Category: CREDIT CARD PAYMENTS

Credit Card Decline Code 05: Do Not Honor (solution)
Is your store riddled with “Do Not Honor” messages? You’re not alone.

These codes harm your business and can ultimately lead to account termination. A cleaner processing statement not only looks better but also improves your odds of getting better rates.

These decline codes are also not card network-specific. They apply to Visa, Mastercard, Discover, American Express, and virtually all others (credit and debit).

Here’s what Decline Code 05 means and what to do about it.

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What Does the Decline Code “Do Not Honor” Mean?

“Do Not Honor” is a particularly common decline code. However, it often leaves merchants puzzled about its meaning and implications.

The code indicates that the cardholder’s bank is unwilling to authorize the transaction. This message is one of the most generic decline codes in payment processing and is unique in its ambiguity.

Why is it so vague?

The reason lies in its versatility. “Do Not Honor” can be triggered by a variety of issues, ranging from insufficient funds to suspected fraud. It serves as a catch-all response when the bank decides not to specify the exact reason for the decline. This can be due to the bank’s privacy policies, risk management strategies, or simply an operational choice.

For merchants using Stripe, understanding this decline code is critical to the survival of your store. It represents a point of transaction failure, which can impact customer satisfaction and overall sales. The key takeaway here is that “Do Not Honor” is a signal for further investigation. It prompts a need to look closer at the transaction details, the customer’s history, and possibly to reach out to the customer for resolution.

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The reason behind the declines.

Why Does This Decline Happen?

Understanding the “Do Not Honor” decline code is only part of the puzzle. It’s equally important to understand why this code appears in the first place. Here are some reasons Decline Code 05 may appear on your terminal:
1. Insufficient Funds or Over Credit Limit: One of the most straightforward reasons is that the cardholder doesn’t have enough funds in their account or has exceeded their credit limit.
2. Suspicious Transactions: Banks and financial institutions are constantly monitoring for fraudulent activities. If a transaction appears unusual compared to the cardholder’s regular spending patterns, it might trigger a “Do Not Honor” response as a precaution.
3. Cardholder’s Bank Restrictions: Some banks have specific restrictions on where and how their cards can be used. Examples include internal bank policies and geographic location.
4. Technical Issues: Sometimes, the decline isn’t about the cardholder or their account at all. Technical glitches in communication between the gateway, the merchant’s bank, and the customer’s bank can result in a “Do Not Honor” message.
5. Expired or Invalid Card Details: Simple errors like entering an incorrect card number, expiry date, CVV, or an outdated billing address can also lead to this decline code.
6. Lack of Customer Authentication: With the rise of 3D Secure and other authentication measures, a failure to complete these security steps can lead to a transaction being declined.
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Your Stripe account is at risk.

How Does This Decline Code Affect My Account?

When a “Do Not Honor” decline code surfaces in your Stripe account or payment gateway, it’s not just a one-off transaction issue. It can have broader implications for your business and how you manage your Stripe account.
1. Impact on Transaction Success Rates: Each “Do Not Honor” code is a lost transaction, directly affecting your success rates. Frequent declines can signal potential issues with your payment process, affecting customer trust and your business’s reputation.
2. Monitoring and Analysis Needs: Stripe provides detailed data on every transaction, including declined ones. A “Do Not Honor” code should prompt a careful analysis to identify patterns or recurring issues. This data is crucial for understanding the health of your payment ecosystem and for making informed decisions.
3. Risk of Increased Scrutiny or Account Holds: If your Stripe account experiences a high volume of declines, especially “Do Not Honor” codes, it might draw increased scrutiny from Stripe. In extreme cases, this could lead to account holds or additional verification requirements, as Stripe might perceive these declines as indicative of higher risk.
4. Implications for Customer Relationships: Every declined transaction is a potential lost customer. If a “Do Not Honor” decline isn’t handled well, it could lead to customer dissatisfaction and damage to your brand. Proactive communication and offering alternative payment options can mitigate this.
5. Influence on Chargeback Rates: While a “Do Not Honor” code itself isn’t a chargeback, a pattern of declines can sometimes correlate with higher chargeback rates. This is because unresolved or failed payment issues might lead customers to dispute charges.
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Simple ways to reduce Do Not Honor declines.

How Can I Reduce “Do Not Honor” Card Declines?

Dealing with “Do Not Honor” declines is a challenge. But there are several strategies you can employ to minimize these occurrences and ensure smoother transactions for your customers.
1. Educate Your Customers: Often, customers are unaware of the reasons behind a card decline. Providing clear information on your website or during the checkout process about common decline reasons can help them preemptively solve issues like expired cards or incorrect information.
2. Use Address Verification Service (AVS) and CVV/CVC Checks: Implementing AVS and requiring the CVV for transactions can significantly reduce fraudulent transactions, which are a common cause for “Do Not Honor” error codes.
3. Enable 3D Secure: 3D Secure adds an additional layer of authentication, which not only reduces the likelihood of fraud but also shifts some liability away from your business. It’s a win-win for security and reduced declines.
4. Limit Retries: Don’t let the customer continuously retry the transaction. If it didn’t go through the second time, it won’t ever go through. Set retry limits through your gateway.
5. Regularly Update Your Payment Gateway: Ensuring your Stripe integration is up-to-date means you’re using the latest security and authentication measures, reducing the chances of declines due to outdated protocols.
6. Communicate with Your Payment Processor: Building a relationship with Stripe and understanding the specific decline codes you’re receiving can provide insights into how to adjust your processes or address specific issues.
7. Offer Alternative Payment Methods: Sometimes, a card just won’t work. Offering alternative payment methods like digital wallets, bank transfers, or even different card networks can help capture sales that might otherwise be lost.
By implementing these strategies, you can reduce the frequency of “Do Not Honor” declines, creating a more seamless and efficient experience for both your customers and your business.

