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

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.

San Francisco – Nov. 19, 2009 “Visa appreciates Congress’ desire to better understand the electronic payments industry and welcomes the release of this second Government Accountability Office (GAO) study on interchange and the electronic payments industry. We are pleased that for the second time in two years, the GAO has seen no need to call for Congressional intervention to regulate interchange.

“Not surprisingly, the GAO reached many of the same conclusions found in its previous report, including:

• Merchants benefit from electronic payments through increased sales, faster checkout times, as well as greater convenience.
• Consumers benefit from the convenience of electronic payments over cash and checks, providing improved theft and loss prevention, and easy record keeping.
• Interchange is important to community banks and credit unions, providing them with the ability to offer card programs and benefits on par with major financial institutions.

“We are encouraged that the GAO report examines consumer impacts and confirms that there is little evidence merchants would pass any potential savings from lower interchange on to consumers.

“We believe the study would have benefited from a more comprehensive analysis of debit given the fact that debit cards account for approximately 70% of Visa transactions in the United States and are among the fastest growing payment products.

“It’s unfortunate that the report doesn’t highlight that Visa’s average interchange rates in the United States have remained generally flat for the last ten years and, more broadly, merchant discount rates overall have declined in the last four years, according to the Nilson report.

“We believe it is important for U.S. policymakers to read this report to better understand how vital interchange is to keeping the electronic payments system reliable, convenient and secure for all participants.  We also hope these findings provide some balance to the efforts by some large retailers and their trade associations who are trying to get Congress to help them increase their profits at the expense of consumers.

“For over 50 years, retailers have received tremendous value from accepting electronic payments, including guaranteed payment, potential for increased sales, faster checkout times, as well as greater convenience and security – all at a fair price.  For these benefits, Visa’s interchange rates average 1.62 percent for each transaction and has remained generally steady for a decade.”

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Visa recently announced several new fees impacting merchant credit card processing costs. Merchants working with us will get these announcements on their statements, in addition to any other contacts, and all costs will be passed through.

Visa Acquires Processing Fee (APF) Visa is rolling out a fee of $0.0195 on all Visa branded authorizations acquired in the US regardless of where the issuer/cardholder is located. This fee will be effective July 1, 2009. This follows a MasterCard Network Access and Brand Usage Fee (NABU) of $.0185 for all U.S. issued transactions settled with MasterCard, announced in April 2009.

Visa Zero Floor Limit Fee – (clearing without authorization) This fee is applied for any clearing transaction submitted that cannot be matched to previously approved or partially-approved authorization transactions. The new fee will be $0.10 and is effective July 1, 2009.

Visa Misuse of Authorization Fee (authorization without clearing). Beginning July, 2009, Visa will apply the announced fee of $0.045 to authorizations that are not followed by a matching clearing transaction (or in the case of a cancelled or timed out authorization, not properly reversed).

International Service Assessment Fee Effective April 4, 2009 Visa implemented the International Service Assessment (ISA) fee of 0.40% (40 basis points) on all international (non U.S. card) transactions processed by a U.S. merchant. This fee is similar to MasterCard’s existing U.S. Cross Border Assessment Fee which is 0.30%.

Editors comments: these fees are not on the general interchange schedule that most people look at, however, the clever naming does not change the fact that these are costs that will be passed on to the merchants. If you have a small average ticket, a couple of pennies could increase your effective rate about .20%. If you have a lot of dollar transactions that are not reversed, such as when setting up a free online trial account, then the $.045 could also become quite costly. Your software program may not have a solution to cancel the authorizations, but hopefully this is being addressed by the major software providers.

What are the cheapest rates for credit card processing for Real Estate companies? 1.1% plus $0 per transaction fee is the lowest MasterCard interchange rate as of April 2009. The rate is the same for consumer debit and credit cards for real estate transactions, sales or rentals. You can qualify for this interchange rate by having a renter sign up for recurring billing to their credit card online.

It’s important to understand that 95% of your fees are in interchange. Therefore in order to have the lowest costs, you need to qualify for the lowest interchange rates. Every transaction for your real estate company that qualified at 1.10% could just as easily qualify at 2.04%. How does this happen? There are three main reasons:

1. Lack of education: The current MasterCard interchange rate guide is over 110 pages. There are endless rules for different cards, different industries, and if someone made a mistake- whether the salesperson or someone further down the line, who will recognize that one has been made? Not the merchant. And in many cases, not the salesperson. Many processors just avoid the whole issue by giving sales reps a few different price plans that don’t require them to have the in-depth knowledge to help you qualify for the lowest rates.

