I have questions about Payment Processing Services. Does anyone have any experience with them?

The charges would not exceed $1.50 per month but due to the huge saving if you charge yearly instead of monthly. I calculated using 5% transaction charge and +$0.25 per authentication, the variable cost per unit for yearly charges comes out to be 70% less than what monthly payment would sum up to.

Does customers require an account with the Payment Processing Service in order to pay me? Since i am unsure on how it works, a brief explaination would be appreciated along with recommendation.

What about Micropayment Processing Services? I get the feeling that they are the same thing just that Micropayment allows lower payment per units. Most of them require customers to have an account with them, similar to using Paypal although Paypal allows Credit Card processing for a fee.

Have any of you used any of the services out there and could recommend a few for me to look at?

Regards
Mian

P.S. If you have experience starting and maintaining an online business, plesae feel free to give me some advice. Even things that you feel that aren't very important.

Originally posted by myleow
I have questions about Payment Processing Services. Does anyone have any experience with them?

The charges would not exceed $1.50 per month but due to the huge saving if you charge yearly instead of monthly. I calculated using 5% transaction charge and +$0.25 per authentication, the variable cost per unit for yearly charges comes out to be 70% less than what monthly payment would sum up to.

Does customers require an account with the Payment Processing Service in order to pay me? Since i am unsure on how it works, a brief explaination would be appreciated along with recommendation.

What charges is the $1.50 eactly? Is that the gateway, customer service / statement fee, or just a month fee?

It all depends on your volume. I mean 10,000 transactions a month at $100, could be about 2.2% or so.

Charging yearly, well Visa / MasterCard do not like yearly charges. So processors have to set an example

As Corey said where did you come up with the $1.50? Is that a gateway fee or statement fee savings that you are referring to per month?

Also as Corey mentioned many processors frown on processing transactions for the term of a year, the main reason is because of charge back issues.

Micropayments are another way for clients to pay that might not have a credit or debit card that they can use. They are designed to have alternative payment solutions for clients.

$1.50 is the monthly fee that i estimate for the service that i am providing.

When i calculated it in terms of yearly then comes out to be one time payment of $18.00 per year, which saves alot on processing fees.

Why wouldn't they like yearly payment? It is similar to a one time payment of $18.00 for a service, the customer might not renew the service anyway after a year.

Part of the reason processors do not care for yearly terms is for one the merchant might not be around in business for the year term of fulfillment. So if that is the case clients will start chargebacks because there product is no longer available or in service. Since the merchant is out of business that means the processor is on the ropes for all the chargebacks and returns.

Ahh i see...

But in order to make a profit, i either have to charge yearly to reduce the impact of transaction fee or find a super cheap way to transact monthly fee.

$1.50 is not alot considering there are alot of processing fees involve before i actually see the money.

I was reading about peppercoin but they look like the same thing as any other micropayment. Requiring account setup. The only difference is that they allow you to aggregate the fee before taking it out from them, thus saving on processing fees (somewhat).

I have to download their Whitepaper and read it later to actually understand how their system works.

Regards
Mian

Unfortunately, the micro-payments market really hasn't been addressed yet by Visa/MasterCard in a manner that makes it very cost effective at this point.

There are special Visa/MC rate tables for certain emerging markets and industry types.

For instance, are some Interchange tables & processing policies that make it possible for QSR (Quick Serve Restaurants) and Small Ticket Retail merchants to process more cost effectively - but this hasn't translated yet to the online arena.

This may change in the future but right now - the core costs involved with processing an online transaction are still so high that on a $1.50 transaction you would be incurring at least a $0.30-.40 cost with most processing options on it when you add up the Interchange dues & assements along with network costs and even a razor thin profit margin.

So from one perspective - you are kind of between a rock and a hard place. You could do monthly payments which would be readily acceptable by any processor - but incur a higher per transaction effective cost %.

Or you could do quarterly or annual billings. This might make more sense for you particular needs, just make sure that you clearly disclose this with any processor you are applying with so that they understand and approve your account specifically for the annual billings.

