Demystifying e-Commerce

In this blog post, Shachar Oren discusses what e-commerce merchant banking charges comprise of, what is involved operationally in conducting a transaction, and how to develop a strategy that is right for your business.


Shachar OrenOnline Merchant Banking is handled by banks and their gateways (a “gateway” is the technical systems used to facilitate transactions between a site and the bank). Some retailers interact with both parties (meaning, they sign a deal with a bank to process e-commerce transactions, and separately sign a deal with a gateway of choice such as, while other retailers work directly with banks who include the gateway function as a value-add within the bank offer (all under one agreement).


There are two main charges involved in your conventional online transaction:

1. Authorization fee (charged for the gateway service): This is a flat-fee for the function of looking up a credit card number and authorizing that the amount the retailer seeks to transact is available to be charged to the shopper.

2. Credit card fee (charged for the banking service, and also called “credit card discount” by banks): This fee is a percentage of the total amount of the transaction/purchase being made. Rates vary depending on (a) card, i.e. American Express and Discover tend to cost more than Visa and Master Card; (b) the retailer’s credit line (i.e. history and risk profile with the merchant bank); and (c) the total yearly volume of business the retailer represents for the bank.

There are additional operational costs involved, such as setup fee and monthly service fees, which are marginal in the big scope of things.

The last cost component to remember about merchant banks is the “Charge Back” fine they each itemize. If there is ever a dispute about a fraudulent or wrong charge, the bank invites you to justify it and reference your terms of Service for it. If you LOSE a case, the bank will debit you the amount they are refunding the consumer PLUS a fine (usually $10-$20 per occurrence). It is therefore imperative you include proper security measures and proper ToS on your site to avoid running into any issues.

The owner of the merchant bank account is the “Merchant of Record” that is responsible for any/all tax liabilities involved with e-commerce sales. Tax liabilities therefore apply based on the tax nexus caused by the owner of the bank account being used.


Two technical steps are in the core of an e-commerce transaction:

1. The authorization of the charge: When a charge is “authorized” via the gateway (retailer’s system sends a request, gateway processes it and responds with approval or denial), it means that the amount the retailer inquired about is available at the shopper’s credit card account. This also places a temporary “hold” for that amount on the shopper’s card (thus reducing the shopper’s “available balance” temporarily by that amount).

Temporary holds clear out automatically within a day or two (depending on each bank’s practices) if the amount is never “captured” (this is explained next).

You may have ran into this process yourself when renting a car for a week and being asked by the car rental company to sign on a thousand dollar security hold “just in case you don’t return with it” sort of thing. When you return the car, the rental place tosses away your authorization details. They never process a “capture” so you are never actually charged anything.

2. The “capturing” of the charge: This is when the amount is actually processed and debited from the shopper’s credit card – meaning, the transaction is going through. You can capture less than and up to the amount pre-authorized, but you can’t capture more than the amount authorized. In order to capture more, you’d need an additional, second authorization for the additional amount sought in the larger transaction. For example, if you authorized $10.00, than you can capture anything from $0.01 to $10.00, but you can’t capture $10.50 – to achieve the latter, you’d need to ask for another authorization of at least another $0.50.

Upon capturing an amount against the authorization ID, the original authorized “hold” amount ID is “cleared” and there’s no more record on hold on that shopper’s credit card. The purchase now shows as the final and accurate sum that was captured.

It is possible to run both authorize + capture requests simultaneously in one “call” (one API call to the gateway). This is what normally happens in a brick & mortar retail store for example, since there is no reason for a physical retailer to delay the processing of funds for a product that is leaving the store.

It is also possible to run the authorization first, and run the capture at a later time as a separate call to the gateway. The example I provided above with the rental car “security hold” is one example of how this method can be utilized. The car rental dealership has a hold of X on your credit card, and if you ruin the car, can charge up to that hold amount to your card to refund their losses from you.


At Neurotic Media, we leverage the separation of “Authorization” from “Capture” for what we call “Daily Transaction Aggregation”. When the shopper first orders a $0.99 song, we authorize that + $5.00 at the bank level, for a total hold of $5.99. At midnight, we total all daily transactions and run a “batch-capture” file. If the same shopper ordered 3-4 songs for the day, they all get captured against the original $5.99 authorized amount. For example, if the shopper ordered 3 songs that day, for $2.97 total, then we capture $2.97, and the balance of that pre-authorized amount goes off-hold and disappears.