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There are many, many credit card decline codes.

Other Common Decline Codes on Stripe

While “Do Not Honor” is a prevalent decline code on Stripe, there are several other codes that merchants frequently encounter. Understanding these can help you better navigate transaction issues and improve your overall payment success rate.
1. Insufficient Funds: This code appears when a customer’s account lacks sufficient balance to complete the transaction. It’s a straightforward issue that typically requires the customer to add funds or use a different payment method.
2. Stolen or Lost Card: When a card is reported lost or stolen, transactions attempted with it are automatically declined. This is a critical security measure to prevent fraudulent use.
3. Expired Card: Cards past their expiration date will be declined. Ensuring customers update their card information is key to avoiding this issue.
4. Invalid Card Number: If the card number entered doesn’t match any valid card format, the transaction will be declined. This often occurs due to manual entry errors.
5. Incorrect CVV: The Card Verification Value (CVV) is a security feature, and transactions will be declined if the CVV entered is a mismatch. This is another common entry error, like an incorrect PIN or postal code.
6. Transaction Not Allowed: This code is used when a card’s issuing bank does not permit the specific transaction type or transaction amount. It can be related to the bank’s restrictions or cardholder settings, or even just a precaution when using a new card.
7. Duplicate Transaction: To prevent accidental multiple charges, Stripe will decline transactions that appear to be exact duplicates of one another within a short timeframe.
8. Pick Up Card: This is quite aggressive and is a message to the merchant that you should not give the card back to the customer. The card should be reported.
Each code offers a different insight into potential problems and their solutions, helping you maintain a smooth and successful payment process.

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Stripe May Not Be Your Best Solution

It’s clear that understanding and effectively managing these codes is crucial for the success of any online business. The “Do Not Honor” decline, along with other common codes, presents both challenges and opportunities for merchants to enhance their transaction processes and customer experience.

The journey doesn’t end with recognizing these codes. It’s about taking proactive steps to minimize them, improve your payment systems, and ensure customer satisfaction. Remember, each declined transaction is an opportunity to learn, grow, and refine your approach to online payments.

For those looking to take their payment processing to the next level, consider partnering with a dedicated merchant account provider like DirectPayNet. With specialized knowledge, tailored solutions, and a focus on reducing decline rates and managing risk, a partnership with DirectPayNet can transform the way you handle online transactions, leading to increased sales and happier customers.

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January 8, 2025
Visa Mastercard Agree on $30b Settlement – What It Means for Online Merchants

In a landmark move that could reshape the landscape of credit card processing, Visa and Mastercard have reached a staggering $30 billion settlement with merchants across the United States. This settlement aims to address long-standing concerns over the exorbitant credit and debit card fees that have burdened retailers, particularly small businesses, for decades.

For online merchants, this settlement could have far-reaching implications, presenting both opportunities and challenges. As the dust settles on this historic agreement, retailers will need to carefully evaluate their pricing strategies and marketing approaches to capitalize on the potential savings and remain competitive in an ever-evolving digital marketplace.

Settlement Details

The $30 billion settlement between Visa, Mastercard, and merchants across the United States is a complex agreement that aims to address long-standing concerns over credit and debit card fees. At its core, the settlement seeks to provide relief to retailers by reducing the swipe fees charged by the two credit card giants.

One of the key provisions of the settlement is the reduction in swipe rates, also known as interchange rates, for a period of three years. During this time, Visa and Mastercard have agreed to lower the fees charged to merchants for processing credit and debit card transactions. Additionally, the settlement ensures that these rates will remain below the current average for a total of five years.

Another significant aspect of the agreement is the removal of anti-steering provisions, which have previously restricted merchants’ ability to encourage customers to use certain payment methods like debit cards or offer discounts based on the type of card used. With these provisions lifted, retailers will have greater flexibility in implementing pricing strategies that could potentially benefit both themselves and their customers.

While the settlement promises relief for merchants, it has also faced criticism from various stakeholders. Some argue that the reductions in swipe fees may not be substantial enough to provide meaningful relief, particularly for smaller businesses. Additionally, concerns have been raised about the potential impact on smaller banks and credit unions, which may face challenges in negotiating favorable deals with larger retailers.

Despite these criticisms, the settlement is widely regarded as a step in the right direction for addressing the long-standing issues surrounding credit card fees. Proponents argue that the potential savings for merchants could lead to lower prices for consumers, increased competition, and a more level playing field for small businesses.

