Online Payment Processing

Brent S. Hoffmann Comments
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Online payment processing is supposed to be easy, right? But recent modifications to rules and regulations by credit-card companies have caused confusion about what merchants can and can’t do. Navigating the dos and don’ts may not be easy, but being able to accept credit-card payments online without having to pay the interchange rate is a real business advantage. Just make sure you understand the guidelines and how to choose the best payment-processing vendor for your needs.

Let’s start by getting the technical jargon out of the way. Below is a list of some rules and regulations governing electronic credit-card payments and an explanation of how they affect your business. Each rule impacts the way the processor, merchant and customer interact before, during and after a payment. When searching for payment processor, you should know how the candidates will handle your transactions. Rule violations can lead to a forfeiture of service, delayed service and fines to the processor.

1. Your electronic payment option must include a bona fide convenience. The fee for the payment must be disclosed to the cardholder as a charge for the convenience, not use of his card.

The alternate payment method, i.e., paying online via credit card, is not the “convenience.” The convenience is the ability to pay rent any time of day, any day of the year. The convenience may also include the ability for customers to print payment receipts and histories off your website. In either case, any fee you charge the customer must be identified as a fee for the convenience you offer, not use of his credit card.

2. The payment option must be in a nonpersonal environment.

The online payment method cannot also be offered as an onsite payment option. If the customer is conducting business with you face-to-face, he should not have to pay a convenience fee.

3. The convenience fee must be flat or fixed, regardless of the amount of the goods or services purchased.

Charging a convenience fee is acceptable, but it has to be flat, not based on a percentage of sales or a tier structure. A typical fee ranges between $3 and $5 per transaction.

4. The convenience fee must apply to all forms of payment accepted: ACH debit (electronic checks), Visa, Master Card, American Express and all other payment cards.

If you offer ACH and debit/credit-card processing, the fee charged to the customer must be the same for both. It is not acceptable to charge a $1 fee for ACH transactions and $3 for debit/credit-cards.

5. The convenience fee must be disclosed to the customer before completion of the transaction, and he must be given the opportunity to cancel if he doesn’t want to pay the fee.

It’s important that your online payment provider label convenience fees as such. It should show the customer the total payment before the transaction is complete so he is clear about the exact amount and the fact a convenience fee is being applied. The customer must also have the ability to cancel the transaction if he doesn’t agree with the fee.

6. The transaction must reflect the amount including the convenience fee. The fee may not be submitted as a separate transaction.

When a payment processor submits a payment to the credit-card companies, it must be for the total dollar amount including the convenience fee. For example, instead of submitting an $85 transaction for rent and a $3 transaction for the convenience fee, you must submit an $88 transaction for both.

Moving Forward

Now that you understand the basics of how online payments work, let’s look at other important factors involved in accepting online payments. First, consider some of the benefits: quicker nonsufficient-funds notification, recurring billing and cost savings. Recent government studies as well as studies conducted by Visa U.S.A. Inc. show a business spends between $2.38 and $10 to process each paper-based check that enters its office. With some online processors offering sub-$1 ACH payments, the savings are obvious.

For your online-payment program to be successful, those working with the service from inside your business must adopt and accept it. Employees must understand how to use the service, why your company has implemented it and all the benefits it entails. The program’s success depends on your staff’s ability to market online payment options to customers.

You must also understand the needs of your company. Many different providers can process your payments, but each offers a range of services that complement the overall solution. Things to consider when evaluating a processing company include its length of time in the business, ability to integrate with your website and management software, ACH and debit/credit-card processing, and whether it offers an account-management center to tie it all together.

The company should also have a strict security protocol to ensure the integrity of its processing system and your payment transactions. Too many business owners look only at the front end of a system (how transactions are initiated) and not the back end (how transactions are completed). Since everybody runs their operation differently, it’s important to work with a vendor that can easily adapt to the structure of your organization.

Online payments are here to stay. With more and more companies offering electronic options, the service has changed from a “nice to have” to a “need to have” solution. Adopting a payment engine that will meet your current demands and grow with your business can only contribute to your overall success. Companies that offer online payment processing now will be light-years ahead of companies that wait.

Brent Hoffmann is the vice president of sales for Payment Service Network (PSN). PSN provides checking/savings account and debit/credit-card processing to self-storage and multifamily-housing clients. For more information, call 877.390.7368; e-mail bhoffmann@paymentservicenetwork.com; visit www.paymentservicenetwork.com.

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