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EcommerceBytes Letters to the Editor Letters to the Editor
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Sun Feb 20 2011 18:10:36

Moving Up to a Merchant Account - Reader Feedback

By: Ina Steiner
Sponsored Link
We received several letters commenting on Sunday's article, "Ecommerce Strategy: Moving Up to a Merchant Account," which you can read here.

To the Editor:
AuctionBytes' article encouraging small online sellers with sales of $750 - $1000 a month to sign up for merchant credit card accounts is VERY misleading. Even if a seller could save 1% of the fee on each transaction (NOT LIKELY TO HAPPEN unless you have an enormous volume of monthly transactions with a high average transaction amount), the "savings" would be $7.50 a month on $750 of sales. That doesn't begin to pay even the monthly charge for a merchant account, which is typically $25 - $30 (to say nothing of all the add-on fees).

Clearly, even if the total merchant account fees were 1% less than those of Paypal, you would have to have consistent volume in excess of $2500 - $3000 before you'd have any savings at all from using the merchant account.

Of significant concern are the add-on fees (statement fees and many others) that are added to the basic fees charged for merchant accounts. When you have a merchant account, your monthly statement is full of fees with strange names that add up to a significant amount. I believe it would be a challenge to find a merchant processor with overall fees (i.e., ALL fees added together) that are as low as Paypal's business user fees.

Total fees depend on the percentage you pay on the total amount of the transaction as well as on the size of your individual transactions. If you have a lot of small transactions (with ANY processor), your fees are going to be a very high percentage of the transaction amount because (regardless of the percentage you pay on the total amount of the transaction), you're going to be paying a set additional amount per transaction.

Example: If you have 2.9% fee and have a single $100 transaction, you will incur a $2.90 fee plus one per-transaction fee of usually somewhere in the $.30 range. Your total cost for taking a charge on that transaction is 3.2% ($2.90 + $.30 = $3.20). If instead, you have 10 transactions of $10 each, you pay the same $2.90 fee but you also pay 10 per-transaction fees of $.30 each or $3.00 for a total of $5.90 so that the cost of taking charges for those 10 transactions totaling $100 is now 5.9%. The larger the number of small transactions you have, the higher your actual credit cost is going to be and the more important the exact amount of your per-transaction charge is going to be.

And, worst of all, this article ignores Paypal's seller protection, which is unique in the credit card industry. IF YOU FOLLOW PAYPAL'S RULES (plainly stated on their site), a merchant has a great deal of protection against customers who try to claim nonreceipt and other scams. There is no (AND I MEAN NO) comparable protection with merchant accounts.

Just as with Paypal, you could use a merchant account for several years and never have need of this protection, but when you have a transaction go wrong, you quickly learn that the processor does not in any way stand behind the merchant. The customer is always right.

The one merchant quoted in the article cites worries about Paypal's buyer protection. Merchant accounts also have "buyer protection". It is, simply stated, "the customer is always right unless the merchant can prove otherwise beyond a shadow of a doubt".

The difference between Paypal's approach and that of companies offering merchant account is that Paypal's rules are written down and a seller can contact them by phone and by email. With a merchant account, the seller has no rules to refer to and is often subject to incredibly tight timeframes in which to produce documentation.

When I had a brick and mortar store, a merchant account was a necessity, and I feel sure it still is for in-person merchants. Our monthly credit card fees were consistently about 5% of the credit card transaction total. I did considerable research before going with Costco's processor (a different one from the one they currently offer as this was 10 years ago).

As an online-only merchant I wouldn't have a merchant account again unless Paypal either raised its fees sharply or changed its seller protection rules significantly.

Carol
(an active eBay/Etsy/website seller with no employees and sales in the $8000 per month range)

***

To the Editor:
AuctionBytes' recent article concerning moving up to a credit card merchant account is a good primer save the section on PCI DSS compliance. As a PCI DSS Qualified Security Assessor (QSA), I can tell you that there are two fundamental errors in the article.

