provider has what they call a default set of credit card brands they process. Most providers process Visa and MasterCard transactions, and many can also process Discover Card transactions. But it’s not common to find a merchant account provider who includes American Express transactions as part of their default set.

You have three choices if you want to be able to accept the American Express brand of credit cards as payment for your products or service:

1. Go directly to American Express and apply for their dedicated merchant account, and process all your American Express transactions directly through them.

2. When you’re looking for a merchant account provider, be sure to ask if they support American Express transactions as part of their default set. Some providers do, some providers don’t, and some providers will handle the application process to add American Express processing to your account with them.

3. Apply for a merchant account from American Express, then add that account number to your present merchant services account.

American Express sets their own transaction fees and, with little exception, these fees are the same for all credit card processors. If a merchant provider claims they can negotiate a rate with American Express, they are misleading you. Even if you choose to attach your American Express account to your current merchant provider account, you can expect a separate billing statement each month from American Express.

Which bring us to the question…

Why Do Merchants Choose Not To Accept AmEx?

The answer that always comes back is that American Express transaction processing fees are higher than any of the other credit card companies.

Yes, American Express rates are higher. But before you decide not to accept AmEx at your place of business, you need to look at the bigger picture. There are actually some real positives to having an American Express merchant provider account:

1. American Express does not tie you down to a long term service contract.

2. There is no early termination fee for canceling your account.

3. Most AmEx merchant accounts do not have an additional monthly fee, annual fee or monthly minimum fee. This is a big offset to the higher processing rates.

4.American Express offers a small business plan with a monthly flat rate fee for based on sales volume.

When you’re comparing credit card processing rates and fees, keep these two thoughts in mind:

There’s no monthly fee for your account when you do your processing directly through American Express. So what do you have to lose?

American Express has branded itself as the premium credit card network. Their advertising is geared to an affluent demographic and to business people. These cardholders tend to make larger, and more frequent purchases. Is this a market demographic your business can afford to overlook?

When you add these two factors into the total equation, you just may find that accepting American Express has its benefits.

Can I Accept Foreign Issued Credit Cards?

In short, yes. Once you have a merchant account, you can process credit cards from just about any issuing bank, regardless of where it is located.

Now for the long version. . .

Unless you have a business in a tourist area or operate an ecommerce business, chances are you’ll rarely have the need to process a foreign credit card. In those rare instances, your present credit card processor is able to handle transactions with cards carrying the logo of the major global credit card brands. Just be aware that these transactions are subject to higher transaction fees, including conversion fees or a cross border fee when a customer uses a credit card as payment for purchases or services from an issuing bank not located in the same country as your merchant processing account.

If you expect to process a large amount of international payments, it’s best that you include that information when applying for your merchant account. Processors have different rules and guidelines for accepting international transactions. Some won’t accept foreign transaction at all, while others will only accept a certain percentage of foreign transactions per month. And other processors will not accept recurring foreign transactions. It’s important to gauge your need for processing foreign transactions before you apply for your merchant account.

Most credit card processors include MasterCard and Visa as part of what is considered their default set of credit card brands that they can process. These brands are recognized and accepted around the world. However, there are other global card brands, and depending on where and what you sell, you may want to add these brands to your merchant account.

So you have your product or service, you have a merchant account, and your marketing is bringing in customers from all over the world. Now what?

Now you need to know your options for settling these transactions. In other words, these are your basic options for how you receive your proceeds from the sale:

1. Only accept payments and receive funds in your local currency.

2. Accept payment in the currency used by the issuing bank, but only receive funds in the currency used by your merchant account bank.

For Example: You own and operate a souvenir shop on the US side of the Niagara Falls. In such a popular tourist area, you may process hundreds of international credit card transactions in a month, along with your US dollar transactions. It’s for certain that you will process plenty of Canadian bank issued credit cards. But people from all over the world come to see the natural beauty of the falls and want to take home a little something to remember their trip.

