Change can be hard…especially when it involves payment processing and integrated SaaS systems. But changing your payment processor could make a big difference to your bottom line. In this How-To article, we help you decide if (and when) you should change payment processors, what to look for in your new processor, and how to plan for the transition. Plus, find out why many of you have been stymied when inquiring about Account Updater!

Payment processing of credit card transactions requires knowledge of a number of jargon-laden terms, as well as some knowledge of how a credit card transaction results in money in your account. To aid your understanding, we’ve included a few definitions of relevant terms below. We also have a brief video illustrating the credit card transaction process in our Online Credit Card Processing Primer.

Payment Processor: Not every site has an acquirer, merchant account and payment processor, as described below; some may be able to work directly with an acquirer, and some may have additional software, such as a recurring billing system. In addition, some companies (like Litle & Co.) can act as a payment gateway if you have certain tech pre-requisistes (like XML); otherwise you’ll need a separate payment gateway (like Authorize.net). Therefore, for the purposes of this article, a payment processor refers to the system or systems required to conduct a credit card transaction from start to finish.

Acquirer: A financial institution licensed by the credit card networks (Visa, MasterCard, Discover, etc.) to process and settle credit card transactions between a merchant and a customer. Major acquirers that specialize in recurring billing include Chase Paymentech and Litle & Co. But many sites — particularly smaller ones — may never interface directly with their acquirer, working instead through middlemen such as payment processors.

Merchant Account: A merchant account ties into a business bank account to receive payments from subscribers, and to provide funds for chargebacks/refunds.

Payment Gateway: An application that connects your site’s shopping cart or online order form with the other pieces of the credit-card processing chain. Some payment gateways provide additional services, such as recurring billing, fraud detection, address verification, and Account Updater.

Account Updater: Account Updater is a generic term for programs such as Visa’s Account Updater and MasterCard Automatic Billing Updater. American Express has a similar program called Continuity Billing. The program automatically updates credit card account information — expiration dates, new numbers due to re-issued cards (due to loss or a change in portfolio, i.e., Visa to Mastercard) and other such data — between participating issuers, acquirers, and merchants. Account Updater is important for reducing churn, particularly for auto-renew subscriptions (and auto-renew is a particularly effective retention technique that we encourage all sites to use).

When you start out as a subscription site, especially if you start small or are an independent organization, your options for payment processors can be limited. This is because you don’t have any history, and therefore are deemed more risky.

As you grow and build up a history as a “merchant of good standing,” you may want to move to one of the big players for a number of reasons:

1. Higher (or unrestricted) transaction limit: Payment processors may limit how much money a smaller merchant can process each month. As you develop a solid credit card processing history (i.e., few chargebacks, no major fraudulent claims, and a predictable volume of transactions), you may want to increase your transaction limit, especially if you are launching lucrative products or expect to grow exponentially.
2. Lower fees: If you’re deemed a more risky merchant, you’re likely paying more in fees through your payment processor, merchant account and acquirer, and it’s worth switching when you can. Alternatively, you may be able to cut out one of your middlemen and work directly with an acquirer, also increasing your profit margin, since each company in your payment processing chain is taking a cut.
3. To get Account Updater: As we explain above, Account Updater (or similar services) is one of the best ways to fight credit card churn, particularly on auto-renew subscriptions. It’s not available through all payment processors, and even the ones that do have it can sometimes say they don’t (see The Account Updater Problem section below). But once you establish yourself as a merchant of good standing, it’s worth the headache to get Account Updater, which will help you avoid credit card declines that can cause delays in your collections.
4. Better customer support: In our own search to learn more about switching payment processors and getting Account Updater, we battled with more than a fair share of poor customer support reps who were misinformed or unable to help. Given the complexity and lack of clear roles between the various parties handling your payment processing, it’s worth some money to get the support you need to grow your bottom line.

While many payment processing experts, such as Paul Larsen, strongly recommend getting the Account Updater program through Chase Paymentech, it can be very hard to get to knowledgeable people within a payment processing company. Insider was repeatedly stymied when calling payment processors and asking about it (which just made us more determined to get to the bottom of things).

In the case of Chase Paymentech, the problems seems to be a disconnect between two payment technologies offered — the North American platform and the Global platform. Only the global platform has Account Updater. The North American platform does not offer Account Updater and the customer service reps will emphatically deny providing it when you call the main number listed on the Chase Paymentech website.

We were able to speak to someone at the Global platform (also known as the “Salem platform” or the “Salem office” because the sales office for this service is located in Salem, NH), and Chase is now initiating procedures to help clear up this problem. But in the meantime, subscription site executives interested in getting Account Updater through Chase Paymentech can call 800-708-3739.