The first error speaks to the largely misunderstood notion of compliance to begin with. In Mr. Holden's piece, he mistakenly states, "PCI DSS stands for Payment Card Industry Data Security Standard, a set of requirements governing credit card transactions." PCI DSS is a security standard designed to secure a merchant environment - not a set of transactions. Though information and network security will govern the protection of data in motion, it is only one part of a holistic approach to securing an environment.

The second error in the article stems from the following statement, "The good news is that if you sign up with a marketplace like TIAS.com, you "inherit" their PCI compliance so you don't have to worry about this." This is just flat out wrong. A merchant never inherits the PCI DSS compliance of one of their vendors.

If you accept credit cards, there are requirements you must meet outside any work that your vendors have undertaken. There also could be significant security measures that you (as a merchant) may need to implement depending on factors such as:

1. Whether you accept credit cards in more than one way
2. The type of connectivity you have into your environment
3. If you store cardholder data after authorization
4. What type of data you are receiving from your vendors and how it is distributed to you

I understand that PCI DSS can be a tricky subject for newcomers and daunting for others as well, but we must ensure that we don't gloss over the depth and breadth of the standard.

At its core, PCI DSS helps protect merchants against a data breach-which can become an extremely expensive event. I highly suggest that anyone considering a credit card merchant account fully investigate the processing method being proposed and seek out the advice of a security professional (and preferably a QSA at that!) to understand how it will impact their business.
Greg Rosenberg CISA QSA
Security Engineer
Trustwave




Comments (29) | Permalink
Readers Comments

Moving Up to a Merchant Account - Reader Feedback   Moving Up to a Merchant Account - Reader Feedback
by: Digby
       Web Site
Sun Feb 20 18:54:28 2011
I agree with the first letter.

You would need to have a good regular business before it was financially viable to sign up for a Merchant account.

But what we do need to know is if you would get more sales because you offered Credit Card payments rather than just say Paypal.


Wodul you sell 20% more, 50% more, the same, or twice as much ?

Has anyone any figure son that ?
Moving Up to a Merchant Account - Reader Feedback   Moving Up to a Merchant Account - Reader Feedback
by: Average Bowler
       
Sun Feb 20 21:18:53 2011
Non-ebay ecommerce sites that have ''paypal only'' as their payment option look shady to me. Although they could be entirely legitimate and honest merchants, it just has that digital aroma of scam sites, fly-by-night sites, here-today-gone-tomorrow sites, on-a-shoestring startup, amateur-night-at-the-webstore, etc.

The extra effort required and all the extra hoops, expenses, setup and other qualifications that are needed when an online seller has a legitimate merchant account account gives me a little bit more confidence about their abilities, and their professionalism.
Moving Up to a Merchant Account - Reader Feedback   Moving Up to a Merchant Account - Reader Feedback
by: buck efay
       
Sun Feb 20 23:04:15 2011
I don't know if you'd sell more accepting credit cards, but from personal experience, offering Google Checkout in addition to paypal has grown my sales quite a bit in the few months I have had it. Google now sends me traffic & sales, something Paypal has never ever done. Plus a lot of people burned by paypal will NEVER use it again. My volume doesn't warrant a merchant account, IMHO, even if my bank keeps trying to sell me an account.

Carol: Please show me where Paypal's rules are written down. Your letter sounds like a paypal ad. Anyone that has dealt with them KNOWS the only rule they follow is shift the blame & try not to pay claims!
Moving Up to a Merchant Account - Reader Feedback   Moving Up to a Merchant Account - Reader Feedback
by: Rick1313
       
Mon Feb 21 01:01:40 2011
If you ask ten sellers to make a list about their order of payment preferences, you would probably get ten different looking lists.

Everyone has their own way of determining what electronic services best serves them.

