================= Begin forwarded message =================

    From: ac209@detroit.freenet.org (Tom McSherry)
    To: ac209
    Subject: VISA/MC MERCHANT ACCOUNTS
    Date: Fri, 26 Aug

    
    
    
    PREFACE:
     
    Hi. My name is Tom McSherry. A over two years ago I quit my 
    job as a corporate account rep at Egghead Software and started 
    my own business working out of my home. One of the first things 
    I discovered was the unanticipated difficulty of obtaining a 
    Visa/Mastercard Merchant account for a home based business. My 
    efforts to obtain one eventually led me to entering the arena 
    myself as an ISO representative. I was quite active 
    on Compuserve (especially the Work From Home Forum) and helped 
    literally hundreds of people in similar situations to obtain a
    merchant account.
                      
                       *******************
    I am still active online in this business, and offer a number of 
    merchant account programs so, (brief ad), I'd be happy to help 
    you obtain a merchant account when the time comes!
                       *******************
     
    As I got involved in this area I found that there is a dire 
    lack of knowledge out there concerning this vital adjunct to one's 
    business, and no place to obtain it. Banks play it "pretty 
    close to the vest" on this stuff, since they 1) don't want you 
    to know what kind of profit is in it and 2) don't want to give 
    away any secrets that may help the criminal defraud them. 
    Understandable, but unnecessary. I feel that it's about time 
    someone revealed all the "ins and outs". I think I have.
     
    This manual explains, in all necessary detail, little known 
    insider information concerning what the banks look for and why; 
    how to present your best case to the bank; how to calculate the 
    rate you SHOULD be paying and negotiate for it with an 
    understanding of the process behind it; how to protect yourself 
    from fraud; and how to keep your chargebacks down (don't know 
    what a chargeback is??? Boy, do you need this manual!). 
     
     
    Good luck and good reading!
     
     
     
     
     
    ======================================================================
    Obtaining Merchant Status for High Risk Businesses
    ======================================================================
     
     
     
    Table of Contents
     
     
    Introduction: Why should you consider taking credit cards?.............2
    Why is it so difficult to obtain merchant status for my business?......3
    Where to turn when the banks decline you...............................5
    Anatomy of a Credit Card Transaction...................................7
    Merchant Charges and What They Mean. ..................................8
    Equipment Basics......................................................12
    How to Apply for a Merchant Account...................................14
    The Care & Feeding of Your Merchant Account...........................17
    Protecting Yourself From Chargebacks..................................19
    Combatting Fraud......................................................24
    Appendix A-Sources of Merchant Accounts:..............................27
    Appendix B-Restricted Businesses......................................30
    Appendix C-Prohibited Businesses......................................31
    Appendix D- Computer Bulletin Boards..................................32
    Appendix E-Sources of Credit Authorization & Draft 
         Capture Terminals................................................33
    Appendix F- Credit Authorization Software.............................36
    Common Industry Terms:................................................39
    Credit Card Specifications............................................43
    CARD DATA FORMAT......................................................43
     
    Copyright * 1993 by Tom McSherry. All rights reserved. No 
    part of the contents of this book may be reproduced or 
    transmitted in any form or by any means without the written 
    permission of the author except as specifically stated below:
     
    Permission is granted to freely distribute this material via 
    electronic network, commercial or other, providing that 
    content remains unmodified and no fees are charged for its 
    distribution or publication.
     
     
     
     
                            
     
     
     
     
     
     
     
     
     
     
     
     
     
                                    PAGE 1
     
     
     
    =======================================================================
    INTRODUCTION: WHY SHOULD YOU CONSIDER TAKING CREDIT CARDS?
    =======================================================================
     
     
    In 1992, the United States transacted point-of-sale credit and 
    debit of $264 billion on nearly 3.8 billion transactions. 
    Average transaction size rose from $60 to $70.Over the next 
    eight years, point-of-sale transactions on VISA and MasterCard 
    credit and debit cards is projected to double from 3.8 
    billion in 1992 to 7.67 billion.
     
    It is obvious that credit card usage is booming. Increased 
    card issuance and broader acceptance has spawned a transaction 
    rich environment. New developments such as portable wireless 
    authorization and capture terminals open new ground and 
    contribute to furthering the cashless economy.
     
    A recent survey of grocery shoppers using VISA cards to pay 
    for their groceries found that 43% chose their grocery 
    store on the basis of whether or not the store accepted VISA.
    Perhaps it would be unfair to directly extrapolate the results
    of this survey to other areas of retailing, but one can probably
    assume a correlation, given consumer psychology and motivation.
     
    Applying the above facts, it is fairly safe to say that if 
    you're not accepting credit cards, you're losing business, and 
    the situation is not getting any better! In addition to being 
    an absolute necessity for mail order businesses, having the 
    ability to accept credit cards seems, however unfairly, to lend 
    credibility to the home office.
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
                                    PAGE 2
     
     
     
     
    ============================================================
    WHY IS IT SO DIFFICULT TO OBTAIN MERCHANT STATUS FOR MY 
    BUSINESS?
    ============================================================
     
    Unfortunately, being engaged in either of the above situations 
    renders obtaining a merchant account from your local bank 
    virtually impossible. Many new business owners have discovered to 
    their chagrin that, no matter how much business they have 
    previously conducted with their bank and no matter how well they 
    get on with the bank's management, their answer is almost invariably
    "no".
     
    There are several reasons that this is so, but the underlying fear 
    is fraud. Until the mid-1980s, just about any business owner who 
    wanted to accept Visa and MasterCard found it easy to obtain 
    merchant status. But rising incidents of credit card fraud have 
    forced banks to become more discriminating. According to a report 
    published by the American Banking Association, in 1980, national 
    bankcard fraud losses reported to the MasterCard and Visa 
    associations amounted to a few million dollars, but by 1991, 
    the reported fraud losses amounted to about $198 million nationally.
    A significant amount of money!
     
    Mail order and small home businesses are perfect breeding grounds 
    for bank losses due to fraud or even unintentional mismanagement.
    Thus, in an effort to minimize their losses as much as possible, 
    the banks attempt to take steps to eliminate identifiable 
    sources of risk. As part of this process, they often require a full 
    financial disclosure very similar to a loan application. And 
    indeed, it is! As someone in the industry once commented, "a 
    merchant account is an unsecured loan with no ceiling". Used 
    dishonestly, it is a license to print money!
     
    What do we mean by this? Consider the nature of the process for a 
    moment. We will cover the specifics in more detail in a later 
    chapter, but for now suffice it to say that the bank deposits funds
    into your account in response to what amounts to a promise of 
    payment. The promise is a plastic card held and presented to the 
    merchant by a person who has been preapproved to receive credit 
    from the issuing bank. The bank is relying on the merchant to 
    determine that the promise is valid, i.e., that the cardholder 
    has presented a valid card and that the cardholder is who he
     
     
                                    PAGE 3 
     
     
     
     
    says he is. That is basically all that the bank requires before it 
    releases funds to the merchant account. And there are many ways 
    this process can be circumvented since so much reliance is placed 
    upon the merchant. In fact, one of the biggest sources of fraud 
    is in what they call the collusive merchant. Merchants have been 
    known to accept stolen and altered cards which have not yet been 
    printed on the merchant warning bulletin. The bank innocently 
    accepts the merchant's deposits, which are withdrawn before the 
    bank is notified that the drafts are invalid. Many thousands of 
    dollars can change hands in just a few days. The merchant operates 
    like this for awhile, then closes up shop and reopens somewhere 
    else under a different name.
     
    Fraud can occur on the customer side of the equation as well, of 
    course. In mailorder and telephone sales situations the merchant 
    does not typically deal face to face with the customer. This 
    obviously presents a problem when it comes to verifying the 
    identity of the person using the card. A call to the processor 
    will produce an "authorization code", that only guarantees that 
    the cardholder has not exceeded his limit and that the card has 
    not been reported stolen. Unfortunately, approximately 60 percent 
    of fraud losses occur-before bank personnel know that the 
    customer's card is missing. Statistics indicate that banks post 
    approximately 40 percent of the fraudulent transactions to their 
    customers' accounts before cardholders report their cards missing. 
     
    Chargebacks and factoring are other areas where small businesses 
    are likely to get into trouble. The term chargeback can apply to 
    any situation where a given transaction is disputed. There are 
    procedural and non procedural chargebacks. 
     
    Procedural chargebacks would be occassioned by the merchant, 
    for example, forgetting to obtain the customer's signature on the 
    draft. A nonprocedural chargeback is generally customer initiated, 
    i.e., a customer refusing to pay the charge because of non delivery,
    shoddy merchandise, or even because his card was stolen and used 
    before it was reported missing. Whatever the reason, it is very 
    easy for a mail order operation or small work from home business 
    to go out of business because of an inordinate amount of 
    chargebacks, and leave the bank "holding the bag".
     
