By Irv Brechner, acquirgy and Curtis Kleinman, Swipe Payment Solutions

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Introduction

While almost every DRTV marketer has the ability to accept credit card payments, there is a great deal of mystery surrounding how these services work, what you can do to avoid chargebacks, and how you can actually increase sales based on diverse payment offerings. This first of two eBooks covers the key issues surrounding payment choice options for DRTV marketers.

Who Should Read This eBook

Show Me The Money – Getting Paid in the Digital Age, Part #1 is a must for any executive involved in a company that is currently using DRTV, considering using it, in RFP mode to select an agency, wondering why a past DRTV campaign failed or any company accepting payments.

About Acquirgy

Acquirgy is a customer acquisition agency specializing in multichannel campaigns fueled by DRTV. With over 350 DRTV campaigns and over 200 landing pages/microsites developed for clients, acquirgy is acutely aware of what it takes to convert consumers who arrive online from infomercials and short-form commercials. Clients include Hoover, Keurig, Cold-EEZE, CDW, Bealls and many others.

About Swipe LLC

Swipe offers 30 domestic and international banks that are fully integrated with most leading e-commerce business partners. Swipe can help clients achieve a greater processing volume by taking advantage of their multiple and diverse banking relationships and expertise in the payments area. VP of Business Development, Curtis Kleinman is the DRMA 2011 Member of the Year, has authored 25 articles/best practice guidelines and often speaks at trade events and on the radio, guiding merchants. Clients Curtis has serviced include

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Viacom/MTV, BMG Music, Time Life, Disney/A.B.C., Web MD, Nature’s Bounty, Young & Rubican, Bed Bath & Beyond, Coach, Tiffany, Fox Sports, Pfizer, Colgate Palmolive, Lever Brothers, Price Waterhouse Coopers, Ernst & Young, Deloitte & Touche, Morgan Stanley, Estee Lauder, SONY, Citibank JPM/Chase, H.S.B.C., DLJ (now First Boston), Instinet, Bankers Trust (now Deutsche Bank) and many others.

Contents

Choosing the Right Payment Processor

Should You Have Multiple Credit Card Accounts?

Understanding the Net Effective Rate

How to Avoid Chargebacks

What’s Behind Underwriting Approval

Learn About the Importance of Payment Gateways

The Agency Perspective

Conclusion

More Fresh Content from acquirgy and Swipe

Choosing the Right Payment Processor The choice of a payment processor is a very important decision for DRTV marketers. Having the right one will ensure that the processing of their charges will run smoothly and that nuances common to successful DRTV programs (i.e. large spikes in orders) will not result in negative actions by the financial institutions involved. DRTV marketers have many choices depending on their product, price, and promotional methods. Whether their billing model is a one-time sale, split payment or repeated continuity payments, there are many processors and banking institutions friendly to the DRTV world and our unique payment needs. Today marketers have a choice of at least a dozen direct response friendly banks in the United States. You basically have three broad choices in selecting a financial institution to handle your DRTV payment processing:

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Your existing local banking relationship

Going direct to a payment processor

An ISO (Independent Sales Organization) Your Local Bank Your local bank branch may be very comfortable with you and has known you for decades. However, as a DRTV marketer, it is most likely a mistake to use your local bank unless they just happen to have extensive DRTV experience and clients. Most local banks are not familiar with spikes in sales when you have a successful television commercial airing in the middle of the night or over the weekend. What tends to happen with banks not familiar with DRTV is that the risk department simply raises a red flag of possible fraud, and your merchant account is put on hold until the matter has been investigated further, which obviously disrupts your entire program immediately. Since you’ve paid for the media, call center and other services being utilized in conjunction with these TV sales, this is a disaster. Many of the sales lost during a “pause” will never be retrieved. One common practice that you need to watch out for is what we call “downgrading.” As an example, a bank quoted a client a rate of 2.39%. However, Swipe evaluated the statement and determined that the actual rate was 7.83% due to downgrading. Over 70% of the credit cards that the merchant accepted were tied to rewards, mileage, cash back, gas benefits, corporate and international, and the bank charged those at a much higher rate. The banker in this real example did not disclose this during the review process. Going Direct to a Payment Processor A payment processor is a company (often a third party) appointed by a merchant to handle credit card transactions for merchant acquiring banks. You will face the same issues with a payment processor as you would with a

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local bank, as some payment processors you might approach typically do not have enough of an understanding of the DRTV business.

