Accepting Credit Cards on the Go
by Amy Porter
Hundreds of professions are now taking advantage of smartphone and tablet technology to accept payments on the go. If handled correctly, attorneys can take advantage of the technology and convenience of using their smartphones and tablets to accept credit cards through new payment applications.
If you decide to collect payments on the go, you need to take time to understand the options available for mobile payments. There are two main payment services available to process credit cards: traditional merchant accounts and the newer “aggregator” programs. It is important to know the difference between using a bona fide merchant account and a payment aggregator. Both options allow you to use a mobile credit card reader (i.e., a swiping device) in conjunction with an iPhone, Android phone, or tablet, but the method for processing the actual payment is drastically different, with advantages and disadvantages to both.
Prior to July 2011, Visa and MasterCard prohibited the practice of aggregating transactions, which is the commingling of transactions (think payments) from multiple merchants (think businesses) within one “master” merchant account. However, this is no longer the case, and aggregator services such as Square (www.square.com) have appeared to take advantage of this new capability. Once placed into this master merchant account, payments are sent out to the individual businesses based on approval by the aggregator. This aggregation model allows a provider such as Square to minimize many of the per-account fees charged by Visa, MasterCard, and the other card brands, creating a more affordable payment option for many small businesses. A number of the newer mobile payment solutions now provide a merchant account (discussed in more detail below) for each business rather than using the aggregator model. You will need to check with the mobile providers you are considering as to the specifics of whether they use an aggregation model or a traditional merchant account model.
To use an aggregator program, the card brands limit the credit card processing of an individual business to less than $8,000 per month. Also, because the payment aggregator accepts liability and risk on all transactions in their master account, they generally limit the size of individual transactions as well. For example, the popular payment option offered by Square is based on a payment aggregator model and, as of this writing, has a transaction limit of $400. Generally, if you exceed the parameters of an aggregator account, the service provider can hold the transaction for up to 30 days and usually charges a higher processing rate.
Most of the mobile applications available through Apple’s iTunes Store are actually aggregator accounts, as opposed to traditional merchant accounts. Although aggregators frequently offer a quick online sign-up and lower (in some cases no) monthly fees, be sure to read the fine print. In addition to monthly transaction limits, which are sometimes as low as $1,000 per month, aggregators often charge materially higher processing rates when you run payments. In other words, the programs are “free” until you use the service.
Traditional Merchant Accounts
A traditional merchant account, on the other hand, is a one-to-one relationship between you and the credit card processor. Your account is based on the merit of your individual firm and your firm’s transaction history. As such, large transactions and higher processing volumes are generally allowed without delay of payment. Merchant accounts generally have a monthly fee, but the processing rates should be lower because law firms historically represent a lower risk to the provider and suffer lower incidents of fraud compared to other businesses. Also, if you follow your state guidelines for interest on lawyers trust accounts (IOLTA) and the American Bar Association’s Rules of Professional Conduct for processing payments, you will need the ability to separate earned and unearned fees/costs.
Some traditional merchant account providers such as LawPay, LawCharge and others specifically work with law firms. Mobile technology is just one method to accept payments. A traditional account will also give you options for accepting payment in your office, over the phone, or through your firm website.
Points of Comparison
There are several common issues to consider when comparing mobile account options:
Transaction limitations.Mobile aggregator programs are typically designed for smaller merchants who run smaller transactions. Again, some payment aggregators retain the right to hold larger charges or hold all or part of your total monthly volume, in many cases for 30 days or longer.
Ability to separate earned and unearned fees.If your firm has the need to accept credit card payments for advanced fees or to replenish client IOLTA accounts, it is recommended to process these transactions through a traditional account. A traditional merchant account, preferably a service designed to handle law firm merchants, can best protect fees and charges against your IOLTA deposit account.
Security.When you accept payment from your clients, you also accept the responsibility for their credit card and personal information. The security of mobile payments and the various plug-in swiping devices has been widely debated by credit card professionals. Make certain the mobile device or method you choose fully encrypts the card information and transmits authorizations in a secure manner. When in doubt, ask if your provider is Payment Card Industry (PCI) Compliant. (For more details on compliance and best practices when handling credit card data, visit www. pcisecuritystandards.org.)
Chargeback prevention. Mobile payments do not eliminate the need to document and get payment authorization from your clients. Regardless of the type of account used to process payments, attorneys should always be cognizant of the potential for cardholder disputes, commonly known as “chargebacks.” Your firm can easily defend chargebacks with proper documentation.
Professionalism. Lastly, take a look at your overall billing and payment process to ensure you are creating a professional and positive client experience.
The ability to accept credit card payments can greatly reduce delinquent accounts and collection efforts in your firm. By establishing either an aggregator service or opening a traditional merchant account, and using a mobile device to process your transactions, you get the best of both worlds. So go on, get out there, and get paid!
Amy Porter is CEO of AffiniPay, a full-service bankcard processing company specializing in the legal industry. She can be reached at email@example.com.