Allen Wyatt at Vital News just went through more than 8 days of hell with his merchant account processing online payments for ebooks he's selling -- and he gave me permission to share some details with you.

- If you have a merchant account through Retriever (who are one of the biggest processors out there), be aware that they have told Allen "accounts through them can only be issued for physical products." Which means online subscriptions, PDFs, ebooks, ASPs, etc is verboten.

Allen's initial application to them more than four years ago said he'd be selling downloads online, but somehow no one at Retriever noticed. Now that they have, they've cut his account off extremely abruptly.

Until a couple of months ago, we had a Retriever account too - so this makes my blood run cold. It could have happened to us....

- Someone using a series of IP addresses starting with the numbers "202" (such as 202.81.61.18) has been submitting large quantities (500 per day or so) of fraudulent orders on Allen's site -- and other etailers I know say it's happened to them too from the same IP address block.

Luckily for Allen, Authorize.Net, who he uses for online processing (in conjunction with Retriever), caught all the fraudulent charges and declined them. Their fraud department was very understanding and did not think less of Allen for being the target of a scam artist.

- Unluckily for Allen, Retriever didn't catch all the fraudulent charges and processed some of them - which tied up funds on the poor (innocent) card owner's account. Retriever's fraud dept also definitely took the view that Allen was guilty-until-proven- innocent of causing the fraud, despite his long-term account with them. So he had to go through 8 days of hassling to get the cash from his legitimate charges, which they apparently held onto as a punishment.

- Allen's advice (aside from avoid Retriever), "First, if you are being hit by these Indonesian fraud folks, don't be passive--be proactive. Call not just your gateway (Authorize.Net), but call your CC processor, reseller, or bank and start screaming. All the time your decline-to-approval ratio is going up, flags are going up at the processor and you increase your likelihood of being shut down.

Second, don't assume that you can sell downloadable product just because your reseller tells you that you can. Get it in writing.

Third, consider not putting all your eggs in one basket. You might consider multiple credit card merchant accounts. That way, if one of the accounts is shut down through no fault of yours, your business doesn't get shut down at the same time.