The Ins and Outs of Credit Card Merchant Accounts

Host: Christine Karpinski

Guest: Robert Lawson

Topics Covered:

• How credit cards are processed
• How to set up a merchant account
• Forecasting credit card transactions
• What to expect for credit card fees

Christine: Today's guest is Robert Lawson. He is a sales manager for PPI Incorporated, which is a credit card merchant account. I'm really excited to talk to Rob about merchant accounts because, let's face it, this is something that always comes up with homeowners. They're wondering about payments. Should I accept credit cards? Should I not? From my personal perspective, I think that travelers really expect to pay by credit card. If you think about your last vacation where you went and didn't stay in your own vacation home, most of us paid for our vacation with our credit card. So, why are we asking our travelers to send us checks, and it's a little bit of a hassle? So we're going to talk to Rob about credit card merchant accounts and how we can utilize them to our benefit and hopefully get more bookings, have a safer transaction and make the process a lot easier.  I've been taking credit cards for many years and when I did start taking credit cards, it literally changed my life. And I do believe that I got more bookings because of it. Anyway, I'm happy to have Rob here as a guest. Rob, thank you for joining us.

Robert Lawson: Hi, Christine, thank you so much for having me.

Christine: OK. Credit card merchant accounts, it's a big huge topic. Let's just get right into it.   First and foremost, explain to us what a credit card merchant account actually is.

Robert: Quite simply, a credit card merchant account, Christine, just enables the vacation homeowner the ability to accept credit cards as the method of payment from their potential renters.

Christine: OK. When I think about a credit card, I think about going to the store and handing the clerk my card, swiping the card. Clearly, as a vacation homeowner I don't have that ability. I live in one place. I live in Texas, my rentals are in Florida and Tennessee. And my guests are coming from anywhere in the United States. I never see them face to face, so I don't have the ability to take their credit card and swipe it on a machine. So, do I still have to buy one of those machines, or how am I going to actually process the credit card?

Robert: Great question, Christine, and what we've done to solve that specific question is we've developed what we refer to as a virtual terminal. And all that is is a secure website that's user name and password protected. Only the vacation homeowner has the web address, user name and password. They log into the secure website, process the transaction and get an authorization number in just two or three seconds.

Christine: Right, and as far as getting that money, like how quickly does that transaction actually process?

Robert: Payment Processing Incorporated is adhering to federal banking regulations, and once the credit card transaction is processed the money will be deposited into the vacation homeowner's personal or banking account within 48 to 72 hours because we adhere to federal banking regulations.

Christine: So it means I'm getting the money really quickly. When my travelers call I can just take their credit card information and put it right into the website where I would go and put the information and then it automatically shows up in my bank account. But I guess probably what we need to do is, we need to back up a little bit, and go, OK, so I know what it takes to process that card. But how do I actually get a merchant account to begin with? I know personally when I started searching for merchant accounts, and I've been in this industry for a long time and this was before PPI was a partner with VRBO; HomeAway wasn't even around back then. CyberRentals and GreatRentals were, but they hadn't even partnered with them. And I have to say when I first started searching for vacation rental processing, I got categorized as the same category as like one 900 numbers, Internet porn and it was really like, "Oh my gosh!"  I can't believe that they considered it a really high risk transaction back then. Because vacation rentals weren't really well known. But now it's much easier, thank goodness. Tell us a little bit about the process for getting a merchant account.

Robert: There is actually an online application that the homeowners can find right off of the HomeAway Owner Community. The homeowner must be a U.S. or Canadian citizen. They must have a U.S. Social Security number, or a Canadian Social Insurance number, and they must use a U.S. or Canadian banking institution. The process of the application itself is very straightforward and simple. They need the home address, mailing address and the rental property address, as well as the anticipated credit card sales and average ticket or transaction amount. And we actually set the vacation homeowners and classify them as a mail order telephone order, which will afford the homeowner more flexibility in giving them an ability to set their own exchange and refund policies.

Christine: Gotcha. Now when I originally got a credit card merchant account, and as I said, this was a long time ago, the application that I had to fill out was very similar to a mortgage application. Six, eight pages long. I had to show all of my banking history. I may have actually even had to show my tax returns and like all the balances in my account. I had to prove that I was credit-worthy basically. Is this process still the same?

Robert: Yes and no. It's not as difficult or as drastic as it was when you went through that process. It's actually straightforward. There are several pages involved and we do run a credit check to make sure the individuals we're working on are credit-worthy. Because when the homeowner processes a transaction, we're going to deposit that money into their personal or business account within 48 to 72 hours. Incidentally, that happens to be before our sponsor bank is paid by the cardholder's bank. Therefore, it's viewed as an unsecured loan and that's why we run the credit check.

