Washington Post: Monday, December 2, 1996
Folks Who Welcome Charge Cards
By Daniel Grant
In days past, one measure of someone's wealth was the thickness of his or
her wallet.
Nowadays, many consumers carry hardly any cash at all, relying instead on
the cards issued to them by major credit card companies. Most
self-employed people and those who work out of their homes recognize that
an increasing number of the people who buy from them are more likely to
pay with a credit card than with cash or a check.
A benefit of being paid by credit card is that, first, by not carrying
large
amounts of cash or checks one is less vulnerable to robbery and, second,
financial institutions credit one's bank account faster for a payment by
credit
card than for a check.
As a result, more and more self-employed individuals are seeking
authorization from banks and other financial institutions to accept
payment by
credit card. Banks that issue Diners, MasterCard and Visa cards, however,
have become increasingly wary of extending such authorization to
individual
entrepreneurs.
"Citibank is no longer accepting applications for credit card processing
for
home-based operations," company representatives in the bank's Merchant
Services section are instructed to say. Other banks say the same, citing
a
recurring problem of mismanagement and fraud on the part of these
entrepreneurs. Problems include refusing to resolve complaints from
customers, going out of business, running into debt and declaring
bankruptcy,
relocating elsewhere without revealing their new addresses.
Clyde Heasly, an adviser to entrepreneurs at the Small Business
Administration in the District of Columbia, says, "I just tell people to
call
the credit card department of bank after bank after bank until someone
eventually will take care of you." Some people will do just that. Others
apply
directly to American Express (800-445-2639, ask for Establishment
Services) or Discover (800-347-6673), which grant permission to accept
payment by these cards directly, without the intercession of a bank.
An ongoing problem for banks is the merchant's lack of a "storefront," a
business address where the seller can be found most weeks during business
hours. "I was told by a number of banks, 'If you don't have a storefront,
you
can't be a credit card accepter,' " says Ed Duggan of Boca Raton, Fla.,
who
with his wife, Helen, makes teddy bears out of recycled fur coats, which
they
sell at arts and crafts shows. "When I finally found a bank that would
let me
process credit card receipts, it charged me 5 percent on all sales plus
deposit
charges plus verification charges, and there may have been some other
charges."
Other sellers who are often on the road say they have had the same
experience: "I had been banking with this East Dallas bank for 12 years,
establishing a good history, but when I asked to process credit card
orders,
nothing about me was good enough because I didn't have a storefront,"
says
Sharon Johnston, a jewelry maker in Dallas, who largely sells her work at
shows or through mail-order. "Finally, I made up a 3-by-5-foot storefront
in
a friend's gallery in order to have a store address that wasn't my home
address."
Both the Duggans and Johnston eventually moved their credit card
processing accounts to Electronic Card Acceptance Corp. in Alexandria,
which set up merchant accounts for them at banks, lowering their fees to
1.75 percent of sales.
There are a number of bank brokerage firms to which sellers of all kinds,
including those who work out of their homes, may apply for permission to
accept credit card payment. The largest include Seattle-based Card
Services
International (206-608-1364), First Data Resources in Omaha
(402-222-2000), and First USA Payment Tech in Dallas (214-849-3776),
as well as Financial Alliance (800-928-2273 or 502-339-0595) and
National Processing Co. (502-364-2000), both in Louisville.
Such companies arrange approval for merchants through banks that are
willing to take on the risk, accepting some or all of the major credit
cards.
There also are several hundred other companies around the country, known
as independent sales organizations, or ISOs, that look to sign up
merchants
for these brokers as well as for certain banks. Most ISOs belong to the
Electronic Transactions Association (3101 Broadway, Suite 585, Kansas
City, Mo. 64111; 800-695-5509).
"We probably work with about 20 new customers a month," says John
Carro, president of Tri-State Merchant Services in Hauppauge, N.Y. "A lot
of them sell by mail-order or telephone, and it is often a type of second
or
additional income. We get almost all of them through referrals from banks
who don't want to handle them because of the perceived risk factor."
That risk, Carro says, is the potentially weak financial situation of the
merchant who may be able to sell items but not have money (or other
collateral) in the bank in the event of "charge-backs" -- a dissatisfied
customer wanting his or her money back. The bank, or whoever processes
the charges, ultimately is responsible for those debts.
Whether applying to a bank or bank brokerage company, American Express
or Discover, all applicants are asked for basically the same information:
name, address, Social Security number and telephone number (also, home
address and telephone number if the applicant's place of business is
elsewhere); the applicant's bank; how long in business; what products are
being sold; the average price for products sold; how the product is
marketed;
annual or monthly sales volume of sales; the state sales tax number or
federal
tax identification number; business references (suppliers, patrons, shops
or
galleries).
