Discover Card announced on September 4th that they have partnered with Russian Standard Bank (RSB) and will start issuing their cards in Europe. Discover card was first introduced 1985 by Sears, and in 2006 they introduced the Discover debit card under the Pulse payment system which Discover acquired in 2005.

The Russian Standard Bank is the largest credit card issuer in Russia and their partnership with Discover could prove to be one of the biggest announcements in the credit card industry to date. Discover is already being offered in China and India, both who recently extended their service agreement with the card giant. In this new deal, Russian Standard Bank will promote and issue Discover cards and in return Discover will add to Russian Standard Bank’s portfolio to increase sales and customer-base.

When asked what Discover Card hopes to accomplish by expanding their portfolio in the European market in a recent interview, Discover spokesperson said:

“One of Discover’s strategic priorities is to expand its global footprint, which it did in 2008 with the acquisition of Diners Club International and then with other subsequent network-to-network deals. To-date, our efforts have focused mainly on global merchant acquiring for the benefit of US Discover cardmembers and International Diners Club cardmembers. For Discover, there is a significant branding and recognition benefit to issuing Discover cards overseas. The countries that issue Discover also receive the benefit of launching a brand that has a proven track record of success in cash rewards, service and value in the U.S.”

The day after the news, Discover’s stock rose two cents, closing at $38.75 at the end of the day. Discovers stock is now at $39.41 with the close of the business week on Friday. The deal has also made Russian Standard Bank the exclusive partner for issuance, acceptance and promotion of Discover cards in Russia. This could be a good or bad thing, while it does introduce Discover to the European market, it also prohibits the card being offered from any other card issuing bank in Russia for the time being.

Dmitry Levin, the CEO of Russian Standard Bank goes onto say in a press release from Discover:

“This partnership will allow Russian Standard Bank to enrich its portfolio of card brands and introduce the technical and service know-how of Discover, an expert of credit cards and loyalty programs in the U.S. The brand history of Discover is a story of great success which the company has achieved in just a few decades in the highly competitive market of financial services in the U.S. I am confident that the Discover card from Russian Standard Bank will become very popular amongst Russian consumers, too.”

The ‘chip and PIN’ type credit card was introduced to provide a greater level of security to the cardholder than a regular magnetic strip. While not mainstream in the USA, there are over a billion of these type of cards being used around the world. The ‘chip’ is an embedded microchip in the card which, when placed on a point of sale system, processes the card much like it would when swiping with a magnetic strip. The ‘PIN’ refers to a personal identification number which the customer then has to enter to complete the transaction, much like you would with a debit card. It is supposed to help protect against security fraud like forging signatures, card theft, and cloning information found on magnetic strips. In a lot of cases, it has worked. For example, since the introduction of ‘chip and PIN’ card types in France, it has cut credit card fraud by about 80%.

However, Cambridge University has found a flaw in this payment method. When a ‘chip and PIN’ transaction occurs, there’s a number assigned to each transaction. This number is supposed to be unpredictable, but the research has found that it’s sometimes not. This may be due to faulty equipment, but if a hacker finds these numbers, they can essentially clone the chip found on the card and use that customers card or bank account at will. And now with new terminals for mobile payments introduced, it will create more opportunities for fraud to occur now more than ever. If they can find a way to steal information on ‘chip and PIN’ cards, it’s a safe bet to assume a mobile payment breach in the future as well. Because evidence shows that the fraud is aided by faulty equipment, it is essential for the merchant to make sure their employees are properly trained on how to use the equipment and that they are properly kept and updated.

Moreover, up until recently, the regulations were against the cardholder in the case of ‘chip and PIN’ transactions. The banks have stated that the system could not fail and therefore any fraudulent transactions were the fault of the cardholder unless the could prove otherwise. This was even said despite the fact that there were several documented cases of fraud that were not the cardholders fault. It wasn’t until 2009 that the regulation was changed. Now, the bank has to reimburse the customer and prove their negligence instead of cardholders trying to prove their innocence.

While reports state that even if the information is stolen, it might prove be difficult to use the stolen information without exposing their identity. Still, this study shows that new processing technology is not always safe, and customers and merchants alike might want to double check their bank statements.

