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Recent Changes to Recent Changes to Credit Card ProcessingCredit Card Processing

The information contained herein and stated by the speaker is provided as a courtesy and is for general informational purposes only. This presentation is not intended to be a complete description of all applicable policies and procedures. The matters referenced are subject to change.  Individual circumstances may vary.  The information contained herein includes, among other things, a compilation of documents received from third parties. ABTEK shall not be responsible for any inaccurate or incomplete information.  Nothing contained in this presentation is intended to supplement, amend or modify any applicable contract, rule or regulation. 

ABTEK Financial. . . educating merchants since 1986

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Topics Impacting Credit Card ProcessingTopics Impacting Credit Card Processing

DefinitionsDefinitions

Credit card transaction flowCredit card transaction flow

Who makes money when you run a transactionWho makes money when you run a transaction

Different Pricing PlatformsDifferent Pricing Platforms

Unique Pricing in the Education EnvironmentUnique Pricing in the Education Environment

The Durbin AmendmentThe Durbin Amendment

Visa’s Response – The FANFVisa’s Response – The FANF

MasterCard’s Response – MasterCard License FeeMasterCard’s Response – MasterCard License Fee

Current Pending LegislationCurrent Pending Legislation

IRS ReportingIRS Reporting

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DefinitionsDefinitions• Interchange – A combination of a flat per transaction cost and percentage Interchange – A combination of a flat per transaction cost and percentage

of sale that goes back to issuer of card (Capital One, Citi, Chase, etc.)of sale that goes back to issuer of card (Capital One, Citi, Chase, etc.)

• Assessment – A flat percentage that goes back to the association Assessment – A flat percentage that goes back to the association (MasterCard, Visa, Discover)(MasterCard, Visa, Discover)

• Sales Discount – Percentage that goes back to processor (company you Sales Discount – Percentage that goes back to processor (company you have contract with) have contract with)

• Association – Visa / MasterCard the corporation. Association – Visa / MasterCard the corporation.

• Issuer – Bank that issues the card. Theirs is the logo next to Visa / Issuer – Bank that issues the card. Theirs is the logo next to Visa / MasterCard. They support the card and billing.MasterCard. They support the card and billing.

• Acquirer – Merchant bankAcquirer – Merchant bank

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Credit Card Transaction FlowCredit Card Transaction Flow

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Who Makes Money when you run a credit Who Makes Money when you run a credit card?card?

• Associations: Associations:

• Assessment – A flat percentage that goes back to the association.Assessment – A flat percentage that goes back to the association.

• Issuer: Issuer:

• Interchange – Variable, based on card type, how presented, how quickly settled Interchange – Variable, based on card type, how presented, how quickly settled and type of merchant.and type of merchant.

• Typically a percentage and per item fee ranging from 0.05% to 2.95% and $0.10 Typically a percentage and per item fee ranging from 0.05% to 2.95% and $0.10 to $0.22.to $0.22.

• Roughly 300 different categories.Roughly 300 different categories.

• Processor:Processor:

• Sales Discount – Depends on pricing platform.Sales Discount – Depends on pricing platform.

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Pricing PlatformsPricing Platforms

Fixed Rate: Merchant pays one flat rate based on sales.Fixed Rate: Merchant pays one flat rate based on sales.

Advantage: Know what you will pay after every sale.Advantage: Know what you will pay after every sale. Disadvantage: Does not take advantage of lower cost cards.Disadvantage: Does not take advantage of lower cost cards.

Billback /Enhanced Billback: Merchant pays a lower flat Billback /Enhanced Billback: Merchant pays a lower flat percentage, then is charged a premium for higher rate percentage, then is charged a premium for higher rate interchange categories.interchange categories.

Advantage: Blend of lower flat rate with some premium up Advantage: Blend of lower flat rate with some premium up charges.charges.

Disadvantage: Does not take advantage of lower cost cards.Disadvantage: Does not take advantage of lower cost cards.

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Pricing Platforms (continued)Pricing Platforms (continued)

Tiered Pricing: Merchant pays a flat rate based on qualification Tiered Pricing: Merchant pays a flat rate based on qualification level – Usually three tiers (Qualified, Mid Qualified, Non Qualified).level – Usually three tiers (Qualified, Mid Qualified, Non Qualified).

Advantage: Ease of understanding – not many categories to learn.Advantage: Ease of understanding – not many categories to learn. Disadvantage: Although it indicates a low qualified rate, merchant ends Disadvantage: Although it indicates a low qualified rate, merchant ends

up overpaying on non qualified and extremely low interchange up overpaying on non qualified and extremely low interchange categories to make up for it. Also, processor controls which cards hit categories to make up for it. Also, processor controls which cards hit each category.each category.