Additionally, the applicant may be asked to submit federal tax statements
for
the preceding two years and/or bank statements for the preceding three
months.
Applicants are asked how they plan to process credit payments. There are
two main methods of processing credit card receipts: manually, using an
imprinter and later that day processing the charges into an
IBM-compatible
computer and transmitting them via modem to the bank or bank brokerage
company; and electronically, through a point-of-sale terminal, of the
kind one
often sees used in restaurants and department stores.
The benefit of the point-of-sale terminal is that approval of the credit
card
takes less than a minute, reducing the risk factor for fraud. Such
terminals,
however, generally cost far more than the software required for the modem
method, and they also require separate telephone lines, which may not be
available at many arts and crafts shows.
The credit companies check business and credit references (through the
same
sources as a mortgage broker), the applicant's financial history and
other
relevant information. For instance, Card Services International will hire
a
local appraiser to examine where the applicant works, taking photographs
of
the person's house, sales booth and studio in an attempt to determine the
viability of his business.
The approval process normally takes one to three weeks. As anxious as
people may be for a credit company to approve them, they should shop
around for the best rates, which vary widely. American Express, for
example,
has no application or setup fees, and it charges merchants an average of
3.5
percent (if the sale is processed electronically) and 4.5 percent (if the
sale
is
processed manually) for each sale. (Working with American Express is
complicated in that one does not submit charges to the company and,
instead, must use a third-party processor, which involves an extra
charge.)
Financial Alliance, for its part, takes 2 to 3 percent of the sales price
(depending upon the volume, lowering the rate for higher sales), but it
charges a $ 125 application fee, a $ 7.50 monthly statement fee,
transaction
fees of 20 to 30 cents per sale and adds a $ 695 charge for the purchase
of
the imprinter, computer terminal and modem (for transmitting charges back
to
the company) and credit card decals.
Other companies' rates range from 2 to 5 percent (depending upon the
average price of the pieces sold, with higher rates for less-expensive
items),
and there may be application and monthly maintenance fees. Some
companies sell point-of-sale terminals to customers for less than others,
but
their percentage rate may be higher. Thus there are several factors to
weigh
in selecting one company over another.
Different companies also have their own prejudices. American Express does
not allow its cards to be used when selling as a wholesaler to retail
outlets,
for instance, and Financial Alliance is unwilling to authorize credit
card
activity for all but the smallest amount of mail-order sales.
"Mail-order is a high-risk business," says Dave Lutrell, sales manager at
Financial Alliance. "You don't know who's calling in. They can have
fraudulent cards. It's better when you can see the customer."
Boston Globe: Sunday, November 24, 1996
Rocking the Cradles of Capitalism
By Maria Shao
Harvard Business School and the Sloan School of Management at the
Massachusetts Institute of Technology, rivals in the samll world of elite
business schools, are separated by much more than the Charles River.
Harvard, renowned for turning out the future chief executives of America,
has
long ben a citadel of general management education. Sloan, with a
reputation
for producing financial wizards and high-tech managers, has grown up
under
the umbrella of one of America's premier technology universities. Now, in
an
era when business schools are jockeying more than ever to attract top
students, Harvard and Sloan are, in some ways, tring to become more like
each other.
"I'm the poster child for poets," declares Sarah Fulkerson. Indeed, the
28-year-old majored in the philosophy of religion at Williams College,
holds
a graduate degree in art history, and, for four years, owned and managed
the
Boston Banshees, a men's professional bicycle racing team.
So what's she doing at the Sloan School of Management?
Students such as Fulkerson are proof that the business school at the
Massachusetts Institute of Technology has moved beyond its image as a
training ground for "quant jocks" and computer nerds.
No one could be happier about that than Glen L. Urban, dean of the
44-year-old business school. A marketing specialist and sometime
sculptor,
Urban has followed celebrity economist Lester C. Thurow -- his
predecessor
-- in broadening the school's reputation beyond a technological niche.
"We want them to be general managers and technologically smart. It's not
either or," says Urban, 56, whose bold suits, shoulder-length hair and
silver
bracelet defy the pinstriped stereotype of a business dean.
Since becoming dean in 1993, Urban has revamped the curriculum, launched
global projects, started forays into "distance learning" and overseen a
40
percent increase in Sloan's MBA enrollment.
The efforts seem to have paid off: Sloan has moved up in magazine
rankings,
to No. 9 on Business Week's 1996 roster, compared with 13th in 1992. In
U.S. News & World Report rankings, the school slipped to No. 2 in 1996,
down from first place in 1995, but up substantially from No. 6 in 1993.
