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The Buck Stops Here:
Insights From Payment Processing Experts

In last month’s special supplement, we discussed        and the fulfillment of their order is payment pro-
the power of e-mail marketing to drive sales and        cessing. And it’s that mysterious processing of sen-
consumer confidence. But once the consumer has          sitive financial information that scares so many
filled his or her shopping cart online and is ready     consumers away from e-commerce. In fact, a recent
for checkout, what happens next? That’s when the        report from eMarketer research found that an aver-
payment-processing vendor steps in. This essential      age of 76 percent of respondents don’t like giving
element of e-commerce is often undervalued and          their credit card or personal information online.
oversimplified.                                         Eleven percent of U.S. online buyers think they
   When making online purchases, consumers              would be liable for damages of over $500 if their
merely input their credit card information and          card or data were stolen.
then wait for a package to arrive at their door. What
happens between those strokes on the keyboard           IS THE INTERNET MORE SECURE?
                                                                            Ironically, while speaking with
                                                                            various leaders in the payment
                                                                            processing industry, it became
                                                                            crystal clear that the experts
                                                                            firmly believe shopping online
                                                                            is actually more safe and
                                                                            secure than using a credit card
                                                                            at a traditional retail location.
                                                                            Throughout these discussions,
                                                                            Electronic Retailer discovered
                                                                            the intricacies of problems
                                                                            that occur day-in and day-out
                                                                            for processors, the vast major-
                                                                            ity of which are resolved
                                                                            before the customer or mer-
                                                                            chant even finds out.
                                                                               The payment-processing
                                                                            vendors are helping to
                                                                            remove the negative stigma
                                                                            associated with online shop-
                                                                            ping by serving as the secure
                                                                            conduit between customers
                                                                            and their merchandise. A
                                                                            2004 study from eMarketer
                                                                            found that 72 percent of
                                                                            Canadian retailers thought
                                                                            that the risk of stolen credit
                                                                            card information was the
                                                                            leading threat to online trans-
                                                                            action              processing.
                                                                            Additionally, CyberSource
                                                                            released data showing that
                                                                             sor that can treat all of your
Online Revenues Lost due to Online Payment Fraud                             needs, rather than trying to
according to E-Retailers in North America, 2000-2007                         negotiate separate agree-
                                                                             ments with multiple proces-
 2000                           $1.5                                         sors or banks.” Some
                                                                             processors have demon-
 2001                               $1.7                                     strated strength and expert-
 2002                                       $2.1                             ise in domestic processing,
                                                                             while others excel in inter-
 2003                                   $1.9                                 national. One company is
 2004                                                $2.6                    an expert in computing dif-
                                                                             ferent sales tax jurisdictions
 2005                                                    $2.8
                                                                             for online purchases, where
 2006                                                        $3.0            another is the company you
                                                                             turn to when chargebacks
 2007                                                              $3.6
                                                                             for continuity or multi-pay
 Source: CyberSource, "Online Fraud Report" conducted by Mindwave            plans fall flat. Regardless of
 Research, January 2008                                                      your particular needs, the
 091424                                           projected growth of e-com-
                                                                             merce retail sales indicates
revenues lost because of online payment fraud          that payment processors will continue to become
jumped from $3 billion in 2006 to $3.6 billion in      an increasingly integral part of your business plan.
2007. It’s because of the standards seen in PCI           When’s the best time to go international? What
compliance, which was introduced by the card           role would a payment processor play in monetiz-
companies and is enforced by the processors, that      ing social networks? How will mobile commerce
these fears have begun to recede. JetPay CEO           alter the payment industry? What exactly is PCI
Trent Voigt contends that PCI is going to be the       compliance?
biggest driver of the payment industry in the             The following pages contain Q&As with some
near future. Luckily for everyone, while identity      of the biggest names in the payment industry.
fraud costs to U.S. consumers reached $45 billion      These thought leaders discuss the current state of
in 2007, it’s expected to drop to $34 billion by       the industry and also shed light on what innova-
2013, surely in no small part because of the ded-      tions may be right around the corner.
ication of the processors.