One afternoon a couple from Rome, Italy, comes into your shop. They pick out two tee shirts for a total of $30.00, and pay for them with a credit card carrying the MasterCard logo, issued from their local bank. Here’s how your options work:

With option #1, the transaction is authorized in USD and you are paid in USD. When this couple gets home and checks their credit card statement, they will see the exact charge in USD and the equivalent in euros, along with the conversion rate at the time of the sale. They pay their credit card company the amount of the sale in euros plus the cost of conversion, and you get your $30.00 in USD. However you will pay a higher fee for this transaction, and a cross-border fee charged by the card brand.

With option #2, the transaction is authorized in euros, but settled in USD. This option can be a little more risky for the merchant because of fluctuating conversion rates. That $30.00 sale at a conversion rate of 1.5 would be €20.00. That’s what would be charged against your customer’s card. But what if the conversion rate drops to 1.3 before the transaction settles? €20.00 x 1.3 only nets you $26.00 on your original $30.00. You’d lose $4.00 on the sale, plus pay the higher transaction fees.

So why do merchants take the risk of authorizing charges in the currency of the issuing bank when they have to pay the conversion rate? People can better judge the value of an item in their own currency. By choosing to pay in euros, that couple knew exactly how much the tee shirts would cost them and decided they were worth the money.

There is another processing option available. International companies may choose to open merchant accounts in one or more foreign countries. By doing so, they can authorize and settle transactions in the currency of that country and use this money to pay business expenses incurred locally. When you consider that conversion rates fluctuate constantly, this can be quite the cost saver for a large, multi-national merchant.

Are There Obstacles To Accepting Foreign Issued Credit Cards?

Yes, the difference in technology. Europay, Mastercard and Visa have developed a technical standard for processing credit card payments that is being adopted around the world. This technology, called EMV, uses a chip embedded in the credit card that stores the cardholder’s information and personal identification method. In Europe and other countries around the world, on-line access is not always available, or affordable to merchants, so most credit card payment transactions are done off-line. These chip-embedded credit cards allow a merchant to verify card holder information right at their own point-of-purchase terminal. These point-of-purchase terminals operate different from the ones used to read the magnetic stripe found on the back of most credit cards issued in the US.

Although EMV technology has been a standard in other parts of the world for a number of years, to date it has not been widely used in the US. However, that is about to change. By October of 2015, merchants in the US must be prepared to accept chip-embedded credit cards. To be in compliance with this mandate, merchants are required to replace all their credit card payment terminals with new terminals that are EMV technology compatible. But until then, you may run into some problems trying to accept some foreign credit cards.

Once you understand the different ways to settle foreign credit card transactions, you will be better able to select the processing method that’s right for your business model. With this information in hand, you can find the credit card processor that best meets your needs.

What is a Merchant Account?

Are you a retail merchant selling your products in a physical store or on-line? Do you run a food service operation? Do you offer a repair service? Whatever your business, you’ll need to be prepared when your customer asks you that all-important question: “Do you take credit cards?” A merchant account is one part of the process that allows you to accept credit cards as payment for your products or service.

Picture credit card processing as a kind of pipeline that carries your customers’ funds from their credit cards to your bank account. That pipeline is built around three basic steps.

The first step begins with collecting your customer’s credit card information. How you do that depends on your business. If you’re a retail merchant with a physical store, you’ll probably opt to install terminals so your customers can swipe their credit cards for payment. If you’re an on-line merchant, you direct your customers to a payment page to capture their information in what is essentially a virtual terminal.

Service people working “in the field” can simply write down the credit card information and bring it back to the office for processing, although there are many options available today to capture credit card information on the go (Transparent can even provide you with mobile payment solutions!). However you collect your customer’s credit card information, this information is transmitted to a service for processing.

The second step in the processing pipeline occurs when your payment processor checks to see if the customer’s account is active and has the funds to cover the amount of the payment. Once the funds are verified, you get to the best step… step three: the processor charges the card and the “money” moves down the pipeline toward its goal of reaching your pocket!

And that’s where a merchant account comes in. Essentially, a merchant account is the place where the funds from your sale are deposited so you have access to them. Usually, that would be your company checking account. This link between the credit card company and your bank account is established by your credit card processing company.

