Wisconsin Lawyer: Technology: Accepting Credit Cards: Compare Five Mobile Payment Solutions:

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    Technology: Accepting Credit Cards: Compare Five Mobile Payment Solutions

    Relaxation of ethics rules and improvements in mobile phone technology make acceptance of credit card payments for some purposes both possible and practical for lawyers and firms.

    Nerino J. Petro Jr.

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    credit card on wheelsWith more and more clients and potential clients using electronic payment methods, it makes sense that Wisconsin lawyers and law firms that want to be competitive and meet the needs of existing and potential clients must adapt to current preferred payment methods. While credit cards are widely accepted in the nonlegal business marketplace, lawyers and firms must act within the restrictions imposed by the Wisconsin Supreme Court Rules, specifically SCR 20:1.15(e)(4).

    Subpart e. of this subsection forbids lawyers from authorizing transactions “by way of credit card to or from a trust account,” although it specifically exempts earned fees deposited directly into a lawyer’s business account. On July 1, 2007, the supreme court adopted SCR 20:1.15(e)(4)h., which created an exception to the general prohibition for fee and cost advances paid by credit card, debit card, or other electronic deposit. Specifically, SCR 1.15 (e)(4)h. provides as follows:

    “h. Exception: Fee and cost advances by credit card, debit card or other electronic deposit. A lawyer may establish a trust account, separate from the lawyer’s IOLTA account, for the purpose of receiving legal fees and costs by credit card, debit card or other electronic deposit, provided that the lawyer complies with all of the following:

    “1. the separate trust account shall be entitled: ‘Credit Card Trust Account’;

    “2. lawyer or law firm funds, reasonably sufficient to cover all monthly account fees and charges and, if necessary, any deductions by the financial institution or card issuer from a client’s payment by credit card, debit card, or other electronic deposit, shall be maintained in the credit card trust account, and a ledger for account fees and charges shall be maintained;

    “3. each payment of legal fees or costs by credit card, debit card or other electronic deposit, including, if necessary, a reimbursement by the lawyer or law firm for any deduction by the financial institution or card issuer from the gross amount of each payment, shall be transferred from the credit card trust account to the IOLTA account immediately upon becoming available for disbursement subject to the following requirements:

    “a. All advanced costs and advanced fees held in trust under sub. (b)(4) shall be transferred by check to the IOLTA account.

    “b. Earned fees, cost reimbursements, and advanced fees that are subject to the requirements of sub. (b)(4m) shall be transferred by check into the business account.

    “4. within 3 business days of receiving actual notice that a chargeback or surcharge has been made against the credit card trust account, the lawyer shall replace any and all funds that have been withdrawn from the credit card trust account by the financial institution or card issuer; and shall reimburse the account for any shortfall or negative balance caused by a chargeback or surcharge. The lawyer shall not accept new payments to the credit card trust account until the lawyer has reimbursed the credit card trust account for the chargeback or surcharge.”

    Under this exception, so long as Wisconsin lawyers follow the requirements, they can accept advanced fees and costs by credit card. But even with this change, Wisconsin attorneys and law firms have been slow to adopt credit card acceptance. While several different factors might be implicated, the most likely culprits are the historical costs and requirements of accepting credit cards.

    Historical Barriers to Credit Card Acceptance

    Previously, to accept credit cards, a lawyer or firm would first obtain a merchant processing account (MPA) from a local or national bank or other provider. The MPA was the “pipeline” from the law firm to the credit card processor. This pipeline allowed for the transfer of payment information from the law firm to the MPA provider and ultimately payment into the law firm’s account, which could take up to 72 hours or three business days. As part of this process, a lawyer or firm would also purchase a credit-card-processing terminal and supplies.

    Nerino Petroorg practicehelp wisbar Nerino J. Petro Jr., Northern Illinois 1988, is the advisor to the State Bar of Wisconsin Law Office Management Assistance Program (Practice411).

    The credit-card-processing terminal allowed the lawyer or firm to swipe the credit card or type in the credit card information to process the payment. The credit card terminal usually included a receipt printer and a modem to connect via telephone line to the MPA provider or, in later models, to a computer network and the Internet. The MPA could cost $25 or more per month. To deposit funds into more than one account, such as a business account and a credit card trust account, the lawyer or firm would need multiple MPAs. On top of these expenses, lawyers faced per-transaction fees and a charge based on a percentage of the payment, all as expenses of the transaction.