Pass Through /Interchange Plus: Merchant pays the assessment, Pass Through /Interchange Plus: Merchant pays the assessment, appropriate interchange and sales discount that are all broken out. appropriate interchange and sales discount that are all broken out.

Advantage: Merchant takes advantage of all possible discounts.Advantage: Merchant takes advantage of all possible discounts. Disadvantage: Can be confusing. THREE HUNDRED CATAGORIES!!Disadvantage: Can be confusing. THREE HUNDRED CATAGORIES!!

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Unique Pricing in a University SettingUnique Pricing in a University Setting

Interchange categories designed to assist Interchange categories designed to assist universitiesuniversities

Emerging MarketEmerging Market Visa Credit –Visa Credit – 1.43%+ $0.051.43%+ $0.05

Consumer Credit, Rewards, SignatureConsumer Credit, Rewards, Signature Swiped and keyed transactionsSwiped and keyed transactions

Visa Debit -Visa Debit - 0.65% + $0.150.65% + $0.15

MasterCard Debit -MasterCard Debit - 0.80% +$0.250.80% +$0.25

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Unique Pricing in a University SettingUnique Pricing in a University Setting

Most common cards seen in a university setting.Most common cards seen in a university setting.

VS EmergingMarket

VS RegulatedDebit

MC EmergingMarket Debit

MC Reg Debit

MC World M1

MC Enh M1

Other

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Durbin AmendmentDurbin AmendmentWhy was it necessary?Why was it necessary?

Dodd–Frank Wall Street Reform and Consumer Protection Act of Dodd–Frank Wall Street Reform and Consumer Protection Act of

2010.2010.

Interchange was initially meant to cover fraud, transaction costs Interchange was initially meant to cover fraud, transaction costs

and other overhead.and other overhead.

Due to lack of negotiating power by merchants it has become a Due to lack of negotiating power by merchants it has become a

major revenue stream for the banking industry.major revenue stream for the banking industry.

On an average $40 transaction, the cost has gone from $.50 in 2000 On an average $40 transaction, the cost has gone from $.50 in 2000

to $1.00 in 2009to $1.00 in 2009

Impacts institutions with $10 billion in assets or more.Impacts institutions with $10 billion in assets or more.

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Durbin AmendmentDurbin AmendmentThe SpecificsThe Specifics

Goals – Introduce competition in debit processing network and cap swipe Goals – Introduce competition in debit processing network and cap swipe

fees.fees.

Drastically lowers swiped fees on debit cards.Drastically lowers swiped fees on debit cards.

Old rate - 0.95% swiped / 1.60% keyed for VisaOld rate - 0.95% swiped / 1.60% keyed for Visa

New rate – 0.05% keyed / swipedNew rate – 0.05% keyed / swiped

Allows merchants to impose $10 minimum transaction requirement.Allows merchants to impose $10 minimum transaction requirement.

Allows merchants to give tiered cash discounts.Allows merchants to give tiered cash discounts.

Does not attack the problem with credit cards only debit.Does not attack the problem with credit cards only debit.

Federal Reserve states reducing income of large banks $8.06 billion Federal Reserve states reducing income of large banks $8.06 billion

annually.annually.

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Durbin AmendmentDurbin AmendmentThe banking industry’s responseThe banking industry’s response

Cost to consumers:Cost to consumers:

Banks are making up for lost revenue stream by removing Banks are making up for lost revenue stream by removing

free/low cost checking products.free/low cost checking products.

Bank of America attempted $5.00 monthly debit fee. Bank of America attempted $5.00 monthly debit fee.

Multiple banks trending toward charging for bill pay services.Multiple banks trending toward charging for bill pay services.

Cost to Merchants:Cost to Merchants:

Banks are hitting back at merchants through new fees (Visa Banks are hitting back at merchants through new fees (Visa

FANF and MC License Fee).FANF and MC License Fee).

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Visa’s Fixed Acquirers' Network FeeVisa’s Fixed Acquirers' Network Fee Effective April 01, 2012Effective April 01, 2012

Department of Justice Antitrust Division opens Department of Justice Antitrust Division opens investigation on March 13, 2012investigation on March 13, 2012

Card present merchants – based on number of Card present merchants – based on number of locations.locations.

Card not present merchants – based on gross Card not present merchants – based on gross Visa processing volume.Visa processing volume.

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Fixed Acquirer's Network FeeFixed Acquirer's Network FeeBilling TableBilling Table

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MasterCard’s License FeeMasterCard’s License Fee Based on overall volume of the previous year.Based on overall volume of the previous year. Two phased processTwo phased process

July, 2012 – December, 2012 – 0.0076%July, 2012 – December, 2012 – 0.0076% January, 2013 – 0.0038%January, 2013 – 0.0038%

In an attempt to drive business to PIN debit, PIN In an attempt to drive business to PIN debit, PIN transactions will be excluded.transactions will be excluded.