Bank of America Merchant Services started in 2004 and is based out of Louisville, Kentucky. They are one of the largest U.S. payments processor and also have hundreds of ISO relationships. They offer e-commerce, mobile solutions, point of sale solutions, payroll distribution, and TeleCheck. Although there are a lot of merchant service providers that are ISO’s of Bank of America, going to BOA directly doesn’t necessarily mean lower rates. This wing officially operates as Bank of America Merchant Services, LLC.

Bank of America only has a Better Business Bureau rating for the parent company and its mortgage and insurance divisions, not their merchant services division. Their headquarters have about 5,000 complaints filed and some have to do with credit card processing, but the large majority do not. There are however, hundreds of complaints on boards and reviews that state a three year contract with a $500 cancellation fee. There are several complaints stating that the cancelation fee was not discussed over the phone, but is in the contract. That’s why it’s always advised to read any contract in its entity before signing up with any merchant service provider.

Since Bank of America is an Acquirer, their marketing is a little different than most ISOs. Most ISOs will seek out an inside sales force and independent contractors to sell their services. While Bank of America does the same, they also market and acquire other Independent Sales Organizations. So they are responsible for both the merchant relationship as well as processing merchant’s transactions.

As stated above, going directly to Bank of America does not necessarily mean lower rates, in fact sometimes the contrary might be true. Bank of America has to pay Interchange like all other merchant service providers so the margin for profit is similar to everyone else. They are very large, and do offer a interchange plus pricing structure, which means any business with a processing history should consider asking for a quote. For new businesses, their qualified retail rates are around the mid-to-high 1.6% range and their e-commerce is low-to-mid 2% range. Rewards cards, business/corporate cards, and government cards do have a surcharge. Also as stated above, there is a three year contract with around a $500 cancellation fee. From past experience, their processing statements can be very hard to read. Their statements show the interchange rate of each type of card processed, but the surcharges for downgrades don’t show up until the next month’s statement. This just adds an unnecessary confusion to determining the fees on processing statements. It also makes things harder for competitors to come up with a quote using your prior processing statements.

PayPal is one of the most common merchant accounts out there. They have several different pricing options and is very popular amongst the e-commerce field in particular. PayPal was founded in 2000 and quickly became popular thanks to the help of E-Bay, the popular auction website. By April of that year, more than 1,000,000 E-Bay auctions were using PayPal, easily overshadowing E-Bay’s original payment online payment system, Billpoint. It was not until last year that PayPal began offering its services offline and entered into the brick and mortar market.

PayPal is accredited with the Better Business Bureau and has an A+ rating with them. Over the past three years, PayPal has has 6,569 complaints filed against them with 2,367 closed within the past 12 months. Out of those 6,569 complaints, 1,438 of their customers felt the response they received was unsatisfactory. Well over 500 of those type of complaints were filed this year. The number of complaints filed against PayPal is incredibly high and is a good example of how the Better Business Bureau’s rating might not reflect the overall consumer consensus. In fact, complaints about PayPal are rampant, and have even spawned it’s own website, paypalsucks.com, which has received over 10 million views and has been featured on popular news sources like CBS and Reuters. It seems the most popular complaint by far is PayPal holding onto their clients’ funds when they consider the charge to be fraudulent. The problem is that a lot of these charges were not, and that they hold the funds for a longer amount of time than they need to, it’s not uncommon to hear of a six month hold.

PayPal has historically put most of their marketing efforts into the e-commerce field. They have advertised it as a fast and easy way for anyone to make a payment online. PayPal has not only marketed to merchants, but also to consumers advertising their platform as a fast and secure way to make an online payment. PayPal only recently ventured out of the e-commerce field and started offering offline options. PayPal introduced its’ mobile payment solution, PayPal Here, in March of 2012. PalPal Here is an attachment for the iPhone or Android devices that allows merchants to swipe credit cards. This new product puts them in direct competition with SquareUp and Intuit GoPayment which are the two current frontrunners in the mobile processing field.

