Quick Query: Comparison-shopping for Credit Card Processors

The merchant account business is confusing for many ecommerce merchants. Many of them simply use the merchant account and payment gateway providers offered by their hosted solutions without much questioning whether the fees and rates are competitive. PCI compliance is another confusing topic for many merchants, and some merchant account providers impose unilateral PCI (payment card industry) compliance fees on merchants whether the merchants’ volume calls for that level of compliance or not.

Enter TransFS. It’s a comparison-shopping website for credit card processing. The “Trans” stands for “transparent.” Sean Harper is the company’s CEO and co-founder.

Practical eCommerce: Virtually every ecommerce merchant accepts credit card payments, but for a lot of these merchants the entire credit card processing business is pretty confusing. Why do you think that is?

Sean Harper: I think it’s confusing for everybody and one reason is the way that the credit card processing companies market themselves. In many cases, one group or one company is the manufacturer of the products and then it’s oftentimes marketed by a bunch of affiliates (brokers and subcontractors and resellers) who are the people that actually put their name on the statement and put themselves out into the market as a credit card processor. Visa, for example, has about 900 registered independent sales organizations.

[Moreover,] Visa and MasterCard have tried to charge different rates for different kinds of transactions. So, a debit card transaction, for example, is cheaper on a wholesale basis. The interchange rate is lower than a credit card, which is lower than a rewards card. As a result of charging all those different rates for different kinds of transactions, the number of different kinds of rates just exploded over time.

PeC: How do your services help the ecommerce merchants sort through all of it?

Harper: We do three things. We provide an online marketplace similar to what you’d find at LendingTree for mortgages or at Kayak for plane tickets where you can enter a little bit of information about yourself and then examine on your own time without any pressure from salespeople. They [the merchant account providers] are all quoting the same billing format so it’s easy to compare between them.

Secondly, we have software that maps the different billing categories and can help you compare credit card processing deals that otherwise wouldn’t be comparable to each other on an apples-to-apples basis.

The third thing, which we just launched, is we have the credit card processing directory, which is just a list. It’s sort of the Yelp of credit card processors and so over time we’ll be able to populate that with reviews and user experiences and make it a little bit more clear how the services offered by all these terms relate to one another.

PeC: How many different merchant account providers participate in your comparison service?

Harper: In the directory, we have all of them. So, it’s about 900. In the marketplace, we have eight currently, and some of them are more active than others and we’re adding them pretty quickly.

PeC: How does TransFS make money in all of this?

Harper: We charge the credit card processors a commission that’s a lot lower than what they’re used to paying for distributing this kind of product, and they’re happy to pay it. The quid pro quo that we demand from them is that they pass a lot of that savings on to the customer.

PeC: Tell us a little bit about TransFS. When was it founded, where is it located, who owns it?

Harper: We’re located in Chicago and we started it in the beginning of 2008. It was originally a business school project at the University of Chicago Graduate School of Business and the three of us, Eric Olson, Josh Krall and I, were students there at the time. We launched officially in the spring of 2009 at the Finovate Conference in San Francisco and we’ve been working on making it better ever since.

PeC: Any other insights you would like to share with our readers?

Harper: I have two really good pieces of advice for people that are shopping for credit card processing. The first is make sure that whatever rates you’re being quoted are being quoted on an interchange plus basis. It’s sort of the code word for getting a decent deal. The other advice is it really isn’t competitive anymore [for a credit card processor] to have a cancellation fee. Having a cancellation fee puts business owners in a disadvantageous position because if they become unhappy with the deal, it makes it hard for them to switch. Those are my two bits of advice.