The ISO In this day and age, with so many choices and options, the smartest solution is an ISO. ISOs are independent sales organizations, not tied or loyal to any single payment processor, banking or financial institution. An ISO is capable of putting your business with one or an optimal combination of banking institutions. Key benefits of using an ISO:

Your rates will most likely be lower than the local bank

ISOs will guide you through the application process and paperwork, to ensure that you’re approved

ISOs will help you answer questions about processing volume and related issues that underwriters carefully scrutinize – critical to getting you approved, especially if you anticipate processing a high volume of charges

They will review the Terms and Conditions before your application reaches the final approval stage, to help you customize a plan that is right for your unique business

The ISO will help formulate the right refund policy, rather than having to deal with a “one size fits all” policy

Perhaps the most important benefit is that the ISO is on the merchants’ side and based on the ISO’s experience, will guide you through what is often a very bewildering and tedious process. A good ISO will help you make decisions based on your business particulars, including:

Your product. Are you selling a household product, nutraceutical or fitness equipment? Do you offer a “Get Rich Quick” product or education seminar? Do you ship a physical product or is your product an item in which the consumer downloads, such as an eBook or

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software? Your answers should determine where you decide to open the proper merchant account for your business.

High ticket items such as charter airlines, online jewelry and educational seminars are frowned upon by several processors, while others welcome these business models with open arms. You should know a processor’s risk tolerance for your business model from the outset. If your bank is risk adverse and decides to take your business, you may be subjected to higher reserves, fees and processing rates. One particular bank may decide to charge you extra fees based on your products perceived risk and others might not.

Your billing model and product’s price. Is your product a one-time sale or is it a multi-pay? Do you have a trial offer or a recurring billing? If you offer multiple or continuity payments, some payment processors insist you use their payment Gateway. This adds an extra measure of security for the banking institution, but can limit your access to customer information.

Your method of promotion. The method you use to promote your product also helps determine which institution you should choose. Long or short form DRTV, radio, print and/or affiliate marketing are contributing factors to where you should place your merchant account. Some institutions frown highly on upsells, cross sells and outbound telemarketing. Others take an almost anything goes mentality. You need guidance with this important decision. The reason why some processors frown upon up-sells and cross-sells are because the consumer is being persuaded to buy more and different products or services than they originally intended. Often the additions to the original order are being sold by a call center, which is compensated on a commission basis. Thus, in some cases, the consumer is being sold very hard toward these purchases. This will often result in the consumer charging back or returning part or all of the order.

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The ISO will make specific recommendations based on these factors and others, and probably recommend multiple accounts (next section) and other techniques to ensure that the only flags the bank sees are green.

Should You Have Multiple Credit Card Accounts? If you have only one merchant account, read this section carefully. You are “rolling the dice” by having just one account, considering circumstances beyond your control (fraud, chargebacks) could result in your account being suspended. I’m sure you recognize what a hardship, it would be if you could not process any payments whatsoever. When you have multiple accounts, if one is suspended or shut down entirely, you can switch to other active accounts to handle the flow. This is particularly important for DRTV marketers that can generate significantly high processing volumes in a short period of time, and while chargebacks may not be a large percentage of your total transactions, the number of them can set off alarm bells at the banks. Many DRTV marketers also use affiliates to generate sales. If you use affiliates, you should have multiple merchant accounts in case you get driven bad affiliate traffic that results in problems. Affiliates use tactics that you are unaware of, such as very enticing incentives leading consumers to sign up for a trial in order to get a chance at winning a prize. Once they don’t win, consumers often return the product or charge it back, resulting in a big mess. If this occurs after a second shipment, you could be faced with a lot of returns and this too raises red flags – you have chargebacks simply because consumers purchased your product for the wrong reason. To make matters worse, you may have already paid the affiliate a bounty and now it gets ugly when you try to get those payments back. While good affiliates drive quality sales, bad ones create problems. One solution is to have one or two merchant accounts just for affiliates.

