We frequently address questions from merchants currently using the Costco Wholesale Merchant Processing. Costco’s merchant partner is Evalon, formerly Nova Information Systems.

Earlier this year, some Costco member merchant rates were increased, though on the surface it looked like a decrease. It really depends on your business whether you’d be better off or not. In most cases, businesses will pay more.

COSTCO PUBLISHED MERCHANT RATES, January 2011.

Visa/MasterCard Qualified (Traditional Credit & Signature Debit) 1.48% plus $0.20 (reduced)
Visa/MasterCard Qualified Rewards 2.20% plus $0.20 (increased)
Visa/MasterCard Partially Qualified 2.96% plus $0.33
Commercial Non-Qualified 2.96% plus $0.33
MasterCard Non-Qualified 3.80% plus $0.33
Pin-Debit Transaction Fee $0.12

According to a Federal Reserve report, Interlink, Star, Pulse, and NYCE have the largest the market share for PIN debit transactions. The shares are Interlink 37%, Star 29%, Pulse 11%, NYCE 8% and other 15%, as of 2007. The report calculations reference Nilson Report and other industry sources for the data.

This is good background information when looking at least cost routing.

The Merchant Solutions review examines themerchantsolutions.com web site advertised credit card processing offers. Every so often I see ads that I know are too good to be true. In your heart you know it too, but that doesn’t stop you from at least looking right?

I stumbled upon this site because it was at the top of google when I was searching for something and it caught my eye. This review lays out facts based on direct observations. I hope this helps you in evaluating any company for merchant services. Draw your own conclusions.

INTERNET MERCHANTS HOME PAGE OFFER

• 1.59% + 0.15 per transaction
• FREE Payment Gateway Software/Terminal
• FREE Gateway Access
• No set up, application fee or annual fee

ACTUAL OFFER (based on standard industry card not present):

Gateway – choose from authorize.net, $149 application fee, or PC Charge Pro, $249 application fee; both carry a $10 per month fee.

AUTHORS Comments: The home page says “free payment gateway terminal”. That’s true, the terminal is free, but the gateway is not. I knew that, but it’s a trick question. Are gateway fees negotiable? While the fees may vary, authorize.net and PC Charge are never free. They are for-profit businesses. The only way you can get them for free is if you are being charged somewhere else for it to make up the hard costs. I’ve never seen that happen and you should beware if offered. Whenever a cost is bundled, you can bet you’re going to pay extra for built in profit margin. END COMMENTS.

The actual offer continued.

Credit card processing

• 2.19% + 0.27 per transaction
• $10 per month statement fee
  
• No set up, application fee or annual fee
• CROSS BORDER FEES will be added and listed separately

The rest of the costs are found in the fine print: If you are a Direct Mail/Telephone Order Merchant (non-magnetic swipe read transactions) and each transaction you submit meets all of the following requirements will be priced at the rate quoted. Any other transaction, including all foreign transactions and commercial card transactions in addition to transactions using Visa Rewards Card, Visa Signature Card, Visa Infinite Card, and MasterCard World Card, will be priced at the rate quoted plus 1.14%.

REQUIREMENTS:

• Obtain an electronic authorization and settle for authorized amounts (one reversal permitted on Visa transactions to make authorization amount equal to settle amount).
• Address Verification Request in authorization on cardholder billing address.
• Purchase date (settled date) is ship date.
• Send order number with each transaction.
• Settle and transmit batches same day via your terminal/electronic system.
• Send level 3 data (line item detail, sales tax, customer code) with every eligible commercial card transaction. NOTE: Card Not Present transactions involving one-time, recurring, or installment bill payment transactions are subject to additional card association requirements which must be complied with to avoid NQS. Electronic commerce transaction requirements are also subject to additional card association requirements which must be complied with to avoid NQS. Please refer to Card Acceptance Guide for additional requirements.

