There are cases where it’s to your advantage to act as your own merchant of record. But there are also cases where accepting the responsibility of being the merchant of record has many disadvantages.

Going It Alone

Myth: It’s relatively easy to open a merchant account with an acquiring bank and install a payment gateway. Fact: The process for acquiring the ability to process even simple credit card transactions in just your local currency involves a lot of time and effort and maintenance. Banks must conduct financial audits, risk analyses, and investigations into what products you sell and what your chargeback rate will likely be. All these aspects influence the price and rate you receive on your gateway fee.

On top of the time, money and effort of getting up and running with simple credit cards in your domestic currency, there is also maintenance work to worry about. You need to make sure your customer and payment data is secure, that you’re collecting and remitting sales tax where it’s necessary to do so, that you’re handling customer questions about billing, managing refund requests and dealing with chargebacks. All of these things involve huge costs in the form of overhead and operational inefficiencies to your business.

The Difficulty of Going Global as Your Own Merchant of Record

If your business is growing beyond your domestic borders, being your own MoR in those cross-border regions gets even more difficult. To build a truly global payment infrastructure you have to deal with acquirers, not just once, but all over the globe with different rates for different currencies. And you need backups in place in case one goes down. I mean, how would you feel if you lost even just a few hours of orders?

From a MoR perspective, you’d have to set up all your international merchant accounts if you want to grow your global customer base. You need to handle payment contracts, not just for payment methods, but for currencies too. In fact, you need to sign contracts for each currency you want to offer your international customers. And because the typical software vendor does not process even close to the transaction volume that ecommerce providers do, the payment rates and fees for software companies will be much greater than if they found a reseller to act as MoR on their behalf.

Taxes

Your work doesn’t end once you sign all the contracts for offering payment methods and currencies to your global customers. So even if you are the MoR, you still have a lot of work to do before you can succeed globally. This is the part that many businesses don’t think about. The sales tax laws have been changing very rapidly around the world, and this is one the biggest challenges for digital goods companies. In the U.S., each state makes its own tax laws. Then each county. Then each city. Knowing what sales tax to apply to each transaction is very challenging.

That’s just the challenge of collection. Once you calculate and collect, how do you remit? You need to file for each jurisdiction and there are lots of opportunities to make mistakes. Now multiply that for different states where you have a tax nexus, economic or otherwise. And what do you do when you’re selling to German and Japanese customers? Or Aussies? Now what about Brexit? Gotta keep up!

Reconciliation

Acting as your own merchant of record also places a huge burden on your Finance department. For example, if you’re a software company and you get your gateway and merchant account for U.S. dollar transactions with VISA and MasterCard with one acquirer, you’ll need to reconcile your receivables at one rate with that acquirer and at a different rate with the acquirer you use to process Discover transactions.

What happens is that along with receiving your money into your merchant account, you get a long list of transactions. Then you have to reconcile the payments with the transactions. This presents an opportunity to really mess up your ledger, because you have to reconcile your payment from the acquirer according to every rate based on the type of credit card your customers use.

Ecommerce providers who act as resellers on your behalf will do all the reconciling for you as a MoR. All you have to do is wait for the cash in your accounts. Without that expertise, you have to spend lots of time and resources trying to see what you pay per transaction.

MoR is Key to Customer Experience

So why does any of this matter? Well, if you want to expand your business globally, and you want to provide those global customers with superior customer experiences (these are both excellent goals, btw), executing on MoR is key. The challenge is that most businesses simply don’t have the expertise to do that. And even if they had that expertise, they don’t necessarily have the development, business operations or financial resources to bring that expertise to life.

That’s where ecommerce providers and resellers come in. Resellers assume the entire burden of opening up merchant accounts, installing payment gateways, signing contracts for all the payment methods and currencies you need to accommodate global customers. They also assume responsibility for managing tax collection and remittance, maintaining data security, and reconciling your financials, leaving you to develop better products and a better business.

Without this infrastructure in place (and it takes a long time to get it in place when you’re on your own), your chances of growing global revenues are slim. More likely, you’ll be offering the wrong customer experience, many valid transactions will be declined by the card issuers, your conversion rates will go down, and your transaction fees will go up.

Keystone

What’s important to you? Is it to have cost certainty? To expand globally quickly in a compliant way? Or is it important for you to devote resources to doing it yourself?

If your goal is to expand into other markets, doing it as your own merchant of record means diverting resources from your product innovation and customer acquisition efforts.

Looking to acquire global customers and grow you global revenue streams? Reach out to cleverbridge today!

The post The Difficulty of Being a Merchant of Record appeared first on cleverbridge.

Online sales are an important opportunity for growth. Online merchants face a number of technical hurdles that they’ll need to confront in order to accept payments from their customers over the Internet. The more you understand the complexities of accepting payments online, the better you can steer your company to the best payment solution for you.

In this article we’ll cover some of the basics of online payments, shopping carts, payment gateways, and some helpful tips on how to choose your merchant account provider.

How Do Online Credit Card Payments Work?

In order to accept payments online, a business needs three key elements: a shopping cart, a payment gateway and a merchant account. Businesses can work with a single merchant account provider to set up their cart, gateway and merchant account, or may contract with separate providers for each feature independently.

