Payments IQ Bootcamp #3 - Understanding Interchange, Opening Visa / MasterCard’s Kimono

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Brion Bonkowski Managing Director June 20, 2013 Boot Camp Week 3 Improve your Payment IQ Understanding Interchange – Opening Visa & MasterCard’s Kimono

description

In this webinar, ROI Payments provides an in depth education on Interchange -- the primary cost of transacting credit and debit card payments. Participants will increase their Payments IQ by understanding how interchange works, the primary costs and how to analyze and optimize Interchange fees you're being charged as a business processing electronic payments. Additional topics include interchange differences by region and future trends to watch for in the payment landscape.

Transcript of Payments IQ Bootcamp #3 - Understanding Interchange, Opening Visa / MasterCard’s Kimono

Page 1: Payments IQ Bootcamp #3 - Understanding Interchange, Opening Visa / MasterCard’s Kimono

Brion BonkowskiManaging Director

June 20, 2013

Boot Camp Week 3Improve your Payment IQ

Understanding Interchange – Opening Visa & MasterCard’s Kimono

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Optimizing Interchange for your Business

Technology/ Gateway Considerations

Trends

Wrap-up / Q&A

Introduction

Who is Interested in Payments?

Ecosystem Recap w/ Terms & Terminology

Interchange Explained

Network & Gateway Costs

Industry Pricing Schemes

Agenda

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My Story – Moving into the Payment Space

Who is ROI Payments?

Why a Boot Camp Series?

Introduction

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Who? Roles including Finance, IT, Sales, Marketing, and Treasury are all involved in the payment chain

at some point It is rare when someone is specifically assigned to payments, as such many people find

themselves unprepared to navigate the payment ecosystem ROI Payment Webinars attract

A cross section of industries, including state/local government, non-profit organizations, eCommerce, SaaS and payment industry insiders

Senior Finance folks (CFOs, controllers, etc), technology execs, operations managers and sales/marketing team members

Why? People become involved in payment projects and need a holistic overview of the industry so

that they can dive deep into their project, work, etc. Wikipedia and Google searches don’t provide a comprehensive understanding

Result? Everybody can benefit from an increased “Payment IQ” Comprehensive understanding helps in today’s environment (rapidly evolving)

Who is Interested in Payments

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Ecosystem Recap

Customer

Cardholder Merchant

TechnologyIssuer Acquirer

Inte

rchange

Processor

Schemes

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Let’s Do a Deep Dive into Interchange

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A fee paid between banks for the acceptance of card based transactions

Usually it is a fee that a merchant's bank (the "acquiring bank") pays a customer's bank (the "issuing bank")

Fees are set by the credit card schemes

Specific interchange rates are dependent on: Region Type of card issued Type & Size of merchant Type of transaction

Interchange Defined

1; 87%

2; 9%

3; 4%

1 2 3

Typical Fee Breakdown

***2013 Interchange Rates Available Online:http://usa.visa.com/download/merchants/visa-usa-interchange-reimbursement-fees-april2013.pdfhttp://www.mastercard.com/us/wce/PDF/MasterCard%20Interchange%20Rates%20and%20Criteria%20-%20April%202008.pdf

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United StatesHighest and most complex

interchange fees in the worldUnder scrutiny by legislators and

orgs like the Merchant Payments Coalition

Average interchange rate is 1.79%

EuropeRegulated by the European

CommissionBroken down into European

Economic Areas (EEAs) and Non-EEAs (two different schedules)

Alternative payments have sprouted as a result of legislation

Interchange by Region

AustraliaReserve Bank of Australia

legislated to lower interchange fees from .95% to .50%

Significantly less rewards cards- nearly all debit

New ZealandNZ Commerce Commission is

trying to pass similar lawsCurrent interchange rate for NZ

is 1.8%

Asia, Africa, South America= Developing Markets

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Assessment - 0.11% - applies to ALL gross volume

APF- Acquirer Processing Fee (called NABU with MC): $0.0195/trx for Credit and $0.0155 for debit (in the US)

TIF- Transaction Integrity Fee: $0.10/trx ($0.055 for MC) that does not meet CPS requirements

International Service/Acquirer Assessment Fee (called a cross border fee by MC)- 0.40% (0.80% for foreign settlement)- applies to US acquired transactions by non US issued cards

Additional Network CostsTier Volume Fee

1 < $50 $2.00

2 $50 – $199 $2.90

3 $200 – $999 $5.00

4 $1,000 – $3,999

$7.00

5 $4,000 – $7,999

$9.00

6 $8,000 – $39,999

$15.00

7 $40,000 – $199,999

$45.00

8 $200,000 – $799,999

$120.00

9 $800,000 – $1,999,999

$350.00

10 $2,000,000 – $3,999,999

$700.00

11 $4,000,000 – $7,999,999

$1,500.00

12 $8,000,000 – $19,999,999

$3,500.00

13 $20,000,000 – $39,999,999

$7,000.00

14 $40,000,000 – $79,999,999

$15,000.00

15 $80,000,000 – $399,999,999

$30,000.00

16 >= $400,000,000

$40,000.00

FANF- Fixed Acquirer Network Fee: Varies based on volume- eCommerce monthly fees to the right as a sample

Settlement Network Access Fee- $0.0023/trx for all settled transactions (also called Visa Base II fee)

AVS (Address Verification)- also called “Zero Dollar Verification Fee” - $0.025/ea

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Statement Analysis- Sample

MasterCard Business & Purchase Cards

MasterCard International Cards

Visa CNP vs CP

Visa Regulated Debit and EIRF

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Good exercise to do in a business on a quarterly basis- and compare to previous quarters

Ongoing Payment Analysis

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Hotels/ Car Rental/ Restaurant: 1.54%-2.40% (depending on type of card)+ $0.10

Gas Stations: 1.15% + $0.25 ($1.10 cap)

Non Profits: 1.35% + $0.05

Utilities: $0.75/ea

Industry Pricing Schemes

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Downgrades – when a transaction does not qualify for the best (lowest) rate because it does not meet certain criteria. Primary reasons for downgrades: No AVS on key entered Visa cards No sales tax breakout Authorization and settlement variance greater than 20% for Visa (25% for MC) Delay in settlement

Items to watch to ensure transactions are not downgraded: Address Verification System (AVS) request Shipping product within 7-days of the authorization The original AUTH ID from your authorization must be included with the settlement

transaction provided The order number or invoice number in the settlement transaction must be provided The transaction settlement must be no longer than 7-days after the authorization

date The transaction settlement must be no longer than 3-days after the completion of

the sale

Optimizing Interchange for your Business

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Level 1, 2, and 3 Data: Added data elements for B2B and B2G transactions such as invoice # and tax identifier – can serve to lower interchange rates.

Some, not all gateways/applications are certified to pass level 2 and level 3 data (purchasing cards)

We recommend ALWAYS passing level 2 data through the gateway in an effort to qualify for the best interchange rate

Level 3 data is specific to government transactions

Ongoing maintenance and monitoring through analytics and downgrade reports

Technology Considerations

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Overall- interchange is increasing and has since it’s inception

Regulators have been successful in lowering interchange for certain types of transactions- Reference Durbin Amendment- debit cards lowered interchange fee to .05% and $0.20 (previously 1.80% and $0.10)

Increased competition- alternative payments, mobile, carrier billing, closed loop networks – all put pressure on Schemes

Increased litigation between the schemes, merchant groups, and regulators

Trends

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Contact Information:Brion [email protected] x: 2134

Questions & Contact Info