Payment Gateways: Reporting Services

The purpose of this article is to discuss availability of financial reporting services as a criterion to be considered during payment gateway selection.

If this is the first time you are reading our “Selecting a Payment Gateway” mini-series, please, start with the Introduction to improve your understanding of this post.


Irrespectively of business size, it is very important for every merchant to deal with a processor whose payment gateway software includes elaborate financial reporting services. A business involved in credit card processing requires reporting services around the aspects listed below.

Reporting services evaluation criteria:

  • transactions activity – to reconcile transactions sent to the payment gateway and responses received from it. This information needs to be available by activity date (when the transaction was authorized) and by settlement date (when the transaction was settled). Since authorization and settlement date may differ, having the ability to analyze transactions by either of these dates considerably simplifies overall reconciliation process
  • funding – to reconcile bank deposits made by the processor for the transactions processed
  • chargebacks and ACH returns – to reconcile respective deductions from the account
  • processing costs – to analyze the costs charged for processing and the types of cards that the business is dealing with
  • commissions (for resellers only) – to understand residual revenue\commissions that are paid by the processor to the reseller for the business it generated.

It is important to verify that the reports are available not only in summary format (by date or by merchant), but also as a detailed version (on the level of individual transaction). It is particularly useful to have a detailed report listing all types of the transactions processed (including approvals, declines, blacklists, errors, chargebacks and ACH returns) with processing costs (interchange and assessments) available for each.

When a business considers potential partnership with a payment gateway, it should ensure, that the abovementioned data is easily accessible through payment gateway software’s reporting module, as this information is extensively used in transactions and bank deposit reconciliation processes.

Merchant perspective

The ability to dissect and analyze data by various criteria (authorization date, settlement date, merchant ID – especially when multiple MIDs are used) is crucial for a merchant.

Example

It is common for a multi-location fitness club chain to maintain a separate MID for each location to track all the funds coming in and out. Any health club, which has multiple locations, will be routinely dealing with reconciliation process across different MIDs and credit card processing terminals. Availability of a summary\aggregate report across all MIDs with drilling capability for an individual MID will be of great value under such circumstances, and can save a lot of time and money.

Conclusion

To reduce potential reconciliation overhead, it is important for a merchant to deal with a processor that provides aggregate and detailed reporting services at all levels of the merchant’s business structure (company level, MID level, terminal level).

Reseller perspective

Resellers have the same reporting concerns and considerations as independent merchants, but require two additional features: reports around commissions and reports on transactions across different merchants in its portfolio.

Example

As an example of a reseller, let us consider a software company servicing a franchise of small-size fitness clubs for women. The reseller has to deal with a large number of small merchants and multiple club owners, each owning a different number of clubs and having its own processing fee structure. The ability to analyze data at corporate level, individual club level, as well as individual owner level, will be critically important for the reseller.

Conclusion

If the two reseller-specific features are not provided by the payment gateway, the process of understanding commissions will take considerable time and effort. Under such circumstances, if the number of merchants in reseller’s portfolio grows, unavailability of accurate reporting services can make reconciliation process completely unmanageable and cost prohibitive.

The next post will address chargeback information handling.

Payment Gateways: Fraud Protection

If this is the first time you are reading our “Selecting a Payment Gateway” mini-series, please, start with the Introduction to improve your understanding of this post.

With the increase of online commerce and wider adoption of electronic forms of payments, an increase in credit card fraud rate is observed (especially, on CNP transactions). Various tools have been introduced into credit card processing software by different companies, in order to reduce the possibility of fraud. They include GeoIP, minFraud and others. Particularly, these tools perform cardholder’s IP address check, verify his e-mail against a look-up table, and determine the buyer’s overall risk score.

When it comes to fraud protection, four most common approaches used at the point of sale are:

  • 3D secure, introduced by associations (during online purchases an additional password associated with a credit card is required in order to confirm the buyer’s identity), often used in combination with
  • AVS (address verification service provided by card associations to verify the billing address on file against the one provided by the buyer);
  • IP-address-based (i.e. geographical location based) segmentation or filtering, provided by third parties;
  • various types of identity verification – name or e-mail of the buyer is verified against various blacklists);

In some cases additional compensating security controls can be used. They are:

  • so-called “processing cap” – certain processing limits are imposed on the merchant. They reduce/limit the number or total amount of transactions processed by the merchant per hour/day/week/month;
  • reserves – certain percentage of money processed is held by the processor/payment gateway for a certain time period to cover potential chargebacks and ACH returns.