But even before this flow of capital from your sale reaches your account, some of it is being siphoned off as fees for the service of moving these funds. Each time you process a credit card, there is a fee to the bank that issued your customer’s credit card; a fee to Visa, MasterCard or one of the other card “brands” available today; and a fee to your credit card processing company. Not that these fees are unwarranted…you can understand that there are costs incurred in this process of electronically transferring money from your customer’s account to your account.

What’s not so easy to understand is why some credit card processing companies charge different fees for the same service. Because credit card processing companies are performing the same service, why do some merchant processors charge significantly more than others? So before you choose a credit card processing company, carefully review the extra “service fees” you’re getting charged and make sure you’re only paying for the services you need at the best cost.

What is an On-Line Shopping Cart?

At its basic level, an on-line shopping cart is pretty self-explanatory: it’s the virtual version of the standard-issue metal grocery store shopping cart, that’s used by your on-line customers to “hold” their selected items until they’re ready to check out. But that’s where any similarity ends. An on-line shopping cart is a software application that guides your customer from browsing through to checkout, but it also provides you with a way to manage your stock, and handle payment and shipping transactions.

Shopping… you may or may not remember a time when it meant:

1. Your customers walked in the door of your store.
2. And depending on where you were located, they grabbed a shopping cart, buggy, basket, etc.
3. They walked up and down the aisles selecting items.
4. They pushed, pulled or carried the cart or basket to your checkout register.
5. Then paid for their items and left the store with a smile because they got everything they needed or they found the perfect _________________ (fill in the blank, i.e.: roast, dress, birthday gift, etc.), and it was a bargain because it was on sale!

But shopping has changed and so has the concept of the shopping cart. Most of today’s shoppers are very comfortable shopping on-line. They log onto their favorite website, search for the items they need, send them to the site’s virtual shopping cart, maybe take a minute to check out the virtual sale racks, and then proceed to checkout. From your customer’s standpoint, your shopping cart may seem like nothing more than a web form where they input their item selections and payment and shipping information. But as an on-line merchant, you need to understand all the options of a virtual shopping cart to help you choose the one that’s right for you.

Are All On-Line Shopping Carts The Same?

Technically there are 3 types. Many merchants build their own shopping carts if they are sophisticated enough. And, actually there are open source carts out there too but that may be getting too technical.

There are two different types of on-line shopping carts: Hosted or Licensed. If you choose a hosted on-line shopping cart, you are contracting with a hosting company to use their software and web host. You pay a monthly fee and essentially the hosting company does all the work of processing the sale for you.

With a licensed shopping cart, you pay a license fee and own the software. Once you set up the shopping cart on your site, it becomes an integral part of your site, and if you change web servers your shopping cart moves with you. This option gives you a wider range of choices to configure your shopping cart to better suit your needs, and to be sure you are making your customers’ shopping experience at your site as pleasant and as easy as possible.

Of course, there’s always the option to build your own shopping cart. But whether you’re researching searching for on-line shopping cart software, or you decide to build your own, consider the following:

• Is the cost proportionate to your sales? Do you maintain a large inventory list on your site and do you do a large number of sales each month that would justify the cost of buying your own on-line shopping cart software and managing it? Or do you do a limited amount of simple transactions a month on your site? If so it will probably be more cost effective to use a hosted on-line shopping cart.

• Does the software provide good customer service features? Can you track orders, can you capture customer information for future sales, can you accept gift cards, can you run sales reports, and review other site analytics? All of these options create a better selling experience for you and a better buying experience for your customer.

• Does the software provide any marketing tools to help increase your sales? For example, a wish list app lets customers store their favorite items to review again or to pass along to a friend or relative who’s shopping for a gift. How about upsell features?

• When your customer places an item in the shopping cart, can the software be programmed to identify and offer similar items to entice your customer to add to their order?

• Does the software include standard security features or do you have to integrate it with your site’s security options? This is important to protect you and your customers from credit card fraud.

• Is the software mobile friendly? More and more your customers are using their smartphone and other mobile devices to do their shopping while on the go. Your on-line shopping cart needs to be mobile friendly for your customers and easy for you to access and manage from your mobile device.