LOOKING FORWARD                     US Retail E-Commerce Sales, 2007-2012 (billions and %
One of the most interesting         change)
elements to this aspect of the
                                     2007                                       $127.7 (19.8%)
industry is the diverse expert-
ise that each processor is           2008                                              $146.0 (14.3%)
required to maintain. Many
                                     2009                                                     $164.3 (12.5%)
processors, in fact, specialize
in particular niches. PacNet         2010                                         $182.5 (11.1%)
Services’ Renee Frappier says        2011                                                 $200.6 (9.9%)
it best: “It’s difficult to high-
light one main consideration,        2012                                                        $218.4 (8.9%)
because each company’s needs
                                    Note: eMarketer benchmarks its retail e-commerce sales figures against
are quite different. Consider       US Department of Commerce data, for which the last full year measured
all of your potential sales         was 2007; excludes travel sales
                                    Source: eMarketer, May 2008
channels and markets. Make
sure you’re choosing a proces-

                                                                   Payment Processing 2008 | electronicRETAILER   1
     CCH Product Manager                                  ple will type out “lane” or “street,” others will
        of Sales & Use Tax                                abbreviate, and others will leave it out all together.
           Bruce Krumlauf                                 The zip code is another one of the key driving fac-
                                                          tors that’s used to associate address with tax juris-
                                                          dictions. Validating accurate zip codes where a
                                                          street crosses multiple zip codes, that’s all part of
                                                          the address scrubbing that occurs at the very front
    Bruce Krumlauf is the product manager for CCH’s       end of the work that we do.
    sales and use tax compliance solutions. CCH pro-
    vides leading tax and business law information and    ER: The notion of Streamlined Sales Tax is at
    software solutions. CCH products track, report,       the forefront of ERA’s government affairs
    explain and analyze tax and related law in over       efforts. As a company entrenched in the col-
    approximately 700 publications in print and elec-     lection of taxes for various jurisdictions,
    tronic form for tax, accounting, legal, human         what’s your position on this hot-button issue?
    resources, banking, securities, insurance, govern-
    ment and health care professionals. In his role at    Krumlauf: It’s an interesting initiative in that every-
    CCH, Krumlauf is responsible for a suite of prod-     body agrees with the long-term goal of simplifying
    ucts comprised of software, database content and      the rules of sales tax calculation and leveling the
    hosted services. Prior to joining CCH in 2005, he     playing field. But, the real question is: Is the move-
    was vice president of product development for         ment that’s afoot today really accomplishing that?
    First Data Government Solutions, a leading            There are really only about 1,000 to 1,500 companies
    provider of government e-commerce payment             that have volunteered to participate in this effort. To
    solutions. For two decades, Krumlauf has been a       continue to build membership with the states, the
    highly visible proponent of using technology to       Streamlined organization has had to make some dif-
    streamline tax revenue collections and reporting.     ficult concessions about taxation to keep some of the
    While at National Data Corporation he spearhead-      original members of the initiative on board and to
    ed the development and implementation of the          try to bring others in. Whether it’s truthfully going to
    nation’s first mandated electronic tax payment        accomplish its goal of simplifying taxation is the
    program in the country.                               question. We see a lot of benefits in Streamlines’ long
                                                          haul, in simplifying the compliance of sales tax, but
    Electronic Retailer: At what point in the pay-        it’s still got a long way to go.
    ment processing transaction does your busi-
    ness step in?                                         ER: What that most misunderstood notion
                                                          about what you do? What lessons are there
    Bruce Krumlauf: Once a customer selects items to      for retailers?
    purchase, the seller needs to determine what and
    how much sales tax needs to be collected on the       Krumlauf: Retailers need to remember end-of-the
    good or service. That’s the piece CCH and our         month tax compliance reporting. What’s critical is
    compliance solutions play. Based on the product       that this isn’t a stand-alone process. It’s much more
    being sold, the location of the buyer and the loca-   integrated into their buying and selling of goods
    tion of product shipment, that’s how we determine     than say, the credit card authorization process. We
    the tax that’s going to be collected. This all hap-   have to map their product SKUs and our product
    pens before a transaction can be finalized. So, one   groups and items so that all of this can be accurate-
    of the biggest challenges is getting good, quality    ly calculated. That work of integrating into their
    information in on the transactions. That’s what       shopping cart and their ERP system is extremely
    helps to minimize the likelihood of an audit or       important. The calculation almost becomes an
    incorrect taxation.                                   invisible process once the integrations are in place.
                                                          We have products that both sit behind the retailer’s
    ER: What type of quality information are you          firewalls or that we offer in a hosted environment
    looking for when determining accurate taxes?          that do both the calculations and maintain the tax
                                                          liability information in our system. And towards
    Krumlauf: There’s a systematic address scrubbing      the end of the month, that information is fed over
    process that has to go on. For instance, some peo-    to the compliance reporting products.