     
     
     
     
                                    PAGE 4
     
     
     
     
     
    Factoring is another area that is tempting for some smaller 
    businesses to engage in. Factoring takes place when one business 
    runs charges from another business through its merchant account 
    for some percentage of profit. This is against VISA/MC policies 
    and, in some states, actually illegal. 
     
     
     
     
    ==============================================================
    WHERE TO TURN WHEN THE BANKS DECLINE YOU.
    ==============================================================
     
    While it is understandable why banks are reluctant to give merchant
    accounts in these circumstances, it is by no means impossible to 
    obtain one. Enter the ISO. Independent Service Organizations 
    represent one or more banks. The ISO's started as agents of the 
    banks and received a fee. More recently, they sometimes become the 
    principal representative of a bank.
     
    Some ISO's are limited in their scope of agency. They may have the 
    merchant sign a contract at a specified discount rate then send 
    the merchant agreement to the bank, which will take care of 
    providing the merchant with an electronic terminal and other 
    customer service functions. Other ISO's will provide the terminal 
    as well as obtain the contract for the bank. Still others perform 
    a full range of services for the bank: negotiating contract rates, 
    selling the terminal, investigating the merchant, providing 
    customer service and chargeback processing.
     
    Obviously, going through an ISO for your merchant account rather 
    than a bank introduces another level of complexity and cost. Just 
    as obviously, the cost will vary from ISO to ISO and it pays to 
    shop. Unfortunately, although there are over 1,400 -odd registered 
    ISO's in the U.S., only a few will accept "non-standard" business. 
    To further complicate matters,the industry is, currently, to a 
    great degree unregulated and this results in some questionable 
    practices. The best way to protect yourself from these practices 
    is to check references and be aware of some of the common areas 
    of abuse. Some answers to obtain upfront:
     
     
     
     
                                    PAGE 5
     
     
     
     
    1) What bank(s) do they represent? Make sure your ISO is placing 
    you with a bank that is large enough to serve your needs and has 
    a good reputation, or if your ISO will be performing the services 
    for the bank, that they have made adequate provisions for customer 
    support. Generally, a bank will not allow its reputation to be 
    damaged by the unethical practices of its ISO's. If there's a 
    good bank behind you, chances are there's a good ISO in front of 
    you.(Although this does not guarantee that you are getting the 
    best deal...it still pays to shop.)
     
    2) What are the discount rates? Rates can vary between 1.9% and 
    5% or more. Retail establishments with a history behind them and 
    a high volume of credit card business can command rates of 1.9 to 
    3%. Smaller retail establishments and startups can expect 3 to 4% 
    rates while often times rates of 4% and up are not uncommon for 
    riskier types of businesses such as mail order and telephone sales 
    operations. The rate you receive also depends, to a great degree 
    upon what your average annual credit card volume is or is 
    anticipated to be. This is more fully explained later in this guide. 
     
     
    3) Are there any other fees involved? Some ISO's charge a fee if 
    your credit card volume does not reach a predetermined level each 
    month. This minimum activity fee is instituted because profits to 
    the ISO are slim, and if you're not doing enough business to 
    justify the costs of maintaining your account on the books, they 
    need to be recouped somewhere along the line. Obviously however, 
    if you can find an ISO without these fees, you're that much better off!
     
    Other sources of potential charges exist in transaction fees and 
    statement fees. A transaction fee is a surcharge over and above 
    your discount rate for each transaction occurring over the network. 
    This fee covers a part of the processor's cost and is either 
    passed on directly or built into the discount rate. This fee can 
    range from $0.20 to $0.30 or more. Statement processing fees can 
    range from free to $15.00.
     
     
    4) What will you be paying for the equipment and is it a lease or 
    purchase? If you're not careful here, you could end up paying 
    $4000.00 for a terminal that costs about $150 from the manufacturer. 
    This is an area that bears close scrutiny. 
     
     
     
                                    PAGE 6
     
     
     
     
    If you're in one of the riskier areas of business and find yourself 
    being quoted uncharacteristically low rates (1.9% or so) grab your 
    wallet to make sure it's still there! 
     
    Unfortunately, there is not much that can be done here except shop 
    around. It's a fact of life that prices go up as demand increases 
    and the demand for merchant accounts for high risk businesses is 
    such that the market will bear these prices willingly. We will look 
    at this in more depth in our section on equipment. Unless you can 
    obtain your account from a bank, or luck into an incredibly good 
    deal you may as well resign yourself to incurring some heavy charges 
    in this area.
     
    The specifics of these charges and all the information you need to 
    negotiate the best possible arrangement for your business are 
    detailed in the following sections, but first you need a little 
    background on the transaction process itself.
     
     
     
     
     
    ==============================================================
    ANATOMY OF A CREDIT CARD TRANSACTION
    ==============================================================
     
     
    In order to understand where and what you can negotiate, you need 
    a basic understanding of the credit card transaction process. As 
    a merchant accepting credit cards, you are the starting point of 
    a series of transactions culminating in the deposit of funds to 
    your account. When you accept a credit card as payment for your 
    goods or services, you will either fill out a paper draft using 
    the familiar manual card imprinter to stamp your business name 
    and address and take an imprint of the card, or you will swipe the 
    card through an electronic terminal. Another possibility is that 
    you will take the card number, without the cardholder being present, 
    and either fill out a paper draft as above, or manually key in the 
    information on the touch tone type numeric pad on your credit card 
    terminal. Sales made in this latter manner are referred to as "non-
    swiped" and will be discussed later.
     
     
     
     
                                    PAGE 7
     
     
     
     
     
    If you are using the card imprinter and paper drafts you will call 
    a special number to obtain an authorization code (discussed later). 
    If you are using an electronic draft capture system, the authorization 
    will be performed automatically. You will make note of this code and 
    enter it on the paper draft (it is saved automatically if you are 
    using a terminal).
     
    At the end of the day, the paper drafts are deposited and the bank 
    processes them or, if you are using an electronic credit card terminal, 
    you perform a procedure called "settlement" whereby all the credit 
    card sales that you have made for the day are electronically 
    transmitted to the credit card processor (previously they have only 
    been temporarily stored in the terminal's internal memory).
     
    The credit card processor, which can be your bank or an independent 
    third party network functioning as the merchant processor, 
    authorizes the charge and notifies the card processor through Visa, 
    MasterCard or one of the other proprietary networks. The card 
    processor collects the funds from the card issuing bank, wires the 
    funds to the merchant processor and bills the customer. The merchant 
    processor then pays the merchant for the amount of the sale minus a 
    discount fee. This discount fee is split between the merchant 
    processor and the card issuer.
     
    When the customer pays his bill, the card processor credits 
    the card issuer's account for the full amount of the sale minus a 
    transaction fee. This completes the cycle. With this basic 
    understanding, you will be able to grasp why your charges are 
    structured as they are.
     
     
     
     
    MERCHANT CHARGES AND WHAT THEY MEAN
     
     
     
    As mentioned in the preceeding section, the merchant is paid for 
    the sale a sum from which is deducted an agreed upon "discount 
    rate". When you, as the merchant, set up an account to take credit 
    cards with your bank or processor, you will sign an agreement 
    setting the terms of this rate as well as other applicable charges 
    such as equipment purchase, rental, etc.
     
                                    PAGE 8
     
     
     
     
    This discount rate represents the profit that the card processor 
    and issuing bank are making on the transaction. The profit that 
    the processing network makes, called the transaction charge, can 
    either be incorporated into the rate or broken out and charged 
    separately. If the latter, you would be quoted a lower rate plus 
    a transaction charge (more on this later).
     
    Discount rates depend on a number of factors: type of business, 
    whether or not you will be conducting "non-swiped" transactions, 
    how long you've been in business, and what your annual credit card 
    volume is. In some cases, the discount fee is negotiable. Here are 
    the facts you will need to help you obtain the best deal:
     
     
     
    1) One component of the discount rate is the "interchange rate". 
    This represents a cost to the processor to process the charge through 
    the Visa or MasterCard network. The interchange rate for swiped 
    transactions is 1.30% for MasterCard and 1.35% for Visa. (New 
    regulations in place as of April 1993 require an extra surcharge 
    for non-swiped transactions, this should add about 0.30% to the cost. 
    Another component of the processor's cost is the cost of transmitting 
    the sale information through the processing network to the interchange. 
    This charge is usually expressed as a "cost per ticket" or a 
    transaction charge The transaction charge can be from 18-23 cents, 
    depending on the network. The final component is the processor's 
    profit. All the above factors combine to produce the rate you pay. 
    Obviously, the one real variable that you may be able to influence 
    is the profit margin the processor gets from you.
     