Christine: That's interesting. Basically you're giving the money before you actually receive the money.

Robert: Yes, ma'am. That's correct.

Christine: So as far as getting the merchant account and filling out those applications, I guess it is just something you have to do and you have to do it once.  And once you are through that process similar to a mortgage and what not, you know. It is always a pain to fill out those papers, but once you are done with it is done. You don't have to do it anytime again, do you?

Robert: No you don't. It is a one and done type of situation. I had a team of experts in the vacation renal industry to help with the application process. And quite honestly, once we get the application back from the homeowner, we actually get the "welcome to PPI" email out to them with everything they need to be up and running processing credit card transactions typically within 48 hours.

Christine: Oh, wow.

Robert: We have really streamlined the process in a lot of different areas.

Christine: Right, because that's really quick. I think when I did it was like three months that I had to wait. It was crazy.

Robert: Oh. [laughter]

Christine: But you know, like I said, that was a long time ago. OK, so you fill out the application, and you had said something about how much money you are going to process. Now that was also something kind of difficult for me to assess because when I took out my credit card merchant account I looked at, "OK, how much money do I bring in?" But then I was like, "Wait a minute, is everybody going to pay via credit card?" And at first I was like, "Well, I will just accept credit cards for those people who absolutely want to pay by credit card, and I'll encourage the rest to try to pay by check," but I soon learned that it was just easier for me and for the guests to pay it be credit card and not have to deal with the checks. So my amount that I originally estimated changed. So I originally said, "Ah, I will probably only process $5,000 to $7,000 worth of credit card transactions. But like I said, that has changed significantly. So how do I even begin to estimate how much I would charge because the categories are different, right?

Robert: Well we do have three different plans. And as we have discussed, it is based on your best estimate in terms of annual credit card sales. It starts at Plan A, which is our introductory plan. Homeowners who are anticipating doing between zero and $5,000 on an annual basis in credit card sales. Plan B would be for homeowners anticipating doing anywhere from $5,000 to $36,000 a year in annual credit card sales. And then Plan C is for homeowners that are anticipating doing more than $36,000 a year in credit card sales. It is important to know, as you mentioned.  It is hard to know going into this when you are just getting started how much you are going to do. And there are no penalties at PPI. If you sign up for plan B and you don't do enough, there is no penalty if you don't do more, or if you do more than what you anticipated initially. There are no penalties on that front either.
The reason that we kind of target these different plans is just to, one, help with our business forecasting purposes, and to help put you in the most appropriate plan. If you start in the introductory plan and you find out, "Hey, this is going a lot better than I anticipated," you can easily change it to either Plan B or Plan C by just calling our customer service department and requesting that change.

Christine: Right. OK, and I guess it is like, why would I even want to change, but looking at the different plans and it seems like it doesn't matter whether we are talking about PPI or other merchant account vendors, they all have sort of plans that they work from, and it is associated with the fees associated with the account. So if you charge more, you are paying less in interest rates, less percentage rate, however you want to call it. So I guess what we need to do is, we need to talk about fees, maybe not specifically how much those fees are, but what they are. One of the things that I found a little confusing when I first started researching merchant accounts was this mysterious thing called a discount rate. Then, as I got into it I was like, "Discount, hmm?" My brain says, "Discount? Well that is an amount off for me." But what I soon found out was it was not really a discount for me, it is a discount on the transaction that you guys withhold, so it is really in my eyes, it is like a fee, a percentage of the transaction that I have to pay in order to process credit cards. Is that true?

Robert: Christine, I could not have said it any better. That is exactly right. The discount rate is not a discount that you are going to receive, but it is actually what the homeowner pays in fees by having the ability to accept credit cards.

Christine: So you have a discount rate. You also have a monthly rate and a transaction fee, is that correct?

Robert: That's correct. Those are predominantly the major fees within the vacation rental home segment.

Christine: OK, so let's just say I am charging a security deposit and then half of the rent the first payment, and second half the second payment. So I am really making three transactions. So on those three transactions, a percentage of the transaction is going to be charged as a fee to me and then also there is going to be a per transaction charge, and those are typically pretty nominal, 25 to 75 cents, around there. But it is just a per transaction fee. Any other charges that I need to look at?

Robert: Absolutely correct. On all three of our plans we have a 25 cent transaction fee. And that would be paid on all three of those transactions that you described.

Christine: Right.

Robert: On the two transactions where you are actually running those as sales, you would pay discount rate. And don't forget about the monthly fee.

Christine: Right.

Robert: But, by and large, that is the majority of the charges that would be incurred by a homeowner.

Christine: Right. It seems like we've run out of time so we are going to have to continue this podcast next week. Make sure to tune it for the continuation of this podcast with Robert Lawson next week.


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