2   electronicRETAILER | Payment Processing 2008
         Chase Paymentech                                     ER: What role does international commerce
       Solutions Senior Vice                                  play in payment processing? Is it difficult to
       President and Group                                    work with the various currencies?
         Executive of Client
          Relations Michael                                   Clark: The rise of the Internet gave every business
                       Clark                                  the opportunity to go global. As our merchants
                                                              expanded globally, we’ve also expanded our inter-
    Since 1985, Chase Paymentech has made it their            national capabilities to support them. For most
    business to lead the way in payment processing.           mature U.S. companies, international processing is
    They process payments for merchants in both               a huge part of their growth strategies. We were
    brick-and-mortar and cyber storefronts throughout         actually the leader in expanding currency options
    the U.S. and Canada, with more than $719 billion in       for card-not-present merchants, first expanding
    transactions annually. Michael Clark is responsible       into Canada, then Europe and, now, globally.
    for the direct response and strategic account rela-       Working with the various currencies isn’t difficult.
    tionship management teams. Their objective is to          What can sometimes be challenging for our mer-
    provide dedicated and focused relationship man-           chants is navigating the complex regulatory envi-
    agement services, keeping their merchants up to           ronment of each country’s legal framework, as well
    date with industry and regulatory issues and ensur-       as the requirements of each local payment method.
    ing optimal payment processing practices.                 We have a team dedicated to helping merchants
                                                              navigate through these issues.
    Electronic Retailer: What’s the most misunder-
    stood notion about the payment processing                 ER: If mobile commerce takes off the way that
    industry?                                                 e-commerce has, what changes, if any, will
                                                              occur in regards to payment processing?
    Michael Clark: Some merchants believe that pay-
    ment processing is a commodity service. I believe that    Clark: Again, the mechanics of processing the pay-
    our relationships with merchants are partnerships,        ment will remain the same. Merchants can contin-
    with the goal of helping them optimize their payment      ue to submit transactions the way they do today.
    strategy. This could be in providing comprehensive        Most of the changes will revolve around consumer
    analysis tools, benchmarking, innovative tools to help    payment behaviors. The average dollar amount of
    reduce costs, offering alternative payments to increase   transactions may be impacted, depending on how
    sales or hundreds of other areas. Merchants should        consumers choose to make mobile payments. It
    consider the full range of services and solutions when    could lead to a rise in micropayments if they down-
    choosing a payment processor, and then choose the         load low-cost items or use mobile for convenience
    one that best meets their overall needs.                  purchases. Or, it could lead to new fraud threats
                                                              that didn’t exist before mobile was a viable channel.
    ER: For those who may be unfamiliar, what is              There’s been a lot of attention on mobile within the
    PCI Compliance? What role does it play in the             payments industry; but we have to first reach
    future of the payment processing industry?                device, carrier and bank independence, as well as
                                                              provider consolidation before a successful model
    Clark: PCI provides a common framework for how            emerges. Mobile payments may also represent an
    payment data should be stored and protected. PCI          opportunity for traditional online alternative pay-
    itself is not a compliance program; the individual        ments to enter the card-present arena. Largely
    card brands continue to maintain their own com-           though, mobile payments will be driven by con-
    pliance programs. Protecting account data should          sumers. As a demand for mobile payments increas-
    be a priority for all merchants, as it protects their     es, so will the mobile payment options. It is an
    customers and enables them to continue to accept          exciting time to be in the payments industry. We’ve
    electronic payments. As fraudsters become more            seen more payments innovation in the past five
    sophisticated, it’s clear that data protection will       years than in the previous 50. Mobile will lead to
    continue to be a main priority of payment brands,         even more innovation.
    acquirers, merchants and consumers. I think that
    the standards will grow and change as the fraud
    schemes change.

4   electronicRETAILER | Payment Processing 2008
                      JetPay CEO                              scam than anything else. The most insecure place to
                      Trent Voigt                             use your credit card now is at a restaurant, where
                                                              you set it on the table and it walks away. When
                                                              you’re using it on an Internet retail site, everything
                                                              is encrypted, everybody’s under PCI Compliance.