AUTHORS Comments:

• There is no explanation as to why no transactions will process at the home page ad rate of 1.59% and $.15. However, Visa debit interchange for card not present is 1.60% + $0.15 as of April 2010. This does not include network fees incurred by processors or any profit margin. The home page advertisement would lose money for the company on every transaction, unless offset by other fees.
  
• A monthly statement fee is also a hard cost, so is not unexpected.
• Cross border fees are hard costs and it appears they are being passed through with no mark-up, which is good.
• Which transactions will qualify at 2.14% and which at 2.14% plus 1.14%, or 3.28%? First of all, does your business model meet the requirements listed? If you authorize on one day, but capture/settle on a future date, the transaction would not qualify. You may not be aware of it, but data captured does not always equal data passed on to the processor. For example, Authorize.net does not support level 3 data. I was unable to confirm if PC Charge does at this writing. At the other end, the processor also needs to accept the level 3 data from the gateway. Verify this with your processor. Statistically, about 50% of all consumer transactions are now with debit cards, so if you met the requirements above, and have a consumer oriented business, about half of your transactions would qualify at 2.19%. The majority of credit cards today are some type of rewards cards;  rewards cards rate is 3.28% in the above offer.
• “The Merchant Solutions (TMS) is a registered ISO/MSP of Wells Fargo Bank, N.A., Walnut Creek, CA” is on the home page and all web pages. I like to know more about companies I might do business with so I always research the entity.  Here’s what I found:

1. The wording on the application changed to “The Merchant Solutions (MSC) is a registered ISO/MSP of HSBC Bank, USA, National Association, Buffalo, NY”. Note both the company abbreviation and the associated bank name have changed.
2. The agreement terms and conditions are with Global Payments Direct, Inc. There is no mention of The Merchant Solutions (TMS).
3. I found no listing with the state of California for The Merchant Solutions under multiple name variations I searched for.
4. I performed a reverse phone number check at whitepages.com and got no results.
5. I performed various address check versions at whitepages.com and couldn’t find a company with any similar name at the address.
6. I searched Hoovers.com and didn’t find the company listed.
7. The online application does not use SSL technology (no https or lock symbol)  for taking your private data, including bank account and social security information. This is a significant security risk.
8. The application terms have significant penalties for early termination on the 3 year agreement. “… all monthly fees assessed to Merchant under this Card Services Agreement and due for the remainder of the then existing term of the Card Services Agreement, including all minimum monthly fee commitments, shall be immediately due and payable”.

FINAL REVIEW NOTES:

I’ve pointed out a few ways you can perform basic checks on a company for any service you find online, as well as reading between the lines for a merchant offer. Merchant services in particular involves highly confidential and sensitive information. Before sharing your private data, check out the company.  The sources mentioned in this article don’t measure company reliability.

For the record, you can verify 3D Merchant Services here:

http://sunbiz.org Registered Corporation, state of Florida, whitepages.com, hoovers.com.

The Fed has opened the comment period for proposed debit fee reductions. There are many facets to this, including impact on card issuing banks, acquirers, merchants and consumers. This article is to address only once aspect- putting your company in a position to take advantage of low debit fees.

Pull out your merchant statement. Do you have a section titled INTERCHANGE FEES?

Below are examples that might appear on this page:

This is an example of a MasterCard swipe debit transaction. The customer signed a receipt and did not enter a pin number.

This is an example of a Visa debit, card not present, ecommerce transaction for a non-profit.

The items above are listed in INTERCHANGE FEES. The image below appears in FINANCIAL ADVICE. They do not appear in interchange fees chart because these are pin entered debit transactions that went through the debit networks, in this case, Star, Pulse etc.

Are you on a PASS THROUGH INTERCHANGE price plan that enables you to take advantage of low debit fees like those shown? If you do not see the data above on your merchant statements, the answer is no. To maximize low debit costs now and in the future you need:

• The right price plan.
• The right software/ hardware solution to drive transactions to the lowest cost.
• The right software/ hardware solution to eliminate cashiers, order takers, and gateways from having any impact whatsoever that can increase which debit fees you qualify for.  See related article What is interchange management?