However, the road ahead is not without its challenges. The settlement requires court approval, which is not expected until late 2024 at the earliest. Additionally, some merchants may object to the settlement, as it would bind them to the terms, even if they believe the relief is insufficient. Further litigation and appeals are also possible, prolonging the settlement process and creating uncertainty for all parties involved.

Pricing Strategies for Online Merchants

The Visa Mastercard settlement presents online merchants with a unique opportunity to reevaluate their pricing strategies and potentially pass on savings to customers. With the prospect of reduced credit card fees, retailers have several options to consider, each with its own set of advantages and potential drawbacks.

Permanent Price Reductions

One approach that online merchants could take is to implement permanent price reductions on their products or services. By lowering their prices across the board, retailers could potentially boost sales and customer loyalty by offering more competitive pricing.

This strategy could be particularly appealing to price-conscious consumers and could help merchants gain a competitive edge in the crowded e-commerce landscape.

Increased Discounts and Promotions

Alternatively, online retailers could choose to maintain their regular prices but offer more frequent discounts and promotional deals. This approach would allow merchants to retain their existing pricing structure while still providing customers with opportunities to save.

By strategically timing and promoting these discounts, retailers could drive increased traffic and sales during specific periods or for targeted product lines.

Perceived Discounts

A more controversial strategy that some online merchants may consider is the implementation of perceived discounts. This approach involves adjusting listed prices without actually providing real savings to customers.

While this tactic may attract customers seeking deals, it raises ethical concerns and could potentially damage consumer trust if discovered.

Maintaining Status Quo

Finally, some online merchants may choose to maintain their current pricing strategies and simply absorb the potential savings from reduced credit card fees as increased profit margins. This approach could be appealing to retailers who believe that their customers may not be aware of or influenced by the settlement, or who prioritize short-term profitability over potential long-term gains from price adjustments.

Impact on Small Businesses

Small online retailers and merchants stand to gain substantially from the settlement’s provisions. By reducing swipe rates and ensuring that they remain below the current average for five years, the settlement aims to alleviate the financial burden of credit and debit card fees, which have long been a source of concern for small business owners.

Mary Liz Curtin, who owns two businesses in Clawson, Michigan, expressed relief at the settlement, stating, “I am delighted in anything that will ameliorate the situation. I think this is going to help a little bit.”

For small businesses like Curtin’s, where swipe fees can eat up a significant portion of revenue, the potential savings could translate into increased profitability or the ability to offer more competitive pricing.

Mike Roach, co-owner of Paloma Clothing in Portland, Oregon, echoed similar sentiments, acknowledging that while the settlement may not drastically change bottom lines, it is “a step in the right direction.”

Small businesses have long advocated for relief from the high swipe fees imposed by credit card companies, and this settlement represents a positive step toward addressing their concerns.

Additionally, the removal of anti-steering provisions will give small businesses greater flexibility in implementing pricing strategies and encouraging customers to use payment methods with lower fees, further enhancing their ability to manage costs effectively.

Regardless of the approach taken by merchants, the settlement represents a step toward addressing the long-standing concerns over credit card fees and their potential impact on consumer prices. By fostering increased competition and pricing flexibility, the settlement could ultimately benefit consumers by providing them with more options and potentially lower costs in the long run.

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March 27, 2024
How the Payment Methods You Accept Reflects the Quality of Your Small Business
If there’s one thing we’ve learned in the field of payment processing, it’s that how you accept your customer’s money can speak volumes about your business. As a veteran merchant account provider, I’ve seen it all – the good, the bad, and the unfortunately outdated.

The methods by which a small business accepts payments aren’t just logistical choices; they’re a direct reflection of the business’s commitment to customer convenience, technological adaptation, and overall service quality. In the world where customers have an array of options to part with their hard-earned money, the phrase ‘Cash or Card?’ barely scratches the surface.

Importance of Diverse Payment Methods

By offering a broad palette of payment options, you’re essentially rolling out the red carpet for your customers, inviting them to transact in the manner they feel most comfortable.

Offering only one or two payment options could lead to missing out on sales. Imagine a customer finding the perfect item in your online store but having no means to pay for it because you don’t accept their preferred method of payment. That’s a lost sale, and potentially a lost customer – someone who might not return due to this single disappointing experience.

However, adopting a variety of payment solutions is about more than avoiding missed opportunities. It’s a signal to your customers that your business is in tune with the times, aware of the latest trends, and committed to making transactions as frictionless as possible. It tells them that you value their time, understand their needs, and are willing to adapt to make their experience better.

For small businesses, this flexibility can be a game-changer. It’s a way to stand out from the competition and cater to a wider audience. In a world where consumers value convenience and speed, businesses that provide an array of payment options are often perceived as more reliable, customer-friendly, and ahead of the curve.

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Small Business Payment Methods

Understanding the nuances of each option can help you choose the ones that best fit your business and customer base.