                                                              ER: For those who may be unfamiliar, what is
    Trent Voigt, chairman and CEO of JetPay, LLC,             PCI Compliance? What role does it play in the
    directs the company in the latest technology for the      future of the payment processing industry?
    payments industry. JetPay has a comprehensive
    customer-driven and technology-focused vision,            Voigt: PCI Compliance is by far going to be the
    matched with an end-to-end understanding of the           biggest driver of the payment industry in the near
    strategic business needs of its customers. JetPay’s       future. If you have a merchant that actually stores
    solutions provide businesses with flexible integra-       credit card information and it gets compromised,
    tion, ease of use, and the ability to adapt to virtual-   it costs millions and millions of dollars for the
    ly any website and application.                           issuers to replace that. It’s ferociously expensive.
       As a technology advisor, Voigt assists with tech-      With that in mind, I think PCI is only going to get
    nical planning and product design, implementa-            stronger and stronger. Even the small “doughnut
    tion, integration and project management.                 shop merchants” have to fill out a questionnaire,
    Additionally, he develops and maintains relation-         stating they’re not storing information. I would
    ships with industry leaders. Prior to JetPay, Voigt       even say in two or three years, they’ll have to have
    was CEO and president of Triumphant                       an audit of some type.
    Enterprises, Inc., an innovative third-party
    processor since 1990.                                     ER: If mobile commerce takes off the way that
                                                              e-commerce has, what changes, if any, will
    Electronic Retailer: What’s the most misunder-            occur in regards to payment processing?
    stood notion about the payment processing
    industry?                                                 Voigt: If it’s truly mobile commerce, I don’t think
                                                              there will be a lot of changes because the transac-
    Trent Voigt: I think there are two. The first would       tion shows up to us very similar to a purchase on
    be that you must have a gateway to process in the         the web. So, it doesn’t really change our processing
    electronic arena. The gateway came about when             methods. Now, when we get to a real mobile com-
    the Internet first started and the old processors         merce environment where the phone is the paying
    from the ’70s and ’80s had no ability to take trans-      tool, like if I’m in a retailer and I just tap my phone
    actions. So, the gateway was their interface. But,        on the cash register and move on; that does pose
    the good processors don’t need a gateway; they can        some unique concerns for the processor. We would
    talk directly to them. JetPay has an XML interface        have to work on getting the “Card Present” media
    that comes directly to them. So, there’s no reason        into the phone. JetPay ran that pilot for MasterCard
    to put another point of failure and an additional         about a year ago to allow the phones to be a paying
    cost in between your retail connection to the             device, and it works very well. It’s now just a matter
    processor. The second would be that the retailer          of getting the public to accept that as a payment
    should always work with their processor directly.         device. The only real concern on m-commerce on
    The third-party salespeople serve a great purpose,        payment is if the phone actually has a loaded cred-
    but if an electronic retailer has any size at all, they   it card to it, that’s not a problem. If it’s m-com-
    should work directly with their processor to estab-       merce where it tries to bill the phone bill, that’s a
    lish their merchant account.                              whole different story because then the risk moves
                                                              around to the phone company. For big purchases,
    ER: What would you say to a consumer who’s                you’ll have phone companies assuming credit, and
    wary about making online purchases for fear               they don’t like that at all.
    of compromising his or her security?

    Voigt: Actually, today I think the online purchases
    are highly more secure. This is more of a media

