What are the total costs of using Paypal to accept payments vs a regular merchant account and with another gateway, such CenPOS? Paypal is just another bundled pricing plan which always costs more. ( I still recommend Paypal for small businesses as an easy way to get started accepting credit cards if in a card not present environment. ) All credit card processing fees are subject to interchange rates, but in the case of Paypal, merchants see only one rate. Paypal has calculated an average cost of all interchange fees that will be incurred and then added a profit margin on top to come up with their simplified merchant rate structure. It’s easy for merchants to understand, but it’s not the least cost.

On the surface, it looks pretty straightforward. Just check your business volume and then see which rate you’ll fall under.

$.30 per transaction is particularly hefty if you have a low average transaction, such an online donations.

Here’s 5 Ways a Regular Merchant Accounts cost less, particularly for mid to large businesses, or those processing at least $1 million annually.

1. Fee refunds: With Paypal, the Fixed Fee portion of the Transaction Fee will be deducted from your Account at the time of the refund, in addition to the full payment amount that is refunded to the buyer. With the pricing above, the refund is $.30.  You don’t get back the 2.4% fee. For a regular merchant account, the merchant can have interchange fees refunded ( though not all merchant accounts are set up that way).
2. Debit: As a percentage, Regulated debit is now .05%. Unless you’re strictly B2B, you’re average effective rate will be significantly lower with a regular merchant account, since as much as 30% of  your transactions are likely to qualify for this rate. You’ll never exactly what your costs would be to compare outside of Paypal because there is no breakdown of what types of cards your customers presented for payment.
3. Cross Border or Foreign Card Fees: Paypal charges a 1% surcharge for cards issued outside the US, but the most credit card processors will simply pass through the actual fees which ranges from .40% to .55% depending a the card.
4. Paypal nets fees daily vs monthly. This represents lost opportunity for working capital.
5. Paypal Recurring Billing Monthly Fee: $29.95. This is a free service with many other solutions.

See more Paypal blog articles, such as When should I convert from Paypal to a merchant account?

This is Part 1. At a later date I’ll compare the gateway fees and benefits for Payflow Pro.

Effective November 1st 2011, the MasterCard Processing Integrity fee will increase by $0.01 to an amount of $0.055. Unless your merchant account is on a special type of bundled pricing, all merchants will see this on their November 2011 merchant statement, delivered in early December.

WHAT IS THE FEE FOR? This fee is applied to authorized transactions that are not followed by a matching MasterCard cleared (settled) transaction (or in the case of a canceled transaction, not properly reversed). The fee can be avoided by clearing (settling) your transactions within 120 days. If an authorization is not needed, the authorization must be electronically reversed within 24 hours for face to face authorizations and reversed within 72 hours for Card absent authorizations.

WHO PAYS IT? All merchants pay the fee if triggered by the fee rule.

HOW WILL I KNOW IF I RECEIVE THE CHARGE? All merchants on “interchange pass through” or “interchange plus” pricing will see these charges listed as a separate line item, when the fee applies. If you are not on this type of pricing, then it’s up to the processor how your fees are bundled, though in most cases, I think merchants will see this fee regardless of the type of pricing.

HOW CAN I CANCEL OR REVERSE AN AUTHORIZATION AND AVOID THE FEE? This varies by many factors, including how you are processing.

• Yahoo stores now have a Reverse Authorization button on the Order Details page.
• Authorize.net has issued an API. Shopping cart engines are integrating the API, but it is not yet widespread.
• Check with your processor or POS software provider.

Can you give me an example of when this fee would be applied? An ecommerce store receives an order for an item. The item is backordered and will be back in stock in 3 weeks. The merchant does not want to cancel the order and does nothing. The authorization will be automatically dropped because it exceeds the 7 calendar day maximum. The merchant will also incur the MasterCard Processing Integrity fee.