In-person Payments

The most traditional forms of payment include card and cash payments processed through a card reader. For brick-and-mortar businesses, it’s essential to have a reliable point-of-sale device (POS) that accepts both credit and debit card payments (Visa, Mastercard, American Express, Discover).

Modern POS systems even accept NFC contactless payments, which have soared in popularity due to their convenience and security.

Online Payments

Offering a secure online payment gateway is critical to inspire confidence in your customers. Two key elements in this are a smooth checkout process and a variety of payment options, including credit cards, debit cards, ACH, and digital wallets such as PayPal or Venmo.

Remember, the easier it is for a customer to part with their money, the more likely they are to do so.

Mobile Payments

The future is increasingly mobile, and the world of payments is no exception. Digital wallet apps like Google Pay and Apple Pay allow customers to store their payment information securely and make digital payments with a simple tap of their phone.

Offering this option signals that you’re not just keeping up with the times, but actively embracing the future.

Other Payments

For small businesses operating in the digital space, e-commerce platforms like Shopify or WooCommerce offer built-in payment solutions. They typically integrate with various payment gateways and processors, giving your customers a range of payment options and providing you with a streamlined system to manage your transactions.

There’s also the popular PSP services, like Stripe and Square. Though, these come with their own risks and limitations.

Comparing the different categories of small business payment methods

The Role of Payment Processing in Small Business Operations

Understanding how money moves from your customer’s wallet to your business bank account is crucial in the grand scheme of your operations.

At its core, payment processing is the handling of transactions when customers make purchases. Whether the transaction is made in person or online, the process generally involves a payment gateway, a payment processor, and the customer’s bank. Each player has a role in ensuring the transaction is successful, and understanding these roles can help you make better decisions for your online business.

Here’s how it usually goes: When a customer decides to make a purchase, they provide their payment information (via card reader or online form). This information is then securely transmitted via a payment gateway to the payment processor. The processor communicates with the customer’s bank to check if sufficient funds are available. If they are, the bank approves the transaction, and the funds are transferred to the merchant’s account.

At first glance, it seems straightforward, but it’s worth noting that each step can incur different fees. Transaction fees, setup fees, and monthly fees are common, as are processing fees, which can vary depending on your chosen payment processor and the types of payments you’re accepting.

The choice of payment processor is particularly crucial. It affects not just the cost of doing business, but the range of payment methods you can offer and the speed at which you receive your funds, impacting your cash flow.

Many processors also offer additional features like fraud protection, analytics, and integration with other business systems, all of which can streamline your operations. The key is finding a balance between cost and functionality that suits your particular business.

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Key Considerations in Payment Method Selection

When choosing your small business payment methods, it’s not a simple case of picking the most popular options and calling it a day. Several factors need to be considered to ensure the chosen payment solutions align with your business needs and customer preferences.

Whichever you decide, it will reflect the quality and customer perception of your business.

Security and Compliance

In an era where data breaches are increasingly common, ensuring the security of your customers’ payment information should be a top priority. Your chosen payment processor must have PCI compliance, adhering to the standards set by the Payment Card Industry to protect cardholder data.

Additionally, features such as encryption, tokenization, and fraud protection can further bolster your security measures.

Processing Fees

Different processors have different fee structures. Some may charge a flat rate per card transaction, while others may take a percentage of each transaction. Additional fees can include monthly fees, setup fees, and chargeback fees.

Make sure to understand the entire fee structure before committing to a provider.

Multi-Currency Processing

If you’re selling to customers outside your home country, you may want to consider a processor that supports multi-currency payments. This not only simplifies the purchasing process for your international customers but also widens your customer base.

Integration

How well a payment method integrates with your existing systems is another essential consideration. An ideal payment solution should seamlessly integrate with your shopping cart, point-of-sale system, accounting software (e.g., QuickBooks), and other business systems.

This ensures a smooth transaction process, making life easier for both you and your customers.

User Experience

A smooth and straightforward checkout process reduces cart abandonment and enhances customer satisfaction. Look for a payment solution that offers a quick, easy, and streamlined checkout process.

Customer Support

Like any other service, having robust customer support from your payment service provider is vital. In the event of any issues with transactions, you want to be sure you can reach out to your provider promptly and receive the necessary assistance.

The most suitable payment method for your business will largely depend on the nature of your operations, your customer base, and your financial capacity. By carefully considering these factors, you can select payment solutions that not only streamline your transactions but also enhance your customers’ overall experience and, ultimately, your bottom line.

How to Optimize Your Payment Systems

So, you’ve selected a variety of payment methods that suit your business and customers’ needs – great! But the work doesn’t stop there. Optimizing these systems can ensure they work seamlessly and contribute positively to your business growth.
1. Streamline the Process – The simpler your payment process, the better. A customer should be able to make a purchase with as few clicks or taps as possible, whether in-person or online.
2. Keep Up with Trends – Pay attention to emerging payment technologies and trends. If a significant number of your customers start using a new payment service provider, consider adding that to your payment options.
3. Provide Clear Information – Make sure your customers know what payment methods you accept. Display logos of accepted cards and digital wallets prominently at the checkout counter and on your website.
4. Regular Reviews and Updates – This can help you identify and fix any issues before they affect your customers, keeping your operations smooth and efficient.
Your payment systems play a crucial role in customer experience, and hence, your business success. By continually optimizing them, you can ensure they serve your business effectively and keep your customers satisfied. It’s about creating an environment where customers don’t have to think twice before making a purchase – and that’s the ultimate goal, isn’t it?

