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.

What options are there to accept credit card payments at special events such as silent auctions and what are the cost differences? With debit card usage now in the 50% range, merchants should seriously consider a wireless payment option that enables entry of pin codes to qualify for pin debit transaction rates.  The chart below expands on the article How can I accept credit cards at special events?

Recommendations are not based entirely on the cost of payment processing. If you have a fundraising event, how much more money would you receive, if instead of collecting pledges on paper that you then invoiced later, you had staff that goes from table to table with a wireless terminal right after a tremendous speech and request for donations? Or what if you have a live auction? Never miss a payment again when someone ‘forgets’ after a long evening when you can get payment at the table.

Based purely on transaction costs, you’ll need to process over $100,000 annually for it to make economic sense to go with wireless.  What impact will pin debit have on your overall costs? It depends on your average sale and overall number of transactions. The cost to purchase and operate wireless equipment may outweigh any cost savings from having pin debit. However, there are also other advantages, including, no chargebacks on pin debit transactions. This may justify the cost.

* Verify you can collect invoice/PO # and sales tax AND that this data is passed through to the processor. Many systems collect the data, but do not pass it through to the processor. In that case, you may need a separate gateway that will pass the data if you want to qualify for the best interchange rates on corporate credit cards.

** Based on prices for new equipment January 2010.

See our pin-debit cost comparison chart for an example.

If you have one annual event, with volume under $100,000 the Virtual terminal may be the best solution. Merchants, including non-profits, can request a seasonal account so the merchant account is only open a short time, and avoid monthly fees. A card reader is also a good option. I recommend this instead of a wireless terminal because:

a) cost

b) virtually no training

c) no risk of lost units with volunteer staff

d) always PCI Compliant- no need to worry about equipment getting outdated or software updates

If your event is a fundraiser, and there is the opportunity to make use of the credit card terminal tableside or anywhere the donors are, I recommend a wireless terminal. Whether there is value in pin-debit, you’ll have to determine based on an analysis of needs, risk, and ROI.

Another factor to consider: mobile payments. Mobile payments, where a person makes a payment with the mobile phone and you get your money instantly is expected to take off in 2010.  If you want to accept mobile payments, please call for additional advice. With the right wireless terminal, and other items, you’ll be able to instantly accept wireless payments as it grows. Call for details.

Podcast on how to increase pin debit use so that you can lower your credit and debit payment processing costs. Actual costs of different price plans as well as potential savings examples are included.

How to increase pin debit for merchants [ 5:02 ] Play Now | Play in Popup | Download (232)

This podcast is for merchants looking for ways to reduce the payment processing costs. Debit cards cost a lot less to process than credit cards. Three debit card price plans explained, and how you can hit the lowest rates. Ideal podcast for expense reduction specialist, risk management, CFO, and Controller for mid to large businesses.

Interchange management is the art of ensuring that every credit card or debit card transaction qualifies for the lowest rate possible for the type of card presented for payment. I call that watching your back.
If you get a great price plan, but you aren’t qualifying for the lowest interchange levels, you’re paying more than you need to.

A qualified professional understands what levels of interchange YOUR BUSINESS qualifies for when presented with different types of transactions and different types of credit cards (consumer, corporate, rewards, debit etc), and reviews your transactions to make sure you hit them.

For example, a credit card transaction at a real estate company that could qualify at 1.10% could just as easily qualify at 2.04%. This is not a transaction downgrade because the merchant made an error. This is the same transaction with two different processors. Both might be correct in their own way, but the merchant would certainly prefer 1.10%. Should I reveal how this happens so anyone can read it?
Sorry, not today. Please call for a personal merchant statement analysis at no charge, and if you are suffering from lack of interchange management, I’ll show you exactly where and discuss options to fix them.

BTW The extra money from different interchange qualification isn’t going to your salesperson or the processing company, but largely, if not all, to the card issuing bank. Salespeople are not compensated on interchange qualification since the company or division they work for does not profit or lose based on how you qualify. At least, I’ve never heard of one offering this type of compensation which would be a nightmare to track.

CenPOS is a technology solution with an intelligent switch that makes your credit cards, checks, loyalty program and alternative payments work better. It is NOT credit card processing. Ideal for mid and large size businesses with a large volume of payment transactions, including check and credit card.

Built by First Payment Systems to help companies more value out of their payment systems and combat the rising cost of electronic payments,  CenPOS only costs a small fraction of the savings and value that is instantly created. If you have the business volume,  you will realize SIGNIFICANT HARD DOLLAR SAVINGS.

What is CenPOS? Although there are many features and benefits, at the heart of the technology is the intelligent switch. It routes payment processing via the least cost method by identifying what it is and knowing the least cost way to process it. This all happens faster than a traditional desktop credit card terminal.