6   electronicRETAILER | Payment Processing 2008
             Litle & Co. Chief                                dumpster diving and friendly fraud. It’s a waiter or
            Marketing Officer                                 waitress writing down not only your card number,
                   Chris Long                                 but also the security code on the back.
                                                                 There are other things you can do to protect your
                                                              privacy and enhance security. For example, you can
                                                              sign up for an alternative payment plan, like PayPal
                                                              or Bill Me Later, which provide an extra layer of
    Litle & Co. is a full-service payment processor serv-     security between your data and the Internet.
    ing direct response merchants, direct marketers, elec-
    tronic retailers and other card-not-present retailers.    ER: For those who may be unfamiliar, what is
    Chris Long joined Litle & Co. as one of its founders      PCI Compliance? What role does it play in the
    in 2001. As chief marketing officer, Long is responsi-    future of the payment processing industry?
    ble for the company’s go-to-market strategy, brand
    promotion, competitive positioning and business           Long: PCI (or ‘PCI DSS,’ which stands for “Payment
    development. Prior to joining Litle & Co., he was vice    Card Industry Data Security Standard”) is the set of
    president of marketing at OrderTrust, Inc., a firm        rules put in place by the Card Associations (Visa,
    that specialized in distributed order management          MasterCard, Amex and Discover) to ensure the
    and large-scale transaction processing networks.          security of credit card data. The role of PCI
    Before OrderTrust, Long was director of electronic        Compliance in the future of the credit card industry
    commerce at Staples, Inc., where he developed             is critically important; if consumers cannot count
    Staples’ first e-commerce site.                           on data security, then they will stop using credit
                                                              cards, and the entire system will shut down. All of
    Electronic Retailer: What’s the most misunder-            our futures depend on security. We payment
    stood notion about the payment processing                 processors are the enforcement arm of the
    industry?                                                 Associations, with respect to PCI. It’s our job to
                                                              make sure that merchants are compliant.
    Chris Long: The most important and probably least
    understood thing that we do is we accept merchant         ER: When selecting a payment-processing
    risk. When fraud occurs, or if a merchant was to go       vendor, what’s the main element a potential
    out of business, the customer gets their money back       client should consider?
    from us. So, you not only pay us to handle the
    mechanics of your data transaction and follow VISA        Long: It’s important that merchants have a payment
    and MasterCard’s rules, but you also [depend on us]       processor that truly gets to know their business.
    to stand in for merchant risk. It’s almost like the       When talking about alternative payments, as a mer-
    merchant is being forced to buy life insurance.           chant should, do you offer Bill Me Later? PayPal?
                                                              Google Checkout? It’s too expensive to offer all of
    ER: What would you say to a consumer who’s                them, so you need a payment processor to help guide
    wary about making online purchases for fear               you through that choice. For example, with Bill Me
    of compromising his or her security?                      Later when a customer signs up for it, they put them
                                                              through a credit check behind the scenes. If they pass
    Long: Online purchases are probably the most              the credit check, then they’re granted the service.
    secure aspect of the electronic payments industry.        Now, that’s great if you’re selling to middle-aged,
    With PCI Compliance, we know people are taking            upper middle class consumers. But, if your consumer
    really good care of data. If you look at the recent       is not that tier, or if you’re selling to teenagers who
    break-ins into data, they’re all related to traditional   don’t even have a credit history yet, then why would
    brick-and-mortars that are taking sloppy care of          you bother to roll out a service that’s not going to
    their data behind the scenes. The PCI rules were          work for your customers? The flip side is if you want
    put into place because people thought e-commerce          to sell to teenagers, PayPal would be the perfect solu-
    was insecure, but the major break-ins have not            tion because they accept cash and checking accounts.
    happened in e-commerce, ironically enough.                This is the kind of advice that merchants should get
    According to Javelin Strategy and Research, if you        from their payment processor. If done correctly, your
    look at identity theft and fraud data, the largest        payment strategy is intimately tied into the rest of
    source of fraudulent credit card transactions is          your business.

8   electronicRETAILER | Payment Processing 2008
        PacNet Services Ltd.                                     companies. We will settle for a client in the native cur-
       Director of Marketing                                     rency or in U.S. dollars according to the merchant’s
             Renee Frappier                                      wish, which can save them up to 2 percent on their
                                                                 processing. This is a big deal because they don’t have
                                                                 to take the spread on the currency exchange.

