The Billing Balancing Act

Q. Boyer
For many adult merchants, the Holy Grail of transaction processing is to get as many positive transactions through the pipe as possible. Merchants will exhaust the possible options for purchase method, from credit card to online check, e-wallet solutions, to pay by phone, and all points in between. Risk management on the part of the processor is seen by many such merchants as a necessary evil; the much-bemoaned 'scrub' than denies them the full revenue potential of their traffic.

From the processors' perspective, the point of diminishing returns on risk looms large. While they too want to see the maximum number of legitimate transactions pass through — they only make money if we, the merchants, make money, after all — they are more acutely aware of the sort of omissions and unacceptable risks that go along with letting through every conceivable transaction.

When it comes to processors who pledge to reject fewer transactions, the substantial question is: "How are they able to convert more sales?" For merchants doing 'comparison shopping' among the available processors, what's the best criterion for differentiating the processors and making a choice on which services to use?

"Usually it is done by not turning away transactions, but this can be a double-edged sword," said Vice President of Risk Management for CCBill, Mark Greenspan.

Greenspan explained that Bank Declines are universal across all processors; the customer's bank that issued the card says whether the transaction is accepted or not, not the bank that the billing company works with. The difference in declined transactions from processor to processor, then, involves declines other than Bank Declines — transactions that are deemed to be higher risk by the processors themselves.

"CCBill's declines count for a very small portion of the declines and are generally declining transactions that would charge back and refund anyway, so allowing these transactions to process will result in considerably more risk," Greenspan said.

Chief Marketing Office for, Joe D, reinforced Greenspan's point, and noted that the real differences between processors boils down to the services they provide, not differences in risk management protocols or algorithms.

"There is a great deal of overlap throughout the payment industry," Joe said, adding that he actively encourages current and prospective clients to try different processors, compare the results, and ultimately structure their cascading billing to take advantage of the combinations that offer the best returns.

"The merchant must perform the due diligence and make the ultimate comparison; after all, isn't the goal just to capture every join?" Joe said. "There is a cost-per-acquisition associated with every surfer landing on a site and I don't think many programs really calculate and consider that expense; so if another biller can help a site owner capture a join I cannot, then of course I want them in the cascade."

Comparing processors in advance of implementing their services can be tricky, as Joe pointed out.

"It is often difficult to qualify and quantify the depth and breadth of the infrastructure of various payment processors," Joe said. "Many are privately held and specific details are difficult to determine. I would say a good way to judge a potential biller you are considering for your cascade is to assemble a list of current merchants by checking join pages and then investigate as far as you can with actual merchants. Always talk to existing clients if you can. Billing is one area where you will likely get a straightforward response, and the question is simple: 'How is X biller working out for you?'"

Even exhaustive research and speaking with existing clients will not answer the most salient questions concerning your own specific situation and needs — the most important questions may require side-by-side testing of their services in a live environment. Once implemented, merchants can see how the services stack up by the numbers, and in real, quantifiable terms.

"Even though a company may claim to be able to deliver better sales or charge lower upfront fees, look at the overall profitability that a company can offer, Greenspan said. "Does the amount of refunds and chargebacks that come in outweigh the sales increase? After all, the added sales have to come from somewhere, and it is usually approving high risk transactions that can result in losses, and putting your account at risk."

Greenspan added that merchants should be on the lookout for "hidden fees," including fees charged on a per-refund or per-chargeback basis or fees to add "special services" to your account.

With all the issues at hand, Joe said one key indicator of the quality of service you receive from your processor is the extent to which they are willing and able to answer your questions and to inform you about their services.

"It is so important today with 'alternative' billing options that the payment company be able educate the merchant who is newly expanding into other regions," Joe said. "It is quite likely that credit cards are actually the alternative billing method in these areas, and the payment facilitator must be able to provide conversion expertise and coaching in addition to the actual technical capability for their specific process."

Naturally, companies will not be quick to highlight the points where they compare unfavorably to their competition, meaning that asking the right questions, and keeping your eyes open for the 'devil in the details' is crucial when settling on processors.

Greenspan emphasized the importance of looking at processors' lists of included services carefully, and noting which services are included in the rates they charge, versus which services are lacking and therefore might need to be implemented by the merchants themselves.

In the end, Greenspan said, the "correct" billing option is the one that best meshes with the individual merchant's needs and perspectives — including the question of what level of risk that is acceptable to each merchant.

"There are some things that one business owner may be concerned with that another may not be," Greenspan said. "The decision of what company to go with is really up to the merchant's preferences."