Merchant perspective

Fraud protection issue is especially relevant for merchants that are doing online commerce.

Example

Health club owners/managers decided to sell fitness supplements through the web-site. This activity exposes the health club to potential online fraud. In this case the merchant should opt for a payment gateway with built-in fraud protection tools. Using such gateway is likely to result in considerable savings, as the merchant will not lose money on illegitimate orders and chargebacks.

Conclusion

A merchant dealing with a large number of online transactions, as well as a business involved in a high-risk segment, should make a decision in favor of the payment gateway with built-in fraud protection features.

Reseller perspective

The reseller must keep track of all the merchants it is dealing with, and all their transactions, which is a very challenging task. If some fraud does take place, financial responsibility might fall on the reseller, as not all merchants are responsible enough to perform the necessary checks themselves.

Example

A software company decides to add an online store as a software module. The company management realizes that this action may potentially result in various additional fraud-associated issues, inherent in e-commerce business. Consequently, it is necessary for the company (reseller) to have some fraud protection tools in the online store. Cooperation with the payment gateway, already supporting fraud protection features, allows the reseller to save resources and efforts, required for development of these features on its own.

Conclusion

When a reseller is actively involved in an industry segment, where fraud is common and fraud rates are above average, it might be easier for the reseller to partner with some processor, whose payment gateway software has integrated fraud protection tools, instead of building all the respective functionality on its own.

Our next post will cover core reporting requirements for a payment gateway.

Payment Gateways: Standard Features

The purpose of this article is to discuss standard features to be considered during payment gateway selection.

If this is the first time you are reading our “Selecting a Payment Gateway” mini-series, please, start with the Introduction to improve your understanding of this post.

While people tend to look at a credit card as an ordinary peace of plastic with a magnetic stripe on it, cards can be of different types and there are many different features about cards. Based on what current and future needs are, a merchant might want to choose a processor offering payment gateway software capable of supporting these features.

Card processing levels

When cards are processed they can qualify for one of the three different levels (for more information check this article ). Consequently, if a business needs, for instance, level III processing, it is necessary to ensure that it chooses a payment gateway supporting that particular feature.

Industry-specific features

Some merchants operate within a specific industry with its special requirements or regulations when it comes to credit card processing. Examples of such industries with respective specific features include restaurants (tips), lodging (incremental authorization), healthcare (support for HSA/FSA accounts). Naturally, these merchants should deal with a processor/payment gateway specializing in their industry and providing support for the required features.

Card present vs card-not-present

All transactions can be viewed as card-present (retail) or card-not-present (CNP) (direct marketing\e-commerce). While many payment gateways support both, it is common for payment gateways and processors to specialize in one of these two types. Therefore, it is important to analyse the needs of a business with respect to transaction types that it has to support.

A business should keep in mind that the following types of transactions are only possible within card-present environment:

  • PIN-debit,
  • electronic benefits transfer (EBT),
  • EMV (Europay/MasterCard/Visa standard for integrated circuit or “chipped” cards).

On the card-not-present side it is appropriate to mention such features as

  • PIN-less debit,
  • 3D secure,
  • online fraud prevention.

Gift cards and loyalty cards support

Other categories of cards that a business might consider supporting are gift cards and loyalty cards. Both types of cards are rapidly gaining popularity, especially in the US, and that is why they should also be taken into account. If a business might require (now or later) support for either gift cards or loyalty cards, the decision-makers should keep that in mind while making a choice.

Merchant’s perspective

In the initial article of this mini-series a health club has been chosen as a merchant example, because it requires support of a variety of credit cards and features for its operations. Due to high competitiveness of the business, a fitness club might need to be able to quickly adopt to the new industry trends, such as, for example, gift and loyalty cards.

Example

To enhance customer experience and to improve member retention, a health club wishes to introduce a gift card program (a loyalty program). The program will enable people to get free personal trainings after a certain period of club membership or after they accumulate a certain number of points through purchases.
If the payment gateway the club is dealing with supports this feature, then the club’s tasks, as well as the whole reconciliation process, are considerably simplified. Otherwise, the club might need to deal with a separate processor (the one that supports gift cards) and reconciliation would involve two different companies.

Conclusion

It is desirable for a merchant to choose a payment gateway, supporting the broadest spectrum of cards and features, currently or potentially required by the business.

Reseller perspective

If a business’s goal is to resell merchant services, the rule is as follows. The more flexible and wide the spectrum of services is, the easier it is to offer and resell these services. Moreover, the ability to offer additional services, beside standard features supported by all other resellers, may provide a competitive advantage for a reseller.

