Merchant Services Analysis and Project Implementation 1 Running head: Implementing Merchant Services Project

Merchant Services Implementations Project and Analysis Aron Helfinstine Southeastern University September 6 2012

Merchant Services Analysis and Project Implementation 2 Table of Contents I. II. Executive Summary......................................................................................................4 Section I. Organizational Problems.............................................................................5 A. PayPal........................................................................................................................5 B. Primary Deficiency: PayPal's Fees.........................................................................6 C. Secondary Deficiency: PayPal's Inconveniencies..................................................7 IV. Paymentech (The Viable Option)................................................................................7 A. Chase Paymentech...................................................................................................7 V. VI. Section II: Implementing Chase Paymentech Services.............................................8 Data and Processes Affected by Implementing Chase Paymentech.......................8 A. Process of Conveniency Breaks Sales Record the First Week.............................8 B. Customer Conveniency Using Debit/Credit Cards...............................................9 C. Virtual Terminal Needs Dramatically Decrease...................................................9 D. Automatic Fund Transfer.......................................................................................9 VII. Changes in Procedures, Policies, & Other Systems Needed to Support Them.....10 A. Godaddy and SSL...................................................................................................10 B. Replacing PayPal with Paymentech......................................................................10 IIX. Challenges Incorporating this System and Actions to Overcome Them................11 A. Website Platform.....................................................................................................11 B. Personal Paymentech Representative....................................................................12 C. PayPal and Paymentech Option.............................................................................12 D. Chase Bank Account Option..................................................................................13 IX. Section III: Alternatives, Return of Investment, Closing Thoughts.......................13 A. Alternatives..............................................................................................................13

Merchant Services Analysis and Project Implementation 3 1. Table 1 - Merchant Service Alternatives & Cost.....................................14 a. PayPal is Best Global Option.........................................................14 X. XI. Return of Investment (ROI).......................................................................................15 Closing Remarks..........................................................................................................16

Merchant Services Analysis and Project Implementation 4 Executive Summary

Merchant accounts. If you plan to succeed as a business online, you're going to need one. For my System Analyses Project, I improved the dynamics by which my business, (Southern Kennels), uses merchant services more effective and efficiently saving both time and money while further offering insight through my findings for other businesses considering merchant services for their E-Commerce stores. My findings are documented in the analyses that follows below as well as the implementation of the merchant service provider Paymentech whom I felt was the best viable option for my company Southern Kennels.

A Merchant Account is the term given to a banking relationship between your business and your bank. Once established, the bank provides the means by which you can charge your customers online for the goods or services you deal in. When a customer makes an online payment to you, the bank debits the amount from your customer's account and deposits it into yours. In my previous assignment I conducted a merchant service analyses by which I analyzed the primary E-commerce payment systems (PayPal and Paymentech). In doing so, I discovered that I could save my company thousands of dollars a year by switching my Payment Processing System over from PayPal to Paymentech. The contents of this paper further builds upon my previous analysis project by illustrating the implementation of switching from PayPal to Paymentech for my merchant services needs.

Merchant Services Analysis and Project Implementation 5 Section I: Merchant Service Analysis Organizational Problems PayPal A crucial part of E-Commerce online is choosing the merchant provider for a merchant account that is perfect for your requirements. For example, when I converted my small hobby/business into an online experience in 2005, I chose PayPal as my merchant service. It was easy to use, it offered protection for both my business and my customers when conducting online transactions, and provided conveniency to both collect and transfer funds from my customers bank accounts into my own. Improvements with PayPal have taken place while using this system over the course of seven years. For example, In 2006 PayPal released a debit card one could use to gain access to funds immediately as opposed to waiting for the funds to appear in their bank account for 3-4 business days. In 2009, PayPal launched PayPal Payment Pro, the system I will be expounding upon further in this analysis and the one I currently use in my store. In 2010, PayPal lowered their transaction rate from 3.75% to 2.9%. But even after improvements such as these, there are still deficiencies when using PayPal as my only merchant services option.

PayPal is good at what they do. In fact, in most cases, if you choose PayPal as your primary merchant services provider, you've picked the best option available for your business. However, one primary deficiency remains, and your business as well as my own, has been paying for it dearly. Why? Because PayPal fees are not only expensive, they're some of the highest when compared to all other major merchant service companies.