While all the elite business schools are enjoying an applications boom,
Sloan
has experienced the biggest windfall: Applications soared 80 percent
between 1994 and 1996. This past year, 83 percent of those accepted chose
to enroll, up from 66 percent three years earlier.
Still, at least locally, Sloan is often overshadowed by its richer,
bigger and
more well-known rival across the river. Harvard Business School is viewed
as the preeminent breeding ground for corporate chief executives, has a
far
bigger base of loyal alumni and boasts a $ 545 million endowment,
compared
with Sloan's $ 153 million. While HBS's stately neo-Georgian campus
boasts
manicured lawns, tennis courts and 27 well-appointed buildings, Sloan
faculty
and students are squeezed into four industrial-style buildings featuring
metal
file cabinets, linoleum floors and flourescent lighting.
And unlike HBS, which operates autonomously from the rest of Harvard,
Sloan maintains close links with MIT, particularly its School of
Engineering.
The MIT shadow has been both a blessing and a curse. "We don't want to
run away from our strength. I want to be perceived as having the
technological skills, but I don't want the shadow of being seen as
nerds," says
Urban.
The school still has far to go before burying the numbers-crunching
image. A
hefty 45 percent of its MBA students majored in engineering as
undergraduates while 12 percent majored in math and sciences. A survey
found that some corporate recruiters still view Sloan as a "technical
business
school" rather than a "management school."
"It takes a long time to change market perception," says Ilse Evans,
career
placement office director and a former software marketing executive Urban
hired to promote Sloan among recruiters. "I see an enormous future for an
MBA with a technology-oriented curriculum. General management and a
grounding in technology are going to meet."
Even Fulkerson, the poet-turned-Sloan-student, says she chose to attend
the
school because "it had such quantitative weight . . . I have a very
liberal arts
background. I wanted to balance myself out."
Under Urban, the school has done much to balance itself out. In 1994, it
began granting a master's in business administration instead of its
traditional
master's of science in management. With the MBA, Sloan dropped its
longstanding thesis requirement. Today, the vast majority of students
choose
the MBA.
The curriculum has been revamped to emphasize "soft" people skills as
compared to "hard" quantitative and analytical skills. Students are now
required to take a communications course. And, in an effort to teach
teamwork, they're divided into groups of eight for first-term classes.
The
more flexible curriculum -- fully implemented last year -- features
required
core courses in the first term, followed by a choice among seven
different
"tracks," such as financial management, entrepreneurship and
manufacturing.
Urban himself seems to be the antithesis of the MIT financial jock. An
expert
on linking market research and product development, he is also a sculptor
whose creations adorn his office: stone and metal abstract pieces, a
welded
steel eagle and a glass-topped coffee table with metal bolts as legs. A
"Dean's Gallery" outside his office displays art by MIT faculty, staff
and
students. "Creativity is in an important element for my job, and
important to
train our students in," says Urban.
Now, as the business world goes global, Urban (along with many other
leading business deans) is pushing his school's brand of management
education beyond American shores. Already, Sloan's student body is the
most international of the top business schools, with 37 percent of its
MBA
candidates coming from outside the United States. Seizing on the cachet
the
MIT name has long enjoyed in Asia, Urban launched alliances in June with
two of China's leading universities, Fudan University in Shanghai and
Tsinghua University in Beijing. Sloan also has collaborations planned or
under
way in Singapore, Taiwan, Thailand, India, Mexico and Chile.
And while Harvard may be an Information Age neophyte, Sloan is well under
way in using technology to transform teaching and learning. A $ 3.5
million
trading room features Wall Street-style technology for teaching financial
engineering.
An evangelist for what is called "distance learning," Urban foresees a
day
when business education can be delivered to students - particularly
executives taking mid-career or refresher courses - around the globe
without
leaving their job sites. In December 1995, Sloan installed two distance
learning facilities. A system design and management program will teach
engineering managers by videoconference hookup; the students will come
from AT&T, IBM, Raytheon and other sponsors. The school recently
offered a Web-based course on negotiation for alumni, many of whom
logged on from home. Call it glasnost with a mouse.
In the 14 months since taking the reins at Harvard Business School, Kim
B.
Clark has moved quickly to put his stamp on the West Point of capitalism.
He has brought the tradition-bound, 88-year-old institution into the
computer
age and created a more open culture, all while carrying out the school's
biggest curriculum redesign since the 1960s.
"This place was hungry for change," declares Clark, 47, from his sparse,
cavernous office in 125 Morgan Hall.
