THE CARDS

The Bank/Debit Card
Don’t confuse this with a credit card. They both might say VISA or MasterCard on the front, but they are very different things. The bank card takes money out of your customer’s account and puts it into your account. It effectively amounts to a direct transfer. It also offers your customer no protection if you go bust or don’t deliver on your promises. It’s the cheapest card to accept, and in many cases, the fees are fixed irrespective of the amount transacted. Your money also lands in your account in the shortest time possible with these cards.

The Credit Card
The credit card, in essence, is actually a borrowing facility for your customer. When you charge a credit card, it is the card issuer that pays you, not the buyer. The card issuer lends the money to the buyer on-the-fly. It offers limited protection for the customer if you don’t deliver or go bust. Because it offers this (lousy) protection, it costs you a lot more to take a payment on a credit card than on a bank card. That’s the problem: fees can be massive – 1% through to 4% of transaction amount. But more on that later.

Special/Premium Cards
American Express, Diners etc. – these cards may either lend the customer money, like a credit card, or be equivalent to a bank card, depending on their exact nature and terms. But that’s not important. They’re premium/special cards and the main issue here is that they offer their customers many special features (points, air miles, cashback schemes, massive lending facilities etc.). Someone has to pay for all these features! And guess what – you do. The supplier bears the brunt of these cards, and the fees range from an expensive 2.5% through to a ridiculous 6%. To add salt to the wound, your money takes the longest to land in your account with these cards, and many of these guys take the fees first and only then pay you the money. Not very nice.

THE VARIABLES

Now here is where it gets tricky (and this is information that the card companies may suppress when they generate your bill at the end of the month). It’s well known that your fees are dependent on turnover. The more dollars you take by card, the lower your fees will be. But did you know that:

• If your credit rating is poor when you open your merchant account (be it an individual or company account), you pay more.
• Once setup, you can lower the fees slightly by depositing money with them as security to mitigate this risk. Your money collects zero interest whilst it is in their possession.
• If you want instant or quicker settlement (which is never actually instant), you pay more.
• If the average size of transactions is smaller than a certain amount, the rate increases.

And what about “non-qualifying transactions”? This is where the card companies really rip you off!

• You pay more than the basic rates above to accept payment by credit card or bank card if the cardholder is a company or corporate entity. We’re not sure why this policy exists. It seems to us to be nothing more than extortionate profiteering without just cause.
• You pay more to accept payments from cardholders who reside outside your own country.

There are other non-qualifying clauses. Read through the fine print. The credit card companies have all sorts of transactions which don’t qualify for your (already expensive) basic rates and can present you with nasty surprises when you get your bill. Check this thoroughly.

The bottom line of all of this is that you end up in a situation where you think you are paying a fee of 2% when you open the account. But to receive the money in a decent time frame (days, rather than weeks), the card processing company want a $3,000 upfront deposit. Add to that the possiblity that you charge a foreign-issued premium card, which you pay fees of 4.6% on, and we have a recipe for a cashflow nightmare at the worst, or lower returns for no justifiable reason at the very least. And all this is happening whilst we are still struggling to climb out of one of the largest global economic downturns in history.

Worse still is the lack of protection the merchant payment providers offer to suppliers. They can withhold your money, enact a chargeback and take it back from you, close your account and basically screw your business.

Have all the information to hand and, like I said, evaluate every card transaction you take on an individual basis so you know in advance how much you are paying for it. Better still, find an alternative way to accept payments that leaves you richer and far more secure.

Good luck!

Like I explained in a previous post, a supplier taking a credit card payment for any amount (whenever the card is not present), regardless of the payment processing service used, is effectively making a gamble that:

• the buyer is not going mess him or her around on the transaction;
• the buyer is not using a stolen/fraudulent card; and
• the buyer is therefore not going to start a chargeback process (which results in the supplier not getting paid).

The high risk this gamble entails means that today, suppliers are increasingly insisting on more transparent ways of getting their customers to pay for things (or they should be if they don’t want to lose money) – especially for larger transactions where they could potentially lose a large sum of money.

And that’s fair. No supplier wants to send a customer a good only to not get paid for it. This is why suppliers (including those on eBay) may want you, as a customer, to pay by a direct bank wire or a bank/debit card. Both these methods offer you no protection if the supplier turns out to be less than trustworthy.

Once you’ve paid by either of these methods, there is no comeback and you’re at the mercy of the supplier. The problem here is that when moving from a credit card payment to a direct transfer, the risk has shifted, in its entirety, to the buyer.

The essence of the problem is that suppliers won’t take a credit card because they’re scared, and buyers won’t pay by transfer or a bank/debit card because they are scared. Clearly, there is a problem.

THE SOLUTION:

Simple: pay through UTruePay.

If you are a buyer and you pay a supplier through UTruePay, we ensure that the company is in a position where it can actually deliver what it promised you. And we do this instantly, on the spot. Furthermore, we get them to legally commit to keeping their promises to you, so that they can’t get out of the deal once they’ve got your money. We make sure you bear no risk.