Conclusion

Navigating the intricate landscape of payment methods and processing might seem daunting, but as we’ve explored, it’s an essential aspect of running a successful small business. The way you accept payments can significantly impact your customer experience, operational efficiency, and ultimately, your bottom line.

Choosing the right mix of payment methods, understanding the ins-and-outs of payment processing, and tackling potential challenges are all part of the journey. And while it might feel like a challenging task to take on, remember that you’re not alone in this journey.

As a small business owner, teaming up with an experienced merchant account provider like DirectPayNet can make a world of difference. We’ve guided countless business owners through the complexities of payment processing, particularly those in high-risk industries. With our expertise and support, you can set up a high-risk merchant account that meets your specific needs and allows you to transact with confidence.

Optimizing your payment systems might not be the most glamorous part of running a business, but its impact can be profound. Don’t let the complexity of the task deter you—take the first step today.

Reach out to our team at DirectPayNet, and let’s explore how we can improve your business’s credit card processing, together. Your customers, your team, and your future self will thank you for it.

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August 11, 2023
BNPL for Everyday Purchases? This Payment Option Is Lined with Gold for Merchants
In recent years, Buy Now, Pay Later (BNPL) services have gained significant traction among Americans, revolutionizing the way consumers approach their purchases. While traditionally associated with larger-ticket items like electronics and furniture, BNPL has now expanded into everyday products, like to buy groceries or home goods.

This shift in consumer behavior presents a golden opportunity for merchants to adapt and cater to the evolving needs of their customers. By offering BNPL as a payment method, merchants can capitalize on this trend and foster a more seamless and flexible shopping experience.

In this blog post, we will delve into the world of BNPL, explore why it has become popular among Americans for everyday items, and discuss why merchants should always have BNPL as a payment option.

Why Americans are Embracing BNPL

There are two main reasons Americans are using BNPL services more than ever today.

1. Interest in alternative payment methods: As technology continues to advance, consumers are seeking more innovative and convenient ways to make purchases. BNPL services offer a fresh alternative to traditional payment methods, such as credit cards, attracting an increasingly tech-savvy and digital-oriented population.

2. Desire for flexible payment options: The modern consumer values flexibility, and BNPL services deliver just that. They allow shoppers to break down their purchases into smaller, manageable installments without the long-term commitment of a credit card. This flexibility has made BNPL an attractive option for Americans purchasing everyday items.

The #1 BNPL Benefit for Consumers

There are many benefits of BNPL, but right now the only one they care about is interest-free payments. Bank account balances go down slower without financial consequence. Many BNPL providers offer zero-interest payment options, allowing consumers to spread the cost of their purchases without incurring additional fees.

Consumers use this with everyday items because small balances add up. While some are just in the habit of embracing BNPL for all their purchases, others like to see how much they’re really racking up before calling their spending spree quits. And when there are no late fees and interest rates are zero, there’s very little risk.

Plus, breaking down everyday purchases like grocery shopping means they have more room to make bigger purchases without feeling the burn.

Payment installments is the future. Prep now.

Why Merchants Need to Hop on the BNPL Bandwagon

For merchants, offering BNPL can be a great way to increase sales and customer loyalty. By providing customers with an affordable payment plan, merchants can encourage more people to make purchases that they may not have been able to afford otherwise.

Additionally, BNPL can help merchants increase their conversion rates by making it easier for customers to complete their purchase.

Essentially, there’s no reason not to offer BNPL at checkout.

BNLP Benefits for Merchants

Buy Now Pay Later offers merchants a range of benefits, including:
1. Expanded Customer Base – BNPL makes larger purchases more affordable, allowing merchants to reach a wider customer base.
2. Increased Conversion Rates – Customers who use BNPL are much more likely to complete their purchase.
3. Improved Customer Loyalty – Offering BNPL can help build customer loyalty and trust in your brand.
4. Higher Average Cart Value – Merchants who offer BNPL have seen an increase in their average cart value by up to 60%.
5. Lower Return Rates – Customers who use BNPL are less likely to return their purchases, resulting in lower return rates for merchants.
6. Removes Buyer Hesitation – By providing customers with flexible payment options, buyers are more likely to make the purchase without hesitation.
7. Improved Cash Flow – With BNPL, merchants can receive payments faster and improve their cash flow cycle.
8. Better Insights on Customers – By leveraging data from BNPL providers, merchants can gain better insights into their customers’ buying habits and preferences.
9. Reduced Risk of Fraud and Chargebacks – instances of fraud are handled through the BNPL provider, not you, reducing your risk significantly.
10. Lower Payment Processing Costs – Depending on your current rate or industry, using a Buy Now, Pay Later service could be significantly cheaper in terms of fees.
Overall, BNPL is an excellent payment option for both merchants and customers alike. It provides an easy and convenient way for customers to make larger purchases without having to worry about the financial burden of a large one-time payment.

