Hello everybody,
I`m just interested in statistics, what would you choose and why? Do you think that even big and popular 3pp seem unprofessional for business establishment or whatever. Would be glad to know you opinions.;)

It's like having a virtual hosting and a dedicated server :)


IMHO if you can, you should always get a merchant account and stay away or 3pp. Only use them if you don't have anywhere else to go.

I do believe that a direct merchant account is the best option for serious businesses... provided that they can obtain one. In the U.S., this is usually a lot easier to do than overseas.

Over the long haul, it provides a much lower cost solution, far more portability and control and a better appearance to end users.

That being said, having your own merchant account in conjunction with something like PayPal is fine.

In addition, if you are a hobby business or just testing the waters here and there, a 3PP might be a better solution for your needs initially.

ut merchant account is more difficult to operate. And even if you are planning serious business, don`t you think that it`s easier to start it with 3pp?

Third party is typically more expensive and you have much less control than using a gateway woith your own merchant account. We use and setup our hosting clients all with Netbilling.com. They are really great, have good prices, and even handle our call center services. I highly recommend them.

If the business you have online, has a high monthly volume I would always suggest a own Merchant Account.

3PP should only be used if you don't have frequently transactions and if the volume is low.

I would say the choice really depends on the industry and the ability to track things internally as well.

First of all, in general, and only in general :-) , direct merchant accounts are cheaper than third party billers.
The problem herein is that a lot of direct merchant account providers hide the real fee in small "secret" fees like transaction fees, which for example may as well include fees on declined transactions. In the end a lot of providers may actually offer a direct account on a more expensive rate than aggregated typical third party, although this is more typical to higher risk industries (where side fees go absolutely crazy, for
example 1$ per transaction including declined).

Then the advantage of the merchant account over third party that more or less this is "by the book" solution, i.e. Visa and Mastercard really more or less require (especially Mastercard) that the correct form of processing is a direct merchant account, and while there are allowed by rules types of third party billing (for instance IPSP model under Visa and E-ticket model under Mastercard) there unfortunately is virtually no real way to check whether the IPSP is really following these rules and if not, all of transactions are endangered. However the problem herein lies in the fact, that even in direct merchant accounts providing a lot of rules can be abused by processors as well (banks love to put a contractual intermediary in between them and merchants, which however makes the whole set-up incorrect according to the rules).

The real right way would be to have a direct contract with the bank.

And it would be the best solution, however in direct merchant accounts processing there are constant small headaches which have to be adressed (various certifications like AIS which pop-up from time to time) , usually bank gateways as well are quite poor in terms of their processing software capabilites, however in the long run it is the best solution. For a direct merchant account, which means the direct contract with a bank, most likely the requirements to the merchant itself may be higher than for a third party processor in terms of paperwork, because signing a contract with a merchant account with a bank, just as any other contract will require a lot of due-diligence stuff, which although is never a problem for most companies.

But again, the real advantage is that you actually hear all details directly from the source (i.e. from the bank) which is a regulated body and plus has actual access to Visa and Mastercard rules and to their team as well, this may remove a lot of headache when something happens.

Originally posted by Petertje
I would say the choice really depends on the industry and the ability to track things internally as well.

First of all, in general, and only in general :-) , direct merchant accounts are cheaper than third party billers.
The problem herein is that a lot of direct merchant account providers hide the real fee in small "secret" fees like transaction fees, which for example may as well include fees on declined transactions. In the end a lot of providers may actually offer a direct account on a more expensive rate than aggregated typical third party, although this is more typical to higher risk industries (where side fees go absolutely crazy, for
example 1$ per transaction including declined).

Then the advantage of the merchant account over third party that more or less this is "by the book" solution, i.e. Visa and Mastercard really more or less require (especially Mastercard) that the correct form of processing is a direct merchant account, and while there are allowed by rules types of third party billing (for instance IPSP model under Visa and E-ticket model under Mastercard) there unfortunately is virtually no real way to check whether the IPSP is really following these rules and if not, all of transactions are endangered. However the problem herein lies in the fact, that even in direct merchant accounts providing a lot of rules can be abused by processors as well (banks love to put a contractual intermediary in between them and merchants, which however makes the whole set-up incorrect according to the rules).

The real right way would be to have a direct contract with the bank.

And it would be the best solution, however in direct merchant accounts processing there are constant small headaches which have to be adressed (various certifications like AIS which pop-up from time to time) , usually bank gateways as well are quite poor in terms of their processing software capabilites, however in the long run it is the best solution. For a direct merchant account, which means the direct contract with a bank, most likely the requirements to the merchant itself may be higher than for a third party processor in terms of paperwork, because signing a contract with a merchant account with a bank, just as any other contract will require a lot of due-diligence stuff, which although is never a problem for most companies.