The fee does NOT apply to:

MCCs 3351-3441 (Car Rental Agencies)
MCCs 3501-3999 (Lodging-Hotels, Motels, Resorts)
MCC 4411 (Cruise Lines)
MCC 7011 (Lodging-Hotels, Motels, Resorts –not elsewhere classified)
MCC 7512 (Car Rental Agencies – not elsewhere classified)

NOTE: The penalty for failure to reverse authorization is $.055 but the merchant per transaction fee is likely even higher. Unfortunately merchants will be hit with two fees in order to reverse an authorization for the benefit of the customer. Here’s a better idea to improve consumer satisfaction. Why not require card issuing banks to fund  consumer accounts faster when merchants issue refunds?  The money comes out of the merchant account per the merchant termsn, usually upon settlement, but the consumer doesn’t see there money usually for 3-5 days, sometimes longer.

Which merchants will receive the new low debit fee rates? This video provides a detailed look at rate differences and how to examine your merchant agreement schedule A and statement. While all merchants qualify for them, only a fraction will actually have debit discounts passed down from their processor. Will you be one of them? Pull out your merchant statement, then watch the video so you can compare data.

On October 1, 2011, new debit interchange rates go into effect as a result of the Durbin Amendment, part of the Dodd-Frank Wall Street Reform Act.

The semi-annual Visa and MasterCard interchange update for October 2011 is coming soon. Merchants can expect debit interchange modifications in support of the Dodd-Frank Wall Street Reform and Consumer Protection Act in addition to other interchange changes.

As a review, there will be two types of debit interchange- regulated and non- regulated depending on whether the card issuing bank is exempt or not. A Card Issuing Bank is considered nonexempt from the regulated debit interchange rates when the banks assets, together with its affiliates, exceed $10 billion.  Under the law, the maximum interchange fee that a non exempt card issuer may receive for an electronic debit transaction (signature and pin debit) will be $0.21 per transaction, plus 5 basis points. This provision is effective on October 1, 2011. That is not the maximum merchants will pay to processors, just the maximum the card issuing bank can receive.

The Board also approved an additional $0.01 adjustment towards the issuer’s debit card interchange fee if the issuer develops and implements policies and procedures designed to achieve the fraud-prevention standards outlined in the interim final rule, which is still open for public comment until September 30. Banks will likely quickly qualify for the extra $.01 as they try to eek out as much as they can under the new regulation.

For merchants to receive the new non-exempt debit rate:

1. The merchant must have a price plan ( schedule A) with pass through interchange indicated.

OR

2. The merchant processor must pass on the savings.

If you’re not sure whether you can qualify for new interchange rates, contact us for a free consultation. We’ll need to see a merchant statement and a copy of your contract pricing, usually with “Schedule A”  at the top. A proposal you received is not adequate for review.

I just received a robo call pitching how due to changes under the Durbin Amendment I could now save money and process direct from Visa & MasterCard, not from a broker. Most deposits are the next day.

I couldn’t resist. I pressed 1 to speak to an operator.  A nice man came on the line, whom I’ll call Eric,  and said “We have new national pricing” and I can  “lower your rate to .5% and save you $1000′s per month.” That was in Eric’s first sentence. I asked and Eric said he was with North American Bancard. The phone number and ID matched up to the company.

Just for the record, North American Bancard is a registered Independent Sales Organization/Merchant Service Provider for HSBC Bank USA,National Association, Buffalo, NY and Wells Fargo Bank, N.A.,Walnut Creek, CA.

I’m not sure what the difference between a broker and an ISO is. Individuals cannot decide they want to be in the merchant services business and then just start accepting contracts. Everyone has to be part of a registered company. But let’s leave that aside.

The biggest savings potential for merchants under the Durbin Amendment is via debit. Merchants can achieve maximum savings only under these conditions:

1. They have a “pass through interchange” price plan that enables the merchant to fully take advantage of the new debit fees.
2. Their processor must pass the savings on to them. Some will, some won’t. It’s entirely up to the processor.
3. The card is swiped- the magnetic data must be read, and the consumer can sign or enter their pin.

Don’t be suckered by misleading sales pitches. What rate was Eric talking about? Effective rate? Rate above interchange? Rate for signature debit?  if you want to save money under the new rules, you need an expert not only in interchange, but in help to convert more sales to lower cost debit. That’s where we come in.