     
    2) In order to negotiate effectively you must obtain an indication 
    of  the "rock bottom" rates. Let's take an example or two to illustrate 
    this. The scenario: you will be processing credit card charges 
    amounting to $100,000 annually. The amount of your average sale is $50. 
    You will be accepting Visa and Mastercard.
     
     
    You will not, in reality, be able to separate the interchange 
    rates for purposes of negotiation, so use the higher of the two 
    as your starting point: 1.35% (or 0.0135 ). You must now convert 
    the transaction charge to a percentage of your average ticket 
     
     
     
                                    PAGE 9
     
     
     
     
     
    and add it to the interchange rate. Taking the $50 average ticket 
    size used in this example and converting it to a percentage yields 
    (if we use 23 cents as the transaction charge) .23/50 = 0.0046 
    (or, 0.46%). The processor's approximate cost in this example 
    would be 0.0135+0.0046, or 0.0181 or 1.81%. If you will be 
    conducting your sales transactions over the telephone or through 
    the mail, remember to add on the cost of non-swiped transactions, 
    i.e. 0.30%. (In this case, the cost to the processor will be 
    approximately 1.81%+0.30%, or 2.11% total.) Any percentage that 
    you are quoted above this represents profit to the processor. This 
    profit is variable, of course, but on $100,000 annual volume, a 
    $600 profit would not be unreasonable. This being so, let us 
    convert the profit to a percentage and add it to the costs to 
    get the rate that you are likely to pay. Dividing $600 profit by 
    $100,000 annual sales gives us a figure of 0.006, which, added to 
    the costs tells you that you can expect to pay around 2.41% (or 
    2.71% for non swiped transactions).
     
     
     
     
            ---------------------------------------------------
            |               INTERCHANGE RATE                   |
            |                       +                          |
            |       COST PER TICKET/AVERAGE TICKET             |
            |                       +                          |
            |       PROCESSOR PROFIT/ANNUAL VOLUME             |
            |                                                  |
            |                    equals                        |
            |                                                  |
            |             YOUR DISCOUNT RATE                   |
            |__________________________________________________|
     
     
     
     
     
     
     
     
     
     
     
     
                                    PAGE 10
     
     
     
     
     
    The above example assumes that the transaction charge is to be 
    built in to the quote. Again, this charge may be broken out and, 
    in some circumstances, it may be beneficial to do this, especially 
    where the average ticket can vary widely. For example,when the 
    average ticket is a known, fixed amount such as $50, the rate 
    that we calculated above is accurate. But what happens when your 
    average sale varies widely? The same percentage applies no matter 
    what your ticket size, and this may not be in your best interest 
    (no pun intended!). What if you offer a $30 package and a $100 
    package as well as a $50 package? On the $50 package, remember, 
    you are paying 0.0046 x $50 or 23 cents per transaction. On the $30 
    sale you would be paying $30 x .0046, or 13 and on the $100 sale 
    $100 x 0.0046, or 46 cents...double the actual costs! This kind of 
    math may work for you if you consistently have sales that are 
    under what your average ticket was calculated at, but it definitely 
    works against you on higher than average ticket sales. You can see 
    that if you are involved in a situation where the amount of your 
    sales vary widely you are best off suggesting that the transaction 
    charge be broken out of the quoted rate. (If you don't the processor 
    will probably adjust your rate to reflect these conditions after 
    a few months of history have allowed them to calculate based upon 
    a more accurate picture of your sales activity.)
     
    You now know the essential components of your probable rate. Based 
    on the above conditions, you would probably end up being quoted a 
    flat rate of around 2.41% (2.71 % for non-swiped) or a rate of 1.95% 
    (2.25% non swiped) with a 23 cent transaction fee. Remember however, 
    that in the example we used, only 1.81% of the fixed quote for swiped 
    transactions was cost, the other 0.6% was profit...and similarly 
    with the other quotes we figured. Therefore, if you were to be quoted 
    a rate significantly higher than this, you would probably have some 
    room to negotiate. 
     
    Bear in mind however, the processor does have to make some money for 
    his efforts, and if you're processing much less than the amounts used 
    in this sample calculation, your rates may go quite a bit higher to 
    allow for this legitimate profit to be made. Let's take one more 
    example to illustrate. This time, you are a very small business 
    processing $20,000 annually with an average ticket of $50. Using the 
    same formula, your rate would be more like (0.0135+(600/20,000)), or 
     
     
     
     
                                    PAGE 11
     
     
     
     
     
    4.35% plus a 23 cent transaction fee for swiped transactions and 4.65% 
    plus a 23 cent transaction fee for non-swiped transactions. Of course, 
    arguing that the profit should be less on a lesser annual amount 
    MIGHT get you down to $300 or so profit to the processor, in which 
    case your rate would be either (0.0135+(300/20000)) 2.85% + 23 cents 
    for swiped or 3.15 + 23 cents for non-swiped. Do you see how 
    this works? Great, let's pass on to the next major expense: equipment.
     
     
     
     
     
     
     
     
    ================================================================
    EQUIPMENT BASICS
    ================================================================
     
    The days of depositing paper drafts are just about over. 
    Increasingly, the credit card companies are encouraging the use 
    of electronic draft capture terminals to simplify the transaction 
    process and decrease the possibiltiy of fraud.. How do they 
    "encourage" this? By raising prices, of course! About the only 
    reason to have one of the old style manual imprinters anymore is 
    when your business environment makes it impractical to use a 
    terminal. This situation might occur when, for example, you are 
    engaged in sales at a trade show and there is no telephone line 
    handy to connect the terminal. If this or a similar situation 
    apply, you may want to acquire a manual imprinter (and, if you 
    are set up to process electronically, run the information through 
    your terminal at a more convenient time. Unfortunately, unless 
    you have a telephone nearby to call for a verbal authorization, 
    you will not know until you actually run the charge through the 
    terminal whether or not the card was stolen or the cardholder has 
    exceeded his limit.) This equipment, should it be needed, may be 
    purchased for around $25.
     
     
     
     
     
     
     
                                    PAGE 12
     
     
     
     
     
    Most merchants will be using electronic draft capture as their 
    main method of processing sales. This will entail the purchase 
    of an electronic draft capture terminal. Obviously, it is best 
    to purchase the terminal outright: see if the ISO will allow this 
    option. If not, you will be required to lease. Leases generally 
    run in the neighborhood of $50-$70 per month for 48 months. 
    Manufacturer pricing and sources for these terminals may be found 
    in the appendix, but as most merchants will not be able to purchase 
    direct from the manufacturer, (and many ISO's will not accept a 
    hookup to their system with anything but what you have purchased from 
    them) this information is of limited use. Given the going rates, 
    if you can keep your equipment costs under $2,500 on a lease 
    arrangement, you're doing very well.
     
    Other options would be to see if you can purchase a used terminal, 
    either from the ISO or independently. Before you pursue purchasing 
    a terminal independently of the ISO, however, check to see that 
    the ISO allows this and, if so, what the ISO will charge as a 
    "reprogramming fee". ISO's will often charge a set amount varying 
    from $25 to $700 or more to enter the phone, account numbers, and 
    other information that you need to access their system into your 
    terminal. Be sure you are aware of these fees upfront...they could 
    make the difference between buying used and new equipment minor.
     
    You might also check to see what kind of warranty comes with the 
    terminal. If you lease or purchase on an extended payment plan, 
    the warranty should at least last as long as the payments. Most 
    used terminals come with no warranty, and service might be 
    difficult to obtain if needed, so it is best to make these 
    arrangements before diving into what initially looks like a bargain.
     
    Another piece of equipment you may need is a receipt printer. 
    Generally these printers are in the same price range as the 
    terminals. Whether or not you will need one will be determined 
    by the type of business that you conduct. Obviously, if you 
    are involved in a business that does very little face to face 
    customer sales, your need will be minimal and the expense of a 
    printer may be eliminated or served adequately by a general 
    purpose printer attached to your computer.
     
     
     
     
     
                                    PAGE 13
     
     
     
     
     
    While we're on the subject of equipment and computers you may 
    be able to get by without the traditional terminal/printer units 
    altogether if you use a personal computer. There are several 
    software packages on the market that perform authorization and 
    draft capture as well as several point of sale packages that 
    integrate this feature into their sales module. This approach 
    has many advantages. In addition to costing less than a hardware 
    terminal, software can add flexibility in terms of being able to 
    automatically process batch transactions at the end of the 
    day (useful when performing transactions one by one would be 
    inconvenient or too time consuming), being able to perform 
    address verification, check guarantee and debit card transactions. 
    Software based products also usually allow you to generate various 
    management reports using data captured during the transaction process. 
    Again, a word of caution: be sure to check with your bank or 
    ISO before you purchase software...it may not be compatible 
    with their system!
     
     
     
     
    =============================================================
    HOW TO APPLY FOR A MERCHANT ACCOUNT
    =============================================================
     
    Assuming you've identified a likely bank or ISO to handle your 
    business, how do you go about applying and what information 
    should you expect to provide to enable a favorable decision 
    to grant you a merchant account?
     