PayPal has several options when it comes to the pricing structure of a merchant account. For their new PayPal Here, they charge a flat 2.7% on all swiped transactions, with a free card reader. If the card is keyed in, it’s 3.5% and $0.15. For e-commerce merchants, a 2.9% and $0.30 transaction fee is applied for business whose monthly volume is less than $3,000. If the volume is between $3,001 and $10,000, the transaction fee is 2.5% and $0.30, over $10,000 is 2.2% and $0.30.

Out of all the types of merchant accounts a merchant could have, e-commerce would be considered the highest risk. That means any merchant looking to set up their website with a merchant account, and has no prior processing history on that website, should expect higher rates than a merchant swiping their cards in person. There are a few reasons why a new e-commerce website is considered high risk.

For one, neither the merchant or the merchant service provider know who’s actually using the card. In other words, there’s no way to actually know if that card was stolen. E-commerce is the easiest way for anyone to make purchases using a stolen credit card, and is by far the most popular platform in terms of occurrences. If a purchase was made using a stolen credit card, then that purchase was reported as fraud, a chargeback will occur, and either the merchant or the merchant service provider will have to pay for it. A way to avoid this type of fraud is to only allow orders where the shipping address matches the billing address, although this is not always ideal.

Another reason why e-commerce is considered high risk is age verification. Unlike a retail location where a merchant can check their customer’s identification, it is easy for a person to fake their age online. So, if a merchant is selling alcohol or tobacco online and a minor fakes their age and makes a purchase or uses their parents card, it definitely can lead to trouble. This will almost always lead to a chargeback, either the minor will say they never authorized the charge, or their legal guardian will, leaving the merchant or the MSP responsible. It is advised to have some sort of further measure than just making your customer agree they are of age or having them put in their birthday. IDology is a good tool to use. IDology will pull a quiz based on the cardholders information, like past addresses, leases, or nearby intersections that makes it a little tougher for any underage children trying to use their parents card.

Lastly, information on the website itself is very important. Having the pricing of products and a shopping card is not enough. To avoid chargebacks or a merchant service provider putting a hold on funds, there are a couple things a website needs to have before it’s ready for e-commerce. A return policy is absolutely essential. Some websites might have an ‘all sales final’ policy, but what happens if the product arrives damaged or gets lost in the mail? Those type of situations need to be clearly stated on the website. Contact information is also very important. If a product does arrive broken, or an order is mixed up, and a customer has no way to contact the merchant they will almost always issue a chargeback, meaning not only does the merchant have to return the customers money, but also pay a chargeback fee issued by the bank.

There are a lot of mobile applications out there that not only give the consumer an alternative way to pay like your cell phone, but also a rewards program for paying with their services. LevelUp and Google Wallet do this, giving you special offers on stores near you if you use their application, but that means using your cell phone as your wallet, which some consumers might not be able to do. A relatively new contender in the local coupon market is edo Interactive, which uses the credit and debit card most consumers already have in their wallet.

Their selling point is ease of use. Unlike Groupon, paper coupons, LevelUp, or Google Wallet, theres no presenting anything extra to the cashier. Customers use their debit card, the merchants existing credit card terminal recognizes if it’s enrolled in edo’s system, and the savings are automatically deposited into the customer’s checking/ savings account. Customers enroll by downloading edo’s application, and the application lists the stores that participate. And better yet, some banks pre-enroll their customers already. This does away with the need to clip coupons, check in with programs like FourSquare, or present a QR code like LevelUp. Although mobile payments are on the rise, they’re nowhere near the use of regular debit and credit cards so edo’s program shows a lot of potential.

This gives the ability for merchants offer special prices without having to purchase any sort of special equipment. And unlike Groupon, or local coupon adds, the merchant can track consumers and offer special promotions based on their spending history. So it does away with some of the worry of programs like Groupon which might attract customers, but not bring them back again. And it seems to be working, according to a recent study on a national sub shop using edo Interactive, 30% of consumers made 1-2 more visits and 40% made 3+ more visits.

What does it all cost for the merchant? It’s surprisingly not that expensive. For one, it’s free to join, theres no signing a contract or monthly service fees. A merchant only pays when an offer is claimed. The example they use on their website is if a merchant offers $10 off a $40 purchase, edo will take $4 of that, making the fixed cost per redemption $14. The real question is, just other coupon programs, is it worth it? That depends on repeat customers. The point of coupons is to entice the customer to come back and make more purchases. Having the ability to track sales is a great tool to have, but effectively marketing coupons based on that history isn’t easy. In terms of ease of use, edo is great, but it still depends on how a business utilizes it.