The new cap on debit fees card issuers may charge is $.21 and 5 basis points according to the Dodd–Frank Wall Street Reform and Consumer Protection Act. Rather than reducing the costs merchants end up paying, the status quo will remain for most merchants, and there even is room to increase rates. By requiring that all providers allow at least two debit network options, the hope is that competition will keep prices down.

Examples of MasterCard interchange rates for signature debit effective April 2011:

Consumer Debit Full UCAF .90% + USD 0.25
Consumer Debit Emerging Markets 0.80% + USD 0.25
Consumer Debit Standard 1.90% + USD 0.25

For the best signature debit the customer is expected to be present, swipe their card, and sign the sales receipt. Debit standard results when the transaction did not meet all the criteria for the lowest rate set by the card issuer. This ‘downgrade’ could be for many reasons, including cashier error.

Pin Debit rates vary, but the most common networks are charging 95 basis points, or .95% and $.20 per transaction. In these transactions, the customer is present, swipes their card, and enters their pin number into the terminal or pinpad.

What will merchants pay under the new regulation? To be eligible for the new rates:
- The debit card must be issued by a bank, together with its affiliates, that has assets of less than $10 billion. A rough estimate is 80% of cards in the marketplace today qualify.
- The debit card must be swiped.
- A signature is required.
- All other criteria for the lowest rate would still apply such as settling the transaction within 24 hours, and authorization and capture must be for the same amount.
- The merchant must have true pass through interchange pricing per schedule A of their merchant agreement.

In addition to lower interchange, the Frank Dodd Act also requires that when a bank issues a credit card, it must have at least two network symbols on the back so that debits can process on two different networks. Theoretically, this is so merchants can benefit from competition and have a lower cost pin debit option. How does the merchant get the lower cost fee if there are two debit networks? The merchant must have these debit card processing technology capabilities:

– It must recognize the type of card when swiped as debit or credit.
– It must interact with a smart system that can identify the two competing network costs.
– It must determine which one will cost the merchant less.
– It must route transaction to the lower cost network.

This cannot be done by the processor. It cannot be done with dial up machines. It cannot be done with over 95% of the equipment on the market today.

It will require a host based solution that can dynamically identify the data being sent, know the costs for every option for the transaction and intelligently make decisions for the merchant. Oh, and make it quick because customers don’t want to wait. This may sound simple, but imagine having to create a database with the identity of every bank card issued (not the individual card owner, but the card issuer). How readily is that information available? It’s not. That’s a primary reason why solutions are not prevalent in the marketplace.

To manage the cost of debit processing, merchants will need to upgrade their technology. There are limited options on the market today. At 3D Merchant Services, we’ve offered customers a solution for several years that accomplishes all the tasks needed. While other vendors will enter the market, CenPOS technology is proven in the marketplace and extremely robust with benefits beyond lowest cost routing. Merchant fees are on a transaction basis.

Here’s how we can empower merchants to make risk and financial based decisions automatically:
- IN addition to meeting all the criteria above, merchants can:
- create rules to send debit transactions to signature

The regulation governs what the card issuers can make. It does not govern what fees merchants pay to their processor. Merchants that are not on pass through pricing will not likely see a decline in their processing fees. Most processors will simply keep the extra money and boost profits.
Contact us for more information.

See related articles:
Federal Reserve issues standards for debit card interchange fees
What will merchants really pay in debit card fees under Fed proposal?

May brings the usual April interchange update. There are two noticeable bumps for MasterCard. An overall assessment increase to .012% for all transactions over $1000, and up to .04% more for WorldCard. Full article and link to 2011 Interchange Rates and Criteria.