While the Harvard Business School is still indisputably the world's most
famous training ground for business leaders, other schools have
challenged its
standing in recent years. When Clark became the school's eighth dean in
October 1995, many looked to him to launch innovations that would help
Harvard maintain its leadership.
Nowadays, "the place is on the move," the dean insists.
Still, Clark, who spent 18 years on the business school faculty before
becoming dean, has had to tred gingerly among a faculty of world-class
egos
and management experts. Says a rival business dean: "He has a freighter
to
move. He may be running the risk of changing too much." But so far, Clark
has received plaudits from faculty and students for his most visible
project: an
$ 11 million technology initiative.
Under his predecessor, John H. McArthur, the school had fallen behind its
rivals in joining the Information Age. McArthur had frozen technology
spending, according to Clark, because the school had sprouted too many
disparate computer networks. Even senior faculty had to pay for their own
office computers.
"Up until a year or two ago, you could go there with a quill pen and
papyrus,"
says Dwight Gertz, a graduate of the school who heads Symmetrix, a
Lexington management consulting firm that recruits at Harvard.
"We were behind. It wasn't a perception. It was a reality," says Clark.
Clark himself is something of a computer guru, thanks to a background in
technology and product development.
He moved quickly to install a computer lab in the basement of Shad Hall,
with 108 PCs capable of delivering desktop video. Another lab with 50
computers will open Monday. All told, 1,400 desktop machines have been
replaced.
The school previously had seven networking standards, six e-mail systems
that weren't linked and 77 models of computers on faculty desks. That has
now been simplified into a system of PowerMac and Pentium machines
running on a single schoolwide intranet connecting students, faculty and,
soon, alumni. Students now receive e-mail addresses with lifelong
forwarding
that will link them even after graduation.
"We went from 1989 to 1996 in about four months," says Earl Sasser, a
professor of service management.
In September, the school unveiled a software "platform" that gives
students
customized access to everything from their daily schedules and course
work
to student biographies and class seating charts. Faculty members are
required
to put assignments, slide presentations and other course materials on
line.
"It's great. You can have everything at your fingertips," says Christine
Dinh-Tan, a second-year MBA student.
"I feel much closer to my students. We have a little electronic community
rather than the class being a physical community," says professor David
Upton.
But Clark has grander visions than just using technology for convenience
and
connections. He is encouraging the use of desktop video, a technology
that
he says could "reinvent" Harvard's vaunted case method of teaching.
(Business case involves studying a specific situation, with students
discussing
and coming up with their own solutions.)
Upton, a professor of operations management, developed the school's first
fully computerized case study. His Pacific Dunlop China case brings to
life
the dilemmas faced by the Australian manager of a Chinese sock factory --
through video interviews, spreadsheets, multimedia "tours" of the plant
and
living quarters, and simulations of the workings of the factory. "It
makes the
situation much richer. We don't have to tell them about the situation in
a case;
we can show them," says Upton.
More than a half dozen such electronic cases have been written. That's
still a
paltry proportion of the 600 cases the school writes yearly, but Clark's
goal
is 50 to 100 electronic cases over the next few years.
David Garvin, who teaches general management, recently ran an "electronic
bulletin board" discussion for his students with 60 alumni, who ms with
"smart" lecturns that can deliver full-motion video to every student
desktop.
Some skeptics suggest that Clark's ballyhooed high-tech plunge may be
more
style than substance. "It's a visible shallow sign of change. I suspect
it won't
have a big impact in the foreseeable future," snaps one professor.
Still, Clark's championing of an electronic community at the school goes
hand
in hand with the more open culture he has fostered. While McArthur rarely
used e-mail, Clark makes a point of returning student e-mail. "The
students
have been very respectful of my time. I have not been inundated," he
says.
He has held numerous question-and-answer sessions with students. Twice a
year, he holds a campus party for staff and students, the most recent one
a
"Family Day" with pony rides and golf demonstrations.
"They're trying to be more customer-focused, trying to please the
students,"
says student Dinh-Tan.
"There's more openness and dialogue," says professor Garvin.
While McArthur ran the school with a tight circle of senior faculty and
administrators, Clark has given more budgeting and staffing autonomy to
each of 12 academic "areas." A group of 25 area heads, senior associate
deans and directors of research -- called the "Unit Planning Group" -
meets
monthly with him.
Clark is also shifting the school to a less rigid curriculum and
schedule,
changes that were first planned in the early 1990s under McArthur.
The school now offers a short-track MBA that takes 16 months instead of
two academic years. And it now admits students in January as well as
September. Previously, the school offered one monolithic MBA program,
with 800 students entering each September. Professors say the new
structure
puts students into smaller groups, allowing for more varied course work,
quicker changes and a more personal experience.