The benefits for a supplier are also equally significant. You receive your funds without merchant fees. You cannot be subject to a chargeback, you cannot be the victim of fraud, you get your money the same day and your customer get total peace of mind. You’re simply receiving the money you deserve. We make sure you bear no risk.

Why?

Because everyone should stick to their promises. Because good people should be able to sell without fear.
Because good people should be able to buy without fear.

Nobody should have to lose money by trading with dishonest people. It’s just not fair. UTruePay eliminates this scenario and all fear for both buyers and suppliers.

Let’s say that you own a small but well-established company that supplies goods to customers all over your country and all over the world. Your website is your storefront. You operate in a small specialised niche, supplying higher value deliverable items, and are one of the very few known ports of call when it comes to supplying the goods that you are reasonably well known for. You ship everywhere, business is good and life is decent.

Then one day, as is usual practice, someone in a different part of the world contacts you, does a deal, and gives you his credit card details. You charge the customer’s card, and you then ship the goods and wait (perhaps for a long time) for the money to land in the bank. It’s all as smooth as clockwork, right?

Wrong. Two weeks later, you receive a letter or e-mail from your merchant services provider saying that the goods were bought on a stolen credit card. Your account is stopped and the money is either taken out of your account or you’re asked to send the card services provider a cheque for the same amount, or they’ll take action against you.

In the meantime, your account is still on stop, preventing you from getting paid by other bona fide customers, and your previous “customer” has disappeared completely. The goods are long gone, and now, the money too.

It happens all the time. The chargeback to suspended account to stopped payment gateway sequence is a routine part of the retail landscape and should be, to be honest, totally unacceptable. Merchants pay absolutely extortionate fees, which run as high as six percent, to accept certain credit card payments. If the card companies’ own fraud protection measures fail to protect you, well, they simply just take their money back.

The reality is that you, as a merchant, run a huge risk every single time you process a card-not-present transaction, and there’s nothing you can do about it. Worse still, you’re completely at the mercy of your customer.

Consider that it may not even be a case of stolen/fraudulent credit card usage. Your customer can simply “change his mind.” He calls his card company and tells them that your goods were unsuitable/unfit for purpose, and that he wants all/some of his money back. They make you dance to their tune (e.g. “I want a retrospective discount”). So begins the same sad story of chargebacks etc ad infinitum. And all the while, you’ve only ever been honest and practiced good business integrity.

The provision of credit card payment facilities all over the Western world (especially online) has become an incredibility oligopolistic marketplace and a cash cow for the banks and payment processors. Only businesses putting through millions of dollars in card turnover every year get half-decent card-processing rates. The rest of us pay extortionate rates for minimal protection, and frankly disgraceful settlement times whilst being utterly at the mercy of our customers.

I remember clearly that when I first started my first import and distribution business, I was told by the payment processor that I would need to deposit a very large sum of money with them if I wanted anything other than 30 days’ settlement terms. I couldn’t believe what I was hearing. All I wanted was to get paid – why was that so hard?

Well how do you deal with it? Simple: minimise card acceptance, or the risks of it going wrong when you do have to accept a credit card.

Here are some practical suggestions I put to regular use in my own businesses:

• No large sales by credit card. Period. I’d rather lose the sale than sell the goods and get nothing.
• Suggest a wire transfer.
• Get a feel for your customer. A bona fide customer will understand your concerns. If he refuses to pay by any other means than a credit card, then alarm bells should start ringing. Why is he so insistent? Ask yourself if the customer may later “make you dance” by threatening to call his credit card company.
• Incentivise the customer with a small discount if he agrees to pay by wire transfer (as you’re no longer paying the credit card acceptance fee).
• How about a partial credit card amount as gesture of goodwill and the balance as a wire transfer?
• Try to find other payment services which may limit the risk for both parties. UTruePay is one such service. Escrow companies may also work but they can be an obstacle to a company’s cash flow when the company needs the customer’s funds to supply goods, such as with special order non-stock items or very large orders.
• In general, build trust. Show your customer your company’s credit rating. Refer other customers during the enquiry process so that he feels comfortable wiring the money to you.
• During the delivery process, keep regular contact with your customers so that they don’t get nervous (that’s just old-fashioned good service).
• Set up retail finance facilities which lend money to consumers to purchase products (especially when selling high value items). This is important in scenarios where the customers actually require credit to fund the purchase of the product, but is useless for international transactions.

Ultimately, it’s down to individual business owners to assess the risks relating to accepting credit cards from customer to customer, but it’s worth remembering that:

• You get no protection when you take a credit card in a card-not-present transaction. Every single transaction is a gamble. The larger the sum, the larger the risk and cost.
• If you work hard enough, you’ll build the trust with your customers and they will transfer the funds to you if they are genuine.
• There are alternatives out there, or half-way measures to reduce risk – find them!

The cardinal rule: just don’t do it if it’s money that you can’t afford to lose. It’s not a sale if you don’t get the money and your business isn’t in gambling.