If you’re processing at least $1,000,000 annually, please contact us to discuss solutions to reduce your credit card processing fees. Don’t put this off! Call 3D Merchant now at 954-942-0483. You may even be able to keep your existing processor if you wish to.

See also
Federal Reserve proposes debit card interchange fee standards

Read the latest merchant news bulletin in 3D Merchant Services newsletter. Highlights include Red Flags Rule, American Express critical fee change, and Re-bill customers using tokens to prevent identity theft. Plus What’s your risk for a financil data breach?

3D Merchant Services newsletter (PDF download)

PIN Debit Network Fee Schedule Fall 2010

With 2010 debit fee updates, signature debit and pin debit potentially can cost about the same to merchants. 70% of pin debit transactions recently qualifed for either .95% + $.235 per transaction or .80% + $.2125. With Visa signature debit interchange now at .95% and $.15 per transaction, the cash benefit of pin debit transactions has eroded.

However, it’s important to look at your payment processing price plan. Are you paying percentage merchant discount on both debit and credit transactions, or just credit?

Pin debit benefits include reduced risk. Consumers cannot initiate a chargeback on a pin-debit transaction, but they can on a signature debit.

The list below is a compilation from various sources.  If you have interchange pass-through pricing, these are listed under “interchange costs” on your merchant statement. Interchange costs are hard costs and do not include any processor fees. Please recognize that processors also have a cost of doing business, plus a profit margin, so your actual costs will be higher.

* These networks offer pin-less debit.

Accell Effective November 1, 2010

ACCEL “All Other PINless” Bill Payments Cap 0.80% + $0.25, cap $1.75

According to ATM debit news, Interlink, Star, Pulse, and NYCE have the largest the market share for PIN based POS debit transactions. The shares are Interlink 39.8%, Star 30%, Pulse 10.7%, NYCE 10.1% and rest other 15%, as of March 2008.

CenPOS will dynamically route pin debit transactions to the lowest cost network, in compliance with the rules that apply for that card. What does that mean? If a consumer card can be used on three debit networks (see logos on back of card), including for example-  Interlink, and there is a rule that Interlink must be used first if the transaction is in the state of Alabama, then the transaction is routed to the Interlink network if the transaction is in Alabama. However, if there are no applicable rules, then the transaction will be routed to the lowest cost network, such as Star, for example.

American Express sent changes in terms for accepting the American Express credit card, dated October 2010. “If you issue a credit, we will not refund the Discount or any other fees or assessments previously applied on the corresponding charge.”

Let’s use the example that the merchant is paying 3.5% for accepting American Express. That’s the discount fee. On a $100 charge, the merchant pays a $3.50 discount fee. If the customer requests a refund, the merchant is now still out the $3.50 fee.

Effective July, 2011, the merchant can choose an alternative to the above. Instead of paying 3.5% in my example, you could pay 3.9%. Then whenever you have refunds, you’ll get the discount refunded too.

You’ll need to do some math with respect to your refund volume to see whether it makes sense to pay more on every order.

EXAMPLE:

$100,000 in sales

At 3.5% the merchant pays $3500 in fees.

At 3.9%, which includes the 40 basis points upcharge to receive Discount refunds,  the merchant pays $3900 in fees.

If returns are 1% of orders  = $1,000 gross sales, merchant is refunded $1000 X 4.1% or $41 in discounts. Since the merchant paid $400 extra, this is a bad deal.

If 10% of sales are returns (credits)= $10,000, the discount refunded is $390.

If your American Express discount is even lower than 3.5% you can see that you’d have to have a very high return rate to make opting in for 40 basis extra on every charge you accept.

The Shazam Debit Network has announced fee changes effective November 1, 2010.  These are network costs, not inclusive of additional fees your processor may incur and pass on, or profit added. Notice that the basic pin debit transaction is now .75% plus $.15 per transaction.