For merchants, offering this type of payment option can be beneficial in terms of increased sales, higher conversion rates, and better customer relationships.

Things to Consider When Choosing a BNPL Service

According to a recent survey, more than half of Americans have used BNPL services over the last year for everyday purchases such as grocery bills and clothing instead of risking credit card debt. With this growing trend, e-commerce retailers should consider offering BNPL services at checkout even if they don’t sell high-ticket items (which is what the service was typically used for in the past).

When selecting a BNPL service, merchants should keep several factors in mind. Eligibility criteria is one of the most important considerations; some services may only be available to customers with good credit scores, while others may offer more lenient terms. Fees and payment flexibility are also important factors to consider when choosing a BNPL service.

Merchants should also weigh the pros and cons of offering two different BNPL services at checkout. On one hand, it can be beneficial to provide customers with multiple payment options; on the other hand, having too many payment offerings can lead to confusion or frustration among customers who don’t understand how each works.

Offering multiple BNPL services may also be a breach in one or both terms of service.

One last thing to consider is the win-win-win golden scenario with BNPL. Lenders win the most, merchants win due to the benefits mentioned previously, and customers win because they get to pay how they want without risk. The rise in this trend grew from the pandemic, so please pay attention to the provider you choose to partner with so your “win” doesn’t diminish.

Popular BNPL Services

The following is a list of some of the most popular BNPL apps available on the market:
- Afterpay: This service allows customers to pay for their purchase in four installments over six weeks with no interest or fees.
- Affirm: This service offers customers flexible payment plans over three, six or twelve months with no hidden fees or surprises.
- Klarna: This service allows customers to split their purchase into multiple equal payments over time with no additional costs or interest charges.
- Sezzle: This service provides short-term loans with no interest and no reporting to credit bureaus.
And then there are other options that you might be able to promote without being able to implement, like PayPal’s Pay in 4 or Apple Pay Later. This would be a good method for if you want customers to use a BNPL service so you can benefit from the fraud mitigation aspect without having to open an account with that provider.

With huge retailers like Walmart and Amazon offering these services for grocery shoppers and big spenders, alike, there’s no reason you shouldn’t use Buy Now, Pay Later too.

You can even have a 1st-party BNPL. Find out more here.

Potential Drawbacks Before You Dive into the BNPL Universe

While the advantages of offering BNPL services are evident, merchants must also consider the potential drawbacks and challenges associated with this payment method. One such concern is the fees and costs for merchants. BNPL providers typically charge a percentage fee on each transaction, which may be higher than those associated with traditional payment methods like credit cards.

Merchants must weigh the potential increase in sales and customer satisfaction against these additional costs to determine if BNPL is a financially viable option for their business.

Another potential drawback is managing customer credit risk. With BNPL, customers can defer payments, increasing the risk of default or late payments. Merchants need to ensure that their BNPL provider has robust systems in place to assess customers’ creditworthiness and minimize the risk of non-payment.

Although BNPL providers generally assume the risk of customer defaults, a high rate of non-payment could still impact the reputation of both the merchant and the BNPL service.

Lastly, merchants must consider the ethical aspect of responsible lending practices when offering BNPL services. Critics argue that BNPL can encourage overspending and lead consumers into debt.

As a result, merchants should carefully choose their BNPL provider and ensure that they implement measures to promote responsible lending, such as transparent terms and conditions, spending limits, and customer education on the responsible use of BNPL services.

Here’s How to Embrace The BNPL Revolution

The rise of BNPL services has undeniably transformed the way Americans purchase everyday items, creating an opportunity for merchants to adapt and cater to their customers’ evolving needs. By offering BNPL as a payment method, merchants can enjoy increased sales, improved customer loyalty, and an expanded customer base.

However, it is essential to consider the potential drawbacks and challenges, such as fees, customer credit risk, and responsible lending practices before fully embracing BNPL.

If you’re ready to reap the benefits of BNPL for your small business, consider opening a merchant account with DirectPayNet. As an industry-leading payment solutions provider, DirectPayNet can help you seamlessly integrate BNPL services into your payment options, ensuring a smooth and secure experience for both you and your customers.

Don’t miss out on the opportunity to tap into the growing BNPL market – contact DirectPayNet today to open your merchant account and elevate your business to new heights.

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May 5, 2023
Payment Processing 101: A Comprehensive Guide for Direct Response and Ecommerce Business Owners
Hey there, direct response and e-commerce business owners! If you’re reading this, chances are you’re already aware of the importance of seamless and secure payment processing for your online business. Whether you’re just starting or looking to optimize your existing setup, understanding the ins and outs of payment processing can help you make informed decisions and create a better experience for your customers.

In this post, we’ll dive into the world of payment processing and demystify the jargon you’re likely to come across. By the end, you’ll have a solid grasp of the terminology and how it all fits together in the payment processing ecosystem.