Cheapest does not necessarily mean the best. Other factors, UA's/policies, seller protection programs etc. may have one seller willing to go with a more expensive payment processor. The extra cost will just be figured into the cost of the items they are selling. If you are selling quite a bit, the extra cost to your buyers may be very low. The seller (while nothing is a 100% sure thing) is working in a better frame of mind than the stress that can be associated with the cheaper service.

One thing must be noted with using merchant credit cards on an eBay selling site. The cc's go through a gateway (Payflow) that still has the seller being under PayPal's UA thumb.

Now, on to Carol's letter...

''IF YOU FOLLOW PAYPAL'S RULES (plainly stated on their site),...'' (high caps yours)...and then you go on about how a seller is better protected with these rules than with other payment processors.

Ah!...how can I be diplomatic about that paragraph of yours? Hmmmm!....well, let's see...

1) Why is it that PayPal (in fact, all of eBay,inc.) does not require buyer to aide seller in opening an insurance case, if buyer is stating that he/she received a damaged package? How does that protect the seller?

2. Explain Section 11.5 (plainly stated on their site) that has seller at fault, and not buyer, for buyer not having a correct ship-to-address (re-directed mail)? I've opened a small claims court case on that clause as PayPal refuses to put in writing the contradiction of stating that a seller must ship to the address supplied by buyer, yet blames seller if buyer has mail re-directed to another address. If seller does not allow package to be re-directed (PayPal's requirement to maintain seller protection) then package is returned and buyer can open an INR dispute. It's a lose/lose clause for sellers that PayPal implemented last year. How does this clause protect the seller?

3) Why does PayPal require seller to take them to court (plainly stated on their site) to find out how they ''defended'' a chargeback, when PayPal is actually defending themselves as the credit card company holds PayPal, not the seller, responsible for the transaction? How is seller protected by this clause?

4) Buyer, for SNAD, just has to show a delivery confirmation number to have their purchased refunded (plainly stated on their site). If seller tells PayPal/eBay,inc. that buyer did not send back the item in question, PayPal/eBay,inc. still refunds and tells seller to take it up with the police. How is this policy protecting the seller?

I could go on, but it is bedtime.

Nite all!
Moving Up to a Merchant Account - Reader Feedback   Moving Up to a Merchant Account - Reader Feedback
This user has validated their user name. by: Philip Cohen
       
Mon Feb 21 05:08:59 2011
“And, worst of all, this article ignores Paypal’s seller protection, which is unique in the credit card industry. IF YOU FOLLOW PAYPAL’S RULES (plainly stated on their site), a merchant has a great deal of protection against customers who try to claim nonreceipt and other scams. There is no (AND I MEAN NO) comparable protection with merchant accounts.”

“The difference between Paypal’s approach and that of companies offering merchant account is that Paypal’s rules are written down and a seller can contact them by phone and by email. With a merchant account, the seller has no rules to refer to and is often subject to incredibly tight timeframes in which to produce documentation.”

What a load of disingenuous, unadulterated nonsense these two statements are; “Carol” surely has to be a (very unprofessional) PayPal shill, or she is simply a fool.

eBay/PayPal/Donahoe: Dead Men Walking.
Moving Up to a Merchant Account - Reader Feedback   Moving Up to a Merchant Account - Reader Feedback
by: Linda Winkens
       Web Site
Mon Feb 21 05:33:04 2011
I have my site hosted by TIAS from 1997 until the present and have no plans to ever leave them.  I used to take PayPal, checks and money orders but a lot of my customers felt uncomfortable with PayPal and kept requesting that we take credit cards directly.  I finally signed up for a merchant account about 17 months ago and even in this bad economy, we had our best year ever this past year.  In October of 2010 I even removed PayPal as one of our accepted payment methods because of the way they now treat sellers.  The buyer is NOT always right.  Linda at Relics
Moving Up to a Merchant Account - Reader Feedback   Moving Up to a Merchant Account - Reader Feedback
by: annie
       