    Applying for a merchant account, as we mentioned previously, 
    is very much like applying for a loan. Some of the factors 
    that will be considered are your type of business, length of 
    time in business, general creditworthiness, previous merchant 
    account status and your existing banking relationships. In 
    general, you should have on hand and be able to submit 
    information concerning how your business is financed, your 
    business performance history (or your experience in the industry 
     
     
     
     
     
     
                                    PAGE 14
     
     
     
     
     
    if you are just starting into business), your sales projections, 
    business plan and personal credit history. Not all banks or 
    ISO's will require all of this information, but having 
    anticipated the possible need and prepared yourself with the 
    data above, you will increase your chances of acceptance, 
    especially if yours is a new operation.
     
     
    Areas of consideration:
     
     
    1) Type of business. As mentioned previously, certain types of 
    businesses are more readily approved than others. An operation 
    having a physical storefront will, in general, find approval 
    easier to obtain than a home based business or mail order firm. 
    A retail business selling , for example, clothes and general 
    merchandise will have an easier time of it than a travel agency, 
    even though both may have a storefront. For a full listing of 
    businesses considered high risk see appendix B&C. If you find 
    your business on this list, it doesn't mean you will not be 
    able to obtain a merchant account, but that you will definitely 
    be required to look longer and harder to find someone who will 
    accept your application. Have patience and start with the 
    contacts listed in appendix A.
     
     
    2) Length of time in business. The bank wants to assure itself 
    that it is dealing with a viable business entity, and in its 
    viewpoint, the longer you've been around, the higher the 
    probability that you will continue in operation. Again, being a 
    new startup does not necessarily preclude you from consideration, 
    it just makes things tougher. Be prepared to show, through 
    experience and/or education, that you understand the intracacies 
    of operating a business and that you have a good grounding in the 
    industry.
     
     
    AGAIN, BE PREPARED TO SUBMIT ANYTHING THAT MAY HELP YOU 
    MAKE YOUR CASE: BUSINESS PLAN, MARKETING MATERIALS YOU HAVE 
    DEVELOPED, SAMPLES OF AD COPY YOU INTEND TO PLACE, AND 
    POSSIBLY EVEN ACTUAL PRODUCT SAMPLES.
     
     
     
                                    PAGE 15
     
     
     
     
     
     
    3) Creditworthiness. Be prepared to show good financial health, 
    you will probably be asked to supply trade, banking, and personal 
    references. In particular make sure you have no delinquent FICA 
    or sales taxes, tax leins, judgements, or bankruptcies on your 
    record. Any of these is an almost surefire disqualifier. If you 
    haven't done so recently, now is a good time to contact the 
    credit bureaus and ask for a copy of your credit file to see 
    if there are any derogatory entries that may need to be 
    corrected before applying.
     
    If you have not been in business long enough to have established 
    trade references, it may be acceptable to substitute references 
    from persons with whom you have had some type of professional 
    relationship; someone who can attest to your business skills 
    and to the way you have been known to conduct your business. 
    These references may be former employers or customers you have 
    been associated with in the past.
     
    In startup situations where there is no business creditworthiness 
    to consider, personal credit history may sometimes be considered. 
    A bank or ISO may feel that the way you handle your personal 
    finances is indicative of the way you will handle your business. 
    Again, a clean record is a must. A few "slow pays" may be 
    overlooked, but chargeoffs, bankruptcies and tax leins probably 
    will not.
     
     
    4) Previous merchant status. The theory is that if you have had a 
    merchant account before and handled it adequately, you are likely 
    to continue. Therefore, banks and ISO's are more inclined to look 
    favorably on your application if you can show a previous history. 
    Further, being able to show a recent history in the same business 
    may qualify you for lower rates if, by that history, the bank can 
    determine that you have a relatively high average ticket (discussed 
    below), good volume, and an insignificant chargeback rate.
     
     
    5) Banks will also look at the size of your average ticket. Banks 
    like to see an average ticket that is above at least $30.
     
     
     
     
                                    PAGE 16
     
     
     
     
     
    6) If you are incorporated, be prepared to have the officers sign 
    a personal guarantee of payment. The banks want their money and 
    will often require this on their contracts to protect themselves 
    and give themselves recourse to collect from the officers in the 
    event the corporation goes under.
     
     
    7) If you anticipate difficulty in obtaining a merchant account 
    due to one of the factors detailed above, consider offerring to 
    establish a reserve account with the bank or processor. A reserve 
    account is a deposit of funds or securities pledged to guarantee 
    faithful performance and to give the bank or processor some 
    reasonable assurrance that funds will be available to meet any 
    default of payment that may occur. 
     
     
    A reserve account may induce an otherwise reluctant institution 
    to grant a merchant account as it allows for a measure of safety. 
    Reserve accounts usually vary according to anticipated or actual 
    sales and degree of risk. Another possible option here is obtaining 
    a surety bond to serve the same purpose.
     
     
     
     
     
     
     
    ==============================================================
    THE CARE AND FEEDING OF YOUR MERCHANT ACCOUNT
    ==============================================================
     
    Once you have your merchant account there are steps you can take 
    to preserve it. Merely obtaining a merchant account does not carry 
    a guarantee of its continuance. Merchant accounts are subject to 
    termination for any number of reasons including fraud or high 
    chargeback rates. Once terminated, a merchant will find it very 
    difficult to reinstate, even with another processor. Indeed, in 
    some circumstances, a merchant may be "blacklisted" from ever 
    obtaining a merchant account again. It behooves you therefore 
    to avoid any actions that could result in a termination. Some of 
    the more blatant causes of termination are discussed below.
     
     
                                    PAGE 17
     
     
     
     
     
    1) Misrepresentation. Misrepresentation concerning any aspect of 
    your application may be cause for termination. Commonly 
    misrepresented are type of business and how business is conducted. 
    Even though it is more difficult for a mailorder or telephone sales 
    operation to obtain a merchant account, do not succumb to the 
    temptation (or some misguided ISO representative's suggestion) that 
    you alter the facts. If you take 100% of your orders by phone, do 
    not put 50% on your 
    application.
     
    If, in the normal course of business, you change direction and focus, 
    perhaps adding a line of product that would have initially caused 
    the application to have been denied, or switching sales techniques 
    to outbound telemarketing, be prepared to do some explaining if it 
    comes to light. If you anticipate making such a switch, it would 
    be a good idea to contact your processor, and if they do not have 
    an objection to the proposed business changes, have them send you 
    a letter to that effect.
     
     
    2) Factoring.
    Previously mentioned, factoring is the act of running the charges 
    of another business operation through your merchant account, usually 
    for a profit. Again, this is against Visa/MC policy and will cause 
    them to terminate your account with little chance of ever obtaining 
    another. Don't be tempted to think that they wont find out...all it 
    takes is one dissatisfied customer initiating chargeback procedures 
    (discussed below) to cause the processor to investigate.
     
     
     
    3) Chargebacks.
    Chargebacks are distinguished from simple credits or returns by the 
    active involvement of the card issuer. Chargebacks can occur for 
    procedural reasons such as forgetting a signature or in response 
    to customer inquiries or complaints. Some of the more common are 
    listed below:
     
     
     
    1) Cardholder dispute (merchandise is unacceptable to the customer, 
    wrong merchandise was delivered, customer never received the 
    merchandise)
     
     
                                    PAGE 18
     
     
     
     
     
    2) Unauthorized use of credit card number (phone and mailorder 
    particularly prone to this)
     
    3) The cardholder account number you received was invalid or 
    illegible (even though authorization may have been obtained through 
    your system).
     
    4) No cardholder signature or printed, signed sales receipt (always a 
    risk for phone orders).
     
    5) Unauthorized signature.
     
    6) Processing error (i.e. a credit is processed as a purchase).
     
    7) Duplicate processing.
     
    8) Expired card.
     
     
     
    =============================================================
    PROTECTING YOURSELF FROM CHARGEBACKS:
    =============================================================
     
     Chargebacks, especially for the home office and mailorder 
    operations which seem to be prone to receiving them, are to be 
    avoided at all costs since they may be grounds for account 
    termination. In one processor's experience two to five purchases 
    out of every thousand result in a chargeback. This is less than 
    one half of one percent of all transactions. Visa itself estimates 
    the average chargeback rate among all its merchants to be .07%. 
    Anyone with a chargeback percentage of 1% or greater is in danger 
    of having their account terminated. Unfortunately, mail order 
    companies and others who accept non-swiped transactions tend to 
    have an industry average that is significantly higher than the 
    what Visa projects. This is in a great part due to the ease with 
    which customers find they can delay their payments by challenging 
    the charge on their bill, calling it an "unauthorized charge" even 
    if it is not.
     