If you’re anything like me, you’ll notice that there’s actually a great deal of satisfaction for paying for something in full, in its entirety, on the day you take delivery. The reason is that it then actually belongs to you. It does not belong to the bank. There is no balloon, no residual, no interest charges, and no dreaded monthly repayment. The transaction is complete – it’s yours and no-one can take it away from you. And if it’s something you really desired, that’s a great feeling.

However, I recognise this is not always possible or indeed practical. People need houses, cars, food and healthcare (amongst many other things), and they need them legitimately and quickly. Responsibly-used credit facilitates these things (thankfully).

But more to the point, this paradigm of “no-credit” requires saving, and THAT requires patience and discipline – and there can be life-arguments (e.g. “we could all die tomorrow”) that mean sometimes you want/need to buy and experience things NOW, which perhaps you don’t have all the resources to afford. But after witnessing the heartache resulting from this global recession, I can see that many people used such life arguments unwisely, and the satisfaction they received from bringing forward their purchases was far less (and in many cases lost completely) than the satisfaction they would have received had they saved, waited and handed over the real cash instead.

A few years ago, I had friend who always said he would buy a Ferrari F40 (yep, not just a Ferrari, but an F40 – one of the top-of-the-line models). This had been a childhood dream of his, and he would literally obsess over it day after day, year after year. Now after years of graft and saving money, he reached a point where he could have quite comfortably financed (a portion of) the purchase of the car. We all suggested that he should – he could finally complete his dream! After all, he had worked, saved, grafted, and made some (frankly ludicrous) sacrifices just to get to this point. It had already been a long, tiresome slog. But he point-blank refused to finance any part of it. No, he wanted the satisfaction of cash. He would wait and he would complete his dream without the monthly payment and just hand over the cash. He said it would make the victory sweeter. It would make the car HIS, not the bank’s. We all thought he was crazy, to be honest. It’s not as if he wouldn’t pay back the bank. But there was no way he would do it.

And then one day, some time after he had first hit this point, a bright red Ferrari F40 came to our office, and I finally understood. A guy that would cycle to us to save money, even in the dripping wet, drove in, in his own Ferrari F40, and it was HIS! It was incredible. All his; all his effort, work, savings and graft. Not some bank loan. Not some balloon. Something real. Something with TRUE satisfaction.

At the end of the day, it was just a car (albeit an awesome one), but it was a fabulous moment for him and for us. In that brief moment, I understood completely why his dream could only have come true by doing it the hard way; the proper way. I understood how he must have felt handing over resources that he actually had, and how any other way would have spoilt it for him.

It was perhaps not so economically relevant a few years ago, but now, in this post credit-crisis world, this paradigm, which was mistakenly abandoned and forgotten, would do well to be remembered. It’s going to be much more satisfying if YOU really pay for it.

My friend still enjoys his insane Ferrari F40 every weekend but wants something faster!

Essentially, people stopped employing common sense when it came to “buying things.”

Good old-fashioned common sense – having the resources to pay for a good or service in its entirety and on delivery. Common sense is spending a little less than you earn. Common sense is saving money (if required) to fund a big purchase, and it’s working a little harder to earn the money to pay for those things which are currently out of reach. It’s a paradigm that deep down we all know we should deploy whenever we’re spending money. Basically, it’s “cutting your cloth to fit.”

But along the way, it’s become massively overwhelmed by the excitement of the great facilitator – credit. Credit, when deployed with common sense, has many wonderful advantages (e.g. from funding new enterprises and developing businesses to genuine wealth creation and, quite literally, saving lives!). But in our Western economies, credit wasn’t used with common sense – it killed common sense. Credit meant that we could pay for items, lifestyles and consumption that we simply couldn’t otherwise (or actually) afford. We all knew what we were doing, but common sense was suppressed by the excitement of the purchase which credit facilitated. Our consumption lost all correlation with common sense – with the resources we ACTUALLY had at our immediate and current disposal. We abandoned common sense so much, that somehow, we even conveniently forgot that credit has to be repaid; effectively, that the credit we were using to fund our stupidity was the result of the common sense of many others – in this case, about 1.3 billion Chinese savers whose glut of savings was being loaned out to us by Western banks!

The financial trauma, wealth destruction, and most importantly, the emotional and personal heartbreak resulting from lost jobs, lost savings, broken businesses, depleted pension funds, shattered industries and debt ridden governments from this global economic crisis is all down to the collective absence of common sense.

It sounds so patronisingly obvious, but the next time we all hand over that credit card, sign that lease agreement, take out that mortgage, or apply for that loan – next time we (supposedly) PAY for anything, just consider whether the excitement that credit brings isn’t overwhelming our innate common sense. Because one thing is for sure: it’s so much more exciting to hand over the hard earned funds you ACTUALLY have, knowing there’s no interest charges, no default, no comeback and that it’s yours forever (instead of the bank’s) than simply handing over the common sense of people in a continent many thousands of miles away.