Mon Feb 21 05:33:46 2011
My sales increased when I added a merchant account and the statements that the account is costly are untrue. I pay less using my merchant account then the transactions I accept through paypal or google checkout. I offer my customers as much choice as possible in regards to payment methods. Just about any person you ask would rather use their credit card vs using a payment service, I actually did a survey before adding a merchant account and that was the result. You know Paypal never completely deletes any card information once you give it to them, it is always retained on file somewhere in their data bank.
If one shops around you can get a good merchant account at a very low cost and process through a major bank.  Above author is also wrong about the PCI compliance, any site that is PCI compliant will provide their sellers with a copy of such report that can be submitted and will be accepted by the processing company on a yearly basis even though said report is normally run quarterly on PCI compliant sites.
Adding a merchant account gives your site credibility and boosts sales. Smaller sites like Artfire, Etsy, Bonanza and Ecrater are missing lots of dollars by not have a merchant account capibility.
Moving Up to a Merchant Account - Reader Feedback   Moving Up to a Merchant Account - Reader Feedback
by: Tired of PayPal Shills
       
Mon Feb 21 06:00:35 2011
Carol PayPal Shill - Clearly, even if the total merchant account fees were 1% less than those of Paypal, you would have to have consistent volume in excess of $2500 - $3000 before you'd have any savings at all from using the merchant account.

Carol PayPal Shill - (an active eBay/Etsy/website seller with no employees and sales in the $8000 per month range)

We're supposed to believe ''Carol'' with sales in excess of $8000 per month, goes with more expensive PayPal instead of saving money with a merchant account??

PLUEEZE.
Moving Up to a Merchant Account - Reader Feedback   Moving Up to a Merchant Account - Reader Feedback
by: Carol
       
Mon Feb 21 08:27:17 2011
It didn’t take long for the ebay/paypal haters to react to my post and call me both a fool and a paypal shill.  I am neither – just a hardworking individual seller who approaches all aspects of my business in what I hope is a thoughtful, analytical way.  

I share my experience because I appreciate it when others share theirs.  That’s one way a rational person learns.  It’s too bad that there those who are so bitter about their online selling experience that they feel that anyone citing the value of paypal is somehow the enemy.

I hope those who are sure that merchant accounts are cheaper than paypal will try one (or several) and post the results.  If I could save money on a credit card processing while not giving up the seller protection that paypal offers, I’d be first in line to sign up.  My experience with a merchant account in my brick and mortar store AND the research I’ve done each time I’ve heard about specific low-cost merchant accounts hasn’t tempted me to switch yet – based solely on cost and seller protection.

Selling successfully online is not easy.  On top of locating the right product that you can offer at an attractive price and assuring that you cover the customer service bases, it takes constant work to determine how to minimize your chances of being taken to the cleaners by unscrupulous buyers.  I am extremely grateful that paypal offers me protection against buyers who would happily steal merchandise if they could.  

You CANNOT eliminate normal business overhead (which includes selling fees and credit card processing charges), but you can be sure that you’re making the best choices to give you the combination of low cost and security that makes you comfortable.

For anyone interested in studying paypal's seller protection rules, they can be found by clicking the ''security center'' button and then section 11 of the user agreement, found here:
https://cms.paypal.com/us/cgi-bin/?cmd=_render-content&conten
t_ID=ua/UserAgreement_full#11.%20Protection%20for%20Sellers.
Moving Up to a Merchant Account - Reader Feedback   Moving Up to a Merchant Account - Reader Feedback
by: Pinky Blue
       
Mon Feb 21 09:58:24 2011
What is this ''seller protection'' you keep mentioning, Carol? You keep using this phrase. I do not think you know what it means.

I am so glad that others are talking about elavon. I'm a costco user too, and every month, I receive a statement from elavon. Just for giggles and my own entertainment, I do some quick spreadsheet manipulation to calculate what it !WOULD HAVE! cost me with Pyapal.

!INCLUDING! all fees, I am saving compared to PP. (BTW & FYI: costco executive members have themonthly service fee waived!!!)