Total Merchant Services was founded in 1996 and is headquartered out of Basalt, Colorado. They are a registered ISO/MSP for HSBC Bank, National Association, Buffalo, New York. They offer credit and debit card processing solutions as well as cash advances, check processing, and gift cards. Their credit and debit card processing solutions include retail, mobile processing equipment, and e-commerce. According to their website, they have over 100,000 merchants processing with them and add an additional 4,000 each month.

Total Merchant Services is accredited with the Better Business Bureau and has an A+ rating with them. Over the past three years, they have had 99 complaints filed against them, with 20 closed within the past twelve months. Eight of the customers whom filed complaints felt that the response they received was unsatisfactory. The majority of the complaints filed cited advertising/sales issues as well as problems with product/service. Billing/collection issues was a close third with 38 complaints. Whenever a business has a high number of complaints filed under advertising/sales issues it raises concern if their sales representatives are using deceptive sales techniques to gain accounts. Eight complaints have been filed this year and Total Merchant Services does not allow anyone to read the complaint details filed against them. Given the large number of merchants who are processing with Total Merchant Services, 99 complaints is a relatively low number.

Total Merchant Services advertises “lowest rates and fees ever” which is a pretty dangerous claim to make. They cite the Durbin Amendment which lowered debit card transaction fees across the board, and most merchant service providers by now have lowered their debit card rate respectively. However, lowering the debit card transaction rate does not mean “lowest rates and fees ever” which is what Total Merchant Services is making it seem like. They also advertise “free equipment” on their website, which can also be misleading. A free credit card machine will almost always mean a monthly lease fee ranging from $10-$30 or more. Most credit card machines cost less than $300 so even if a merchant service provider gives you a machine for free upfront, a business would be overpaying for that machine within the year. Furthermore, if a business ever decides to cancel their contract, the machine would have to be returned.

Total Merchant Services does not advertise their rates and fees on their website so it is advised to call in to get their schedule of rates and fees. As always, it depends on the business and how you plan on accepting cards. There are reports however that they have a three year contract with an early termination fee ranging from $100-$300.

Wells Fargo is an acquiring bank and has many Independent Sales Organizations relationships but also advertises merchant services directly. Wells Fargo founded its’ merchant services division in 1998 and in based out of Colorado. They use First Data as their processor which means rates and fees and risk related issues can be affected by First Data’s policies. Going straight through Wells Fargo to sign up for a merchant account does not guarantee lower rates and fees. Businesses with a large prior processing history might see that Wells Fargo has lower buy rates on interchange, but this does not apply to new businesses.

Much like another large acquiring bank, Wells Fargo does not have a Better Business Bureau rating for the merchant services division. Their headquarters has about 5,400 complaints, but it’s impossible to determine exactly how many have to do with merchant services. There are however, hundreds of complaints filed on other complaints boards and reviews. The biggest complaint being a three year contract with a $500 cancellation fee. Several complaints cited that the cancelation fee was nowhere to be found on the contract nor was it discussed on the telephone. The cancelation fee is in the program guide, but the problem is the program guide is 52 pages long. Most do not read the program guide assuming all of the relevant information is in the contract itself. If a merchant service provider has a program guide it is advised to read it, no matter how long it may be. At the end of the day, you are legally bound to the continents in the program guide since you have to acknowledge that you read it when signing the contract.

Since Wells Fargo is an acquirer, their marketing is a little different than most ISOs. Most ISOs will seek out an inside sales force and independent contractors to sell their services. While Wells Fargo does this, they also market and acquire other Independent Sales Organizations. They offer the usual means of credit card processing, e- commerce, phone orders, and retail but also market their other solutions for businesses like payroll and insurance. It also looks like they’re trying to get into the mobile payments market, with their introduction of their NFC device in 2011.