    The ongoing monthly expenses, the per-transaction fees, and the upfront costs of the equipment made accepting credit cards prohibitively expensive for firms that did not do a large volume of credit card transactions monthly. This changed in 2009 with the launch of a company called Square Inc.

    Recent Improvements to Credit Card Technology

    Square Inc. allowed anyone to use a small magnetic credit card reader plugged into an iPhone to accept credit card payments and process them over the Internet. Square did away with the monthly MPA fee, the need for a dedicated credit card terminal and printer, and the requirement that funds be deposited at the end of each business day. This allowed lawyers and law firms to pay for the service only when they accepted a credit card payment. Since the launch of Square and its Square Reader in 2009, other similar services have become available.

    Today, lawyers and firms can obtain, with few or no upfront expenses, mobile credit card processing services and card readers that work not only on the iPhone and iPad but on Android phones and tablets. Getting started is as simple as signing up online for the service, obtaining the necessary credit card reader to plug into your device, and connecting to the Internet. Lawyers who do not want to wait for the provider to send them a card reader may be able to purchase one for a relatively low cost at a store such as BestBuy or Wal-Mart.

    Lawyers and firms now have a way to accept credit card payments quickly and easily without the ongoing monthly expenses of traditional credit-card-processing services. However, there is a trade-off: in place of the monthly account and per-transaction fees, users of Square and other services pay a higher percentage for each payment processed. In addition to these higher fees, as with any new technology, there are always limitations, and mobile payments fall into this category.

    Differences Among Mobile Credit Card Processing Services

    Choosing the correct mobile application or service for a practice is extremely important. Mobile payment solutions are ideal if the lawyers actually meet clients in person. This allows the credit card to be physically swiped to capture the necessary information using the card reader. If a lawyer or firm typically does not meet with clients in person, mobile payment solutions become more problematic, because the agreement with the provider may require the card to be physically present, place restrictions on the amount of such “keyed-in” sales in a given time period, or charge a higher fee. As with any service, you should carefully read the terms of service (ToS) of any mobile payment solution provider to understand the limits they place on use of the service.

    The ToS may place restrictions on the type of transactions allowed. These may include delayed disbursement of funds in the event of a default or an investigation, prohibitions on use by lawyers in particular areas of practice such as bankruptcy (Square prohibits this), and limits on keyed-in transactions. Here are some excerpts from Square’s website, with provisions pertinent to Wisconsin lawyers underlined:

    “6. Your Square Account.

    “By creating a Square Account, you confirm that you are either a legal resident of the United States, a United States citizen, or a business entity authorized to conduct business by the state(s) in which you operate. The Services and your Square Account may only be used for business purposes in the fifty states of the United States of America and the District of Columbia. You may not export the Services directly or indirectly, and you acknowledge that the Services may be subject to export restrictions imposed by US law, including US Export Administration Regulations (15 C.F.R. Chapter VII).

    “By creating a Square Account, you also confirm that you will not accept payments in connection with the following businesses or business activities: (1) any illegal activity, (2) buyers or membership clubs, (3) credit counseling or repair agencies, (4) credit protection or identity theft protection services, … and (29) bankruptcy attorneys.

    “16b. Payout Schedule - Keyed-In Sales

    If you accrue more than $2,002 in keyed-in sales during any trailing seven-day period, Square will defer depositing the amount in excess of $2,002 for thirty days. Keyed-in sales are transactions where the payment Card is not swiped; rather, you manually enter Card information into the Square application. If you think your account is likely to exceed $2,002 in keyed-in sales per week, contact us to inquire about accelerating your payout schedule. Upon receiving this request, or once you exceed $2,002 in weekly keyed-in sales, Square will conduct a review of your Square Account to determine if you qualify for acceleration. Square will consider a variety of factors in making its decision, including but not limited to a proprietary set of rules, chargeback rates, transaction behavior, and other supplemental data about your business.”