In other words:

I pay LESS!
It doesn't cost as much.
Paypal costs more.
Paypal is more expensive.
Elavon is less.
I save.
I earn more.
Your facts are wrong.

In fairness, merchanta ccounts are nt for everyone. If someone isa low volume seller then the minimums and fees will eat up any initial savings.

OTOH: My volume is sufficient enough and my avg transaction is large enough (or small enough depending on whose doing the calcualation) that I start to reailize savings at about the $500 mark.

The rosy picture you paint for pyapal is not as loveley as you would have us believe. I realize its your job to do this, but the story you tell is a radical departure from reality.
Moving Up to a Merchant Account - Reader Feedback   Moving Up to a Merchant Account - Reader Feedback
by: Rick1313
       
Mon Feb 21 10:43:50 2011
I notice that Carol refused to answer my questions, while still praising Paypal's seller protection.

Makes no matter to me whether the poster is a PayPal shill or not. I just like to see her backup up her opinions and explain how, with what I asked in my previous above post, this can be considered great seller protection by PayPal.
Moving Up to a Merchant Account - Reader Feedback   Moving Up to a Merchant Account - Reader Feedback
This user has validated their user name. by: DonC
       Web Site
Mon Feb 21 12:13:01 2011
Don't put all of your eggs in one basket.

I used PayPal to process my credit card transactions for my On-line store and eBay. All went well for a year. Then out of the blue PayPal locked all my funds over a $15
charge that I didn't owe.

My advice; use a different credit card processor in addition to PayPal.

If you are interested here's a link to my tale of woe: http://whyebaysux.blogspot.com/
Moving Up to a Merchant Account - Reader Feedback   Moving Up to a Merchant Account - Reader Feedback
by: Debbie D.
       
Mon Feb 21 12:51:13 2011
''Don't put all of your eggs in one basket.''

Good advice!

''Then out of the blue PayPal locked all my funds over a $15 charge that I didn't owe.''

The underlying reason for this type of behavior is due to the fact that PayPal is the PREFERRED payment source for fraudulent activities. PayPal (in their ''wisdom'') realizes this (to some extent) and whenever there's the slightest hiccup (that someone is aware of) it's automatically assumed that the account MUST BE LOCKED IMMEDIATELY... and for an INDEFINITE PERIOD of time.

In addition, rather than doing their own investigation to determine what the problem may be, they rely on the account holder to prove their innocence. (Guilty until proven innocent.)

Of course, this type of overreaction would not be necessary if PayPal would just do a little bit of work UP FRONT to weed-out the fraudulent users, and if they would stop treating EVERYONE as a suspect.

If they would just use some common-sense techniques to deter fraud BEFORE IT HAPPENS, then for the occasional hiccup, they would not immediately fly into an IRRATIONAL PANIC and assume the worst.

The phrase ''PayPal Sucks'' is not just something to be dismissed as coming from malcontents on the fringe.
Moving Up to a Merchant Account - Reader Feedback   Moving Up to a Merchant Account - Reader Feedback
by: buck efay
       
Mon Feb 21 14:46:57 2011
Carol, kindlyn provide Ina with your selling info so she can verify for us you are not a Paypal shill as you appear to be. Ina can tell us that you are for real & you won't expose your accounts, if you are for real.WHICH I HIGHLY DOUBT. Anyone doing that kind of volume thru paypal has been ROBBED many times.

Every seller knows that if a paypal dispute is opened, they will lose. NO SELLER PROTECTION AT ALL. And the only time a buyer is made completely whole is on a Ebay sale, otherwise they will really have to work for a refund. Not how reputable companies handle it. In a CC dispute, they don't hold your money & earn interest while trying to figure out how to pass the blame & not pay anyone.
Moving Up to a Merchant Account - Reader Feedback   Moving Up to a Merchant Account - Reader Feedback
This user has validated their user name. by: Philip Cohen
       Web Site
Mon Feb 21 15:12:33 2011
@Carol,

“… while not giving up the seller protection that paypal offers,”

If you aren’t a PayPal shill nor a fool then you must be living on some other planet. Obviously, you have not yet experienced PayPal’s hard-wired bias towards buyers. Sellers have absolutely no protection from PayPal. I am an eBay buyer not a seller, and even I know that PayPal’s transaction mediation is effectively non existent except for a primitive computer algorithm that ultimately favors buyers. You should try reading all the internet blogs on the evils of PayPal’s unscrupulous business practices. Or you could simply come back down to planet Earth.