These are just a few of the questions you need to ask before deciding whether to use a licensed or hosted on-line shopping cart. Next to inventory, an on-line shopping cart is the most important component of your company’s website. Today, on-line shopping carts are more than just a place where your customers list the items they want to purchase. The right on-line shopping cart for you is the one that helps you best manage your on-line sales so you can spend your time managing your overall business.

What Is A Cross Border Fee?

A cross border fee is the fee charged to a merchant when a customer uses a credit card as payment for purchases or services from an issuing bank not located in the same country as the merchant’s processing account. Let’s see if we can make that a little easier to understand.

Say you run a deli in New York City and a tourist from Japan stops in to try your famous hot pastrami sandwich. If he pays for that sandwich using a credit card issued by a Japanese bank, you’ll be charged a cross border fee because the issuing bank for the tourist’s credit card is located in a different country from your merchant account. This fee is not the same as a currency conversion fee. It’s a separate fee that may be added to a currency exchange fee or may be charged even if no currency exchange takes place with an international sales transaction.

History of the Cross Border Fee

The internet has changed the way we all shop. We’re no longer limited to what our local stores have to offer for sale. Today we have access to thousands of stores around the world simply by logging onto the internet and browsing their websites.

Before 2005, there were no cross border fees. However, credit card processing companies charged a currency conversion fee to cover the extra costs incurred during an international transaction. But e-commerce merchants were sidestepping the currency conversion fee by using one of several solutions. Some companies used an acquiring bank that supported multi-currency processing. Others directed their foreign customers to local distributors who carried their merchandise for sale.

For example, if a shopper in the US found the perfect Irish knit sweater on a UK website, she might have been directed to go through a local distributor in the US to make her purchase. Then the purchase could be paid for using a credit card issued by a US bank, thus avoiding any conversion fee.

Since 2005, MasterCard and Visa have instituted the cross border fee whenever a merchant accepts an international credit card for payment. This fee is charged by the issuing bank and passed on to the merchant as an assessment for the use of the international credit card processing network whether or not there is a need for currency conversion to complete the transaction.

When Are Cross Border Fees Charged and How Much Are They?

When you process an international charge, the bank that issues the credit card used in the transaction checks for two things:

1. In what country was the credit card issued?
2. In what country is your merchant account located?

The issuing bank is looking to see if you are processing a transaction for a customer located in any other country than the country where you have your merchant account. At the time of writing, the fee schedule is as follows:

• If you bill an international customer in your currency, you will be accessed 0.40% (or 40 basis points).
• If you bill an international customer in their local currency, you will be accessed 0.80% (or 80 basis points).

So let’s go back to that Japanese tourist who enjoyed a pastrami sandwich in New York City. When that deli owner gets his monthly credit card processing statement he is going to see a line item labeled cross border fee or foreign transaction fee for 0.40% of his customer’s total check, because he billed an international customer in US dollars.

Are There Ways To Avoid The Cross Border Fee?

The answer to that question is “yes.” The solutions merchants employed to get around the currency exchange fees would work. Use an acquiring bank that supports multi-currency processing, or direct your customers to purchase your merchandise through your local distributors.

There’s another option as well. With the rapid growth of e-commerce, many larger retailers are registering a branch of their company in countries where they do a large volume of business. And what is gained by this legal maneuver? Well, say you operate a company in the US that does a lot of business in the UK. Once you register as a UK business, you can apply for a merchant account in the UK and accept locally issued credit cards for payment with no cross border fees to worry about.

Is this means of avoiding cross border fees really worth it? If you do a large volume of business outside of your own borders, cross border fees can add up. But balance that cost against the expense and pitfalls of setting up a foreign business entity before you make any business decisions.

Just as with any of the transaction fees that appear on your monthly credit card processing bill, it’s important to understand how and when cross border fees are charged. This understanding will help you control your costs and improve your bottom line.

What is AVS?

AVS stands for Address Verification System, an added level of credit card security provided by credit card issuers to detect suspicious credit card usage. Simply put, it’s a way for business owners to check if the person presenting a credit card as payment for your merchandise or services is actually the authorized cardholder.

