How to Select a Payment Processor

If you’re shopping for a direct commerce payment processor, you’ll have a bit of homework to do. Following are some tools that can help get the job done quickly and efficiently.

What to Look for

When selecting a payment-processing partner, determine the data-transmission protocols and transmission gateways it accepts and with which it works. For high-volume batch transmissions, bisynchronous communications are preferable to asynchronous; that is, you can transmit your authorization requests and deposit data, then get approvals and deposit confirmations back from the processor—all in a single phone call.

Asynchronous batch transmissions work like a CB or walkie-talkie: One party transmits, then stops to wait while receiving a transmission back from the other party. Meanwhile, bisynchronous communications are like phone calls: Both parties can transmit at the same time.

A top-notch payment processor won’t impose a transmission window (a scheduled time) on your transmissions, and also will have methods in place to look for transmissions of duplicate batches or transmissions of duplicate data (order numbers with the same amounts) within a batch. A top-notch processor also will have options for fraud-detection modules that can supplement procedures you already have in place. (For more information on this issue and the topic of credit-card chargebacks, see Catalog Success, November 2001, www.catalogsuccess.com).

If you accept payments in foreign currency, obviously your payment processor must be able to handle those currencies. If your processor is the acquirer (the bank or the bank’s designated agency) with which the merchant establishes an account, you also may have to set up more merchant accounts with the processor’s partner banks in the countries whose currencies you accept.

Though generally the case, this is far from automatic: Be prepared to jump the same hurdles, complete similar paperwork and post the same bonds that you did when setting up your U.S. dollar merchant account.

Payment processors have various methods for handling deferred billing, installment billing and billing on continuity shipments. Check these out, even if you don’t currently plan to use them.

If they’re available, you may find compelling marketing or testing applications for them. Best-case scenario: The processor can use your business rules to automatically determine the first payment amount, subsequent payments due and last payment amount.

Also, the processor should be able to provide appropriate information for the customer in the soft descriptor, which the customer sees in his or her credit-card bill.

Other services offered by payment processors can include retail-transaction processing and check-by-phone processing.

Gateways

The alternative to using one of these payment processors directly is to use a gateway solution, a separate application or service bureau that formats, processes and tracks your transactions before sending them to one or more of the major payment-processing services. Fees per transaction processed may be more, but overall costs to acquire and maintain these solutions may be lower for smaller catalogers.

Even if you have a direct relationship with a payment processor, you’ll still need a gateway for processing Web orders (for real-time authorization), although the processor may offer you its own branded application.

While the four major gateway vendors offer multi-channel, direct-commerce processing, there are dozens of other gateway processors who exclusively specialize in handling Web sales, usually at costs per order greater than the other alternatives.

Three Issues to Consider

Three issues are worth considering when you’re evaluating alternatives. And two of them involve assuring that you’re charged the lowest available rate on the Interchange, the network established by the bank-card issuers (VISA and MasterCard) to process credit-card transactions.

1. Address verification. Both VISA and MasterCard have similar protocols for processing the first three numbers in the street address of the cardholder’s billing address, plus the ZIP code. If either of these don’t match the billing address on file at the Interchange for that card, an error message is transmitted. Formatting and tracking this data properly is necessary to receive the lowest discount processing rate (which gets passed along and marked-up by your processor).

2. Stale authorizations. VISA’s authorizations expire after seven days; MasterCard’s after 30. If it takes you longer than that to ship an order or a back order, get a second authorization. Does your service or system do this automatically?

By the way, back-order processing assumes that you charge or deposit the customer’s funds upon shipment. While this is the safest method (and the one used by most direct-commerce merchants for safety’s sake), it’s not technically required, so long as you process and ship orders in a timely fashion (i.e., within 24, 36 or 72 hours).

Of course, if a back order occurs, the Federal Trade Commission requires that you inform the customer and issue prompt refunds when necessary. Companies selling crops (fruit, vegetables) or anything that’s personalized can charge when the order is entered, just like theaters do when selling seats for a future performance.

3. Soft declines. If the Interchange can’t stand in for a charge, and the issuing bank’s system is unavailable, the Interchange will respond to an authorization attempt with a soft decline, which means the transaction is probably good but can’t be accepted right now. A robust solution or service automatically will recycle these authorization requests at reasonable intervals to seek the authorization. Others will pass them back to you as unauthorized.

Ernie Schell is president of Marketing Systems Analysis and author of the “Guide to Catalog Management Software.” He can be reached at (215) 396-0660 or ernie@schell.com.