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Do You Need Credit To Accept Credit Cards Online?
eries asks: "I run a relatively small startup company, with little credit history. We're trying to add credit card processing to our site, but we cannot, because (As Charge.com said), "You have too little credit." We have no credit because we cannot get a credit card because we have no credit. What's a company like ours supposed to do? Most of the downloadable-software options are written for NT or Solaris, anything for Linux? " Now -why- do you need a credit history to -accept- credit cards? Is there some legal reason for this?
I'll answer this because I've been in the limousine business -- and taking credit cards -- for many years.
You need a credit history to take credit cards because it's insanely easy for a card-taking merchant to commit fraud. It wouldn't be hard to put huge, unauthorized charges on a few hundred customers' credit cards, wait 48 hours for the money to be deposited in your business bank account, withdraw it, and skip town. By the time the customers got their statements and started squawking, you'd be long gone.
This is why the the merchant banks that process credit cards like to see some "hard" evidence of a significant business investment. Putting up a Web site takes nothing. Ditto home-based businesses, which a lot of merchant banks won't accept at face value. When I first started processing credit cards for my home-based limo business (in pre-Internet days), the merchant bank sent a guy out with a camera to take pictures of my limousines, and they checked the registrations to make sure they were really mine. Once they had determined that, yes, there was a big investment there, enough that I was unlikely to leave it behind and run off to Mexico if I got my hands on $10,000 or $20,000 in fast cash, I was good to go.
And now, the Internet. In the eyes of the merchant banks, all online businesses are flaky, from your little startup all the way up to established ones like ThinkGeek. The problem with businesses that operate online - and those that operate over the telephone - is that they have no real way to prove that the credit card number a customer has just typed into a form or read them over the telephone really belongs to the person at the other end. Many online (and phone) businesses will now ship merchandise only to the billing address shown in the credit card issuers' records as belonging to that card holder. Others are asking to have proof of identity faxed to them; CowboyNeal recently had an online merchant demand copies of his most recent credit card statements, which he felt (rightly) was going too far. But no matter what, there is currently no way to accept credit cards online or by phone that is as fraud-preventing as the good old fashioned physical imprint (or electronic card reader "swipe") combined with a driver's license or other photo ID on a sale made in person.
And now, the software problem. Yeah, all the credit card acceptance software you can get is a rip. It's all for proprietary OSes and it costs through the nose. I bought my old "sits on the desk" physical Tranz 330 Terminal 5 years ago for under $300, and they want more than that for the software alone these days. I'm still using the physical terminal, becaus my limo volume isn't high enough (fewer than 100 total credit card sales per month), and it doesn't take me long enough to manually punch in the numbers, to justify a change.
I have been told, by the tech guys at Novus/Discover, which has been my credit card processor for many years, that if someone called them who was seriously interested in developing an Open Source and/or Free software package that would work on Linux, they'd be happy to help or at least to furnish the software hooks needed to write for their system.
Now, here's how you can handle things as a startup: through friends. It's not cheap setting up a secuire server, getting the certificate for it, and getting a merchant account even if you meet all the specs. You may be better off finding a friend who already has an account and all this machinery in place, and letting them "sell" your product for you in return for a cut of your sales slightly higher than the credit card company's cut. That is, if they're paying 2.2% for credit card processing, and 2.8% for Amex charge card processing, you pay them 5% or 6%, even slightly higher. Note that I say they "sell" your product or service for you, because terms of most credit card merchant accounts prohibit "renting" that account out to other businesses.
Indeed, even though I already have a merchant account, I've considered doing something sort of like this if I ever decide it would be worthwhile to accept credit cards directly online - I have a friend who has a secure server, and for a small, fixed monthly fee he'd happily put up a credit card transmittal page for my business on his site which would then forward the customer's info to me via encrypted e-mail. I would still use my merchant account (and manual terminal), but would be spared the expense and trouble of doing the secure server thing.
There are a lot of alternatives out there if you have a little imagination and some friends who already have established businesses. I am a big believer in cooperating with others. Even in the limo business, which can be cutthroat, I have found that it's better and more relaxed to work closely with other small limo companies than to regard them as enemies to be vanquished a la Bill Gates.
BTW, I strongly recommend Novus/Discover as a fine credit card processor for small businesses. http://www.discoverbiz.com/ is their URL. I tried several others before them, but they have proved, over the years, to give the best service and the lowest rates.
Shopping note for new business owners: when a credit card processing company demands an "up front" application fee, say no. There's a whole industry out there that, in my opinion, does nothing but take advantage of new businesses owned by people who don't know any better. They get that fee, and if you get turned down they still profit from you. I found it *easier* to get an account with Novus/Discover than with any of the "front fee" crowd, and it cost *much less* to set up. If you can't get on with a major, do the friend thing for your first year, until you have enough of a sales and credit track record that one of them will deal with you. To get a (hopefully positive) credit rating going quickly, list your business with Dun and Bradstreet (biz credit rating agency) as soon as you can.
- Robin