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Pending LegislationPending Legislation Seven years in the making.Seven years in the making. $7.5 billion settlement from card networks to merchants and $7.5 billion settlement from card networks to merchants and

potentially allowing merchants to surcharge.potentially allowing merchants to surcharge. Merchants must release card industry from future litigation Merchants must release card industry from future litigation

regarding interchange.regarding interchange. Opposition to settlementOpposition to settlement

National Association of Convenience StoresNational Association of Convenience Stores Restaurant AssociationRestaurant Association National Retail FederationNational Retail Federation Wal-Mart and TargetWal-Mart and Target

The hearing has been pushed back until at least late The hearing has been pushed back until at least late JanuaryJanuary..

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IRS Reporting RequirementsIRS Reporting Requirements Housing and Economic Recovery Act of 2008Housing and Economic Recovery Act of 2008

The goal is to ensure that all income is reported.The goal is to ensure that all income is reported.

Originally intended to roll out January, 2012, it has now been pushed back Originally intended to roll out January, 2012, it has now been pushed back

until January, 2013.until January, 2013.

Process to verify TIN/Legal name is electronic file matchProcess to verify TIN/Legal name is electronic file match

Initial test files resulted in only 25% matches.Initial test files resulted in only 25% matches.

Non compliance penalty will be 28% of gross sales.Non compliance penalty will be 28% of gross sales.

You will not get that money until you file your taxes.You will not get that money until you file your taxes.

Please confirm with your processor that all merchant accounts are Please confirm with your processor that all merchant accounts are

compliant.compliant.

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IRS Reporting RequirementsIRS Reporting Requirements Housing and Economic Recovery Act of 2008Housing and Economic Recovery Act of 2008

The goal is to ensure that all income is reported.The goal is to ensure that all income is reported.

Originally intended to roll out January, 2012, it has now been pushed back Originally intended to roll out January, 2012, it has now been pushed back

until January, 2013.until January, 2013.

Process to verify TIN/Legal name is electronic file matchProcess to verify TIN/Legal name is electronic file match

Initial test files resulted in only 25% matches.Initial test files resulted in only 25% matches.

Non compliance penalty will be 28% of gross sales.Non compliance penalty will be 28% of gross sales.

You will not get that money until you file your taxes.You will not get that money until you file your taxes.

Please confirm with your processor that all merchant accounts are Please confirm with your processor that all merchant accounts are

compliant.compliant.

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Reminder: Get PCI CompliantReminder: Get PCI CompliantRecent University Data Theft HeadlinesRecent University Data Theft Headlines

Cornell University ( November 2, 2012)Cornell University ( November 2, 2012) 2,000 people associated with university resulting from 2,000 people associated with university resulting from

unintended disclosure. unintended disclosure.

University of Georgia (October 16, 2012)University of Georgia (October 16, 2012) 8,500 current and former students resulting from a hack.8,500 current and former students resulting from a hack.

Northwest Florida State University (October 10, 2012)Northwest Florida State University (October 10, 2012) 279,000 students resulting from hack. 279,000 students resulting from hack.

Colorado State University (August 21, 2012)Colorado State University (August 21, 2012) 19,000 students resulting from unintended disclosure.19,000 students resulting from unintended disclosure.

Yale University (July 19, 2012)Yale University (July 19, 2012) 1,200 students and staff resulting from hack.1,200 students and staff resulting from hack.

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Additional Resources

www.abtekusa.com

http://www.gao.gov/new.items/d1045.pdfhttp://www.gao.gov/new.items/d1045.pdf

http://www.mastercard.us/merchants/support/interchange-rates.htmlhttp://www.mastercard.us/merchants/support/interchange-rates.html

http://usa.visa.com/merchants/operations/interchange_rates.htmlhttp://usa.visa.com/merchants/operations/interchange_rates.html

http://www.discovernetwork.com/http://www.discovernetwork.com/

http://www.whateverymerchantshouldknow.comhttp://www.whateverymerchantshouldknow.com

http://www.americanbanker.com/bankthink/Visa-Fixed-Acquirer-Network-http://www.americanbanker.com/bankthink/Visa-Fixed-Acquirer-Network-

Fee-antitrust-1050440-1.htmlFee-antitrust-1050440-1.html

Copyright 2009, First Data Corporation. All Rights Reserved.

Recent Changes to Credit Card Recent Changes to Credit Card ProcessingProcessing

Thank You!Thank You!ABTEK Financial. . . educating merchants since 1986

Arthur BerryABTEK Financial(800) 544-9145arthur@abtekusa.com