  • The authorization fee itself only hits the retailer once. It is paid on the initial authorization and therefore could be amortized across several songs, instead of being invoiced repeatedly once per song order.
  • The shopper’s credit card shows the final number for the day, not each and every item ordered. In the example above, the credit card statement will show the shopper a total daily purchase of $2.97 worth of downloads, instead of three $0.99 rows.
  • The shopper gets only one email receipt for that captured order for the day, listing the items purchased (as opposed to an email per item).


Neurotic Media offers many flexible e-commerce engagement options:

  1. Use of our default merchant banking account (“Neurotic Media” is listed on shoppers’ credit card statements)
  2. Open and manage an account we own and operate and D/B/A “you” – which means your name is what shows on shoppers’ credit card statements
  3. Integrate your own gateway and bank into our e-commerce suite so all the monies flow to you directly
  4. Use our API suite to integrate us into your existing system and sell our products while continuing to use your existing shopping cart


Most merchant banking charges involve an authorization fee of $0.20 or more, and a credit card rate of 2.8%-3.5%. This would obviously be very high for a simple $0.99 transaction – since you’re looking at about 23c on the dollar.

Several years ago, merchant banks introduced the “micro payment” model: They charge less for the authorization and more for the credit card use. For example, an authorization fee of $0.10 or less, and a credit card rate of 4% or more. This is obviously more “retailer-friendly” for small transactions, since you’re looking at about 14c on the dollar.

We actually crunched the numbers and figured out that a transaction of $4.50 and under is where the micro-payment makes most sense, while transactions above $4.50 might as well use the traditional model.

Regardless, it is obvious how Daily Transaction Aggregation helps reduce the impact of the Authorization Fee on a per-song basis, and since most shoppers purchase 3-7 songs at a time, the impact of merchant banking fees is greatly reduced by this technique.

Of course, if you are using a traditional Shopping Cart work-flow, aggregation happens within the checkout workflow itself and you may see no benefit in Daily Transaction Aggregation. The latter is fit for wallet/account based systems, which we often prefer to see in use. They offer considerably less click-thru steps on the path to a download than does a cart system.

As always, we stand ready to help answer any questions, just ping us for a call.

(Shachar Oren, CEO)

Neurotic Media Taps HFA’s Slingshot for Full Service Rights Solution

New York and Atlanta, June 24, 2013: HFA, the nation’s rights management leader for the music industry has entered into a rights management agreement with digital entertainment services provider Neurotic Media.

HFA’s rights management service, Slingshot, will provide comprehensive licensing support to Neurotic Media’s recently launched mobile offering, Amplified Unlimited. This music service provides subscription-based access to conditional download of music catalogs from major and independent record companies that mobile carriers may pre-load on devices or offer for installation at any time. A leading digital music private-label service provider, Neurotic Media will tap into Slingshot to manage various rights-related processes including license issuance and administration, data management, royalty calculations and publisher payments. A well-established partner to the publishing community, HFA’s preeminent rights and data management platform is singularly positioned to provide a sophisticated rights solution to Neurotic Media as it expands its mobile market offerings.

“Slingshot was designed to offer a complete rights management solution to companies like Neurotic Media as they evolve and create music-based service offerings that drive consumer behavior,” commented Michael Simon, President and CEO of HFA. ”We are excited to work with Neurotic Media to enable them to grow mobile engagement, especially as music consumption via mobile platforms gains momentum.”

“Slingshot proved to be a perfect fit for us as we prepared to launch our music subscription services,” said Shachar Oren, CEO of Neurotic Media. “With our strong history as a partner to record companies and artists, we sought to ensure that we provide transparency and drive growth for publishers as we usher our subscription services to the marketplace. But in the case of publishers, there are thousands of stakeholders to serve. HFA has aggregated those relationships over the course of several decades and stood ready to help us address our reporting needs through one comprehensive service. Their Slingshot service enables us to easily streamline our publishers’ reporting and payments needs.”