The Basics of Payment Processing

Payment processing is the engine that powers your online sales by enabling your customers to make secure and seamless transactions using their preferred payment methods. It’s crucial to have a reliable and efficient payment processing system in place, as it directly impacts your bottom line and customer satisfaction.

To fully grasp the concept of payment processing, it’s essential to understand the key players and their roles in the ecosystem. Here’s a quick rundown of the main components:

Merchants

That’s you! As a direct response or e-commerce business owner, you’re the merchant who accepts credit card payments from customers in exchange for goods or services.

Credit Card Issuers

These are financial institutions, like banks, that provide consumers with credit cards. Also known as card-issuing banks, they authorize transactions and are responsible for setting interest rates and fees for cardholders.

Acquiring Banks

Also known as merchant banks, these institutions provide businesses with merchant accounts, which are essential for accepting and processing credit card payments. Acquiring banks are responsible for underwriting and risk management.

Payment Processors

These companies act as intermediaries between the merchants and the credit card networks. They process transactions by transmitting data between the merchant, issuing bank, and acquiring bank, ensuring secure and efficient communication.

When selecting a payment processor for your business, consider factors such as transaction fees, processing speed, security measures, customer support, and compatibility with your e-commerce platform.

3rd-Party Payment Processors

Third-party payment processors are payment service providers that enable businesses to accept and process credit card payments without the need for a dedicated merchant account. Instead, they aggregate multiple merchants’ transactions under a single account, streamlining the setup process and making it more accessible, especially for smaller businesses or startups.

These are often called payment aggregators. The most common include Stripe, PayPal, and Square.

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Payment Gateways

These are the online equivalent of a physical point-of-sale (POS) system. Payment gateways securely transmit transaction and cardholder data between the customer’s browser, the merchant’s website, and the payment processor.

Payment gateways use encryption and other security measures to protect sensitive transaction data during transmission. They also perform additional checks, such as address and CVV verification, to prevent fraud.

When selecting a payment gateway, consider factors such as processing fees, security features, ease of integration with your e-commerce platform, and the range of payment methods supported. As well, you should always use a gateway with PCI compliance built in.

Credit Card

A credit card is a plastic or digital payment card issued by a financial institution, allowing cardholders to borrow funds for purchases up to a certain limit. There are various types of credit cards available, such as rewards cards, cashback cards, and balance transfer cards, catering to different consumer needs and preferences.

The most popular credit card networks include: Visa, Mastercard, American Express, and Discover. However, there are smaller networks, local networks, and foreign networks you may want to look into depending on your customer base.

Credit cards have a unique design that includes a card number, expiration date, cardholder name, and CVV code. These details are used during payment processing to verify and authorize transactions.

When a customer makes a purchase with a credit card, the payment gateway captures the card information and securely transmits it to the payment processor. The processor then forwards the transaction details to the issuing bank for authorization. Once approved, the funds are transferred from the customer’s credit card account to the merchant’s account.

To ensure the security of credit card payments, adhere to these best practices:
- Comply with the Payment Card Industry Data Security Standard (PCI DSS)
- Use a secure PCI-compliant payment gateway with robust encryption
- Regularly update and patch your e-commerce platform and plugins
- Implement strong authentication and access controls
- Train your staff on the importance of data security and proper handling of sensitive information
Credit cards are not the only way for customers, but credit card transactions are the most popular. Other useful payment methods include ACH, debit cards, and even e-checks.

Payment Processing

Payment processing refers to the series of steps and technologies involved in authorizing, processing, and settling transactions between customers and merchants. It enables businesses to accept various payment methods securely and efficiently.

The payment processing cycle typically involves the following steps:
1. transaction initiation,
2. data transmission,
3. authorization,
4. settlement,
5. and reconciliation.
There are 3 main payment processing models:

Flat-rate Pricing

Flat-rate pricing is a simplified pricing model where the payment processor charges a fixed percentage and/or a fixed fee per transaction, regardless of the transaction type or the card used. Some popular third-party payment processors, such as Square and Stripe, use this pricing model.

The main advantage of flat-rate pricing is its simplicity and predictability, making it easier for businesses to budget and plan for payment processing costs. However, for businesses with high transaction volumes or those that predominantly process lower-risk transactions, flat-rate pricing may not be the most cost-effective option.

Tiered Pricing

Tiered pricing is a payment processing pricing model in which transactions are divided into different tiers or categories, each with its own set of fees. Typically, tiers are based on the type of transaction, such as:
1. Qualified rate: The lowest rate, applicable to standard transactions where the card is physically present, and the transaction is considered low-risk.
2. Mid-qualified rate: A slightly higher rate, applied to transactions that involve manually keying in card information or using a rewards card.
3. Non-qualified rate: The highest rate, applicable to transactions considered high-risk, such as card-not-present (CNP) transactions or transactions with corporate or international cards.
While tiered pricing may initially appear attractive due to the lower qualified rate, merchants often find that a significant portion of their transactions falls into the mid- or non-qualified tiers, leading to higher overall fees.

Interchange-Plus Pricing

Interchange-plus pricing, also known as cost-plus pricing, is a pricing model where merchants are charged the actual interchange fees set by the credit card networks, plus a fixed markup by the payment processor. This markup usually consists of a percentage of the transaction value and a fixed per-transaction fee.