As stated above, Wells Fargo have a three year contract with $500 cancellation fee even if not specifically stated in the contract itself. It also seems like they lease their credit card terminals which is recommended to avoid with a merchant service provider because it’s more expensive in the long run. There are also ongoing complaints that Wells Fargo raises their fees while a merchant is under contract, making paying a cancelation fee or the higher rates the only two options.

PaySimple was founded in 2005 and is headquartered out of Denver, Colorado. They are a registered ISO/MSP of First National Bank of Omaha. They have a strong small business focus and offer a processing solution in the form of a virtual gateway terminal that can also be used for e-commerce. Their payment software, called “the system” is the only solution they offer so potential clients looking for a more traditional credit card terminal should look elsewhere.

PaySimple is accredited with the Better Business Bureau and has an A rating with them. Over the past three years, they’ve had a total of six complaints filed against them with three closed within the past 12 months. All of the complaints were resolved with a response that the Better Business Bureau felt was satisfactory. Three complaints cited advertising/sales issues, two cited problems with product/service, and one cited billing/ collection issues. Six complaints over the past three years is a very low number and it’s surprising to see that they have an A rating instead of an A+. PaySimple does not allow anyone to read the complaints filed against them so the quality of the complaints instead of the quantity might explain why their rating is an A instead of an A+. Other complaint boards had few complaints filed and most cited PaySimple’s risk department holding their clients funds. With so much fraud in the credit card processing industry, this is unfortunately a common problem.

As stated above, PaySimple offers only one processing solution with their virtual gateway terminal. While this does keep things “simple” it also might be a little too simple. The problem is, whenever e-commerce/telephone order merchants are using the same system as retail swiped merchants, the rates and pricing suffer. Swiped rates are almost always lower than keyed rates, but when you get a bundled package like PaySimple offers, they rates have to be averaged together and the result is a rate that is a lot higher than a business could find elsewhere. Also, even though the virtual terminal is PaySimples one focus, which leads to a great end user experience with good support, it also seems like they’re potentially losing customers who want a more traditional solution.

PaySimples rates and fees for credit and debit card processing are unusually high. For one, their virtual gateway terminal comes with a $34.95 monthly service fee. $34.95 monthly is about $30 more than any small business should be paying for their monthly service fee. Most merchant service providers that have a high monthly fee make up for it in lower transaction fees, unfortunately PaySimple does not follow that trend. They offer a 2.39% and $0.29 transaction fee.

These two complaints might be completely avoided if you know what to expect ahead of time. They might not be discussed when signing up for a merchant account or even the contract which is part of the reason they are so common.

PCI Compliance Fees

PCI compliance is one of the most common complaints found on complaints boards when dealing with merchant accounts. PCI stands for Payment Card Industry and it is a charge that anyone whom plans on accepting credit or debit cards has to deal with. PCI compliance should be an annual charge that could range from $79-399 depending on the merchant service provider you choose. The reason why this charge is such a common complaint is that it is usually not clearly stated on the merchant service providers contract since it’s the Payment Card Industry’s charge (IE MasterCard and Visa) and not theirs. An easy way to avoid the PCI compliance surprise is to ask what the merchant service provider’s PCI compliance fee is upfront, and when it is billed. Since PCI compliance changes from time to time, they might not be able to give you an exact number, but they should at least have a ballpark figure, which is better than being completely surprised.

Merchant Service Provider is Holding Funds

Merchant service providers holding their merchant’s funds for a period of time is probably the most common complaint filed against merchant service providers. While this could happen for a number of reasons, there is one quick trick to having it happen less. Be upfront, honest, and as accurate as possible when your sales representative asks what your average transaction size is. Since fraud is so rampant in the credit card processing industry, a merchant service provider will usually put a hold on any charge that looks suspicious. Most don’t even notify the merchant they did so, leaving them wondering where their funds are. Most of the time this happens when it shouldn’t is when a merchant tells their sales representative their average transaction size is $20 and then makes a $200 transaction. Charging well above the average ticket size stated on the application will almost always lead to a hold in funds. Another good tip is if you are going to charge well above what your stated average ticket size is, give the merchant service provider a call ahead of time and let them know. This simple proactive step could save you a lot of headache down the road when the funds you expected are not in your bank account.