This security check works to protect the cardholder as well as the merchant. As a consumer, you’ve been exposed to the Address Verification System for years. Think back to the last time you gassed up your car. You swiped your credit card and the system asked you for your zip code. If you pressed the right buttons and input the information correctly, the next screen you saw said “Authorizing”. But if you pressed just one wrong number on the keypad, the transaction abruptly ended. Granted, it can be time consuming to start the payment process all over again because of a mistyped number. But the protection benefits to the cardholder and the business owner certainly outweigh the annoyance factor.

With this system, a thief attempting to use a stolen credit card will need to have more information than just the credit card number and expiration date to use the card. Of course, no protocol is fool proof and that goes for the AVS. If a thief has access to a stolen credit card or credit card number, it’s certainly possible he has access to the card owner’s address as well. But this extra security filter has proven to be successful in identifying several different types of credit card fraud.

How AVS Works

At checkout, your customer is asked to provide the numeric portion of their billing address, in the form of their street address and zip code. This information may be keyed in, or in the case of an on-line purchase, it is taken from the billing information. During the purchase authorization process, this information is relayed to the issuing bank. If the information the cardholder provides matches the information on file at the issuing bank, the transaction continues. Note this does not mean the transaction is approved. Remember, the Address Verification System only verifies whether the person using the credit card to make a purchase has the authority to do so. There are other factors, i.e. the transaction puts the card over its limit that could trigger a “decline”.

But if the numbers don’t match, the issuing bank stops the process and relays an AVS response code and message to your credit card processing company. These response codes specifically detail how well the data that was submitted actually matched the information on file.

Here is a list of some of the AVS response codes that could trigger a decline:

• A : The street address matches, but the 5-digit zip code does not.
• B : Address information was not submitted in the transaction information, so AVS check could not be performed
• E : The AVS data provided is invalid, or AVS is not allowed for the card type submitted
• G : The credit card issuing bank is of non-US origin and does not support AVS
• N : Neither the street address nor the 5-digit zip code matches the address and zip code on file for the card
• U : Address information is not available for the customer’s credit card
• W : The 9-digit zip code matches, but the street address does not match
• Z: The first 5 digits of the zip code matches, but the street address does not match

A full list of AVS Response codes by credit card issuing brands is available (at the end of this article or in another section of the site). There is also a list of response codes specific to international payment transactions.

Understanding and Using the AVS Results

The results of an AVS check is based on how well the numeric data presented matched the information on file. If the address doesn’t match at all, the transaction will certainly be declined. And there are other responses, such as response code B: Address information was not submitted in the transaction information, so AVS check could not be performed that will also trigger an immediate decline by the issuing bank. These response codes are sent to your credit card processing company and indicate that the risk of fraudulent use is too high to continue the transaction with any degree of safety.

But as you read through the AVS response codes, you’ll see that these codes describe levels of accurate matches. Maybe the street address matches, but the zip code is off by one number. This discrepancy can often be explained. Sometimes it’s a simple matter of a slip of the finger during data input. Or maybe the cardholder’s zip code changed during a rezoning. There could be any number of legitimate reasons as to why the information provided isn’t an exact match to the information on the original credit card application. Should all mismatches be immediately denied? Not necessarily.

Once the response code is returned to you credit card processing company, these codes are processed through a filter you set up. For example, response code N: Neither the street address nor the 5-digit zip code matches the address and zip code on file for the card is a pretty good indication that the person presenting the card for payment is probably not the owner of the card and you should deny the transaction. But response code A: The street address matches, but the 5-digit zip code does not could have several valid reasons for the mismatch, especially if it is only one digit off. AVS filtering is done on each transaction that goes through your credit card processing company. This filter allows you to define the level of risk you are willing to take with credit card transactions.

Credit card fraud is theft and the cost to business owners, both small and large, can be substantial. Not only do you lose your merchandise, you lose your profit from the sale, and you’re also responsible for chargeback and other fees leveled by the credit card companies. And merchants who choose to accept credit cards without using an AVS check are also subject to higher merchant processing fees. So although you can’t prevent credit card fraud from ever happening to you, you can minimize the cost and headaches by taking advantage of this tool available to you.