Merchant Services Analysis and Project Implementation 6 In my previous merchant services analysis I was able to break down the fees and how they have applied to my business over the past few years. My business has maintained a successful income stream after peaking in 2010 bringing in a gross amount at or around $185,000.00 a year. According to my current projections, 2013 should become my biggest year yet peaking at or around $230,000.00. Before 2010, my gross was at or around $85,000 yearly, and I wasn't so concerned with a transaction rate of 3%. However, with this increased revenue I've identified a disturbing correlation between the amount of money my business is bringing in verses the amount of money PayPal services are collecting in fees.

Primary Deficiency: PayPal's Fees

PayPal's current transaction rate is 2.9% plus $0.30 per transaction and $30.00 per month for their services. Using Excel and some basic math, I was able to discover my first deficiency. I simply multiplied $200,000.00 x 2.9%. I then multiplied $0.30 per transaction. This was determined by multiplying the average transactions per customer. If 200 pups are sold per year, with each customer making a deposit (Transaction number 1), paying the balance (Transaction number 2), and half of all my customers paying a shipping fee (Transaction 3), this results in an average transaction fee of (500 x $0.30). And finally, $30.00 x 12 Months for monthly service fees. Combined, this illustrates the formula as follows: ($200,000 x 2.9%) (500 x .30) (30.00 x 12) = $6,750.00. What's that number? That's how much PayPal has been making off my business in fees yearly for the past three years. Welcome to Deficiency One: PayPal's fees are too high! What other merchant services exist that I might be able to employ in order to keep more of my hard earned money?

Merchant Services Analysis and Project Implementation 7 Secondary Deficiencies: PayPal's Inconveniencies

There are a few other specific deficiencies for using PayPal. Not every potential customer has PayPal. In theory, there's no real way to determine how many potential customers are lost by those who merely never carry out a transaction simply because of the fact that they don't use PayPal, but they are out there. This is basically a problem dealing with the conveniency of using their system, or lack thereof, for potential customers who do not use PayPal.

PayPal Pro does allow customers to use credit or debit cards to make their transactions, however, they still try and prompt the customer to create a PayPal account and do so by exploiting these tactics through the use of my own business. And because we need their service, businesses like mine put up it. And without further ado, our companies are used legally to solicit their services to potential future customers of their own. For the customer who does not want to use PayPal, this creates a problem. Of course, as many of you may know, Virtual Terminal is a service provided by PayPal to address this problem. In short, this option allows a customer to call in and provide their credit card info over the phone. Our business then processes the payment for them by inputting their payment details and providing a receipt upon completion of the transaction. While a solution nonetheless, it's one that creates more inconveniency than conveniency for both the business and consumer. Not to mention, yet again, how many potential customers are lost because they realize (after refusing to open an account with PayPal) they now may have to call in and provide their credit card info over the phone to someone they do not know. In theory, that's nearly impossible to measure, but these matters of inconveniency clearly steer away many other potential customers.

Merchant Services Analysis and Project Implementation 8 Paymentech - The Viable Option Chase Paymentech

After identifying the deficiencies mentioned above. I cross-referenced the transaction rates of other merchant service competitors and identified Chase Paymentech as a viable option. First, according to the figures determined above, PayPal's transaction fees are very high, (2.9%) plus additional fees. Chase Paymentech's transaction rate is much lower at only 1.08% for debit cards and 2.10% for credit cards. Even Chase' additional fees are lower at $0.20 for each transaction and $25.00 for their services monthly. Comparing these numbers to PayPal, implementing Chase Paymentech as my primary merchant services provider will nearly cut my banking fees with PayPal in half (a savings of over $3000 per year and over $5000 according to 2013 Projections). After conducting my initial analysis, I immediately began addressing deficiencies by adding Chase Paymentech as my business' primary merchant services provider. These findings are documented in Section II of this project below.

Merchant Services Analysis and Project Implementation 9 Section II: Implementing Chase Paymentech Services Data and Processes Affected by Implementing Chase Paymentech Clearly, using Paymentech would result in thousand's in savings by locking in some of the lowest transaction fees available. After conducting my previous analysis I began the process of implementing the Chase Paymentech System as my primary means of payment processing. My findings reported previously in my analysis have been reported below with the enhancement of the actual implementation of Chase Paymentech as my primary merchants services provider.