2. Wrong price plan- the lowest rates are reserved for larger volume firms. But some payment processors don’t offer these price plans regardless of how big you are. Or, if you’ve been with your processor a long time, they haven’t lowered their profit margin, even though the industry is much more competitive than years ago.

3. Lack of interchange management- no one is 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, and reviews your transactions to make sure you hit them.

As with all processing, a merchants actual fees include:
- an percentage per transaction
- a per item fee (in this example, $0)
- a merchant discount
- Visa/MasterCard dues and assessments

Additional fees typically include:
- merchant monthly statement fee
- network or batch/settlement per transaction fee
- AVS address verification per item fee

Real estate companies tend to have larger transactions than many other types of merchants. With the increased preference for credit cards over checks, this can be a hit on the bottom line, with the wrong pricing plan.
credit card fees/ CREDIT CARD CHARGES = effective rate
What’s your effective rate? It’s probably safe to estimate that it should be less than 2%. . It could be much lower, depending on the mix of credit card types presented. The interchange rate used in this example is for consumer credit or consumer debit cards. Rewards cards, corporate cards and other types will qualify for different interchange rates.

Google is making the transition from a flat rate fee to a tiered fee structure. Google first launched it’s payment processing service for free to gain market share, then evolved to a percentage plus per transaction. The tier pricing applies only to what rate category you’ll fall into, not that you’ll have tiered price levels.

NEW PAYMENT PROCESSING PRICING EFFECTIVE MAY 5, 2009

ANALYSIS FOR GOOGLE

All companies must pay interchange, which is determined by what type of card is presented. If you have low volume, Google could get stuck owing more in fees than it is collecting under the old plan. For example, let’s say you have 5 orders totaling $1000. With so few transactions, the odds are against Google getting a wide variety of cards presented, increasing it’s risk.   If you have high volume, then Google is spreading it’s risk as they are likely to get a wider variety of cards, more reflective of societies purchasing habits today.

ANALYSIS FOR MERCHANTS

It’s not a bad deal. For small merchants, you’re going to pay that much to any company. For big merchants, you probably need Google because you have customers that want to pay with that method. Plus, by having Google payments, you improve your potential Google search results becuase they have a separate list of stores that use Google payments. Even at the highest level, it’s still a pretty good deal when you consider that debit ecommerce interchange starts at 1.6% and $.10 per transaction and credit ecommerce interchange starts at 1.8% and $.10 per transaction. As a business owner, Google Payments is never a sole solution for the largest businesses because their customers don’t want to be locked into one option, among other factors.

BOTTOM LINE

Merchants shouldn’t gripe too much. The costs are in line with what you pay through other sources, though that per item fee is pretty high and could be awful for high volume, low average ticket merchants.

Visa: Visa will modify several Consumer Credit and Signature Preferred Interchange fees. Visa is lowering Card Not Present, Key Entry and E-Commerce Interchange rates as well as lowering Hotel and Car Rental rate categories. Restaurants will be impacted by a 5 basis point increase on Visa Rewards cards. Visa will extend Small Ticket Interchange Rates to Service Stations when the transaction size is $15.00 or less. Visa will modify Interlink Interchange fees including the establishment a unique Interlink interchange category for Automated Fuel Dispenser (AFD) and Service Station transactions.

MasterCard: MasterCard will modify commercial Interchange rates. MasterCard will launch the availability for issuers to enroll Consumer World accounts in the “World High Value” program to qualify for differentiated interchange. As of April 2009, Interchange rates for the new category will mirror those currently used for the Consumer World Elite cards, so there will be no immediate impact of this launch. In an upcoming April 2009 initiative, the MasterCard Acquirer Access fee that is currently in place and being billed at a pass through cost of $0.005 per authorization is being eliminated and replaced with Network Access and Brand Usage (NABU) fee which will be billed at a pass through cost of $0.0185 per authorization. This MasterCard change will greatly impact merchants with small transaction sales.

Debit: AFFN debit network has announced changes to their debit network pricing structure effective March 2009.

* Retail transactions will now be billed at 0.65% + $0.155 per transaction with a new maximum fee of $0 .535 per transaction.
* Major merchants will now be billed at 0.50% + $0.10 per transaction with a new maximum fee of $0.435 per transaction.
* Grocery merchants will now be billed at $0.205 per transaction.
* Returns will now be assessed at $0 .035 per transaction.