[thelist] Explaining Payment Processing

Maximillian Schwanekamp lists at neptunewebworks.com
Wed Jun 22 12:01:32 CDT 2005

Keith wrote:
> That is certainly feasible, from a technical standpoint. But read your
> merchant account small print, it is illegal. In fact, if you have a
> "storefront" merchant account and you process Internet sales over that
> account you are committing fraud. Not criminal fraud - contractual fraud.

The main reason for this is that merchant account providers generally
have different rates for in-person transactions and MOTO (Mail Order /
Telephone Order) transactions.  Sometimes it's broken down further, but
that's the usual division.  The MOTO txn will have a higher discount
rate, though it's usually only a few tenths of a percent higher.

Keith's story is an extreme horror story (who was the merchant account
provider, btw?!?).  More common are problems with processing oversized
transactions.  The Average Ticket Amount is key - if when you set up
your account you tell the merchant account provider that your average
ticket (transaction total) will be $300, and then you turn around and
process an order for $2500, there's a very good chance you won't get
that money right away.  Most merchant account providers are not willing
to underwrite that kind of risk, and will instead hold your funds for 30
to 180 days (commonly 90), to prevent the use of the account for money
laundering or loss of funds due to chargeback.  Linkpoint (Card Services
Int'l) and Verisign are particularly draconian about that.

Maximillian Von Schwanekamp

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