How does CenPOS work? For the retail merchant, a signature capture terminal with USB plug, hooked up to any computer with an internet connection is needed.  Additional information is available by scheduling a demo.

What else does CenPOS do? Please call for more information. The solution offers amazing benefits, including meeting future 2010 PCI Compliance requirements.

How much does CenPOS cost? A small fraction of your transaction costs. If you have the business volume,  you will realize SIGNIFICANT HARD DOLLAR SAVINGS, even after factoring in the cost of any equipment you may need and CenPOS fees. Typical savings are realized within the FIRST MONTH. You do not need to buy terminals from us. You can buy them anywhere or we can obtain them at wholesale cost for you.

Who is CenPOS for? Without revealing confidential information, CenPOS is ideal for brick and mortar retail environments. Installation is typically less than 5 minutes at each location.

How can I find out more about CenPOS? Call Christine at 954-942-0483. I work directly under the company President at First Payment Systems.

ABOUT FIRST PAYMENT SYSTEMS(FPS):
www.firstpaymentsystems.com 305-260-4442.
FPS is dedicated to enabling merchants around the world to accept, process, and reconcile electronic payments, including credit and debit card processing, check authorization as well as solutions for ecommerce, dynamic currency conversion, and multi-currency pricing. FPS offers leading edge solutions from internationally recognized processors and also integrates its own proprietary platforms with top acquirers. While most banks and ISO’s take a generalist approach, accepting every merchant and offering cookie cutter solutions, FPS understands that each market is different and offers distinct solutions for each customer.

ABOUT CenPOS: CenPOS is a processing platform developed by FPS. www.cenpos.com

ABOUT 3D Merchant Services:
www.3dmerchant.com
3D merchant blog
954-942-0483.
3D Merchant Services is the online brand created by FPS independent agent and VP Marketing Christine Speedy to communicate a wide array of payment processing information to merchants and to develop business leads for FPS and CenPOS services. 3D Merchant itself does not offer any direct services to merchants.
TO ORDER CENPOS, CREDIT CARD PROCESSING, CHECK PROCESSING OR OTHER PAYMENT PROCESSING SERVICES, PLEASE CALL Christine AT 954-942-0483. Christine offers CenPOS, and other payment processing services, as an agent of First Payment Systems.

No, all our processors charge a fee for statements which cannot be waived even if you select electronic statement delivery instead of having them mailed to you. I have two thoughts about this. First, we have to pass through fees and it’s a hard cost that is never waived for us. Second, there is an expense associated with printers, printer maintenance, ink & paper, stuffing envelopes, postage etc. There are also expenses with having an IT team that develops and maintains secure systems for making electronic delivery available. So in both cases, there is a cost to providing an essential service- the timely delivery of your merchant statements.

What if someone else doesn’t charge a statement fee? Can you match that? No. Again, all the processors we work with have a statement fee that can never be waived.

With ever tighter margins in credit card processing, it’s critical to charge for actual costs and work more closely with customers on managing variable costs.

Our solution offers extremely robust chargeback management. How does this compare with Paypal?
Unfortunately, we can’t show you the paypal screens due to copyright issues.

Since Paypal is web based, they do have a web based solution. Buyers and sellers alike manage disputes and chargebacks in the Paypal Resolution Center. There are two main types:
Disputes:
- Buyer and seller negotiate to resolve issue. Communications are via email using the Resolution Center.
- Dispute is resolved or escalated to PayPal claim.
- Paypal investigates and resolves the claim. This section says they “try to resolve within 30 days.”
Unauthorized activity:
- Buyer says they didn’t make the purchase. A lot of times the buyer may not remember who they made the purchase from.
Paypal reviews the claim and asks seller to respond.
Seller are notified and have 7 days to respond. Paypal resolves the claim.

A more robust solution works like this. First, the buyer calls the credit card company to complain. They file a form which asks questions like ‘have they contacted the merchant and attempted to resolve first’. Ultimately, the payment processor sends notification of the dispute via email, fax, or mail. The most common practice is via mail. The clock is ticking since you only have so many days to respond.

The best system sends you an email alert so you can respond quickly.
With the addition of a scanner, you can even respond to retrieval requests right from your PC and upload documentation.

Compared to most processors, the Paypal solution is very robust so you can respond quickly. Where it falls apart from the merchants perspective, ie numerous complaints from merchants, is the unilateral decision making and sometimes long process that can last months.

The optimum solution is two-way communications. You can manage all chargebacks from a web based interface. The processor will give you a decision within 14 days after you respond. They will tell you if additional information is needed. If you think the disagree with a decision, you can add additional documentation via file upload, fax or snail mail.