     
     
     
     
     
                                    PAGE 19
     
     
     
     
     
    Another problem is that banks can issue chargebacks in error. And 
    even when they do, or when a customer generated chargeback is 
    reversed, there is no provision for eliminating the mistaken or 
    reversed chargeback from the merchant's chargeback record! Thus 
    even these get counted into your chargeback percentage.
     
    So, what can be done to protect against cancellation of a merchant 
    account due to "high" chargeback rates? Briefly, it boils down to 
    four areas: completing all necessary paperwork properly to protect 
    against procedural type chargebacks, verifying and confirming the 
    original sale to protect against customer initiated chargebacks, 
    maintaining documentation and accurate recordkeeping for reference 
    when they do occur, implementing procedures to skew the percentages 
    in your favor.
     
     
    Protecting against procedural chargebacks:
     
    This is almost self-explanatory. Follow your processor's instruction 
    manual religiously. If you are doing paper based transactions make 
    sure that signatures are present and correct. Make sure that all 
    areas which require information are completely filled in. If you 
    are doing electronic draft capture there aren't too many areas where 
    you can procedurally go wrong. Just make sure to settle your batches 
    each day (remember, processors charge extra for settlements that 
    occur beyond 24 hrs. of the initial sale).
     
     
    Protecting against customer initiated chargebacks:
     
    The best protection from chargebacks is to have a very liberal 
    return policy. You may as well since the cardholder can get a refund 
    through the card issuer anyway (they will debit your account)  up to 
    a year past the date of the sale in some cases. Having a liberal 
    return policy will not only decrease your rate of chargebacks, but 
    help your company's image by projecting confidence in the quality of 
    your product.
     
     
     
     
     
     
     
                                    PAGE 20
     
     
     
     
     
    2) For walk-in transactions, always match the signature on the credit 
    card against the signature on the credit card receipt and photo ID (if 
    allowed in your state). The only person authorized to use the credit 
    card is the person whose name and signature appears on the card.
     
    4) For phone and mail orders, verify and confirm all orders. When 
    accepting an order by phone, you are accepting the risk that the caller 
    may be using a cardholder's credit card without the cardholder's 
    knowledge. Even if you receive an authorization code there is no 
    guarantee of payment
     
    4A) Two common instances of unauthorized phone orders:
    4a1) A caller uses a credit card number (with or without 
    the cardholder's knowledge) to order merchandise for a 
    third party. The caller gives you a phony name, address 
    and phone number hoping that you wont verify the 
    information. If you do as they expect, you will ship the 
    merchandise, the cardholder will dispute the charge 
    because he never placed the order, and you will absorb 
    the loss. 
     
    4a2) A caller uses a credit card number, giving you the 
    cardholder's real name address and phone number. If you 
    simply check the name and address in the telephone 
    directory without calling to confirm the order, you will get a 
    chargeback when the cardholder (who never made the 
    call) disputes the charge.
     
     
    4B) In these circumstances, it is best to follow the procedure 
    below:
     
    4b1) In addition to the order information, obtain the caller's 
    name, address, home and work phone numbers.
     
    4b2) Check the name, address and phone number(s) by 
    independent means such as a phone directory or 
    telephone information operator. Notify the customer that 
    you must verify the name, address, and phone number by 
    independent means before completing the order. There 
    are also, lists of bad ZIPs and fraud-blocker databases 
     
     
     
                                    PAGE 21
     
     
     
     
     
    against which an order may be checked. The National 
    Association of Credit Card Merchants' offers a Bin 
    Number Directory of All VISA and MasterCard Issuing 
    Banks, a Directory of Prison and Jail Addresses and ZIP 
    Codes and a Directory of Mail Drop Addresses and ZIP 
    Codes. There are also CDROM based products available 
    for less than $100 which allow you to search and retreive 
    any phone number/address combination in the United 
    States. 
     
    NOTE: If you take an American Express, Diners, Carte 
    Blanche, or Discover card, you can call the credit card 
    companies directly for an address verification.
     
    4b3) Call back the cardholder to verify that the order is 
    valid. Do not use the phone number(s) received with the 
    order, e.g., check the phone directory if possible. To 
    record that the order was confirmed with a call back, you 
    may choose to use your own code on your internal order 
    information sheets. If you have more than one employee, 
    the employee's name or number should appear by the 
    code.
     
    4b4) If you cannot obtain a valid phone number, you may 
    want to send a letter or mailgram to the cardholder at the 
    confirmed billing address. Ask the cardholder to respond to 
    you by telephone or, if immediate delivery was not 
    requested, by letter to confirm the order. As an added 
    check, you may want to ask the cardholder to identify the 
    type of credit card used in placing the order.
     
    4b5) Obtain a receipt or equivalent on all orders. Send 
    your package UPS Registered, Return Receipt 
    Requested. Or, if you're shipping a number of packages 
    by Parcel Post and you have created a manifest, the Post 
    Office's signature on the manifest constitutes proof of 
    delivery. 
     
    4b6) Send each customer a receipt as a reminder of the 
    purchase
     
     
     
     
                                    PAGE 22
     
     
     
     
     
     
    In addition to the above procedures, you may consider implementing 
    some of the following:
     
     
    5) Banks now allow the merchant to show its 800 number on the 
    customer's statement. If your bank allows this, it is a good way for the 
    customer to contact you directly about a questionable charge instead 
    of going to the bank and initiating a chargeback or retrieval request.
     
    Speaking of the customer's statement, make sure that the description 
    listed makes it clear what the purchase was. It is much easier for the 
    customer to relate his recent book purchase to a line on his statement 
    that identifies the merchant as "Tom's Book Company" rather than 
    "TBC Ltd.".
     
     
    6) Consider installing caller ID. This, of course, will allow you 
    to match up the telephone number used to place the order with the 
    phone number given. Any discrepancy should be noted ,questioned, 
    and resolved. If you are in an area that displays more than just 
    the phone number on the caller ID, so much the better. You may 
    have saved yourself a big loss, and if you're inclined to report 
    it, may provide evidence necessary to prosecute.
     
     
     
     
    Maintaining Adequate Documentation:
     
    Visa/MC regulations require that the bank direct a cardholder's 
    dispute to the merchant before a chargeback is initiated. Oftentimes 
    this is ignored and the bank will issue a debit without giving the 
    merchant an opportunity for a rebuttal. If this happens to you, have 
    a talk with your bank and see if you can induce them to follow the 
    regulations in future situations. Ask them to request that the 
    issuing bank send a copy of the cardholder's letter of complaint as 
    a matter of policy. Regardless of whether or not you are successful 
    in this, it is imperative that you keep good records so that you have 
    the maximum chance of a satisfactory rebuttal and chargeback reversal.
     
     
     
     
                                    PAGE 23
     
     
     
     
     
    Practically speaking, you will want to keep all details of any given 
    sale for at least a year. This information will include customer name, 
    address, telephone number, ship to address, method shipped (for later 
    tracing if necessary), and signed receipt or other material which would 
    be useful in rebutting any claim that the cardholder did not authorize 
    the sale or receive delivery of the product or service.
     
    If you are using computer based Point of Sale software with credit 
    authorization and draft capture, this recordkeeping will be automatic: 
    all you need to do is remember to backup your data frequently and store 
    it in a safe place. If you are on a manual system it will involve a 
    little more work, but suitable audit procedures may be devised which 
    suit the way you conduct business.
     
    Further, you may consider maintaing a database of every credit, 
    return, chargeback and reversal. You can then calculate what your 
    actual chargeback rate is (minus the reversals) and have some grounds 
    to challenge the bank if they claim that your rate is too high. Also 
    this will allow you to generate a list of credits which you may give to 
    your bank with instructions not to process any of these as a chargeback 
    (sometimes customers get impatient waiting for a credit to show up on 
    their statement and will initiate a chargeback even though you have 
    already generated the credit).
     
     
    Skewing the Percentages in your Favor:
     
    In an ideal world any unjustified chargebacks would not be counted 
    against you. As mentioned before, however, this is not the case. 
    Anything that can be done to affect the percentages will go a long way 
    toward reducing the risk of account termination for having exceeded 
    the 1% rate. Implementing the above procedures will help to reduce 
    that risk, but some merchants carry this a step farther and break each 
    sale into multiple sales. When, for example, a four item sale is rung 
    up not as a single sale, but as four individual sales, the total number 
    of transactions is increased thereby decreasing the total percentage 
    of chargebacks (chargeback percentages are calculated on total 
    transactions not dollar volume). This can be a very effective technique. 
    Remember to get authorization for each sale however...if you are 
    splitting one transaction into several, one authorization code will 
    not cover more than one sale.
     