Process of Conveniency Breaks Sales Record the First Week

The inconveniency deficiencies currently experienced by using PayPal was directly affected when switching to Paymentech. Finally, my customers had the freedom to make transactions on my website using any major credit or debit card and would not be harassed to create an account with them in order to use their services (like PayPal required).

The new system has only been operational for a few weeks at the time I conduct this report; however, I have already recorded not one, but two record breaking deposit weeks in sales. Within the first two weeks of switching to Paymentech I broke my weekly sales record of five with a new high of eight. The following week again I broke the now previous sales record of five by six.

Customer Conveniency Using Debit/Credit Cards

How could this happen? My thoughts on the matter can only be directly related to my observation of the conveniency my customers were now acquainted with when using my

Merchant Services Analysis and Project Implementation 10 online store. Before, only customers with PayPal accounts could quickly and efficiently checkout. The only other way to purchase on my store would be to either create a PayPal account or call in so that we could process their payment. But with the new Paymentech store, every customer that visited my site could simply enter their personal debit or credit card information and purchase a puppy or join the list of their choice with ease. Therefore concluding that the conveniency itself allowed my sales to dramatically increase as a direct result.

Virtual Terminal Needs Dramatically Decrease

Furthermore, as identified previous in my analysis, customers have no longer had to call in to process a payment over the phone through Virtual Terminal. In fact, to date, I have not yet had to process even one payment over the phone since this system was put into place nearly three weeks ago (when conducting this report).

Ultimately, by switching to Paymentech, I was able to provide Southern Kennels and our customers a more efficient purchasing experience as a whole and save thousands yearly in fees and in the process increased the rate by which transactions occur dramatically.

Automatic Fund Transfer

Data changes in relation to switching from PayPal to Paymentech. With PayPal, I have to wait 3-4 business days before my funds are transferred into my bank account. Even worse is the fact that I have to manually initiate this transaction. By switching to Paymentech, we no longer have to transfer funds from PayPal to our business account with Regions. With Paymentech however, we set up our service so that once transactions are made using our

Merchant Services Analysis and Project Implementation 11 online store, they automatically transfer the funds into my bank account within 3-4 business days. The fees automatically come out during each transaction. And if we decide to create a Chase bank account, they will sweeten the deal by depositing directly into the account within 1-2 business days.

Changes in Procedures, Policies, and Other Systems Needed to Support Them

Godaddy and SSL

Southern Kennels already has an SSL Certified Online Store as a separate service provided by Godaddy. If you were considering any E-commerce related merchant service you would need to have a website set-up with an online store. You will also need to purchase a Secure Sockets Layer (SSL) certificate. It's not only policy, it's the law in terms of legally providing a shopping experience for your customers online. In short, SSL certificates are the protocols designed to enable applications to transmit information back and forth securely. It's a service, a code specifically assigned to your business which allows you to conduct transactions online safely and securely, protecting both you and your customers online shopping experience. Even though Southern Kennels is already set-up nicely with these products, they are important to note here as any other business would need to have these things established in order to launch any online store. And If you do not, Chase Paymentech can help you set one of those up as well.

Replacing PayPal with Paymentech

Since we are very happy with our services using Godaddy, we feel no need to change the store on our website at this time. However, we did have to replace the integrated PayPal

Merchant Services Analysis and Project Implementation 12 store with the one provided by Chase Paymentech after we created a merchant account with them. Creating the account took a 3-day process. After approval and the account was created, Chase Paymentech generated an input shopping cart code specifically tailored with our details (such as the bank account we want to have payments forwarded to through the store) the same day. This option with Chase is known as opting for an online credit card processor and will require details to link transactions to our merchant account. An E-Commerce merchant account number that comes with the account needed to be given to the processor (in our case, our Godaddy Store). With every transaction that follows, the money minus commission, is now automatically delivered into our account.