But again, the real advantage is that you actually hear all details directly from the source (i.e. from the bank) which is a regulated body and plus has actual access to Visa and Mastercard rules and to their team as well, this may remove a lot of headache when something happens.

That is a good explanation and opinion.

I have a question. Why don;t adult sites that run under and IPSP have to follow the same chargeback rules as a high risk merchant with thir own account? I was told that under an IPSP in the US, you must only have under 100 chargebacks per month to be put into the monitoring program. However, if you are a high risk merchant with your own account, you have to stay under 1%. Also, why does Mastercard charge $1000 to register your own high risk merchant acocunt but nothing if you are under an IPSP?
That hardly seems fair.

Thanks in advance.

..Hearing from the source is great advantage. But there are some types of goods that are not 'apperciable' by merchant account providers.

Originally posted by Webhoster2004
That is a good explanation and opinion.

I have a question. Why don;t adult sites that run under and IPSP have to follow the same chargeback rules as a high risk merchant with thir own account? I was told that under an IPSP in the US, you must only have under 100 chargebacks per month to be put into the monitoring program. However, if you are a high risk merchant with your own account, you have to stay under 1%. Also, why does Mastercard charge $1000 to register your own high risk merchant acocunt but nothing if you are under an IPSP?
That hardly seems fair.

Thanks in advance.

Anyone?

With respect to U.S. merchants, Visa and MasterCard each have their own specific chargeback monitoring program guidelines.

The one that you are referring to about the minimum of 100 chargebacks (and also 100 Interchange transactions) is the Visa mandated one... and it applies to all merchants.

MasterCard has its own close equivalents both on % of transactions and % of Chargeback-to-Interchange volume.

Just keep in mind that while some of what you are mentioning are the requirements to be placed on the monitoring program and potentially get to the point where penalty fees start to get assessed - most acquiring banks and ISO/MSP's do not want any merchant's situation to get to that point in the first place.

The specifics of how they are handled do vary a great deal from one processor to another, however.

There are also numerous ways to combat fraud through both manual & automated methods and so the focus has to always be avoiding chargebacks in the first place.

Originally posted by Webhoster2004
That is a good explanation and opinion.

I have a question. Why don;t adult sites that run under and IPSP have to follow the same chargeback rules as a high risk merchant with thir own account? I was told that under an IPSP in the US, you must only have under 100 chargebacks per month to be put into the monitoring program. However, if you are a high risk merchant with your own account, you have to stay under 1%. Also, why does Mastercard charge $1000 to register your own high risk merchant acocunt but nothing if you are under an IPSP?
That hardly seems fair.

Thanks in advance.

In relation to your questions, you have a lot of partially incorrect information:
1. Everyone under IPSP model has to follow exactly the same rules as under separate merchant account.
Moreover, and VERY important, there is a great confusion on the market, the thing is - Mastercard has no IPSP model. IPSP is a Visa Term only.
Thus Mastercard treats all IPSPs as single merchants.

In fact, one of the troubles, which is bothering a lot of companies, is that Mastercard not only doesn't have an IPSP model, but in fact Mastercard quite clearly forbids any sort of aggregation.

The way on which Mastercard sees the processing in the internet is to:

a) have a separate contract with the acquiring bank (and bank only)
b) have a direct pay-out from the bank
c) a party which sends over transactions on merchants behalf must be duly registered as MSP or TPP Type 2 (Member Service Provider and Third Party Processor Type 2).

Absolutely all third party billers, who act right now on the market find different ways how to get treated as a single merchant by Mastercard.

2. IPSPs tend to allow merchants LESS than what is really required by card associations and sometimes for the simplicity of explanations may say that certain rules come from Visa or Mastercard when in reality it is not so (and this again is one of most important reasons why direct bank relationship is better). You have to understand though, that both Visa and Mastercard allow their acquirers (and their agents, of course as well) to give more strong requirements then the actual Visa and Mastercard requirements are, nothing wrong is here to be true (unless you get charged $200 per chargeback).

Anyways, both 100 chargebacks and 1% separately seems to be incorrect information and a bit of a mess.

Original international (!) rules which by the way are the same worldwide no matter what you are told, are:

Visa: 2% of transaction count and no less than 200 chargebacks per month.
Mastercard: 1% of transaction count and no less than 15 chargebacks per month but in TWO CONSECUTIVE MONTHES (that means that you have to be over 1% and 15CBs two months in a row).

However while Visa will at least look on different merchants on different angle under IPSP but still unites global liability under IPSP , at least Visa realises sub-merchant model, Mastercard simply has no such term and will basicly treat the whole IPSP account as a single merchant, and because of that, naturally it will almost always be over 15 CBs per month and thus 1% will be the only thing to fight for.
:-)
In simple terms, stay under 2% at Visa and under 1% at Mastercard to stay within the rules but follow what is required by your contract with IPSP really or PSP or the Acquirer. If the Acquirer or IPSP tomorrow decides that each chargeback costs $1000 there is nothing you can do, its simply their fee. That of course is true unless they want to issue you retroactively a penalty or a fine which is as they say from Visa and Mastercard, which may not be true often.

3. On contrary to what you have said, Mastercard will ALWAYS charge $1000 as a registration fee under IPSP or under a separate account, if someone does not require you to pay this, most likely than the sub-account is not coded as 5967 (MCC code for adult business) and rules are abused. In fact there is indeed a difference between USA and EU and that is that in USA Visa as well charges a fee for high-risk registration and does not charge it in EU.
That's about it.

Always try to understand that under any IPSP model basicly you go together with other merchants and thus liability is higher plus what happens quite often is that one of the merchants may run in troubles , for example cause mass penalty to the account, and the IPSP will attempt to gather it from all merchants. Sadly (!) this happens as well with acquiring banks themselves, when they abuse rules of Visa and Mastercard towards banks themselves and then pass it over to the merchant.

From our experience.
Example 1, IPSP:
An IPSP does processing for normal merchants but accepts a gaming merchant, and ignores the rules on cross-border, and MCC coding and so on and so forth or worse a plain fraudelent merchant or illegal merchant. The acquirer (and IPSP) gets a penalty of lets say 500K USD for all their wrong actions with that merchant but because the merchant keeps only 50K with the IPSP as a reserve the IPSP attempts to get these funds from other merchants claiming issues with Visa and Mastercard on any possible ground. Happened a lot of times.

Example 2, Acquirer:
The acquirer accepts an application from an adult merchant which clearly states that the business is adult business. The acquirer on purpose (!) miscodes the merchant and assignes an MCC code of a book shop. Later on the acquirer finds out that the merchant is getting close to 1.5% of chargebacks on Visa and a situation is possible in which Visa will fine the merchant. What will happen if Visa fines the merchant? Technically nothing, the merchant pays the fine, end of story. However when the fine will be applied the chance is great that Visa will see that the merchant is mis-coded, and that is subject of 25K USD penalty per month since the day of occurence (day of opening the account) TOWARDS THE BANK (quite naturally the merchant is not required to have any idea what the hell MCC code means , it's acquirers responsibility).

The acquirer shuts of the account (which in fact is very easy to keep open and just do some chargeback monitoring) and attempts to freeze all of the funds to be able to:
a) Use them to pay off a possible fine
b) Create a situation in which it will be easy for an acquirer to claim to Visa they had no idea what the merchant was doing to excape the fine. Like we say , play a dumb-***, like "Hey dudes! Here we are ! We had no idea what the hell these weird guys are doing, but dont worry, we froze it all!"
:-)
This particular situation has actually happened with one of our clients in a very solid EU country in a very solid EU financial institution. The most stupid was that the acquirer application has actually HAD in it a clear definition plus website URLs which pointed to the nature of the clients business. :-) The managers in the bank claimed , hold your breath, that they did not read the application, corporate procedure you know.

That's about it, if you have more questions - shoot :-)

Hi,

That is a great post but I am still confused.

(1) Humboldt told me that Visa is 1% US, not 2%. 2% is international. Are they lying to me?

(2) As far as the amount of chargebacks... Im told of merchants who had 1.5% or so for a few months with well under 100 chargebacks and still got termionated byut the bank. Why?

(3) It seems since you stated that since Mastercard does not have an IPSP model that merchants that are processing with with companies such as CCbill, CCnow, Paycom 2CO etc... not only get to avoid paying the $1000 registration fee, but do not have to stay under 1% or 15 chargebacks per month, correct?


Thanks

The Visa threshold for U.S. processing is definitely 1% - that is correct. It is 1% and 2.5% respectively for MasterCard in the U.S. and you'll need to meet the minimum thresholds of 100 & 15 in order to qualify - not that you'd want to. ;)

The international Visa & MasterCard guidelines are different than the U.S. ones. Ido did a great job above of hitting the key guidelines and I'm sure he can clarify further on the international side of things.

But again - you need to keep in mind that while Visa and MasterCard have mandated rules & regs that require placement of a merchant on the chargeback monitoring program, that doesn't mean that a processor is going to necessarily let things degrade to the point where an audit and monitoring will become necessary - it isn't in anyone's best interest to do so.

Remember - an acquiring bank or ISO/MSP who holds the risk/liability on a merchant account has the right to terminate it well in advance of those thresholds if it feels that there is a high likelihood of loss present or if a merchant violates their stated parameters or breaches any aspect of their agreement.