     
     
                                    PAGE 24
     
     
     
     
     
    If your records indicate that your Visa chargebacks are reaching 
    critical mass, consider asking your customer for their MasterCard 
    first. Get some of those sales (and some percentage of the chargebacks 
    on a different credit card). MasterCard also has a higher limit on 
    their chargeback percentages so bear in mind that even if your account 
    is in danger of being terminated for chargebacks exceeding 1%, you 
    may be able to get the bank to allow you to continue to process 
    MasterCard sales. This way, at least, you do not totally lose the 
    ability to accept credit cards.
     
     
     
     
    ================================================================
    COMBATTING FRAUD
    ================================================================
     
    Earlier on we mentioned fear of fraud as the biggest contributing 
    factor to the reluctance of banks to establish merchant accounts 
    for home based and mail order businesses. There are, according to 
    a text published by the American Bankers Association, four types 
    of groups or individuals most likely to perpetrate credit card 
    fraud. These are the collusive merchant, con artist with a 
    fraudulent telemarketing scheme, a criminal purchasing goods and 
    services via telephone or mail with stolen or otherwise illegally 
    obtained credit card numbers, and the dishonest employee. We really 
    need only concern ourselves with the last of these, since the honest 
    merchant will not involve himself in fraudulent schemes, and 
    procedures have already been discussed to protect the merchant 
    against taking fraudulent orders. A merchant's last point of 
    vulnerability , then, is from the inside.
     
    Employees have been known to accept counterfeit or altered cards, 
    ring up sales (in non-swiped transactions) using valid cardholder 
    account numbers which have been illegally obtained, and even 
    launder drafts (factor) for other businesses.
     
    The best protection against a dishonest employee is to avoid 
    hiring one. Thorough preemployment background checks are recommended 
    by professional credit card fraud investigators as your cheapest
     
     
     
     
                                    PAGE 25
     
     
     
     
     
    form of insurance against this type of employee. Considering that 
    a background check can be made for about $100, and weighing that 
    against the damage and losses a dishonest employee can cause, this 
    is without a doubt, true.
     
     
     
     
    Other anti fraud techniques:
     
     
    1) Monitor your chargebacks. Be the first to notice any increase in 
    claims of "unauthorized purchases". Note the date and time these 
    occurred, employees on duty during that time and, if your register 
    supports it, the employee number of the person who rang up the sale. 
    Check to see if an inordinate amount of these chargebacks can be 
    attributed to a particular employee or if they are happening randomly. 
     
     
    2) Know the details of your business such as average ticket amount 
    and the percentage of swiped transactions versus transactions which 
    have been keyed into the terminal (you can bet your bank does!). If, 
    all of a sudden, the numbers begin to change radically, it may be time 
    for a closer look into the reasons why.
     
     
    3) If you suspect an employee, contact the credit card fraud 
    investigator at your local police department . He can assist you in 
    looking over the documentation and developing a case if the evidence 
    warrants proceeding.
     
     
    Remember, if the bank suspects fraud, they most likely have the 
    power to sieze your funds immediately (read your merchant contract)! 
    They will take whatever there is and that could be potentially 
    disastrous for your business.
     
     
     
     
     
     
     
     
                                    PAGE 26
     
     
     
     
    =============================================================
    Appendix A-Sources of Merchant Accounts:
    =============================================================
    Try your local banks first. Many banks WILL accept home based 
    and mail order business to some extent, although they try to 
    minimize their exposure by having not more than around 10% of t
    heir portfolio involved in this type of business. Approach 
    them properly, with documentation as outlined previously, and 
    you may just be surprised at what happens!
     
    However, much more likely, you will end up searching for an ISO. 
    Of the one thousand four hundred and eighteen franchised Visa/MC 
    ISO's in the U.S., only a few (read this two or three) are willing 
    to take nonstandard business as a matter of course. The alarming 
    news is that these numbers keep decreasing!
     
    Noted below are a few of the sources that may still be willing 
    to accept home based, startups and mail order businesses on a 
    regular basis. No guarantees of any kind are made or implied 
    although any information presented is deemed accurate as of 
    November 1993.
     
     
    110 SOFTWARE & BUSINESS SERVICES
    2228 BURGER
    DEARBORN, MI  48128
    Phone: 313-278-3350 (Compuserve 71446,1035  Internet 
    af393@leo.nmc.edu)
    Notes: (My company, thank you!) Able to arrange merchant accounts 
    for many types of "non-standard" businesses...including 
    Audiotex.Merchant approval generally runs 14-30 business days. I work 
    with several banks nationwide and attempt to place accounts with
    YOUR needs in mind, i.e. at whichever bank offers the best deal for
    you in terms of your particular circumstances.
    Also handle terminal replacement software, and of course, will 
    be happy to sell you the software whether or not you obtain your
    account with me.
     
     
                                    PAGE 27
     
     
     
     
     
    Another source is your Yellow Pages under the "Credit Card & Other 
    Credit Plans-Equipment & Supplies" heading. A brief search produced 
    the listing shown on the following page (no recommendation is
    expressed or implied):
     
     
     
     
     
     
     
    HARBRIDGE MERCHANT SVC        
    2480 W 26TH AVE               
    DENVER  CO  80211
    Phone: 303/455-6543
     
    CONTINENTAL BANNKARD SVC      
    760 S HILL ST                 
    LOS ANGELES  CA  90014
    Phone: 213/488-9655
     
    DATACARD CORP                 
    901 CORPORATE CENTER DR # 406 
    MONTEREY PARK  CA  91754
    Phone: 213/264-8044
     
    CREDIT CARD PROCESSING CO     
    39 E MAIN ST                  
    ALHAMBRA  CA  91801
    Phone: 818/308-3309
     
    RETAIL SYSTEMS INC            
    310 LANG RD                   
    BURLINGAME  CA  94010
    Phone: 415/343-0978
     
    INTERNATIONAL BANK CARD 
    SYSTEM
    852 FOLSOM ST                 
    SAN FRANCISCO  CA  94107
    Phone: 415/904-0600
     
     
     
     
                                    PAGE 28
     
     
     
     
     
    DATA CARD CORP                
    14261 E 4TH AVE               
    AURORA  CO  80011
    Phone: 303/343-1030
     
     
    DATACARD CORP                 
    6200 LYNDON B JOHNSON FWY     
    DALLAS  TX  75240
    Phone: 214/980-2300
     
    NEW YORK RETAIL PARTNER       
    13338 41ST RD                 
    FLUSHING  NY  11355
    Phone: 718/359-3282
     
    CARD SERVICE OF NEW 
    AMSTERDAM 
    9 E 41ST ST                   
    NEW YORK  NY  10017
    Phone: 212/922-0770
     
    JCB INTL CREDIT CARD CO       
    60 ROCKEFELLER PLZ            
    NEW YORK  NY  10020
    Phone: 212/332-8120
     
    U S MERCHANT SVC              
    9 E 41ST ST # 301             
    NEW YORK  NY  10017
    Phone: 212/818-1807
     
    UNION BANCARD NEW YORK        
    1220 BROADWAY                 
    NEW YORK  NY  10001
    Phone: 212/947-6937
     
    MERCHANT BANKCARD 
    SYSTEMS
    103 BELAIR RD                 
    STATEN ISLAND  NY  10305
    Phone:718/876-7286
     
     
                                    PAGE 29
     
     
     
     
    =============================================================
    Appendix B-Restricted Businesses
    ==============================================================
    Restricted businesses may be considered for approval, but will 
    require extensive financial disclosure and review.
     
    Automobile Rentals: Merchants frequently charge customers for 
    damage to the vehicle which results in chargebacks. This category 
    has a very high loss to sales ratio.
     
    Bars/Cocktail Lounges Without Restaurant Facilities: There is a 
    high propensity for cash advances and disputed billing amounts 
    due to the nature of the business. Also, there is a high turnover 
    of these types of businesses.
     
    Businesses Without a Storefront: MasterCard and Visa require a 
    storefront or permanent retail location.
     
    Insurance Sales: Bank Policy
     
    Infomercials: Bank Policy
     
    Limosine Services: Lost or stolen credit cards are frequently 
    accepted over the phone and limosine services frequently go out 
    of business, leaving high chargebacks and loss potential.
     
    Mail/Telephone Order Firms Without 2 Years Prior Bankcard Experience: 
    Cardholders can dispute any charge where there is no imprint or 
    signature resulting in a high propensity of chargebacks and losses.
     
    Merchants Who Have Declared Personal/Business Bankruptcy Within 10 Years.
     
    Real Estate Related: Mortgage reduction programs do not save 
    cardholders any more money than they can save on their own. 
    Appraisal and loan fees often get charged back when an appraisal 
    comes in low, a loan is not approved, or the real estate deal falls 
    through.
     
    Self Improvement Courses: Cardholders usually pay in advance for 
    the course, the quality of which can easily be disputed or the 
    course can be cancelled.
     