                                                                 ER: What are some of the other specializa-
     PacNet Services was founded in 1994 by an inter-            tions you’ve found and appeased in your
     national team of banking experts. The company               international commerce dealings?
     received instant recognition as one of the world’s
     leading processors of foreign currency checks for           Frappier: Aside from processing credit card transac-
     the direct response industry. For the past 14 years,        tions in multiple currencies and countries, we also
     PacNet Services has maintained an average growth            offer other regionally appealing payment types like
     rate of 20 percent or higher. Today, PacNet                 direct debit or bank transfer acceptance. Credit card is
     Services is recognized for much more than pro-              far and away the most popular payment type for the
     cessing foreign currency checks. Companies from             Internet in North America, but credit card isn’t as
     a wide variety of industries rely solely on PacNet          popular in other countries. For example, direct debit
     Services to handle all of their international pay-          is very popular in Germany, the Netherlands and
     ment needs. Through offices in Canada and                   Austria. If you want to localize and achieve great suc-
     Ireland, PacNet Services enjoys working with                cess in those markets, it would help to offer payment
     clients in North America, Europe, South America,            options that are locally relevant. We don’t expect every
     Asia, Africa and Australia. Renee Frappier is               consumer to behave the same. We provide payment
     PacNet’s director of marketing.                             options that are basically tailor-made for a specific
                                                                 region. We try to make this very easy for the merchant.
     Electronic Retailer: When selecting a pay-                  They don’t need to go and negotiate these payment
     ment-processing vendor, what’s the main ele-                options with the various foreign banks; we’ve already
     ment a potential client should consider?                    done that. We put together the relevant payment
                                                                 options for them on the back end, and then provide it
     Frappier: It’s difficult to highlight one main consid-      for their user interface or website on the front end.
     eration because each company’s needs are quite dif-
     ferent. Consider all of your potential sales channels       ER: Aside from the possible 2-percent savings in
     and markets, and make sure you’re choosing a                processing, where is real value opportunity for
     processor that can treat all of your needs, rather than     a U.S. marketer to focus on international?
     trying to negotiate separate agreements with multi-
     ple processors or banks. You want to streamline the         Frappier: When the U.S. market is bad, it’s actual-
     entire process because otherwise, you’ll need to deal       ly the best time to go international. The U.S. dollar
     with multiple gateways and reporting formats.               is in decline, and with it are U.S. profit margins. If
                                                                 you’re marketing internationally anyway, then it
     ER: What role does international commerce                   really pays to localize and set prices in the local cur-
     play in payment processing? Is it difficult to              rency. If you use some sort of a relational currency
     work with the various currencies?                           converter on your site and your foreign prices are
                                                                 all pegged to the U.S. dollar, they’ll change accord-
     Frappier: It’s very easy for us to handle the currencies    ing to the exchange rate every day. If this is the case,
     because we specialize in processing transactions for        you’re losing an opportunity to protect your profit
     companies that have a presence in more than one             margins. By localizing and setting a price in say
     country. We have clients that do domestic business          Euros, as the spread between Euros and the U.S.
     only, but we’re particularly strong at serving those        dollar becomes greater, so does your profit margin.
     clients that need to transact in more than one curren-      So, setting prices in a local currency is really a fan-
     cy at a time. We have a worldwide network of banking        tastic opportunity for American companies to pro-
     facilities that allows us to offer credit card merchant     tect their bottom line in a declining market.
     accounts in the currencies of over 30 countries. We
     can settle in those currencies, which is different than a
     lot of the other international payment processing

10   electronicRETAILER | Payment Processing 2008
       SKO Brenner America                                    this is the consumer. What usually trips up the process
           SVP of Consumer                                    is a soft decline, that being where the cards have
       Division Bob Graham                                    expired, they’ve reached their limit, or they’ve closed
                                                              out the card and it’s no longer viable. A hard decline
                                                              is where the consumer actively and knowingly stops
                                                              the transaction, versus the process breaking down.