Challenges Incorporating this System and Actions to Overcome Them

Website Platform Since my Godaddy store is already efficient I have little challenges incorporating this new system. I can however see where adding a merchant service for the first time could create some challenges. I would recommend before ever adding a merchant service to first set up a strong website platform using a quality service like Godaddy. Once your website is set up sufficiently you can then add your store and simultaneously set up your merchant services account to handle any future online sales. From experience, I personally chose Godaddy because they have live person support 24-7 to help you with any problems you might have while creating and establishing your website and/or online store. Personal Paymentech Representative

Merchant Services Analysis and Project Implementation 13 I was also glad to see that Paymentech gives every business a personal representative that you can call or email to help you with anything related to their services in regards to your account. I have never seen such an option exist before with PayPal or even Godaddy and was the significant quality that stood out to me most in choosing Paymentech along with the much lower transaction fees of course. PayPal and Paymentech Option One challenge existed with the very fact that needed to incorporate an option for both PayPal and Paymentech as there are indeed many customers now who only prefer to shop online using PayPal. It is in the best interest of my business to figure out a way to set up the Paymentech as my gateway store but offer an option to use PayPal as well if my customers prefer. This way I would be able to reach both, customers who prefer to use PayPal and customers who prefer to use their debit or credit card for online purchases. I accomplished this task by implementing an optional feature for customers to checkout with PayPal if they preferred to instead of using the Paymentech store by using their debit or credit card. And just as expected, even though customers immediately began using the Paymentech store, there have been a few customers who have opted to checkout with PayPal. Interestingly enough, most of these customers turned out to be culturally diverse individuals from other countries. For example purposes, one in particular was Roberto. He was a shipping customer who purchased a pup from Puerto Rico. There have been exactly three families to use PayPal since the implementation of the Paymentech store, and all of them were culturally diverse, (Two Spanish families and one Japanese family to be specific). I will further discuss these findings below in the Alternatives section of this project.

Merchant Services Analysis and Project Implementation 14 Chase Bank Account Option Another challenge was made aware by Chase Paymentech when considering their service over PayPal. With Chase Paymentech, if one creates a Chase Business Account with them, they sweeten the deal by depositing your funds into this account within 1-2 business days as opposed to 3-4 when using another banking institution. I'm not in a hurry to switch from Regions to Chase so I'm planning to stick with the second option for now. Besides, I don't feel like giving my CPA a headache come tax season 2012. It may however be in the best interests of my company to switch to a Chase Business Account once the 2012 tax season is complete. No one could argue, getting your money twice as fast would just be a better route all together. Alternatives There are other alternatives besides PayPal and Paymentech. Below I have created a table to comparatively illustrate PayPal, Chase Paymentech, and a third top competitor known as Transaction Group. This table will illustrate the primary cost associated with the Merchant Services I have analyzed and discussed in this project as well as further illustrate non-cost related services that each company does or does not offer.
Table 2 - Merchant Service Alternatives & Cost

Chase Paymentech 1.08% Debit 2.10% Credit Plus $0.20 per transaction

PayPal

Transaction Group 1.75% face to face 2.25% internet Plus $0.20 per transaction

Transaction Fee(s)

2.9% plus $0.30 per transaction No fee. Uses Transaction Fee Pricing

Gateway Fee (Monthly) $10

$15

Merchant Services Analysis and Project Implementation 15 Monthly Service Fee Start Up Cost $25 $30 Account Minimum & $100 Start Up Cost Yes No Yes $30 No Start Up Cost; however you must have a bank account No Yes No 3-4 Days $10 No Start Up Cost or Bank Account Required No No Yes

Personal Account Representative Requires Customers to Create an Account Direct Account Deposit

Interpreting the data illustrated above clearly illustrates Chase Paymentech is the best option for my business when compared to other leading merchant service providers. Based on a financial cost related expense Chase Paymentech is also the most cost-efficient. With Paymentech, I have the lowest associated cost in terms of fees. I know that every business is different, but for my company, I would save the most money and operate with the most conveniency by using Paymentech. However, in defense of both PayPal and Transaction Group, there are some considerations that may be of benefit to certain individuals and businesses. Transaction Group for example requires no start up cost and is sometimes a viable option for start-up companies. If a tight budget was a concern, I would recommend actually beginning with a company like Transaction Group and then switching to a service like Paymentech once sales began to generate enough sustainable income to do so. PayPal Best Global Option It is clear as to why PayPal is such a valuable service. In short, you cannot measure it in terms of numbers, but they offer their service in terms of total world-commerce point of view. Ironically enough, I had never noticed such a discrepancy between my customers who purchase