     
     
     
                                    PAGE 30
     
     
     
     
     
    Tour Companies: Cardholders pay in advance for services that 
    can easily be disputed for quality and may not be rendered at all.
     
    Vitamin and Water Purifier Sales: These products are frequently 
    associated with telemarketing scams and are often sold in conjunction 
    with "giveaway promotions. Again, there is a high incidence of 
    chargebacks and losses.
     
     
     
     
     
     
    =============================================================
    Appendix C-Prohibited Businesses
    =============================================================
     
    In general, businesses in this category will be extremely hard to place.
     
     
     
    Adult Bookstores
    Airlines
    Bail Bond Payments
    Check Cashing Businesses
    Collection Agencies
    Credit Unions
    Dating/Escort Services
    Gambling Facilities
    Health Club Memberships
    Massage Parlors
    Marketing Firms with "Giveaway" Type Promotions
    Pawn Shops
    Savings and Loan Companies
    Sexually Explicit Telephone Communications and Publications
    Outbound Telemarketing Firms
    Thrifts
    Travel Agencies
     
     
     
     
     
     
                                    PAGE 31
     
     
     
    ===================================================================
    Appendix D- Computer Bulletin Boards
    ===================================================================
     
    INDUSTRY ALERT
    Visa has recently announced an intention to collect additional fees 
    from certain types of BBS operations. They will be charging $500 to 
    sign up and $250 per year thereafter and they will be requiring all 
    banks and ISO's who have BBS accounts to collect these funds. This 
    applies to bulletin boards that charge for time in any increment 
    other than a yearly subscription fee. This is to be used to develop 
    a database which will assist them in fighting the factoring and fraud 
    that they claim often results from these types of services.
     
     
     
    These fees do NOT apply to:
    1) Bulletin boards who charge only for products they sell.
    2) Bulletin boards who charge an annual subscription fee.
    3) Charges made with any other type of bankcard, i.e. MasterCard, 
    Discover, American Express, etc.
     
     
     
    This is an extremely new policy on VISA's part and not all banks 
    and ISO's are aware of it as yet. Steps were taken at BBSCON to 
    register disapproval of this policy. 
     
    Source: Teleflora CreditLine
     
     
    (Note: June 94. Visa has adopted these fees and MasterCard is 
    working on something similar. It is called "High Risk Merchant 
    Registration". High Risk Registration also applies to certain 
    other forms of business such as outbound telemarketing.)
     
     
     
     
     
     
     
     
     
     
     
     
                                    PAGE 32
     
     
     
     
    ==============================================================
    Appendix E-Sources of Credit Authorization & Draft Capture 
    Terminals
    ==============================================================
    Please note: these are manufacturers and you may or may not be 
    able to purchase direct. Information contained herein is for 
    reference purposes only. You may need to contact a computer 
    dealer in your area who specializes in point-of-sale hardware 
    to obtain this equipment...your best bet is the bank or ISO you are 
    working with.
     
    Consolidated NBS Inc.
    5640 Pare St.
    Montreal, QB, CD  H4P 2M1
    800-463-0292; 514-735-1341
    FAX: 514-342-9763
    Product:   727; 757EX; 767; Softerm; Turbo
    Pricing: $150-$1,500 
    Works with: DEC; IBM; Microcomputers
     
     
    Data Card Corp.
    11111 Bren Rd., W
    Minnetonka, MN  55343
    800-328-8623; 612-933-1223
    FAX: 612-933-7971
    Product:   Datatrol 680
    Works with: IBM PC
     
     
    Datacap Systems, Inc.
    212A Progress Dr.
    Montgomeryville, PA  18936
    215-699-7051
    FAX: 215-699-6779
    Product:   TransIT
    Works with: IBM PC, XT, AT; RS-232
     
     
     
     
     
     
     
     
                                    PAGE 33
     
     
     
     
     
    E.E.S. Companies, Inc.
    2 Vernon St., Ste. 404
    Framingham, MA  01701
    508-653-6911
    FAX: 508-650-1872
    Product:   Multi-Port Unit
    Pricing: $795-$1,395  
    Works with: Apple Macintosh
     
     
     
     
     
     
    MSD Systems, Inc.
    10031 Monroe Dr., Ste. 206
    Dallas, TX  75229
    214-357-4435
    FAX: 214-350-4527
    Product:   MSD 10 System
    RS232 device
     
     
    VeriFone, Inc.
    Three Lagoon Dr., Ste. 400
    Redwood City, CA  94065
    415-591-6500
    FAX: 415-598-5504
     
    Product:   Mobile Merchant
    Standalone cellular unit.
     
     
    Product:   OMNI 330
    Pricing: $243-$287
    Works with: most host systems
     
     
    Product:   OMNI 380
    Pricing: $315-$390
    Works with: most host systems
     
     
     
                                    PAGE 34
     
     
     
     
    Product:   PinStripe
    Pricing: $498-$794
    Compatible with: Most host systems
     
    Product:   TRANZ 330/340
    Pricing: $233-$303
    Works with: Most host systems
     
    Product:   TRANZ 330pnc/340pnc
    Pricing: $258-$327
    RS-232C device.
     
    Product:   TRANZ 380
    Pricing: $285-$360
    Works with: Most host systems
     
    Product:   TRANZ 420
    Pricing: $480-$545
    Works with: most host systems
     
    Product:   XL 300
    Pricing: $168-$195
    Works with: most host systems
     
    Product:   ZON II XPe/XJ
    Pricing: $423-$900
    Works with: most host computers
     
    Product:   ZON Jr XL
    Pricing: $163-$190
    Works with: Most host systems
     
    Product:   ZON Jr. PLUS
    Pricing: $120-$150
    Works with: most host systems
     
     
    Xico, Inc.
    9737 Eton Ave.
    Chatsworth, CA  91311
    818-709-4403
    FAX: 818-709-5235
     
     
     
                                    PAGE 35
     
     
     
     
     
    Product:   Series 8900
    Pricing: $344-$2,100
    Standalone unit,
     
     
     
     
     
     
    ===============================================================
    Appendix F- Credit Authorization Software
    ===============================================================
    Again, this information is for reference only. These are 
    manufacturers. You may need to purchase through an authorized 
    distributor or dealer in your area. This is just a sampling of 
    what is available, and as such, software applicable to a range 
    of platforms is presented.
     
    Product Name: IC Verify
    Manufacturer: IC Systems
                    283 Beau Forest Drive
                    Oakland, CA  94611
                    510-339-0391
                    FAX: 510-339-3480
    Pricing $350 plus.
    IC Verify contains no Point of Sale features, but can link to 
    many POS systems. It is one of the most robust products on the 
    market today. Beware of the documentation though: it leaves 
    MUCH to be desired.
     
     
    Product Name: Super Auth
    Manufacturer: Atomic Software
                    100 Valley River Avenue
                    Murphy, NC  28906
                    800-392-9550
    Pricing: $295
    Super Auth is a fully integrated DOS based credit card 
    authorization and check verification system that is easy to use 
    and fully featured. A good alternative to IC Verify.
     
     
     
     
                                    PAGE 36
     
     
     
     
     
    Product Name:Tele-PC
    Manufacturer: Teleflora CreditLine
                    12233 W. Olympic Blvd.
                    Los Angeles, CA  90064
                    800-325-4849
    Pricing: Currently $175 but going up shortly.
    TelePC has no fancy bells or whistles like the programs mentioned 
    above. It performs only the basic terminal functions of authorization 
    and draft capture. Furthermore, it is specific to this processor, 
    i.e. you need to have your merchant account through Teleflora in 
    order to buy and use this system. However, if you are a Teleflora 
    merchant and you don't need or want fancy features, this may be the 
    program for you.
     
     
    Product Name: Register Mate
    Manufacturer: Champ Computer Systems
                    2655 Villa Creek, Ste. 170
                    Dallas, TX  75234
                    214-484-4754
    Pricing: $99
    Register Mate is a DOS based retail point of sale application which 
    prints and reads 5 types of bar codes. It will also print price 
    tags and a full complement of over 50 reports. Register Mate includes 
    credit card verification, can provide inventory control and sales 
    management functions, attaches to electronic cash drawers and receipt 
    printers and can interface with Dac Easy General Ledger program.
     
     
    Product Name: Credit Card DB
    Manufacturer:E.E.S. Companies, Inc.
                    2 Vernon St., Ste. 404
                    Framingham, MA  01701
                    508-653-6911
                    FAX: 508-650-1872
    Pricing: $399
    This product runs on a Macintosh and requires 4th Dimension runtime. 
    It performs credit card authorization and draft capture and supports 
    individual and batch processing.           
     
     
     
     
     
                                    PAGE 37
     
     
     
     
     
    Product Name:   Peachtree Point of Sale
    Manufacturer:Peachtree Software, Inc.
                    1505-C Pavilion Place
                    Norcross, GA  30093
                    800-247-3224; 404-564-5800
    Pricing: $595
    Network compatible retail system integrating with Peachtree Complete
    Accounting. Handles interfacing to third party credit card software.
     
