An Education in Merchant Processing

Transcription

1 An Education in Merchant Processing Presented by: Michael Mintz COO - AMG Payment Solutions Today s Agenda Introduction and Background Important Industry Terms The Electronic Payment Process Interchange The Pure Facts Common Pricing Strategies Pricing Example Keeping Your Processing Costs Down What To Be Aware of When Choosing a Merchant Processor Parking Industry Best Practices PCI Overview Financial Reform Bill / Durbin Amendment What is at Stake Q&A Introduction and Background Michael Mintz Partner / COO at AMG Payment Solutions 16 years with Deloitte & Touche LLP (New York) Opportunity to bring a much needed level of INTEGRITY, TRUST AND TRANSPARENCY to merchant processing Trusted advisor relationships and educating the merchant Educated merchant = Better pricing = Cost savings

2 Important Industry Terms Card Association / Brands -Visa, MasterCard, American Express, Discover, Diner s Club and JCB Acquiring bank(acquirer orprocessor) Issuing bank (or issuer) Merchant account Payment gateway Electronic Payment Process Parking Station / Swipe Terminal / Online / Mail / Phone Interchange Category Determined / Next Day Funding Payment Gateway / Merchant Account Approval in Seconds / Funds Put on Reserve Interchange The Pure Facts Interchange fee -fee paid to Issuing bank for participating in the Visa / MasterCard network. Merchant pays all interchange fees Interchange rates and per transaction fees set by Visa / MasterCard Reviewed 2x a year (April and October) The LARGEST fee component of accepting credit cards Interchange pricing structure Card brand (Visa vs MasterCard) Type of credit or debit card Type and size of the accepting merchant Type of transaction (swipe or card not present) ALL MERCHANTS pay Interchange fees, regardless of their size

3 Interchange Pricing The Pure Facts (cont d) RISK based pricing -Debit less risky (lower cost) / Credit more risk (higher cost) Credit Cards Merchant pays for REWARDS PROGRAMS Over 300 Visa / MasterCard Interchange Categories Dues and Assessments (Applicable to ALL transactions) Visa and MasterCard Assessment 0.11% Visa Network Fee - $ (per transaction) MasterCard Network Fee - $ (per transaction) International / Cross Border Fees (when applicable) Visa 0.40% (International Service Assessment) plus 0.45%(International Acquirer) MasterCard 0.40%(Cross Border Assessment) Common Pricing Strategies Interchange Fee is the TRUE COSTof processing Merchant NEEDS to know how much above interchange they are paying Not always clear / made more complicated by the processor Unreadable monthly statements The less the merchant knows = the more the processor makes!! 3 Main Pricing Strategies Fixed Rate Pricing Multi Tier Pricing Interchange Pass Through Pricing Fixed Rate Pricing ONE LOW RATE (ie: 1.50%) Very attractive Be Careful All transactions are applied 1.50% on the dollar volume of the transaction Downgrades will ALWAYS apply Downgrades = an additional % charged when the card used by the customer has a higher interchange rate than the low fixed rate. An additional percentage is also added on as profit to the processor. 1.50% becomes 3.00% with a 1.50% downgrade Downgrade information is NEVER clear on merchant monthly statement

4 Most common pricing Multi Tier Pricing Easier to understand but Be Careful Hundreds of interchange categories are merged into two or three buckets Merchant is never told what bucket an interchange category falls into. Three Tier Qualified Rate (1.80%) Mid Qualified Rate (2.20%) Non Qualified Rate (3.20%) Multi Tier Pricing (cont d) Rate set by processor for each bucket Cards grouped into each bucket are also set by processor No card type in a bucket will have an interchange rate higher than the rate set by the processor. Processors, NEVER LOSE MONEY! Bucket rate MINUS True Interchange Rate is ALL PROFIT to processor. Interchange Pass Through Pricing TOTALLY TRANSPARENT PRICING Interchange cost is passed through to the merchant Processor adds their margin on top of interchange cost Margin is fully disclosed to merchant Same margin on EACH AND EVERYtransaction regardless of the type of card used for payment A level of trust and integrity you would expect from your service provider

