I often hear from CFO’s that more credit card processing companies call on them than any other vendor. So with over 100-1000 calls per year, how do merchants sort through it all and choose your blog host? Tenacity is often cited, but that’s only part of the equation. My keys:

1. Education on pricing- I educate customers on the 4 core elements including which costs are negotiable, which are not, which can be influenced, and which ones may vary by vendor (some may have higher fixed costs than others).
2. Reporting- You must have completely transparent reports in order to identify the costs above, as well as to manage them. I show you what a transparent report looks like and help you understand it. How do you use data for reconciliation?
3. Interchange management. Once you have the right pricing and detailed reports, it’s time to attack interchange qualification. Most of your money, over 95% is paid in interchange fees. Many merchants think the processor gets the money, but that’s not the case. Ensuring you hit the lowest interchange for any given card presented is the next step.
This can be achieved through many different methods, and will never be completely transparent to the merchant because you simply cannot see everything that goes into why a transaction qualifies. With good reporting, you CAN find out why a transaction downgraded. But of course, you’d also have to know WHICH transactions downgraded and WHY in order to fix it. An expert is really needed for this step. Someone who will ‘watch your back’. That’s where I come in. I’ll do most of this behind the scenes and we’ll also have Webex conferences to review your account, including a statement review.
4. Continuing Education- Let’s face it we’re all busy people and sometimes don’t have time to get to anything new unless it’s forced upon us. I’m your force. If something must be done, like PCI Compliance, you’ll hear from me. If there’s new technology (from any vendor) you can implement that will make your job easier, I’ll call you. I’ll advise you of pros and cons, risks and rewards, and quantify it whenever possible so you can focus on what you do best.

* (If you were not aware of the above before, would you go back to your old processor and renegotiate, or would you say, they’ve earned the right to have my business? If you intend to go back to your processor don’t disappear, thank me by paying me a fee to help you renegotiate your contract.)

Interchange and Merchant Discount fees can be illustrated by a typical 4-party transaction involving the purchase of an item using a typical VISA/MasterCard type general-purpose credit card issued by a bank. When a Cardholder purchases a $100 item from a Merchant using a typical VISA/MasterCard type credit card, the Merchant passes on the $100 charge to its Merchant/Acquiring Bank in exchange for $98.00, pursuant to the Merchant’s contract with the Merchant/Acquiring Bank. The Merchant/Acquiring Bank submits the $100 charge into the VISA/MasterCard system and receives $98.50 from the customer’s credit card Issuing Bank (less a small processing VISA/MasterCard fee) in accordance with the VISA/MasterCard rules. The Issuing Bank eventually receives $100 from the Cardholder when the credit card charge is paid. Under this scenario, the Merchant/Acquiring Bank keeps a net “Merchant Discount” fee of $.50 ($98.50 - $98.00), while the Issuing Bank receives an “Interchange” fee of $1.50 ($100 - $98.50). These fees combined are sometimes referred to as a “Merchant Discount” fee. In some instances, the structure of the transaction changes slightly, but the ultimate economic effect is the same. In addition, the same entity may act as both the Issuing Bank and the Merchant/Acquiring Bank in the same transaction.

The above is the IRS description of the merchant fees process. I think it may be easier for some merchants to understand this explanation so thought I’d pass it on. In this scenario, 75% of the merchant fees paid end up with the card issuing bank. It’s higher than that for the size businesses I generally deal with, more like 95-98%, but you get the point. Merchants need to manage payment processing costs, by controlling the big chunk of money that ends up with the card issuing bank.

What is interchange management?

Link to IRS article at top. Information Document Request for Interchange and Merchant Discount Fees - Banks.

What does it cost to process a debit transaction? A pin debit transaction? Why should you care? There are many complexities to answer the question and the chart below provides a simple way to help you compare costs. This chart can help you make decisions about which merchant terminal to choose because you can see the impact of using different payment processing types.

If you’re not familiar with the different types of debit transactions, listen to my podcast how to increase pin debit for merchants. It contains an overview before delving into specifics about increasing pin debit penetration. A  pin debit transaction occurs when the customer is present and enters their pin number. Merchants need a PED or Pin Entry Device to accept pin debit transactions, and by July 2010, all PED devices must be Triple DES certified.

Fee schedules for debit are varied and just like interchange for credit cards, it’s getting more complex all the time. The most basic interchange and debit network fees are in the chart below:

See also the related article  Compare wireless payment solutions for silent auctions, January 2010 and podcast how to increase pin debit for merchants.

By understanding the basic differences in pin debit costs, a business can analyze their situation to assist in decision making for:

• human resources- who needs more training?
• comparing hardware ROI
• software and related POS decisions
• payment processing analysis and changes needed
• balancing risk

With pin debit transaction costs now on the rise, it’s also important to understand other values of pin debit, namely that there is no risk of future chargeback.

3D Merchant provides detailed pin debit analysis for customers processing $1 million per month and up. For these merchants, the analysis will identify specific opportunities to improve interchange qualification, convert debit to pin debit, and deliver an ROI for CenPOS. CenPOS is a payment processing platform with a multitude of essential PCI Compliance, cost reduction, and fraud prevention tools larger businesses need.