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Load balancing between more than one merchant account is a great strategy for monitoring sales volume, mitigating risk, and reducing unforeseen chargebacks. Some businesses separate their customers based on other factors including products offered, e-commerce vs. mail order/telephone order, radio vs. television, and so forth. More reasons to have multiple merchant accounts – segment orders by:

Product

Regions of the country

Advertising tactics and media placements Another big reason to have multiple merchant accounts to reduce chargebacks is to have different billing descriptors that are relevant to a specific product line or website address. The billing descriptor is how your charge appears on your customer’s credit card. If a customer can easily identify your purchase as valid, this will greatly reduce customer confusion, disputes, and chargebacks. Every time a customer calls to ask about your charge on their statement, you are charged an inquiry fee. Having your customer service phone number as part of your billing descriptor, will help reduce chargebacks and inquiries. This makes it convenient for the customer to call you instead of their credit card company. Try to also include the name of your website in which the customer made their purchase. Another reason for multiple accounts is that your banking institution can change their risk tolerance at any time, and you can be asked to leave, and lose the ability to process credit cards immediately. Just ask many nutraceutical, skin care, educational and dozens of other product types that have been shut down and are unable to process payments. Many were terminated without any notice or proper time given to open another merchant account. Having multiple merchant accounts would be a big help in this case, especially if you’ve already paid for DRTV media!

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There are more reasons to open multiple merchant accounts. Allow your ISO to assist you in developing a strategy that is suited for your specific business.

Understanding the Net Effective Rate Most marketers think they know what they are paying for credit card processing. They think the rate they were quoted is the rate that they use in their calculations and P&L statements. Due to confusing statements and hidden fees, merchants need to know the “net effective rate” for their credit card charges. The net effective rate is the total processing volume divided by the total amount of all rates and fees combined. Total fees should include the processing rate on the sale (including sales tax and S&H) plus chargeback fees, retrieval fees, statement fees, licensing, reversals, transaction charges, higher rates due to “downgrading” and monthly fees. All fees charged are included in your net effective rate. For example, let’s say you have $100,000 processed in a given month, and your rate is 3.00% and you have an additional $1,890 in other fees. Therefore, your total fees are $4,890 and your net effective rate is a whopping 4.89%, which is 63% more than you thought it was! Brick and Mortar retailers are often alarmed to see their processing rates rise dramatically when attempting to sell online, via catalog or whenever the credit card isn't present. As a merchant, your processing rate will be lower when the customer physically swipes the credit card at your business location. If you swipe a credit card and it doesn’t work, and you key-enter the numbers as a 2nd attempt, expect to pay a higher rate. Credit card companies consider key-entered information as a greater level of risk to them. This holds true whether the consumer is present at the merchant’s location or calling in the credit card over the phone.

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If the credit card information is entered over the internet, taken by a call center agent or key-entered, expect to pay a higher processing rate. Rewards cards, cash back, mileage, corporate or international cards will increase your processing rate whether your credit card is present or not. Because Rewards cost the providers money, providers have decided to pass these higher rates on to their merchants. These are called nonqualified cards or card that downgrade. Computing your net effective rate gives you a true snapshot of your actual costs, something that’s important to know when forecasting your bottom line.

How to Avoid Chargebacks Besides being time consuming and a nuisance, the chargeback process is often misunderstood and can be an unexpected costly problem that could impact your bottom line. Here are tips for reducing chargebacks:

Enclose a slip in each package, asking consumers to call YOU with any issues and NOT the credit card company.

Issue refunds as quickly as possible – the faster the consumer has a positive resolution, the less of a chance he/she will start the chargeback process.

Check your processes to ensure that duplicate orders don’t happen, including double billing and/or double shipping.

Make sure you have a process to verify that all legitimate refunds are actually processed in a timely manner.

Provide your phone number on the billing descriptor so consumers can easily contact you to avoid any confusion.

Retain your receipts, web transaction data and other information for three years, in a manner that you can easily retrieve them as needed.

Do NOT charge the card until the item is ready to be shipped; and provide shipping information via email so consumers know you’ve shipped their products.

Keep proof of delivery paper or electronic receipts with the original transaction information.