5 Pricing Example Transaction Amount = $100 Card Type = Visa Signature Preferred Retail Interchange Rates Discount Rate = 2.10% Per Item Fee = $0.10 Cost Comparison to Follow Fixed Rate Three Tier Interchange plus Fixed Rate Discretionary Rate Pricing Example (cont d) Fixed Rate Three Tier Interchange Plus 1.50% 1.00% Qualified Rate Mid Qual Rate Non Qual Rate 1.80% 2.20% 3.20% Margin over Interchange Per Trans over Interchange Dues & Assessments Network Fee Cost to Merchant Effective Rate Profit to Processor 0.11% $ $ % 0.77% $ % 0.87% 0.20% $ % $ $ % 0.30% Keeping Your Processing Costs Down Correct SIC code Visa small ticket debit and credit rates / MasterCard small ticket debit rates (transactions less than $15) Swipe whenever possible If card is present, but unable to swipe, obtain cvv2 or security number / customer s zip code and manually imprint the card If card not present (mail or phone orders) obtain cvv2 / customer house number and zip code. Also input invoice number Run your batch EVERY DAY Understand your merchant processing statement If unclear, ask your provider If they are not willing to explain, they are hiding something

6 What To Be Aware of When Choosing a Merchant Processor Early termination fee? Monthly or annual minimum? Offered a Terminal Lease or Rental? Free terminal? Offered INTERCHANGE PLUS pricing? 24/7 live support? Referrals? Who is actual processor and banking organization? Parking Industry Best Practices Parking SIC code to obtain small ticket pricing for Visa Debit and Credit and MasterCard Debit Visa Credit = 1.65% / 4 cents Visa Debit = 1.55% / 4 cents MasterCard Debit = 1.55% / 4 cents Dial back up to primary IP (internet) communication It s all about the per transaction fee Online reporting system from processor Check Processing options to reduce expenses RDC (remote deposit capture) Convenience / automation / reduce bank fees / eliminate copying Increase staff productivity Work with someone you trust PCI Overview The Payment Card Industry (PCI) Data Security Standard(DSS) worldwide information security standard defined by the Payment Card Industry Security Standards Council. Help payment card industry organizations prevent credit card fraud through increased data controls and its exposure to compromise. Standard applies to ALL organizations that hold, process, or exchange cardholder information from any card branded Regardless of size, organization compliance must be assessed ANNUALLY Large volumes of transactions - Qualified Security Assessor (QSA) Smaller volumes of transactions - Self-Assessment Questionnaire (SAQ)

7 PCI Overview (cont d) 6 Objectives and 12 Requirements of PCI DSS Go to the Learning Center for more detail Do not neglect PCI compliance requirements Non compliance fee will be assessed ($19.95 per month) Processor will have an agreement with 3 rd party provider Certification process should take no more than 30 minutes PCI Overview (cont d) Vendor Requirements (PA-DSS) Payment Application Data Security Standard Payment applications should facilitate merchants PCI DSS compliance Implementation guide specific to each application Educate customers / resellers / integrators Ensure applications meet PA-DSS requirements and pass review PA-QSA (Qualified Security Assessor) Qualified and trained by PCI Performs assessment, provides opinion and documentation regarding vendor compliance Submits attestation of validation signed by PA-QSA and vendor Financial Reform Bill Durbin Amendment Federal Reserve will regulate interchange fees for debit cards to ensure they are reasonable and proportional. Does not restrict debit card network fees. Prepaid Cards are exempt. Discounts for payment method (cash, check, debit cards, credit cards and prepaid cards) but NOTbe permitted to offer discounts for payment network brands Apply minimum dollar amounts (no greater than $10.00) for credit card usage. Currently not allowed. Issuers and networks cannot limit debit card transactions to only one network and cannot restrict a merchant s ability to route transactions to any payment card network that processes their transactions

8 What is at Stake Interchange Fees Paid by Merchants to Large Banks Maximum Potential Amount Affected by Durbin Amendment Fed drops fees by 20% Fed drops fees by 50% Fed drops fees by 75% ** Current average debit fee - $0.44 $23.6 billion $18.8 billion Interchange fees decrease by $3.8 billion Decrease per card: $7.20 Interchange fees decrease by $9.4 billion Decrease per card: $18.12 Interchange fees decrease by $14.1 billion Decrease per card: $27.19 Proposed debit fee cap - $0.12 (73% decline) Sources: The Nilson Report, annual reports from Visa and MasterCard, information from Visa / MasterCard assessments What is at Stake (cont d) New economics will lead to: Fewer rewards programs More consumer fees (checking, credit cards, etc) Benefit to merchant / lower cost to accept debit cards Higher costs to ultimate consumer Big $$ at stake for large operators Small ticket transaction cost as a percentage of sale amount significantly reduced Intense lobbying from both sides (Retail / Banks) Proposed July 2011 implementation date in question Q&A

9 Contact Information Michael Mintz Partner / COO AMG Payment Solutions Office Cell Fax mmintz@amgpay.com AMG Payment Solutions