     It was in 1993 that Bob Graham saw the first easy        ER: How do your dealings with hard declines
     payment offers being used by DRTV marketers. He          differ from soft declines?
     realized then that there was going to be a portion of
     those accounts that would default because of             Graham: Hard declines most often occur when the
     account expiration, card limits or accounts closed       product does not meet customer expectations, or
     out before all the installments were paid. Graham is     they can’t identify why the charge occurred on their
     currently the senior vice president, consumer divi-      credit card or checking account statement. In the
     sion, for SKO Brenner America. SKO Brenner               world of credit cards, if the customer disputes a
     America is a national billing, customer retention        transaction, the card companies will favor the cus-
     and collection outsource solution provider that          tomer. We are the advocates of the merchant. When
     assists organizations that sell directly to consumers    we first notify a customer, it’s usually done through
     when the automatic credit card, e-debit or continu-      a call center and we identify ourselves as a first-party,
     ity shipment is interrupted due to non-payment.          customer service function on behalf of the client.
     Its resources will often convert these defaulted         But, sometimes we find that the consumer’s position
     accounts into satisfied, paid-in-full customers.         has merit. Based on that response, we then notify our
                                                              client that they’re within their rights. However, for
     Electronic Retailer: At what point in the pay-           the majority of hard declines, the customer has tried
     ment processing operation does your compa-               to do everything to prevent from paying their obli-
     ny step in?                                              gation. When an account is still not paid and the
                                                              fault lies on the customer, we approach them as a
     Bob Graham: We’re not dealing with the actual            third-party collection agency voice—SKO Brenner
     vehicle to get the consumer’s wishes converted into      America. But, the vast majority of our declines are
     a credit or debit on their account. We’re working        soft. For most of my dealings within direct response,
     with the merchant or other suppliers who are han-        the customer is unaware of the situation, so they’re
     dling the merchant account for the marketer. We          not intentionally trying to dodge a bullet.
     provide service when the automated re-submit
     process has broken down. What makes us different         ER: Some see payment processing as the
     is that our resolution comes not from the infra-         invisible lifeline of the industry. How do you
     structure that’s been built electronically handling      add to or compete with that?
     these things, but rather, we go directly back to the
     consumer, get new billing information from them,         Graham: Everyone has one mission, which is to sell
     and then submit that information through a nor-          product and get paid for it. Ninety-five percent of
     mal payment processing channel. So, it’s a three-        the transactions that are initiated go through with
     way win. It’s a win for the marketer because they        no issue. But even in a 5-percent default rate those
     get paid for the product they sold. It’s a win for the   dollars become significant when you have a hit. In
     payment processor because we create new transac-         addition to that, sometimes these campaigns are
     tions to run through their pipeline. And, it’s a win     just marginally effective, and the difference
     for us because we end up with a new client.              between being a successful marketer is having this
                                                              extra cash come in. We can take anywhere from 30
     ER: What are some of the circumstances that              to 50 percent of the accounts we receive and con-
     lead to default accounts?                                vert them from non-pay to pay.

     Graham: Our mission is to be the fix when a pay-
     ment breakdown happens. We provide the boots on
     the ground to get back to the consumer to resolve
     the situation. Ultimately, the only one who can fix

12   electronicRETAILER | Payment Processing 2008
         Transfirst ePayment                                  measures as a consumer to protect yourself. Buying
           Services President                                 on the Internet is more pervasive than it’s ever
              Michael Phelan                                  been, and it will continue to grow. You still need to
                                                              be pragmatic about your identity, so operate safely
                                                              and securely using common sense.

                                                              ER: For those who may be unfamiliar, what is
     Michael Phelan joined TransFirst’s ePayment divi-        PCI Compliance? What role does it play in the
     sion as vice president of sales in 2005. A little more   future of the payment processing industry?
     than a year later in October 2006, he was named
     president of the division. An 18-year veteran of the     Phelan: It is at the very top of our priorities in
     financial services industry, Phelan is responsible       training employees and educating our merchants.
     for developing business growth strategies, new           We work to ensure that our merchants know what
     product solutions and maintaining operational            the credit card security requirements. We help
     oversight for all areas of TransFirst’s ePayment         them through that process. PCI compliance is the
     business. TransFirst ePayment Services (“ePay”) is       industry’s way to create standards, practices and
     a provider of payment processing and information         procedures that businesses follow in protecting
     services for card-not-present merchants. ePay was        cardholder data.
     founded in 1990 as Data Processors International,
     Inc. (DPI) and primarily provided credit card pro-       ER: When selecting a payment-processing
     cessing services targeting small- to mid-sized mail      vendor, what’s the main element a potential
     and phone order merchants. Since that time, it has       client should consider?
     continued its specialized CNP focus and grown its
     industry presence by providing a variety of pay-         Phelan: Especially in this space, merchants need to
     ment processing services to the CNP market;              work with a processor that understands the
     including the e-commerce environment. In March           nuances of the card-not-present industry.
     2002, DPI was acquired by TransFirst, and re-            Merchants should work with a processor that is a
     branded its name to TransFirst ePayment Services,        aware of the sensitivities of the card-not-present
     Inc., in December 2003.                                  supply chain. Whether that’s a media company, ful-
                                                              fillment company, consultant, or call center…Your
     Electronic Retailer: What’s the most misunder-           merchant processor needs to understand that sup-
     stood notion about the payment processing                ply chain and work that to your benefit, and to the
     industry?                                                benefit of the end consumer.