    Mobile payment providers differ in how they operate. Square is, in credit card industry terms, an aggregator. All payments Square receives are funneled into a single merchant account, and Square then sends each customer its piece of the funds. Some states have interpreted this model as commingling one lawyer’s funds with all lawyers’ funds, given that Square does not provide each user with a dedicated MPA. Some states, but not Wisconsin, require such dedicated MPAs, and thus Square is unacceptable for processing funds intended for a trust account in those states. However, the Office of Lawyer Regulation (OLR) allows Wisconsin lawyers to use Square.

    The other model is the traditional MPA account: payments are assigned specifically to a lawyer or firm MPA and then processed into that lawyer’s or firm’s designated account. With the exception of having an assigned MPA, the nonaggregator processors work the same as Square, by not charging a monthly or per-transaction fee.

    Choosing a Mobile Credit Card Processing Provider

    A few of the mobile payment providers currently operating are Square, PayAnywhere, SparkPay, Groupon Breadcrumb, and PayPal Here. Remember, high brand recognition does not mean a company is best suited for your needs; you should compare all pricing and terms before selecting a service. (See Figure 1: Comparison of Some Mobile Payment Providers.)

    Some providers offer lower swipe fees if you pay a monthly fee, usually between $10 and $15 per month.

    Other providers of mobile payment solutions include PayPros Legal, which works similarly to the providers shown in Figure 1 but does charge $60 for the card reader; and LawPay, one of the State Bar of Wisconsin’s affinity providers. The cost for LawPay’s mobile solutions starts at $10 per month with a 3.25 percent rate for all cards and a $0.30 per-transaction fee. LawPay charges the same amount for swiped or keyed-in transactions. An advantage of LawPay’s plan is the secure client payment page, where clients can pay you online directly: plug the secure link into your website, and clients can pay you online from the Web.

    LawPay also allows you to designate whether the funds should go into your business account or your credit card trust account. This capability is uncommon; only a few providers in the United States allow a lawyer to deposit into either the lawyer’s business account or the lawyer’s trust account using a single MPA. Without this capability, depositing into either the lawyer’s credit card trust account or the business account will require two MPAs. With the mobile solutions detailed above, the lawyer or firm must have two separate processing accounts: one for the business account and the second for the credit card trust account. Most, if not all, mobile payment providers will provide two accounts to lawyers at no charge. Although there is no charge to have the two MPAs from these mobile payment providers, lawyers and firms must maintain two accounts and ensure they log into the correct account when accepting a payment.

    Lawyers and firms also must make sure that whichever provider they select provides payment card industry (PCI) compliance. Lawyers and firms also should consider undertaking a PCI audit to ensure they are complying with the PCI standards. PCICentral from LawPay has a good overview of PCI compliance.

    Figure 1

    Comparison of Some Mobile Payment Providers

    Provider SparkPay Go Plan PayAnywhere Square Groupon Breadcrumb PayPal Here
    Swipe fee Visa®, MasterCard®, and Discover® 2.70% 2.69% 2.75% 1.8%+$0.15 2.70%
    Swipe fee American Express® 2.95% 2.69% 2.75% Varies by Business Type 2.7%
    Key-in transactions 3.70% 3.49%+$0.19 3.5%+ $0.15 2.3%+$0.15 3.5%+$0.15
    Monthly Fee $0.00 $0.00 $0.00 $0.00 $0.00

    Other Forms of Electronic Deposits

    With the changes to SCR 1.15 (e)(4h) also came the ability to accept other forms of electronic deposits, such as PayPal and similar types of payments, into credit card trust accounts. PayPal Here provides for accepting other forms of payment in addition to credit cards and may be a consideration in selecting a provider. Lawyers and firms can also take advantage of the alternative protection provision of SCR 20:1.15(b)(4m), which allows lawyers to place advanced fees (but not advanced costs) into their business account rather than the credit card trust account, if the necessary language is included in the fee or representation agreement. The OLR has codified this and other information regarding credit cards and legal fees in a paper on legal fees.

    Other OLR resources on credit card and online payments include the following:

    Conclusion

    With the availability of these pay-as-you-go credit card processing services that do not impose monthly fees, there is no reason that more Wisconsin lawyers and law firms should not be accepting credit cards.




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