A shopping cart allows customers to verify the items they want, and to enter payment and personal information. Once they enter their credit card information in the company’s shopping cart, that information is immediately received by the payment gateway. The gateway verifies the payment data and transfers this information from the merchant bank to the issuing bank or processor over a secure and encrypted Internet connection. This process assigns the business’s merchant account ID to the transaction, crediting the sale to them so that they ultimately receive payment.

What Is a Payment Gateway?

Aside from having a shopping cart, a business that wishes to take payments online must also have a payment gateway integrated with their cart. The payment gateway is a stand-alone piece of software that serves as a secure link between a company’s website, its merchant account and a customer’s issuing bank. Typically, a merchant account provider will deliver the merchant a payment gateway, but merchants with very specific needs may obtain one independently from a payment gateway developer. However, most merchant account providers offer an array of integration options for shopping cart software that will meet a company’s specific needs.

What Is a Merchant Account?

In order for a retailer to offer credit card processing options to their customers, they cannot simply obtain a contract with card issuers directly. Rather, they must obtain a merchant account with a merchant account provider. Since the credit card companies do not contract directly with merchants, a merchant account provider acts as a middleman connecting a business to the credit card companies.

Once a business has contracted with a merchant account provider, who in turn has a contract with the credit card issuers, the merchant can begin accepting payments by credit and debit cards. There are several merchant account providers out there to suit a given businesses’ processing needs, but most attempt to distinguish themselves by offering unique features or underwriting guidelines. So before seeking out a merchant account provider, a business should first determine its specific needs.

Factors may include how a business plans on accepting credit cards (e.g. point of sale, mobile phone or tablet, phone order, or ecommerce), which types are credit card brands a business plans to accept (e.g. MasterCard, Visa, Discovery, Amex, etc.), and if a business requires additional processing features such as online processing gateways, accounting software integration, gift card processing or chargeback prevention packages.

How Do I Choose a Merchant Account Provider?

Merchant account providers tend to distinguish themselves in three ways: the types of payment gateway integration they provide, variety of payment options available, and the security features they support.

There are a few types of payment gateway integrations to choose from. The two most popular types are known as direct integration and third party payment processing. Direct integration seamlessly integrates a businesses’ shopping cart with the payment processor. This means that customers stay on the same website for their entire transaction. The fees for this option are slightly higher, but is preferred by most merchants because of the seamless checkout process it offers customers.

With third party payment processing, the customer is directed to the payment processor’s website to complete their order. Once the payment is approved, the customer is then automatically returned to the company’s website. Though this option tends to be less costly for merchants, some customers feel nervous providing payment information to a separate checkout site, which can increase your cart abandonment rate.

Whichever type of gateway a company chooses, they should make sure that it supports all of the credit cards and currencies your company plans to process. This is especially important if a business plans on selling internationally, or works in an industry, such as energy or healthcare, where customers often use niche types of credit cards.

Merchant account providers further distinguish themselves via the security features they offer. Most use a trusted source to meet payment data security compliance standards, such as PCI-DSS. This ensures that a cardholder’s data is protected and maintained through a secure network. PCI-DSS is the industry standard and is becoming ubiquitous. A company should, at any rate, verify the compliance standard with a potential merchant account provider before agreeing to use their gateway.

Processing payments online is one of the quickest routes a business can fall victim to fraud, often through chargebacks. For this reason, many merchant account providers specializing in online and ecommerce businesses offer additional services designed to reduce or avoid chargebacks. These services include providing gateways that use security card codes (CVC2 and CVV2) to verify a customer’s possession of a credit card during an online order. This feature can limit the amount of transactions processed by credit card thieves in possession of a stolen credit card number and not the physical card itself.

Additionally, an address verification system (AVS) can help a business identify suspicious orders processed with inconsistent address data. AVS matches the customer’s credit card billing address with the address provided at checkout. Gateways and processors differ significantly in the number of chargeback and fraud prevention measures they offer. If a retail business is prone to fraud or sells big ticket items, make sure to select a processor that will assist in minimizing fraud and chargebacks.

Conclusion

By enabling online payment processing, businesses can expand their customer base geographically and demographically. In an era of compressed margins and increased competition, having the opportunity to expand their market reach is well worth jumping the hurdles necessary to accept online payments. With the right provider, your customers will rest assured that their data is safe, and your business can expand with confidence.

Learn more about the complexities of managing online payment processing by downloading our complimentary white paper. 

The post Online Payment Processing 101 appeared first on cleverbridge.

And I can prove this to you. Find your nearest colleague and either try to explain to them the details of an ecommerce transaction or have them try to explain it to you. I am sure that most people will say something like, you go on the website, you fill out your personal information, including payment details, and click Buy Now. Voila: you’ve got yourself an ecommerce transaction.

But as an ecommerce manager you need to have a better understanding of the back-end processes of an ecommerce system if you want to ensure that you’re maximizing revenue and minimizing costs. This knowledge is especially important when you’re considering a switch to a new ecommerce platform. It means having a more nuanced understanding of the technology, tools and processes involved in transferring payment information from buyer to seller.

Merchant Account Vs. Payment Gateway

Two of the basic components that allows different parties to exchange payment information online are merchant accounts and payment gateways. To the uninitiated, these terms are mysterious, but a proper understanding of what they do and why you need them can help you lower costs as you expand into global markets.

For further information on this topic check out the infographic below or read our cobweb clearing white paper: Managing the Complexities of Online Payment Processing.

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