BTW - one initial question that I do have for you, Mian... where are you geographically based in? The U.S. or outside of the U.S.?

My reason for asking is that the options will vary widely based on the answer to that question.

I am geographically located in California, US. The service is somewhat similar to Social Networking Services currently on the net but with more useful features.

Finalizing the code but still need to test with different devices since it supports both Mobile Phones and PC

Would my estimate of 5% + $0.25 be enough? I mean how much of the real money would i see in my Bank Account from the $1.50 monthly charges after i pay Payment Processing Fees. I bases profit project on the fact that Payment Processing is my only variable expenses and thus of the $1.50, i should see $1.17 and that is used to calculate Breakeven Units required for other expenses.

Is it correct to assume that Payment Processing is the only type of Variable Cost per Unit that i will have to deal with before going to normal expenses like Salaries, Hosting, etc.

You might also look into a few cell phone content providers as well. They already have established merchant accounts & might be able to provide a better deal as well.

The $1.17 seems about right. As far as the Variable cost per unit, it is possible. Without fully seeing your business plan, hard to say

i was looking at www.sabrecharge.com and do CC processing along with customer support. But the customer support is $0.50 extra per monthly subscription. That's quite alot.

I still don't understand how PayByCash works, i was told that they charge customers and not the Merchants. If that is the case i might use them for non-CC payments but they seem to be focusing on Online Gaming community which is not the industry that i am in.

Regards
Mian

P.S. So to make it crystal clear, there aren't any hidden fees charges associated to customer paying by credit card besides the 5% + $0.25, right?

I wonder if you even have business plan, doesn´t sound like you do. You need to calculate everything before you start a business and have a good plan ready that takes everything into account.

In the end, you might have to higher your prices to make it work, that´s just the way things work as everyone wants a piece of your cake.

Associated to customer? No.

But for the merchant, you are looking at a discount rate (lower than 5%), transaction rate, AVS fee (usually $.30 total) - and then a monthly gateway fee / customer service/statement fee.

How many transactions a month are you looking at?

Wow... there are still those fees? How much would those customer support and others come out to for calculation?

I am not sure how many transaction i am looking at. IF i do it monthly subscription then i would require 8,000 transaction per month to break even.

But if you say i would still have to pay customer support and other stuff which is calculated by per transaction (is it?) then i would require way more transaction per month to break even.

Please tell me what are the charges and how much.

Regards
Mian

Lorenz,

I am currently working on the Finance portion of the Business Plan, that's why i am gathering information on how much services are so i don't calculate wrongly.

Regards
Mian

Yes - if you are getting a merchant account. If you are talking about a third party processor, then probably not.

At the 8,000 transactions, you are probably looking at about 20% going to the processor. What are they getting for $1.50?

According to what you have given me. This is the calculation that i came out with.

Variable Cost per Unit is ($1.50*5%+$0.30) +$0.50 = $0.875

Gross Profit per subscriber per month = $1.50 - $0.875 = $0.625

Gross Profit per subscriber per year = ($1.50 - $0.875) * 12 = $18 - $10.50 = $7.50

The Gross Profit is only $7.5/$18*100% = 41.67% of Sale.

The Gross Profit is much higher if the subscription fee is calculated in a yearly basis.

Subscription fee per year per unit would be $18

Variable Cost per Unit is ($18*5%+$0.30) +$0.50 = $1.70 which is an 83.8% saving.

Gross Profit per subscriber per year = $18 - $1.70 = $16.30

The Gross Profit is $16.30/$18*100% = 90.56% of Sale.

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What about Peppercoin? Aggregated Micropayment sounds interesting but i still don't know how they really work. Do they charge the customers at the end of the month including other stuff that they have bought along with my stuff. Then send me one aggregated payment thus reducing fees to one transaction? If that is the case, then it saves even more considering the above calculation is only done on one Subscriber. If i have 5,000 then i save $5000+ on transaction fee.

Well I did it another way - or rather used a lower transaction rate.

