Accepting Credit Cards on the Go

Vol. 30 No. 1

By

Amy Porter (aporter@affinipay.com) is CEO of AffiniPay, a full-service bankcard processing company specializing in the legal industry.

Hundreds of professions are now taking advantage of smartphone and tablet technology to accept payments on the go. If handled correctly, mobile payments can provide additional benefits to attorneys. Advantages include the use of existing phones and devices already in your pocket. Even better, you can collect payment at the time of service anywhere you are meeting with your client—from the coffee shop to the courthouse—in particularly time-sensitive situations. Although most attorneys are not usually considered “mobile,” they can certainly take advantage of the technology and convenience of using their smartphones and tablets to accept credit cards through new payment applications.

Of course, with any new technology there are limitations. As an attorney, it is critical to make sure you choose a mobile application or service that fits your needs. Mobile payment options are best used if you actually meet clients in person and are able to capture the credit card information by physically “swiping” the credit card through a credit card–reading device. If you normally do not see clients when you bill them, then obviously mobile payments do not offer you much advantage.

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.

Aggregator Accounts

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 (www.lawpay.com; I am CEO of its parent company, AffiniPay), LawCharge (www.lawcharge.com), 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. The key metrics for choosing a service should be the dollar amount of individual charges you plan to accept and the total monthly processing volume. Compared to restaurants and retail businesses, law firms typically process higher dollar amounts but fewer overall transactions. 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. With traditional merchant accounts, these transactions are expected by the service provider, and thus payments are typically deposited without delay.

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. If you choose to process advanced fees through an aggregator type of mobile application, you risk violating the Rules of Professional Conduct as your client’s funds will be commingled with funds of others that have no relationship with you, your firm, or the client. You also risk incurring deposit delays or have processing fees directly deducted from unearned client funds—which is also prohibited in many jurisdictions.

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. PCI Compliance is mandated by the card brands to process transactions and is required for all merchants, regardless of which merchant account type you choose. Although it is often downplayed by payment aggregators, rest assured that you still will be required to maintain PCI Compliance. Be sure to examine carefully the terms and conditions of service from any provider, especially related to your requirements for PCI Compliance. (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. Attorneys rarely have trouble documenting their work, but they often lose chargebacks because they are unable to prove they had authorization from the cardholder to run the transaction. Having a good processing history with your credit card processor is also helpful. Beware of using the convenience of mobile payments at the risk of good business practices.

Professionalism. Lastly, take a look at your overall billing and payment process to ensure you are creating a professional and positive client experience. Accepting payments on a mobile device can undoubtedly provide convenience and timeliness in getting paid. However, you should consider the situation and client relationship to determine if mobile payments are appropriate. Lawyers tend to put more time and effort into client billing; you don’t want to offend a client by seeming too eager for payment by collecting fees on the courthouse steps.

Best Mobile Options for Law Firms

If you or your firm are considering using a mobile payment option, there are several things you need to consider up front. First, where are you in the overall process of accepting credit cards? Are you already accepting credit cards in your firm? If so, you most likely already have a merchant account in place; check with your current provider to see what mobile options they offer.

If you don’t currently accept credit cards, think about whether you want just a mobile solution or if you need additional options for accepting payments. Your decision may depend on how often you plan to accept payments. If you plan to accept sporadic payments throughout the year, an account with no monthly fees but higher rates may be a better fit. If you plan to accept payments more frequently but still not so often that a traditional merchant account makes sense for you, look for a mobile payment solution with lower rates to reduce your overall cost or “effective rate.” Various mobile account solutions have different rates, so consider this when choosing a provider. Other factors to consider include the stability of the provider, its history, and the security measures it employs.

If you plan to take payments frequently and want multiple options, a true merchant account is probably a better fit. To reiterate, a merchant account is opened based on the merit of your individual firm and the firm’s transaction history. Key benefits include the ability to accommodate higher volumes and larger dollar amounts, as well as separating earned and unearned fees, if needed.

An aggregator account is a good option if you take infrequent credit card charges for small dollar amounts, do not plan to use the service for advanced fee payments, and are not sensitive to deposit time frames. Attorneys tend not to fit the typical user profile of an aggregator service. However, this may be a great place to start if you have never accepted credit cards before and want to test out credit card processing for your clients before opening a real merchant account.

The bottom line is that the flexibility of accepting mobile payments may allow you to do more—hold meetings outside the office, meet clients on their own ground, or collect payment in time-sensitive situations. The issue then becomes the long-term goal. If you plan only to process a few payments per year, then an aggregator may indeed be the solution for you. However, if credit card processing is an integral part of your firm’s future, then you’ll most likely want to go with a company that tailors its merchant solutions to your specific needs.

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!

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