The major credit card processors have a perfectly fair and effective transaction mediation process; as a merchant over eight years I had used the process once (successfully) when an idiot buyer tried to do an unjustifiable charge back, and again as a buyer when I did not receive goods that I had ordered online. Both times I actually got to talk to a human being on the phone immediately: try to do that with PayPal and see how far you get.

eBay/PayPal/Donahoe: Dead Men Walking.
Moving Up to a Merchant Account - Reader Feedback   Moving Up to a Merchant Account - Reader Feedback
by: Buck Efay!
       
Mon Feb 21 17:30:18 2011
Plus Credit cards DO NOT allow endless chargebacks & claims. They ACTUALLY do have the "sophisticated fraud analysis systems" Paypal claims they have (but never use). And of course, Credit card users CANNOT get a CC with clearly fraudulent data, like on Ebay, where any boob with a prepaid card & an address like 123 main st anytown USA 54637, phone 1234567890 can become aq "trusted member of the Ebay community".
Moving Up to a Merchant Account - Reader Feedback   Moving Up to a Merchant Account - Reader Feedback
This user has validated their user name. by: Ming the Merciless
       
Mon Feb 21 17:59:27 2011
Carol:

Following PayPal's rules means nothing.

There is NO meaningful seller "protection" policy.

But there are two other types of PayPal "protection:" policies:

1. The PayPal protection policy whose fine print and curious itnerpretation of the user agreement protects PayPal from losing money under virtually any circumstances.

2. The buyer protection policy which protects those committing mail fraud wqhich is an imprisonable federal offense.
Moving Up to a Merchant Account - Reader Feedback   Moving Up to a Merchant Account - Reader Feedback
by: Rick1313
       
Tue Feb 22 00:08:19 2011
In conjunction with the bad faith Section 11.5 of PayPal's UA site literature, nowhere in the UA does eBay state that buyer has to supply correct mailing address to seller and that buyer protection is lost if buyer supplied incorrect mailing address.

One must ask why it is so? I believe it has to do with PayPal's liability to the credit card companies. Remember, PayPal is liable to the credit card companies and has to ''ship to'' the address that buyer supplied with payment to PayPal (not seller).

The cc companies do not give a hoot what mailing address that buyer has registered on PayPal.

This is information that PayPal is not letting sellers know about (when signing up and thereafter) and then talk about (as Carol does) how ''safe and secure'' their payment system is for sellers.

PayPal is transferring their liability to the cc companies to the sellers but do not want to put that in writing anywhere on their site literature.

Is this working in good faith with their users?
Moving Up to a Merchant Account - Reader Feedback   Moving Up to a Merchant Account - Reader Feedback
by: Rick1313
       
Tue Feb 22 00:11:46 2011
Yet another correction (sort of)...

''...nowhere in the UA does eBay state...'' should read....

''...nowhere in the PayPal UA does eBay,inc. state...''
Moving Up to a Merchant Account - Reader Feedback   Moving Up to a Merchant Account - Reader Feedback
This user has validated their user name. by: Philip Cohen
       Web Site
Wed Feb 23 03:53:17 2011
"PayPal Resolves Dispute In Your Favor By Draining Your Checking Account"

http://consumerist.com/2011/02/paypal-resolves-dispute-in-your-fav
or-by-draining-your-checking-account.html

Oh,
come on, who would believe it? I would.

eBay/PayPal/Donahoe: Dead Men Walking.
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