    MISCELLANEOUS SYSTEMS & PLATFORMS
     
    Product Name: Infinity Point of Sale System
    Manufacturer:Data Pro Accounting Software, Inc.
                    5439 Beaumont Center Blvd., Ste. 1050
                    Tampa, FL  33634
                    800-237-6377; 813-885-9459
                    FAX: 813-882-8143
    Pricing: $950 (PC); $1,195 (UNIX/XENIX)
    Infinity POS system can be used standalone or as a module integrating 
    with other accounting modules and is compatible with Novell and 
    other networks. This software performs credit card authorization 
    and draft capture functions.
     
     
    Product Name: Point of Sale
    Manufacturer:IBES Corp.
                    671 N. Plano Rd., Ste. 201
                    Richardson, TX  75081
                    214-907-8475
                    FAX: 214-907-9806
    Pricing: $2,000 and up
    Point of Sale runs under AT&T UNIX System V; XENIX; DEC/ULTRIX and 
    is a full point of sale package which also supports a credit card 
    authorization interface.
     
     
    Product Name:   AS/Entry DMAS Retail 2000
    Manufacturer: IBM (International Business Machines)
                    Old Orchard Rd.
                    Armonk, NY  10504
                    800-426-2468; 914-765-1900
                    Tech support: Use toll-free no.
     
     
                                    PAGE 38
     
     
     
     
     
    Pricing: $5,200
    Used on System 36 and AS400's, this product provides IC, AR, GL, 
    sales analysis and purchasing functions as well as credit card 
    authorizations.
     
     
    Product Name:   Netmaster/AP
    Manufacturer:Innovative Electronics, Inc.
                    10110 USA Today Way
                    Miramar, FL  33025-3901
                    305-432-0300
                    FAX: 305-432-0705
    IBM mainframe or Tandem application. It interfaces to NCR, IBM and 
    Fujitsu Point of Sale terminals.
     
     
    Product Name:   StoreLink
    Manufacturer:LeRoux, Pitts & Associates, Inc. (subsidiary of NYNEX Corp.)
                    5770 Roosevelt Blvd., Ste. 410
                    Clearwater, FL  34620
                    813-531-3414
                    FAX: 813-530-1096
    Pricing: $125,000
    Compatible with: Tandem NonStop/Guardian
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
                                    PAGE 39
     
     
     
     
     
    Common Industry Terms:
     
    Auth Only       A code that indicates the transaction was authorized 
                    by the backup host.
     
    Balancing       Verifying and transmitting the transactions stored in 
                    the terminal.
     
    Batch           A session beginning with the first transaction and 
                    continuing to the point of settlement.
     
    Batch Total     The total amount of the transactions in the batch.
     
     
    Card Reader     The slot on the side of the terminal that automatically
                     reads the magnetic stripe on the back of a credit card.
     
    Chargeback      Sale amount that is charged back to a merchant's account.
     
     
    Credit          A refund transaction which credits a customer account 
                    with their refunded amount.
     
    Credit          The written form or electronic format supplied or approved
    Voucher          by thefinancial institution for use in consummating 
    credit 
                    transactions applied to the account of a purchaser on the 
                    basis of a credit card properly honored by the merchant
                     under the terms of a current merchant agreement.
     
    Data            Information used by the terminal that relates to a 
    specific 
                    transaction or operation.
     
     
    Display         The screen on your terminal directly above the keypad; the
                    screen presents prompts and messages to guide 
                    you through transactions.
     
     
     
     
     
     
     
     
                                    PAGE 40
     
     
     
     
     
    Download        The process of transferring data from a remote computer 
    or 
                    terminal to another.
     
    Editing         To correct or void the amount of a transaction that has 
                    been previously captured.
     
    Force           A function used to capture previously authorized 
                    transactions.
     
    Host            Authorization center computer used to process transactions.
     
    Item Count      The total number of transactions in the batch including 
                    sales, credit, force and edited transactions.
     
    Keypad          The key panel on the terminal labled with numbers, 
                    alphabet, and labels that identify special functions.
     
    Mag Stripe       This unit may be built into the keyboard of a PC based 
    Reader          POS system, incorporated into a credit authorization 
                    terminal, or sold as a separate unit. When a credit card 
                    is presented, the operator runs the card through the 
                    slot instead of typing in the card number.
     
    Manual          Transaction using account information entered from the 
    Transaction     keypad rather than the automatic reading devices such as 
    a 
                    card reader. Also known as a non-swiped transaction.
     
    Out of Balance  The item count or total entered do not match the terminal's
                     record.
     
    PIN             A Personal Identification Number. A confidential code 
                    or electronic signature used by card holders to identify
                    themselves as the proper users of a credit or debit card 
    to 
                    the host computer.
     
    Prompt          A message appearing on the terminal's display telling you 
                    what type of information to enter.
     
    Receipt Printer Used to give written proof of sale to a customer. Units 
                    are available in either a 40 or 80 column format.
     
     
     
     
                                    PAGE 41
     
     
     
     
     
    Review          Batch information displayed by the terminal.
     
     
    Report          Batch information printed. An electronic printer is required.
     
     
    Sale            A transaction used to charge credit/debit customers for 
                    their purchase.
     
     
    Scroll          To move text across a display screen.
     
    Settlement      The demand deposit account or other account approved
    Account         by the financial institution which has been or will be 
                    established and maintained by the merchant with a bank 
                    or other institution for the purpose of debiting and 
                    crediting the merchant for credit card transactions and fees.
     
     
    Swipe           The action of sliding a card through the card reader.
     
     
    Voice           An approval code received via a telephone call; voice   
    Authorization   authorization is necessary when the terminal is unable to 
                    complete a transaction.
     
    Wedge           An interface device for magnetic stripe and bar code readers
                     which allows the reader to be connected between the 
                    computer's keyboard and the computer. The computer sees the
                     magnetic stripe or bar code information as if it were 
    typed 
                    in to the program via keyboard. This device eliminates 
    the 
                    need for a serial port to plug the reader into.
     
     
     
     
     
     
     
     
     
     
     
     
                                    PAGE 42
     
     
     
     
    ==============================================================
    CREDIT CARD SPECIFICATIONS
    ==============================================================
     
     
     
     
    Magnetic Stripe Encoding
     
     
    TRACK 1 developed by the International Air Transportation Association 
    (IATA), contains alphanumeric information for the automation of airline 
    ticketing or other transactions where a reservation database is accessed.
     
    TRACK 2 developed by the American Bankers Association (ABA), contains 
    numeric information for automation of financial transactions. This 
    track of information is also used by most systems which require an 
    identification number and a minimum of other control information.
     
    TRACK 3 developed by the Thrift Industry, contains information, some 
    of which is intended to be updated (re-recorded) with each transaction, 
    e.g. Cash Dispensers which operate "off-line".
     
     
     
     
     
     
    CARD DATA FORMAT
     
     TRACK 1 and TRACK 2
     
    The standards for Tracks 1,2, and 3 have established basic encoding 
    specifications for credit cards and debit cards. The Interbank and 
    Visa Specifications are based on these standards, as well as the 
    ATM requirements of Burroughs, Diebold, IBM, NCR, and TRW.
     
    These standards are also the basic encoding specifications for I.D. 
    cards - used for access control, factory data collection, patient 
    identification, and a variety of revenue control systems.
     
     
     
     
     
                                    PAGE 43
     
     
    ADDENDUM:
     
    I hope you found this useful. If you would like to be informed 
    of new revisions of this manual or if you would like to be kept 
    abreast of new developments in the field (as I have time to 
    post them), please drop me an email at af393@leo.nmc.edu or 
    Compuserve 71446,1035...nothing fancy, just your contact info 
    and...I'd appreciate it...a comment on the manual.
     
    
    
    

--
---------------------------------------------------------------------------
Tom McSherry                                    VISA/MC MERCHANT ACCOUNTS 
Certified Bankcard Services Provider            for "nonstandard" types of
ac209@detroit.freenet.org                       businesses.
>
>Yes, please and thank you. May I put it in my web?
>
Brad:
I plan on updating this soon...the examples need rewriting and 
clarification regarding the processor et al and there's a few other 
things I want to fix, so I'd appreciate it if you did not put it in your 
web at this time. However, I will send you the updated copy...hopefully 
within a couple of weeks, and I don't see a problem with making it 
available. Please tell me a little more about what you have in mind.
Thanks, and good reading!
Tom

--
---------------------------------------------------------------------------
Tom McSherry                                    VISA/MC MERCHANT ACCOUNTS 
Certified Bankcard Services Provider            for "nonstandard" types of
ac209@detroit.freenet.org                       businesses.