The interchange-plus pricing model is often considered more transparent than tiered pricing, as merchants can see the actual interchange fees and the payment processor’s markup separately. It can also be more cost-effective for businesses with high transaction volumes or those that process a mix of transaction types, as the fees are more closely tied to the actual costs incurred by the payment processor.

Not sure which pricing model is best for your business? Ask us!

Merchant Account

A merchant account is a specialized bank account that allows businesses to accept and process credit card payments. It’s a crucial component of the payment system, as it enables the secure transfer of funds between customers and merchants.

To open a merchant account, you’ll need to apply through an acquiring bank or merchant services provider. They’ll evaluate your business’s creditworthiness, risk profile, and other factors before approving your application. Once you have a merchant account, it’s essential to monitor transaction activity and maintain compliance with industry security standards.

Chargebacks

Chargebacks are disputes initiated by customers with their credit card issuer, typically due to unauthorized or fraudulent transactions, dissatisfaction with the product or service, or billing errors. When a chargeback occurs, the merchant is required to refund the transaction amount, and may also incur additional fees and penalties.

To minimize chargebacks, consider the following best practices:
- Provide clear and accurate product descriptions to manage customer expectations.
- Offer exceptional customer service and address issues promptly.
- Implement a clear and fair return policy.
- Use a recognizable merchant name on billing statements to avoid confusion.
- Ensure secure electronic payment processing to prevent unauthorized transactions.
- Monitor transactions for unusual activity and promptly address any discrepancies.
In the event of a chargeback, it’s essential to respond quickly and provide the necessary documentation to dispute the claim, such as proof of delivery, transaction records, and customer communication. Maintaining organized records and staying informed about chargeback policies can help you navigate the process more effectively.

Credit Card Fraud

Payment fraud can take various forms, including:
1. Stolen card fraud: This occurs when a fraudster uses a lost or stolen credit card to make unauthorized transactions.
2. Card-not-present (CNP) fraud: In this type of fraud, the perpetrator uses stolen card data to make online or phone purchases without the physical card. To understand better, card-present transactions are those that take place in person (e.g., at a coffee shop).
3. Friendly fraud: This happens when a legitimate customer disputes a transaction, claiming it was unauthorized or the product or service was not delivered, even though they received the goods or services.
4. Phishing and social engineering: Fraudsters use deceptive tactics to obtain sensitive information, like credit card details, from unsuspecting victims, which they then use to commit fraud.
To protect your small business from online payment fraud, follow these best practices:
- Use a secure payment gateway with built-in fraud detection and prevention tools.
- Enable Address Verification Service (AVS) and Card Verification Value (CVV) checks.
- Implement multi-factor authentication for high-risk transactions.
- Monitor transactions for unusual patterns and take prompt action if you suspect fraud.
- Train your staff to recognize and report potential fraud.
- Stay informed about the latest fraud trends and update your security measures accordingly.
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Current and Future Trends in Credit Card Payment Processing

The world of credit card processing is continually evolving, and staying up-to-date with the latest trends can give your business a competitive edge. Here are a few developments worth keeping an eye on.

Mobile Payments

The increasing use of smartphones and mobile wallets is driving the shift toward mobile payments. Integrating mobile payment options into your e-commerce platform can help you reach more customers and provide a seamless checkout experience.

Digital Wallets

Digital wallets, such as Apple Pay, Google Pay, and PayPal, offer customers a convenient and secure way to store and use payment information. By supporting popular digital wallets, you can cater to a broader audience and streamline the checkout process.

Cryptocurrency

Cryptocurrencies, like Bitcoin and Ethereum, are gaining traction as alternative payment methods. By accepting crypto payments, you can tap into a growing market and offer your customers more choices.

As payment processing technology advances, so do the security measures used to protect sensitive data. Here are a few innovative approaches to payment security:

Tokenization

Tokenization is a method of replacing sensitive data, like credit card numbers, with a unique, non-sensitive token. This process helps protect customer information during transmission and storage, reducing the risk of data breaches and fraud.

Biometric Authentication

Biometric authentication, such as fingerprint scanning and facial recognition, adds an extra layer of security to payment processing. By incorporating biometric authentication in your payment process, you can enhance security and create a more personalized customer experience.

Machine Learning and AI for Fraud Detection

Advanced machine learning and artificial intelligence algorithms can help detect and prevent fraudulent transactions by analyzing transaction patterns and identifying anomalies. Integrating these technologies into your payment processing system can help minimize risks and protect your business.

You Need a Payment Processor that Supports Your Business!

Understanding payment processing terminology and staying informed about industry trends and innovations is crucial for direct response and e-commerce business owners. By implementing a robust and efficient payment processing system, you can provide a seamless and secure shopping experience for your customers, ultimately boosting your sales and growing your business.

Getting your payment processing set up correctly can be a daunting task, and one mistake can ruin your business. DirectPayNet’s experts can help you get the right setup for your business. Contact us with information about your business to get started!

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April 14, 2023