How is your processing account setup? That’s an important question. If you’re a card-not-present business – meaning you’re rarely in front of your customer running their card through a terminal, but keying in their information instead – you could be paying additional fees if your account is setup as a retail account as opposed to a MOTO (mail order telephone order) account.



Ladies and gentlemen, boys and girls, welcome back. It’s your boy, Jaron Rice, founder and CEO of Magothy Payments, Maryland’s highest-rated merchant services provider. I just came back to drop another tip for you.

This is specifically for card-not-present businesses. If you’re typically running a transaction when your customer is not standing there in front of you with a credit card, this is for you.

A lot of people don’t understand that if you’re primarily doing card-not-present transactions, there’s no need for you to have physical hardware. If you are a home improvement contractor, if you’re a home services company, if you’re in B2B or you’re doing eCommerce or things like that, and you’re taking payments over the phone, through a website-hosted payment page or a secure shopping cart or something like that, there’s no need for you to have a physical terminal.

One of the things I’ve learned in my experience is that, unfortunately, people in the merchant services industry, companies in the industry will do whatever they can to make an extra buck. And so, a lot of times your accounts are set up in a way so that they can maximize their profits while you’re paying more and being inefficient.

Here’s an example: we have a client that we met that’s up in Hartford County, and they were working with Bank of America. They had a Clover Mini point of sales system in the office. When I was reviewing the statements, I saw that there was a fee called a POS misuse fee. So they were on tiered pricing. The bank had sold them on the qualified rate at 1.79% or whatever it was without really telling them that this is basically for qualified transactions which are in-person card-swipe debit cards, which they almost never have. And then they had a mid-qualified rate that was 2.9% and a nonqualified rate, which are keyed-in transactions, which was 3.79%. And so, their account was structured as a card-present retail account when it should’ve been structured as a MOTO account (mail order telephone order).

The reason that’s important is they were being charged – they were being downgraded – whenever they were keying in transactions into that Clover Mini POS. They didn’t have interchange plus pricing where the true cost from the card brand is passed through where there’s a fixed markup for the merchant services provider, which is the most transparent way to price. They were on tiered pricing, and Bank of America was qualifying or not qualifying the transactions that they had.

Every time they would key in a transaction, which is how they would normally take the transaction, they were being downgraded to a nonqualified transaction, and they were being charged a POS misuse fee, right? And so, one of the months that I was looking at it, the POS misuse fee was over $500 in downgrades because they were keying in transactions into the Clover point of sale that the bank sold to them.

Their account was not structured properly. It should’ve been set up as a MOTO account. They should’ve had a virtual terminal or a gateway solution where they can key the transactions directly into a secure web portal after they take the information over the phone or something like that. And so how the account is set up is very, very important and will ultimately, that in conjunction with the pricing structure that the merchant services provider offers, is going to determine ultimately how much the business spends on their payment processing.

Another point when they’re set up that way is that oftentimes it’s not set up to go through the AVS (address verification system) that most of the card brands use, specifically VISA. So when you’re keying in a transaction, inherently there’s more risk of it being fraudulent because it’s a card-not-present transaction. You’re running the card information. You’re not actually running the card. And so, when you are keying in the information, the program that you’re using, whether it’s a physical terminal or whether it’s a virtual terminal, should require or prompt you to put in address information. And that is to verify that you know who this person is, you know where they live, the billing address, that sort of thing, and when that information is not provided, the card brands will downgrade you.

And so, the importance in how the account is structured affects the AVS. Because if your account is set up as a retail account and you key in a transaction, and it prompts you for the address verification information, and you punch it in, and that address information that you punch in is wrong, you are going to be downgraded because it’s structured as a retail account.

The card brands for retail accounts have a reasonable expectation for you to look at that person’s license, right? So if you are set up as a retail account and you have a physical point of sale, and for whatever reason you need to key in the transaction, meaning your chip reader is not working or something like that, they expect you to look at their driver’s license and punch in the information off of that driver’s license. They will penalize you if the information that you punch in is wrong.

If your account is structured as a MOTO account (mail order telephone order account), while they require you to put information in, you will not be penalized for it being wrong. There’s no reasonable expectation for you to know definitively whether that information is correct, so you’re not penalized if it’s wrong. And so again that goes back to, is your account structured properly?

Now if you’re using a gateway, you can put in a security protocol where if it runs the AVS and the address information is incorrect with what the bank has on file that it rejects a transaction, you can certainly do that. But ultimately if the account is not structured, it’s going to cost you more money.

These are the types of things that you need to ask when you are searching for a merchant services provider, and you need to review your statements because you may be being charged extra and not even realize it.

I hope this tip was helpful. Again, Jaron Rice with Magothy Payments. If you’re interested in working with us or getting some more information from us, phone number is 855-MAGOTHY. That’s 855-624-6849. Or you can reach us at I hope this was helpful. Have a great day.

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