About HFA:
HFA is the nation’s leading provider of rights management, licensing and royalty services for the music industry. With over 46,000 music publishing clients, HFA issues the largest number of licenses for the use of music in both physical and digital distribution formats. HFA also serves the D.I.Y. market with Songfile®, the company’s fast and easy online licensing tool. Slingshot, HFA’s rights management service offering, includes a suite of information management and technology solutions designed to simplify and facilitate the administration of intellectual property rights. As a technology innovator, HFA is leading the industry in establishing global data standards and is a founding member of the Digital Data Exchange (DDEX). Additionally, for the past four years HFA was recognized by InformationWeek on its Top 500 Relentless Innovators list. For more information about HFA visit and

About Neurotic Media:
Neurotic Media is a leading digital music private-label service provider whose platform and services offer proven ways to drive consumer behavior and increase revenue using online, mobile and social digital distribution and promotion tools. Neurotic Media is licensed by both major and independent record companies, and takes care of all back-office functions for client brands in a turn-key, Software as a Service (SaaS) solution. The company offers private-label hosted solutions, applications, and API services to mobile carriers, online retailers, and various consumer brand marketers who seek to drive consumer behavior with the universal power of artists and songs. For more information, visit us at

Contact for HFA:
Dalita Keumurian
Director of Marketing & Communications
(212) 922 3297

Contact for Neurotic Media:
Becka Hardy

Viaero Wireless launches unlimited music subscription bundle “VGroov”

Powered by Neurotic Media, VGroov bundles music with Viaero’s data plan, increasing ARPU, reducing CHURN, and growing competitive engagement

Atlanta, GA – Neurotic Media, a leader in digital entertainment services that empower brands to influence consumer behavior and drive revenue, announced today that the company’s new mobile subscription service is now available to Viaero Wireless subscribers under the “VGroov” brand name. The service provides subscription-based access to conditional music download catalogs from major and indie record companies. The offering uses a fully-native Android application that Viaero pre-loads on Android devices plus offers for installation at any time.

VgroovThe unlimited music offering is made available to all Viaero Android subscribers: Customers who use the Viaero2Go Unlimited Everywhere service can now pay $55 per month to enjoy VGroov within their monthly data plan, while Viaero’s new Simplicity plan customers may opt in for a $10 per month VGroov charge.

“What goes better with Viaero’s unlimited 4G data than unlimited music?” says Frank DiRico, President of Viaero Wireless. “We’re thrilled to offer our customers the ability to download as much of their favorite music as they want on our high-speed 4G network without having to worry about hitting data-usage caps and incurring overage charges.”

“We are excited to be working with Viaero Wireless, who represents the first deployment of our new conditional download subscription services,” commented Shachar Oren, Neurotic Media’s CEO. “We believe that VGroov can help Viaero Wireless grow their subscriber base competitively, increase their average revenue per user (ARPU), and capture lost revenue by participating in the marketplace that their network is enabling. The offering represents an exciting consumer value proposition and we look forward to the feedback of VGroov’s subscribers.”

About Neurotic Media:
Neurotic Media is a leading digital music private-label service provider whose platform and services offer proven ways to drive consumer behavior and increase revenue. Neurotic Media is licensed by both major and independent record companies, and takes care of all back-office functions for client brands in a turn-key, Software as a Service (SaaS) solution. The company’s cloud-based media platform supports hosted website management, music applications, and API services for mobile carriers, online retailers, and various consumer brand marketers who seek to engage consumers with the universal power of artists and songs. It’s new “Amplified® Unlimited” service offers mobile carriers a white-label, native-application solution with unlimited access to music downloads, sellable as either a bundled offering with data plan subscriptions, or as an add-on item. For more information, visit us at

Contact: Becka Hardy,, (404) 248-0804

About Viaero Wireless:
Viaero Wireless, a wireless phone company based in Fort Morgan, Colorado with retail locations in Colorado, Kansas, and Nebraska, offers competitive nationwide plans for residential and business customers in four states. Viaero Wireless enables customers in its rural coverage areas to access voice, data and messaging services on its high-speed 4G network, utilizing a variety of leading technology devices, both at home and across the world. For more information, visit