Credit Card Pioneer on Lowering Processing Expense

Credit card processing can be one of the most confusing parts of ecommerce for many merchants. The rates fluctuate widely and the monthly statements are hard to follow. And yet, credit card processing is key to virtually every ecommerce business. To help us understand how merchants can save money on their processing costs, we spoke to credit-card processing pioneer Sloane Bouchever. He's the co-founder of e-onlinedata, the large merchant account provider, and prior to that he was senior vice president of Authorize.Net, the payment gateway. His new firm is Interchange Plus Solutions. We talked with him about credit card payments and how merchants can reduce their processing costs.

Practical eCommerce: What is your view of the credit card processing business, especially from an ecommerce merchant's perspective?

Sloane Bouchever: "Overall, I think the industry has been a great ally of ecommerce merchants. When I started focusing on ecommerce in the 1990s, very few processors would approve Internet accounts because they perceived the risk was too high. Merchant account providers and gateways like Authorize.Net have embraced ecommerce. I think it's helped web merchants to build their businesses for the past 15 years."

PEC: What are some of the most common fee abuses that account providers are imposing on ecommerce merchants?

Bouchever: "There are a number of abuses that particularly stand out and most of them are inherent to the three-tier [i.e. "qualified," "mid-qualified," "non-qualified"] billing system that most small ecommerce merchants are set up on. Number one is downgrading rewards and corporate cards to nonqualified rates. The actual interchange cost for an ecommerce rewards card is just about 2.06 percent, but many merchant account providers are downgrading rewards cards and actually charging over 4 percent.

"Number two, the cost of processing a debit card is much, much lower than processing a credit card because the risk is much lower. But processors are charging debit cards on the Internet at about 2.25 percent where the rates are really much lower. They're not passing through the lower risk on debit card transactions.

"Number three, a lot of processors are taking unfair advantage of the yearly increases in Visa and MasterCard rates and fees. Every April and October, Visa and MasterCard typically adjust their interchange rates. So, suppose Visa raises the interchange fees for, say, corporate cards by three basis points, which is 0.03 percent; many providers will take advantage of this and increase across the board all card types by 5 or 6 basis points. In my opinion, this adding of interchange is a serious violation of trust.

"And don't get me started on termination fees that providers are charging to small merchants. They are really unjust and unfair. If you want to change your processor, you should be allowed to do that."