     Michael Phelan: People don’t grasp that payment          ER: Advertisers have struggled to monetize
     processing is a form of short term, unsecured cred-      social networking sites. Hypothetically, if sites
     it. For inexperienced merchants, they tend to think      such as Facebook began hosting more com-
     this is a quick, easy process, when it’s actually a      merce features, would it be difficult to imple-
     complicated, involved process. It takes into account     ment payment methods into their platforms?
     technical, regulatory and security issues way
     beyond the credit card. The payment processor is         Phelan: This is what we specialize in at
     fully liable for that relationship.                      TransFirst ePayment services: Integrating our
                                                              payment-processing platform into websites and
     ER: What would you say to a consumer who’s               companies. That’s exactly what we’re about. Our
     wary about making online purchases for fear              current processing platform, designed specifi-
     of compromising his or her security?                     cally for card-not-present, delivers transactions
                                                              for large batch merchants, online and real-time
     Phelan: I think it’s wise for a consumer to be wary.     processing, and also for smaller merchants using
     Especially if you didn’t initiate the transaction. Be    an Internet-based virtual terminal application.
     sure you’re doing business with a company you            Also, our sub-accounting processing, response
     know and trust. Check for Internet security seals on     code monitoring system and direct query
     the e-commerce sites you visit. Never give out your      authentication would all work well in monetiz-
     social security number. Take normal precautionary        ing social networks.

14   electronicRETAILER | Payment Processing 2008
     A Closer Look at the U.S. Online Shopper
     It’s always valuable to better understand your customer. The demographics of the online shopper demonstrate higher
     incomes and education levels. Also, nearly 30 percent of U.S. online shoppers always use the same payment method.

Reasons that U.S. Online Buyers Would Purchase from a Website vs. Another Offering of
the Same Product and Price, January 2008 (% of respondents)
                      Accepts payment method they want to use
                      Keeps financial information secure
                      Discount on next purchase
                      Offers PayPal or similar service
                      Double rewards points with store credit card
                      None of the above
                      Source: JupiterResearch

                      More than half of online buyers choose a website because it keeps financial information
                      secure or offers their preferred payment method.

Point During Online Shopping When Payment Method is Considered, January 2008
(% of respondents)
                      Before beginning to research products
                      While researching products
                      When making the decision over which product and where to buy
                      While on the home page, because of an advertisement for that payment method
                      When I clicked checkout and entered the shopping cart
                      When I was prompted for payment information during the checkout process
                      Always use the same payment method and do not think about it
                      Other or do not know
                      Source: JupiterResearch

                      The majority of U.S. online buyers always use the same payment method and put little or no
                      thought into the decision when making purchases.

16   electronicRETAILER | Payment Processing 2008
What Differentiates the Online Buyer?
Internet users with less than a high school degree are far less likely to shop online. Additionally, according to the Pew
Internet & American Life Project,“Online Shopping,” half of suburban Internet users make online purchases.

  Demographic Profile of U.S. Online Buyers vs. Internet Users Who Have Not Purchased
  Online, August-September 2007 (% of respondents)

                                                                                       Online                Internet
                                                                                       Buyers               Users who
                                                                                     (n=1,111)               have not
                                                                                                          online (n=570)
                               Male                                                      49%                     49%
                               Female                                                    51%                     51%
                               18-29                                                     25%                     24%
                               30-49                                                     46%                     37%
                               50-64                                                     23%                     28%
                               65+                                                       6%                      12%
                               R ac e o r e th nic i t y
                               White (non-Hispanic)                                      74%                     66%
                               Black (non-Hispanic)                                      10%                     11%
                               Hispanic (English-speaking)                               10%                     18%
                               Ed u c a t i o n
                               Less than high school graduate                            6%                      11%
                               High school graduate                                      29%                     25%
                               Some college                                              25%                     42%
                               College degree or more                                    39%                     21%
                               H o u s e h o ld i nc o m e
                               <$25,000                                                  13%                     19%
                               $25,000-$40,000                                           12%                     15%
                               $40,000-$60,000                                           17%                     18%
                               $60,000-$100,000                                          22%                     16%
                               $100,000+                                                 19%                     7%
                               Don’t know or refused response                            17%                     25%
                               G e o g r ap hi c lo c at io n
                               Urban                                                     25%                     27%
                               Suburban                                                  50%                     47%
                               Rural                                                     14%                     15%
                               H o u s e h o l d b r o a db a n d                        7 7%                    53 %

                               Sources: Pew Internet & American Life Project

                               Thirty-nine percent of Internet users with a college degree or more consider them-
                               selves online buyers.

                                                                               Payment Processing 2008 | electronicRETAILER   17

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