Example

Having conducted a research, a fitness software company realizes that a considerable number of purchases are made online. Consequently, there is a need for a brandable mobile payment application that the software company could use to enable its customers to accept online payments. Partnership with a payment gateway, featuring the built-in support for mobile payments, allows the fitness software company to
grant the service to the clients without any complications, as well as consolidate all types of transactions under a single account and greatly simplify the reconciliation process for the company and its respective merchants.

Conclusion

The more features are supported by the payment gateway, the easier the service sales process will be, and the more money can be charged for standard features (retail, e-commerce), because beside them, additional ones (gift card support etc) will be available.

Our next post will cover fraud protection support as a payment gateway selection criterion.

Payment Gateways: Settlement (Capture)

The purpose of this article is to discuss adequate transaction settlement (capture) mechanisms as a criterion to be considered during payment gateway selection.

If this is the first time you are reading our “Selecting a Payment Gateway” mini-series, please, start with the Introduction to improve your understanding of this post.

Credit card payment processing involves two phases. The first one is authorization, when the card is verified (it is checked whether the necessary sum of money is available on the account) and the money is blocked (reserved for subsequent settlement). The second one, usually taking place at the end of the business day, is capture (or settlement), when the reserved amount is withdrawn from the card-holder’s account and transferred to the merchant’s account (the funds are settled). Therefore, to complete transaction processing, settlement has to be performed.

Settlement mechanisms

In general, there are two settlement mechanisms commonly referred to as terminal capture and host capture.
In the case of the host capture most of the work required to settle transactions is actually done by the host system (payment gateway). When host capture is used, payment gateway (the host) keeps track of all the authorizations and takes care of settlement on its own.

Settlement is generally done:

  • once a day at a fixed time
  • multiple times a day within fixed settlement windows
  • on demand when end-of the day settlement message is received.

Generally, no or minimum information is required from a merchant to use host capture. Terminal capture is usually done by sending a settlement message\settlement file with the full information about the transactions that need to be settled. Terminal capture puts all the responsibility for the settlement logic upon the submitter (merchant).

While terminal capture does provide more control over the settlement process, it is easier to deal with host capture whenever it is possible, because it is easier to implement and support.

From the global perspective all types of settlement can be viewed as belonging to one or two groups: merchant-initiated or time-initiated. Terminal capture and on-demand host capture are merchant-initiated. Settlement, performed daily at fixed time, or several times a day within fixed settlement windows, we are talking about time-initiated host capture.

When choosing the settlement approach, every business needs to consider, what the best option is: merchant-initiated versus time-initiated, and host capture versus terminal capture.

Merchant perspective

In each particular case it is important for a merchant to consider all the business needs while making a choice between terminal capture and host capture mechanisms, as host capture may not support certain features needed by the merchant.

Example

A fitness club, that works 24 hours, has three shifts of employees changing during the day. There is a common practice of settling out all of the transactions that were authorized during a shift when a shift is closed. In a situation like this, the scheduled settlement (without end-of-day message) is unacceptable for the merchant, as it has to be performed several times during the day, not necessarily at a specific time. Consequently, dealing with a processor\payment gateway, which supports only scheduled settlement, will be problematic for the fitness club.

Conclusion

While the preference is usually on the host capture side, merchants need to check if it fits their business model, and, at the same time, whether all the necessary features can be accommodated by the host capture system (as some features might be supported by payment gateways only under terminal capture).
If all of the features necessary can be accommodated by the host capture mechanism, it is really the preferred way of settlement.

Reseller perspective

As in the cases of other payment gateway selection criteria, while choosing a settlement mechanism, a reseller must carefully analyze the needs of the merchants it is dealing with.

Example

One of the potential problems to be addressed by a reseller may be that each merchant might need some business specific logic. Particularly, if a payment gateway can perform settlement for a merchant at the same predefined time during the day, and merchants are situated in different time zones, it might be difficult to adjust time settings for each merchant individually to ensure proper settlement time for each timezone. Consequently, in such cases it may be easier for the reseller to delegate control of the settlement process directly to the merchant (terminal capture), than to adjust time settings to every merchant’s time zone (host capture) with the payment gateway.

Conclusion

While making a decision concerning settlement mechanism selection, a reseller should consider all the aspects, which are critical for a merchant. However, if resellers accept some limitations in order to simplify the integration process, they need to understand that any problems resulting from these limitations will be multiplied by the number of the merchants the resellers are dealing with.

Our next post will cover standard credit card features to be considered during payment gateway selection.