Never heard of Peppercoin. But the aggregators have been a little frightful ever since Paysystems

Well from what i can tell. Peppecoin's aggregator micropayment, tallies up a bunch of payment before processing it.

If i bought something from 10 different merchant that has peppercoin account for $100 in total, i get charged once on my credit card for $100 at the end of the month or whenever the minimum charge-able amount is reached.

On the Merchant side, its a bit hazzy but what i can recall from reading a year ago was that. The charges are lump up before you withdraw it.

Say you have 10 people buying stuff from you, each spending $10 each totally $100. Instead of you getting hit with transaction fees everytime a person pay. The system will wait till a minimum amount is met before sending the payment to you, thus only 1 transaction fee is imposed on the $100 instead of 10. This saves ALOT of money.

The down side is that Merchants would not see the money instantly, only after the minimum amount is reach then they will be able to withdraw the fund.

It has its ups and down. For a company that can deal with Monthly payout from this type of Aggregated Micropayment Services, then it is definitely beneficial for the bottom line.

You lost me somewhere. The transaction fee some in at the point when the consumer make a purchase. Not the merchant.

I think I understand though, it batches? But the problem is, let's say you get 20 that day & it batches that night. Now you have already provided the service, but 10 of those transactions were fraudulent. What do you do now?

How does Payment Processors deal with Fraudulent charges?

I don't know how they are detecting and dealing with Fraud since its their trade secret.

Well you (as the merchant) won't get the money (unless you have VBV and that is anotehr cost to tack on). Not exactly sure what you mean how do they deal with it?

Detecting it - well they use the AVS, CVV, Geographic IP for starters.

One of the points of confusion that I would see is that let's say a consumer goes and buys 3 micro-ticket items - but from 3 different stores. So they never reach the "threshold" amount for one big charge to be processed - unless they prepay of course.

In other words, the concept would make sense if you are talking about a single customer who goes and buys 10 items over the course of a month from a single merchant - then gets one lump-sum transaction instead of 10.

But the only way for this to work in a multi-merchant scenario would really be for a pre-payment of some kind - because there isn't any way to "mass bill" multiple cards as a single transaction.

Or... maybe I'm just missing something here. I haven't had my coffee yet so that is certainly a possibility. ;)

If you have enough monthly transactions you might be able to negotiate a lower transaction rate with the processor. For the low transaction amount that you have, offering a higher discount rate in exchange for a lower transaction fee will save you money. Speak with Russ at http://www.merchantaccounts4less.com and let him work his magic.

The challenging part is that the pricing dynamics still don't change.

In other words, any processor has the same core Interchange costs from Visa & MasterCard - these are the same regardless of who the processor is.

The network per transaction costs do vary but only by so much.

So on a small ticket sale - like a $1-1.50 transaction - those core costs still need to be covered by the processor. The specifics of how this is accomplished might vary but the net cost is still the same in terms of the number of basis points cost.

Well in my calculation i will just assume the Variable Cost per Unit is

(Selling Price * 5% + $0.30) + $0.50

the $0.50 per transaction is the Payment Processing Fee thing and i think that is more than enough since it is pretty high for per transaction.

With this variable cost per unit in a Monthly Fee of $1.50, the Gross Profit Margin is only 40+%. But if it is charged yearly subscription fee, then the Gross Profit Margin increases to 90%. So i think i will most like 1.5 times the monthly fee and keep the yearly fee constant. Informing the customers that the saving is pass to them since it saves on transaction and processing fees.

Well i was asking myself about how Peppercoin is going to deal with accounts that does not reach its "threshhold" limit.

Anyway goto http://corp.peppercoin.com to see for yourself.

Regards
Mian

I could not find their prices - I oly looked for about a minute, but if a company cannot easily place a link that says Rates or Fees, makes me wonder.

that's their explanation site.

www.peppercoin.com is their main site but i couldn't find their pricing either.

THey are a startup from last year or a year before that with VC backing. MIT people ran the show.

Well it seems to me you would want to know their pricing first. :confused: