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  1. #1

    run an online payment service ?

    Is there any special requirement to become an online payment service provider? I have a merchant account, a friend of mine wanna use this merchant account, however, I do hear from somewhere that's illegal if you lend your merchant account for others to use. So I would like to know how can I arrange such business? I plan to make my company to be an online payment service provider, so I can give my own merchant account for friend or other potential customers to use instead of just leave it open and paying monthly fees. Please advise, thank you so much.

  2. #2
    You are right to be cautious. Lending your merchant account out to others is against the card association rules and would put you in violation of your merchant agreement and would be grounds for your account to be terminated and for you to be placed on the TMF or MATCH list (terminated merchant file). Its called "factoring".

    Also, whoever you are lending the account out to is getting a free ride because you are assuming all the risk of chargeback on their sales because your name is on the merchant agreement.
    Dave
    PH: 800-761-7475
    PH: 802-876-5087
    www.RiskPayments.com

  3. #3
    Join Date
    Jul 2003
    Location
    Castle Pines, CO
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    7,189
    Do not - repeat - do not let anyone EVER use your merchant account. This is more than likely against your contract. Your merchant account can be suspended / terminated and you might be placed on the TMF list. If you are placed on this list - it can be very difficult to get another merchant account.

  4. #4
    Thanks for your info. Now, I know that it is against the law to lend others to use my own merchant account. However, I would like to know that how I can be legally to become a third party online payment service provider just paypal. Of course I am not expecting it will as big as them. Therefore, I would like to know the legal requirements to be qualified to run such online service. Thanks for all your advices.

  5. #5

    Payment system

    You cannot use your merchant account to be a payment provider. It MAY be possible to make "instant purchases" of goods from other suppliers and put the purchases through your merchant account. This is the way companies like JensleyPay work. You MUST check with the account supplier before doing this.

    Of course you would have to protect yourself against chargbacks by holding payments to your "suppliers". A customer can make instigate a chargeback up to 6 months after a transaction. The card companywill support the customer (without question) in 99% of cases. If the bank does not pay you then you have a serious problem because you still owe the suppliers money and run the risk of legal action.

    I suspect that it seems like a real easy way to make some money. Cream off a percentage of all transactions, sit back and count the cash. You might want to take a look at other posts in this forum. In particular PaySat and JensleyPay posts. What might seem like a good idea can very quickly get you into some very serious trouble.

  6. #6
    To be a real "online payment provider" similar to PayPal you need:

    1. A lot of money
    2. A very good accountant
    3. A very good lawyer
    4. Approval by the financial services authorities in the countries that you intend to operate.

    The fact that you are asking this question in a forum means you have zero chance of legally becoming an online payment provider.

  7. #7
    Join Date
    Jul 2004
    Posts
    329
    Originally posted by webwrigh
    To be a real "online payment provider" similar to PayPal you need:

    1. A lot of money
    2. A very good accountant
    3. A very good lawyer
    4. Approval by the financial services authorities in the countries that you intend to operate.

    The fact that you are asking this question in a forum means you have zero chance of legally becoming an online payment provider.

  8. #8
    Join Date
    Aug 2003
    Location
    Chesapeake, VA
    Posts
    3,379
    Unfortunately, the problem here is that it is not really feasible to be a "small time" online payment service - either you do it all the way and go through a substantial set of hoops in order to do it aboveboard... or you run a very high risk of ruining your business by trying to take shortcuts.

    In addition, to properly operate a third party processor you would need to have extensive experience in the bankcard industry - areas such as risk management and fraud prevention would be just a few of the areas.

    I'd also recommend that you not try to "get past" the rules & regs by setting up some kind of mall with sub-vendors, etc. It will be very little consolation to you if your merchant account is terminated because your merchant services provider has a different perspective on it than you.

    I know that your intent is just to utilize an account that you have and maybe help out a friend - but all I can say is that it just isn't worth it.
    CDGcommerce.com - Trusted Merchant Account Solutions since 1998
    Many thousands of successful, growing businesses benefit from our expertise every day. You can, too!
    We help merchants to eliminate gateway costs, reduce & mitigate fraud and achieve streamlined PCI compliance.
    Learn more today at http://www.cdgcommerce.com - we look forward to helping your business grow!

  9. #9
    I actually just want to let my friend to use my merchant account through a legal way as that I become a legal third party payment service provider, so my friend can use my merchant account as of my customer. At least in documentation I would not be against the visa rule or any related law. I don't want to run big but just like a small payment service provider, maybe only with one friend as my customer. Recently, I seen there are many small unprofessional thrid party payment service providers. So, I think the requirments may not too difficult to meet.

    I would like forward a link for you to read about a family whom ran such business a few years ago. If I am allowed to do so here it is ...
    Last edited by iecwillow; 07-22-2005 at 12:39 AM.

  10. #10
    Join Date
    Jan 2004
    Location
    Germany
    Posts
    359
    In my opinion the story you link there is the typical fly-by-night 3rd party payment processors that go *BOOM* like they did "simply pulled the plug and walked away with the clients money and I was out of debt". I mean alone this sentence should make it clear to you why VISA / MC / AMEX are having VERY strict rules, not like back in 1998 when all this was pretty new and this family just run this (in the end) fraud. Itīs funny that they were taking the cards in by hand and entering them into the system, the whole family could have shopped with the cards as well! A 3rd party processor, if rules-compliant, cannot even see the credit cards that are stored in his system that were entered by itīs merchants / clients. They have to be stored on a encrypted server and not just a normal encrypted service but one that passes the VISA / MC tests that are run by independent companies who are trying to intrude into your system once you have set it up to make sure the server is confirm with the rules.

    Again, your options are becoming a official and VISA compliant 3rd party processor, even if you only provide this service to your friend you WILL have to do it, or you just do it and risk loosing your merchant account + the money in it and being put on the TMF list and will most likely never get a merchant account again in your life. There is no "half-legal" way in-between, itīs that simple, just like one canīt be "half-pregnant".
    Last edited by Lorenz; 07-22-2005 at 02:59 AM.

  11. #11
    Join Date
    Jan 2004
    Location
    Germany
    Posts
    359
    P.S.: One other rule, if you will be a legal 3rd party processor is that you are under no circumstances are allowed to mix the capital of your merchants with yours, which you will be doing once you let your friend process through the same account your process through.

    Believe me, these VISA rules (independent from the rules that the state will enfocre on you via itīs financial controling institutions) are so huge and strict that you will need a heap of money and a team of programmers, lawyers, accountants, managers and bankers to even just get to the planning phase with it.

    Just have a look through the E-Commerce forum through the past couple of weeks/months/years, we have seen so many of the coming and then going *BOOM* with the money of their clients lost because VISA has found out and they did it the same way you are intending to do it or like this "family 3rd party processor" (oh my god!) was doing it.

  12. #12
    Also, bear in mind that "incorporating to protect your personal assets" will do absolutely nothing since you have already signed a personal guarantee to open your current merchant account.
    Dave
    PH: 800-761-7475
    PH: 802-876-5087
    www.RiskPayments.com

  13. #13
    Join Date
    Aug 2003
    Location
    Chesapeake, VA
    Posts
    3,379
    I actually just want to let my friend to use my merchant account through a legal way as that I become a legal third party payment service provider, so my friend can use my merchant account as of my customer.

    Do your friend a BIG favor - and help him/her setup their own merchant account so that they and you won't risk being put on the MATCH list and ruining your businesses.

    I don't mean to sound like a broken record but trust me when I say - that is NOT a path you want to go down.

    A small unregistered 3PP is the same as a big unregistered 3PP - the only difference is that only a few people end up getting burned instead of hundreds or thousands.
    CDGcommerce.com - Trusted Merchant Account Solutions since 1998
    Many thousands of successful, growing businesses benefit from our expertise every day. You can, too!
    We help merchants to eliminate gateway costs, reduce & mitigate fraud and achieve streamlined PCI compliance.
    Learn more today at http://www.cdgcommerce.com - we look forward to helping your business grow!

  14. #14
    Thanks for all attention and advises.

    Anyone know how Amazon.com run zShops? Amazon collect online payment for all zShops member, is pretty much alike share the merchant account, isn't it?

  15. #15
    Join Date
    Jan 2004
    Location
    Germany
    Posts
    359
    Originally posted by iecwillow
    Thanks for all attention and advises.

    Anyone know how Amazon.com run zShops? Amazon collect online payment for all zShops member, is pretty much alike share the merchant account, isn't it?
    ... again with a huge company with a huge amount of money in the background to start it off and for sure with the needed licenses from the card companies. If you were as huge as Amazon you most likely wouldnīt have a problem to start it legally, following all the points and rules mentioned above in this thread.

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