Merchant Services Analysis and Project Implementation 16 pups from other countries or who may be from other countries when purchasing our pups while living in U.S. I began digging deeper as to why this might be the case and discovered the following benefits for those from other countries to use PayPal over other merchant service providers. PayPal is the viable choice for businesses and/or individuals overseas or businesses operating globally because their service allows customers and businesses to operate globally with ease. The funds are automatically converted currency to currency, and protected on both sides of the sale. And though their fees are the highest, in dealing with currency exchanges or global sales and services, PayPal would be the most viable option. This is due to the fact that their service essentially creates a global economy database allowing customers to purchase goods and services instantly all over the world, to and from any country, and while using any form of currency. ROI (Return of Investment) Description IT Workload Decrease Annual Manager Productivity Increase Reduced Customer Churn Annual Benefit Increased Profits Savings in Fees Percentage 9.5% 9.0% 50% 25% 80% Savings Per Year $2,300.00 $7,650.00 $5000.00 $40,250.00 $5000.00

Interpreting the Data When determining the ROI I used tools provided from Nucleus Research that allowed me to determine a multi-set of factors that would contribute to increased sales as well as savings for my company when switching to Paymentech. These figures are depicted in the table above.

Merchant Services Analysis and Project Implementation 17 First, IT workload and Manager Productivity will have a direct relationship by decreasing the amount of time required by IT process payments, withdraw funds, and process virtual terminal payments. In turn, the manager and IT productivity will increase with more time allowed to focus on other areas of the business. This in turn will result in an minimal increase of over $10,000.00 per year when combined. Reduced Customer Churn is predicted to dramatically increase the amount of potential customers becoming actual clients due to the conveniency of the new payment system. With more customers now able to have the viable option of making their purchases online by simply checking out with their debit or credit card will reduce the customer churn by 50%. Though the increased sales seems low at $5000, it is the value of selling our product more quickly and efficiently that is found here as a result of switching to Paymentech. Saving in Fees was determined previously in the sections discussing PayPal and Chase Paymentech regarding fees associated with processing payments received from our customers. Our projections determined that we would save at or around $5000.00 in the 2013 year in banking fees alone by switching to Paymentech primarily due to the significantly lower cost associated with transaction rates and fees when switching from PayPal to Paymentech.

Finally, due to dramatic decrease in customer churn, in combination with increase time for IT and Management, as well as significantly lowering the cost associated with payment processing, the ROI tool was able to determine a projected increase for the annual benefit at or around $42,500.00 over the course of the following three years for Southern Kennels.

Merchant Services Analysis and Project Implementation 18 Closing

Ultimately, by switching to Paymentech, I was able to provide Southern Kennels and our customers a more efficient purchasing experience as a whole and save thousands yearly in fees. I was able to increase the rate by which transactions occur dramatically due to less customer churn and as a direct result significantly increase sales. And finally, due to eliminating the time needed to process and transfer payments from PayPal I can further expect to make additional improvements to Southern Kennels with the increased amount of time provided after switching to Paymentech.

In a lot of ways I felt like Barton in the book, Adventures of an IT Leader. The lesson that I will forever take from this course, the book, and this project themes around "change." Barton had to go through so many different scenarios that all involved significant changes in order to obtain the success needed for his company in the IT department. When I first began this analysis I quickly began to realize that I needed to also endure such a significant change but did not particularly want to engage in it. I felt this way primarily because I was so familiar with PayPal and I knew that I would have to change a lot of things in order for this PayPal to Paymentech conversion to occur. And quite frankly that made me uncomfortable. Though, like Barton, I chose to stretch myself, roll up my sleeves as I know how to do best, and make it happen. And as a result, the future of my company is now even more secure with the new enhancements and services offered by Paymentech than it was before with PayPal. I can further expect to save thousands in banking fees as well as promote a higher level of sales more quickly and efficiently due to the conveniency Paymentech offers for my customers to make purchases online. But most importantly, I finally realize the value in achieving success

Merchant Services Analysis and Project Implementation 19 with IT. IT serves as a foundational cornerstone for every business and institution and without their success the company itself will surely fail. However, I must confess, even if IT is all about management, I still plan on paying someone else to handle this side of the company for me so I can dabble in areas I feel most gifted at. In other words, I'm going to stick with drawing Mickey, I'm going to stick on being Walt. But guess what Roy. Your hired!