However, this problem is not exclusive to Chase Paymentech. Paul Larsen confirms that he has clients using Account Updater through First Data, but when I chatted with a sales representative, the company firmly denied offering it.

If you’ve heard similar conflicting reports, our best advice is to ask the person who’s confirmed his/her use of Account Updater to give you his/her sales rep’s contact information at the payment processor. Then contact that rep directly. Or use the Insider‘s Members-Only Discussion Forum to ask other members (which include Paul Larsen and a number of other subscription site consultants and experts).

Here is a list of payment processors that we have confirmed offer Account Updater (or services like it):

• Chase Paymentech. But you must request the Global Platform, not the North American Platform (which does not offer Account Updater). You can reach the Global Platform at 800-708-3739.
• Litle & Co. has a service called Automatic Account Updater, which automatically runs all declined transactions to check for new numbers (this is different from the company’s Legacy Account Updater, where merchants had to enter and batch declined transactions and send them to Litle).
• Merchant e-Solutions has Account Updater and prominently lists the feature on its website.
  

  

• First Data. We have independently confirmed that First Data most definitely offers Account Updater, even though representatives at the Merchant Sales Inquiry line and through the site’s chat feature deny this. First Data is working on resolving this discrepancy, and will soon update us on how readers interested in Account Updater can best approach them.

We recommend the following steps for determining whether you can (and should) change your payment processor.

1. Determine what options you have. This may vary depending on your CMS, the volume of transactions, and even your content. For example, the CMS Membergate requires Authorize.net, so Membergate sites would not be able to link directly to acquirers like Chase Paymentech.
2. Determine if there will be any fees or delays. For example, PowerPay has early termination clause that requires clients to give 30 days notice before signing with another company and another 30 days before completing the transition, otherwise the client will incur HUGE fees (like a few months’ revenues).

   You should also evaluate whether switching to a new payment processor will increase or decrease your credit card processing fees overall. You can do this using our handy Worksheet on Credit Card Fees.

3. Evaluate possible vendors. This should be done by your CFO as well as your in-house developer. In order to make the change, you’re going to need some intimately familiar with your code. For example, Litle can only set-up its Account Updater program if the subscription website can integrate Litle’s API language through XML or if the site uses Authorize.net.

   If you don’t have an in-house developer, we strongly recommend you hire an individual on a contract basis to work on this, not a third-party agency to do this. There should be one person responsible, preferably someone who can come into your offices so that you can supervise them.

   For more information on how to evaluate vendors, see “Evaluating Payment Processors” below.

4. Schedule the first transition. Start with a low-volume site (if you have multiple sites) or during a low-volume transaction month. The worst thing you can do from a strategic (and profit) point of view is initiate this change right as you’re launching an event or gearing up for the holiday sales rush.

When evaluating a payment processor, you’re going to want to make sure your new vendor offers a couple of things (in addition to your reasons for switching).

1. PCI-DSS compliance, which is required of all merchants that accept, transmit, or store credit card data.
2. Clear guidelines on fees and procedures regarding refunds, chargebacks, and cyber-attacks (either on your site or the payment processor’s system).
3. Fraud prevention and clear way to handle/challenge fraudulent claims (see HOW-TO: Minimize Chargebacks)

In addition, you may need to evaluate your new payment processor’s ability to handle other matters, depending on the specific needs of your site. Such considerations might include:

1. Can your new payment processor handle international transactions?
   This may not mean simply taking international currency (although that’s the first step). Other countries, such as the U.K. and Germany, rely more heavily on direct debit from subscribers’ bank accounts than credit cards — if this is integral to your overseas success, you need to ask if your payment processor can handle it (or if you need an international partner).
2. Do you need to put up a reserve?
   Some companies require you put aside a reserve against the monetary amount of transactions you do.
3. Is the customer support adequate to the level of expertise of you and/or your staff?
   If you don’t know anything, will they talk you through it? What happens when a sales rep leaves the company?
4. Can the new payment processor handle mobile payments?
   (More importantly, does this matter to your business model? If it doesn’t, don’t worry about it.)
5. Is the company growing? What are the company’s plans for updating its technology?
   It’s incredibly frustrating to find a company with services that match your needs, sign on the bottom line, and then discover 2-3 years down the road that the company has no interest in staying abreast of industry developments. Within 3-5 years, your site will look outdated and you will have effectively stymied your own growth.

WOKRSHEET: Calculate Credit Card Processing Fees
HOW-TO: Minimize Chargebacks For Subscription Payment Processing
ON-DEMAND: Lower Your Card Decline Rate: How to Fight Churn Caused by Bad Credit Cards