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State your delivery terms on your advertisements and website, such as “please allow X days for our product to reach you after it has been shipped.”

Have staff members who process cards review and understand your processor’s rules and regulations, so they don’t accidentally do something that could innocently trigger a chargeback.

What’s Behind Underwriting Approval There are three main reasons why merchant account applications are turned down by the underwriters who review them:

The product

The offer

The business and its owner(s) Some banks have blacklisted certain items, like nutritional and weight loss supplements, electronic cigarettes, downloaded content and “business opportunity” products. Some banks won’t accept products with trial offers or recurring billing. These are easily avoided by applying to the right banks, something your ISO can do. So let’s focus on one of the primary reasons for declines: the business and its owner(s). By agreeing to process your charges, the bank is actually taking a risk by paying you before they have been paid by the consumers. That’s why they have reserve accounts and other requirements for some business models. Today, banks are exhausted from non-responsible business owners who don’t provide all the information the bank has requested, such as tax returns, bank statements, personal guarantees and more. Banks have been burned by shady marketers who process huge numbers of customer credit card charges, and then disappear without shipping a product or the ability to provide refunds. As a result, banks have become materially more careful about who they accept, and under what terms. Banks want to know who will cover the potential losses if you stop selling your product, consumers then chargeback your product and there is no

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money in the bank to facilitate the customer refund. They want to know that your company and people are honest and not running a sham. By providing all the documentation requested, and a healthy bank balance in comparison to your required processing volume and risk level, you’ll get a fair review of your merchant account application.

Learn About the Importance of Payment Gateways

It’s important to understand what payment gateways are, how they work, and how they can impact your business. The payment gateway acts as a bridge between the merchant’s shopping cart and the acquiring bank, who deposits the merchant’s net funds into their bank account. There is software behind the scenes that securely transfers credit card information from the online payment form to the payment processor. Merchants are able to pre-authorize, authorize, capture, reverse and refund transactions via a payment gateway. Gateways with real-time reporting are helpful to assist with quick response times and managing customer expectations and service levels. Payment gateways offer a number of important features and functions:

Security via encryption of sensitive information

Multiple, recurring and membership billing service

Fraud prevention

Differentiation between gift cards and prepaid credit/debit cards

Virtual online terminal via any browser

Achieve PCI (Payment Card Industry) compliance

Payment taking place on your site or the processor’s site Not all payment gateways are the same. The most standard gateway used is Authorize.Net, which is compatible with most shopping carts and is easy to install and use. Authorize.Net features competitive fees, rates and preconfigured “buy” buttons available for all online storefronts. No matter what gateway you choose, be careful to make sure it’s compatible with other software you use.

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The Agency Perspective

Think about all the strategy and work you put into production, editing, media planning and every other aspect of your DRTV program. Chances are you may not be paying enough attention to the mundane yet critical aspects of credit card processing. From our POV, making sure your credit card processing relationship is as strong as possible is nothing short of critical. You simply cannot afford to have a successful DRTV campaign compromised by a weak relationship, insufficient accounts, and a lack of attention to the policies and procedures you need to follow.

Conclusion

Swipe has seen it all…merchants devastated by suspended merchant accounts and promising ventures that never saw the light of day because accounts that were not approved. Whether you’re currently selling on the air or planning to be soon, make sure you’re buttoned up, because getting paid in the digital age is a lot more complex than in the days before the Internet.

More Fresh Content from acquirgy and Swipe

Swipe

A Booming Market Selling to an Aging Population: http://www.electronicretailermag.com/?p=6176

E-Commerce/MOTO vs. Retail Rates: http://www.electronicretailermag.com/index.php/2012/02/15/kleinman-e-commercemoto-vs-retail-rates/

acquirgy

Discover over 100 best-practices content in the Customer Acquisition IntelCenter: http://SM1A.acquirgy.net

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Download another eBook that talks about other Internet-age issues that can impact your DRTV campaign: DRTV Derailers at http://DD131.acquirgy.net

Contact Information

Swipe LLC acquirgy

Curtis Kleinman Irv Brechner VP, Business Development EVP, Corporate Communications 310-573-9019 732-321-1924 Curtis@swipellc.com irv@acquirgy.com