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.