That being said, it is certainly good to work with a processor that understands Internet processing and who won't shy away from anyone who gets some chargebacks, but you need to speak to each merchant processor to get the specifics on their policies in this regard.

That clears up the first 2 questions for me but what about this one...

(3) It seems since you stated that since Mastercard does not have an IPSP model that merchants that are processing with with companies such as CCbill, CCnow, Paycom 2CO etc... seem to be at an advantage not only get to avoid paying the $1000 registration fee, but do not have to stay under 1% or 15 chargebacks per month, correct?

Originally posted by Webhoster2004
Hi,

That is a great post but I am still confused.

(1) Humboldt told me that Visa is 1% US, not 2%. 2% is international. Are they lying to me?

(2) As far as the amount of chargebacks... Im told of merchants who had 1.5% or so for a few months with well under 100 chargebacks and still got termionated byut the bank. Why?

(3) It seems since you stated that since Mastercard does not have an IPSP model that merchants that are processing with with companies such as CCbill, CCnow, Paycom 2CO etc... not only get to avoid paying the $1000 registration fee, but do not have to stay under 1% or 15 chargebacks per month, correct?


Thanks


1. They are not lying, they as any other bank are allowed to request their own percentages of allowed chargebacks as has been explained above.

2. The termination of merchants may be required by banks own policy and not by Visa or MC.
On top of that , please know, the acquiring banks have their own global limits of allowed Chargebacks from Visa and MC on the scale of the whole bank, these limits are MUCH less than internet limits of 2% and 1% as the common offline street merchant typical chargeback rate is below 0.2%. Typically in any acquirer the percentage of online e-commerce is very insignificant to the offline merchants percentage and the original rules of Visa and MC are applied, if however , the bank is strong in e-commerce, like Humbolt, they tend to have much more strict rules towards e-commerce, or the whole bank rate may shift outside of per-bank allowed ratios.

3. No, they do not avoid paying the 1000USD fee and they have to stay under 1%.
a) The $1000 fee is designated per MID (merchant identificator wich goes together with the descriptor).

Usually MID = Merchant account, i.e you've got one MID in the VISA/MC system and one financial account where funds are transferred from the bank. However under one financial account there can be as many separate MIDs as you want, technically there is nothing wrong with it, it's just that it is not so common.

For example, you've got 20 websites, and you would like each website purchase to show differently on the cardholder statement, so you register 20 MIDs under the same financial account i.e SAME merchant account with your bank. As long as these websites belong to one company only - nothing is wrong here again. Banks typically do not offer this and do not like it too much because banks own risk management and other software usually has MID as the lowest step in the hierarchy, i.e. for them it may be sometimes pretty complicated to track 20 MIDs under one financial account.

So what happens is that third party billers are supposed (by Visa rules for sure) to register for each sub-merchant a separate MID under their single financial account, for convinience they usually make part of the cardholder descriptor to show the IPSP name and the second part the sub-merchant name (rules for IPSPs also require it), for example IBILL*MerchantName.

Mastercard takes $1000 registration fee on a PER-MID level, even though the merchant account (the financial account) is of one company. Technically you can compare it with a cinema with a few different cash-registers , each cash-register is subject of a fee.

Originally posted by cdgcommerce
The Visa threshold for U.S. processing is definitely 1% - that is correct. It is 1% and 2.5% respectively for MasterCard in the U.S. and you'll need to meet the minimum thresholds of 100 & 15 in order to qualify - not that you'd want to. ;)

The international Visa & MasterCard guidelines are different than the U.S. ones. Ido did a great job above of hitting the key guidelines and I'm sure he can clarify further on the international side of things.

But again - you need to keep in mind that while Visa and MasterCard have mandated rules & regs that require placement of a merchant on the chargeback monitoring program, that doesn't mean that a processor is going to necessarily let things degrade to the point where an audit and monitoring will become necessary - it isn't in anyone's best interest to do so.

Remember - an acquiring bank or ISO/MSP who holds the risk/liability on a merchant account has the right to terminate it well in advance of those thresholds if it feels that there is a high likelihood of loss present or if a merchant violates their stated parameters or breaches any aspect of their agreement.

That being said, it is certainly good to work with a processor that understands Internet processing and who won't shy away from anyone who gets some chargebacks, but you need to speak to each merchant processor to get the specifics on their policies in this regard.

Thanks for the comment, it's quite difficult for us to quote USA rules of VISA and MC as indeed they are sometimes different and we work only in EU ourselves. As for CB monitoring programs, indeed nobody simply wants it and tries to amend their own policies in a way that will keep them out of CB problems.