Electronic Payment/Credit Cards for Deposits
QUESTION: If I hold a credit card number from my customer as a deposit (for a rental), and I later have to put the transaction through (say they damage the rental), how can I do that if their card requires a PIN?
I will explain my situation and maybe you have a better idea:
I'm renting a machine, about $50/week. The machine costs about $700, so I'd like a deposit of $200 for some security. If I transact the total of $250 my merchant fees are at least $5, (and I'm assuming I'll pay another $4 when I refund the $200 deposit). So I'm paying $9 in fees for a $50 rental! Any ideas?
ANSWER: Hello Nicole,
Thanks for reaching out to me. I'd be more than happy to address your questions.
First, you do not need a PIN number to run a debit card. As long as the card has a Visa, MC or Discover logo on the card, you can run it as "signature debit" as opposed to "PIN debit".
Procedurally, you can run this kind of transaction as an "auth only" in order to put a hold on the funds on the buyers card, but not to actually take this into your bank account as a deposit. Is that how you are running these transactions?
And regarding the fee side of it, you can actually avoid a lot of these fees depending on how your processor handles things. With any processor, you'd be charged the initial fee to process the $250. From there, the processor can:
1) charge you to issue the $200 refund (which it sounds like your processor does)
2) charge you only to process the original $250 (so no additional fee to refund, aside from perhaps the per transaction fee, to issue the refund)
3) the processor can refund you the processing fee on the return, less a per transaction fee. In this case, if you charged $250 up front, and refunded $200, you'd only pay processing fees on the $50 you actually received.
Of those above, our processing would work as described in #3 above.
Feel free to reach out to me directly for any further info: firstname.lastname@example.org
Andrew Moran, CPP
Sr. Account Manager
Merchant Solutions LLC
866 326 3486, ext 9226
---------- FOLLOW-UP ----------
QUESTION: OK thank you Andrew; I would have to look further into how our processor handles the fees.
If I run an "auth only", how long can these authorizations "hold" ... from my reading it depends on the cardholder's bank, but typically is 1-3 days. My rentals will vary from a week to a month, so this probably won't work that well for what I need.
I am leaning towards just getting the cc information and forgoing the deposit, then charge the card as a "signature debit" if things go sour. I would get them to sign something before the rental that they would be charged for missing/damaged items. Do you see any problems with this method?
Thank you for your time; I think it is so kind that you do this freely.
Thanks for the follow up. If the auth is on a debit card, it can be good for up to 7 days, and if its on a credit card, it can be good for up to 45 days. However, its "up to" thats tricky, and its the issuing bank that determines exactly how long an auth is good for on the cards they issue. So if your rentals are longer duration like that, the auth only would be inconsistent.
Another potential solution would be to get a lodging file build, which does allow for longer holds on cards. The downside though is, since your SIC code does not identify you as a hotel, you'd end up with transactions "downgrading" to higher interchange rates in this case, which may negate any savings you'd see.
The only other thing I could suggest is working with a processor that refunds the processing fees on the original transaction. This way, you could follow the same charge then refund procedure as currently, but you'd only pay processing fees on the amount of funds you actually collect for the rental, not on the deposit.
Finally, you could of course forgo the deposit, but the risk then in that case is if someone doesnt return the equipment, the charge to the card could easily be rejected if you go to bill it later. As well, once you do charge that fee, its even less likely you'll get the equipment returned thereafter. And finally, if someone got wind of this, they could potentially rent the equipment with a card they then cancel. You could then only come after them personally, which would involve getting an attorney involved.
So just a few thoughts / considerations. If anything further, just let me know.