BUSINESS CREDIT CARDS: The typical interchange rate to merchants for corporate cards is 2.2% or 2.4%.  The non-qualified rate is a whopping 3.17% on MasterCard, which can be avoided with proper interchange management. Depending on your business type, you may qualify for large ticket (minimum $1000) rates which can save you up to 1%. To manage these business card fees, check your merchant statement PENDING INTERCHANGE CHARGES to see what rates you’re hitting. If your eyes glaze over at the complexity of interchange fees, merchant discounts etc, read the 3D Merchant Services blog or email a request to be included in our next interchange insights webinar. TIP: With our payment platform you can automatically offer discounts to your customers if they use lower cost debit cards.

MOBILE PAYMENTS: We’ve officially launched our app for iphone, itouch and ipad. This enables you obtain swipe rates from the field, including signature capture or you can key enter. Receipts are emailed to customers. For service companies, you can swipe the card the first time, then re-bill via a secure token for subsequent charges. In both cases you qualify for the lowest rate, plus mitigate risk with the initial swipe. Droid is available for key entry only, with retail swipe coming by June 30.

Payment Card Industry (PCI) COMPLIANCE AND DATA SECURITY: The number of 2010 data breaches exploded in companies with 11 to 100 employees. A key commonality is simply the opportunity was there. Read the full 2011 Data Breach report which includes insider theft so you can identify your own weaknesses and take corrective action. Your company is not PCI Compliant and protected under Safe Harbor unless you can prove you’ve been compliant continually, not just when you completed an annual report. Trust me, all parties will look for ways for you to assume the full burden of costs associated with any data breach.  Every operation I visit or speak to has weaknesses so please put this on your priority list!. Need help? Call and lets discuss.

What’s in your merchant statements?  Multiple locations are now achieving over 90% pin debit penetration using our universal processing platform, CenPOS. Way to go!

Highlights of the April 2011 traditional bi-annual interchange rate updates are presented in this article, specifically for our client types including retail, wholesale, B2B, hospitality, healthcare and non-profits, so you don’t have to sift through grocery store and other non-relevant data.

MasterCard changes effective April 15, 2011.

• Travel Industries Premier Services Program (TIPS). The registration requirement has been eliminated.  The rates are:

credit 1.58% + $.10
enhanced 1.80% + $.10
World 2.30% + $.10
debit 1.15% + $.15

• Service Industries Incentive Program (SIIP).  All merchants processed under MCC 4814 (Telecommunications Services), 4899 (Cable, Satellite and Other Pay Television and Radio Services) may qualify for the recurring payment Service Industries rates.

core 1.45% + $.10
rewards 1.45% + $.10
Premium 1.45% + $.10

Premium Plus 2.30% + $.10
debit .90% + $.20

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• World Merit III card increases from 1.73% + $0.10 to 1.77% + $0.10.

• World Full UCAF (the rate for a world card e-commerce credit transaction conducted with merchant security and cardholder verification) will increase from 1.83% + $0.10 to 1.87% + $0.10.
• World Merchant UCAF (the rate for a world card e-commerce credit transaction conducted with merchant security only) increased from 1.73% + $0.10 to 1.77% + $0.10.
• MasterCard will increase the assessment fee (a flat transaction fee added to the cost of processing each credit card sale) from 0.11 percent to 0.12 percent on consumer and commercial credit volume for transactions of $1,000 or more.

Full MasterCard Interchange Rates and criteria (pdf).
Also in April, Visa Inc. reportedly added an Interregional Super Premium Card with a rate of 1.97% + $0.00 and four new Interregional Full Chip Cards with an interchange rate of 1.10% + $0.00. All of the new cards also have the 0.40% and 0.45% international service and acquirer fees associated with them.
World cards are generally 20-30% of merchant cards received, so there will definitely be some creep in credit card processing fees.

In addition, MasterCard will increase the assessment fee (a flat transaction fee added to the cost of processing each credit card sale) from 0.11 percent to 0.12 percent on consumer and commercial credit volume for transactions of $1,000 or more. For a complete list of interchange fees go to  interchange rates. Also in April, Visa Inc. reportedly added an Interregional Super Premium Card with a rate of 1.97% + $0.00 and four new Interregional Full Chip Cards with an interchange rate of 1.10% + $0.00. All of the new cards also have the 0.40% and 0.45% international service and acquirer fees associated with them.