MasterCard updated their merchant interchange rates and fees portion of their web site. It’s a useful for all merchants. The missing link to all this data however  is a clear identification of which transactions are qualified and which ones are not.  For example, if a merchant is on Interchange plus pricing, it lists all the interchange rates the merchant paid. But it doesn’t indicate which ones are qualified and which ones downgraded to a higher rate. Some processors provide this information, with a section call ‘non-qualified’ transactions, however, the software frequently shows transactions as non-qualified that truly are the best qualified rate that a merchant can receive.

As a merchant I would want to know which rates are the best possible for a given card type at a glance. Why should a merchant have to hunt through hundreds of pages to figure it out? Interchange is not getting less complicated. Our team offers merchants an automated solution to qualify transactions for the best interchanges rates. Contact us for details.

3D Merchant maintains a list and links of all official interchange rates here.

The Omni 3750 is a multi-merchant capable machine, often used by businesses that had one account for retail and one for MOTO. Before jumping into the next dial up or even IP multimerchant terminal, it’s time to review the related credit card processing landscape. The primary purpose of separate retail and MOTO merchant accounts has been to help larger merchants qualify for lower interchange levels for each type of transaction. This method has historically been particularly important for wholesale suppliers in the construction industry that have a storefront, plus a base of commercial accounts, most of whom do not pay at the store. Without two merchant accounts, the cost of card not present transactions cost up to 1.05% extra on a retail account.

INTERCHANGE QUALIFICATION CHALLENGE: Proper presentment of transactions regardless of method of entry (key entered or swipe) or card type (different requirements for data to submit). Proper presentment is getting more complex as regulations are changing more rapidly in the past and the card networks & card issuing banks are creating new rules making it harder to qualify for the best rate for any given card type. For example, our internal spring bulletin explaining fee changes was 32 pages long versus a more typical 2-3 pages.

ADDITIONAL CONCERN: New Fixed Acquirer Network Fee (FANF). Visa’s Card Present Fee is fixed based on the number of locations. For Card Not Present (CNP), the fee is based on monthly sales volume, and is much higher than card present. Each merchant account is counted as a location. EMV (contactless) is mandated for all merchants by 2015; Visa is offering incentives to merchants who implement beginning in the 3rd quarter of 2012.

ANALYSIS: It is my firm belief that it will be impossible for merchants as described above to continue to qualify for the best interchange rates with standard dial up terminals because of the continual need to identify needs, update programming and train employees. A manual process just won’t work. As an interchange expert, even I can’t keep up with the rules to manually oversee merchant accounts without an automated system.  A host based solution is the only viable long term solution for merchants who want to control fees.

SOLUTIONS:

If you want to stick with a multi-merchant terminal:

• FD300 TI (PCI) Dual Com, First Data only, $499
• FD300 Wifi (PCI), First Data only, $695
• Other brands may be available, check manufacturer web sites for current models.

For a host based solution:

• CenPOS virtual terminal with automated switching. With a single merchant account, CenPOS will identify the card issuing bank, requirements needed to qualify you for the lowest interchange for that card, and automatically present properly as retail or card present with all the right data. Benefits:

1. Interchange optimized, employee mistakes eliminated
2. Single merchant account- potentially reduce statement fees, regulatory fees, PCI compliance fees, and higher CNP FANF fees
3. Always current with latest federal and state regulations

Limitations:  As of this writing, EMV is not yet approved on CenPOS, but is anticipated by July 1 when Visa’s incentives begin; hardware manufactures are still working out reliability issues with some new models.  In the interim, merchants may wish to use inexpensive secure card readers for low transaction environments, or older model signature capture units that will have to be replaced at a later date.

Merchants must understand interchange in order to understand why credit card processing fees can vary with the same bank issued card from one transaction to the next.  The cardholders financial institution remits to the merchant financial institution (merchant processor) the transaction amount, less the interchange rate. The interchange rate may be a directly negotiated rate between the bank and the processor or it may be a default rate set by Visa, Discover or MasterCard.

When the rate is created, there are stipulations or criteria to qualify for the rates. For example, the rate applies if x, y, and z are present. But if only x and y are present charge a higher rate. If only x is present, charge even more. Here’s where merchant confusion comes in. How does a merchant know what is needed? How do they know if they qualified for the lowest rate or a higher rate? It is possible to train cashiers or order processors? Of course not!

Many merchants have been trained to make sure that level 2 data is supported, which is pretty universal today. Unfortunately, they’ve been lulled into believing this is the fix-all for getting better rates. How come so many transactions don’t qualify for commercial data rate 2?  Instead, merchants hit one of the others illustrated below, commercial standard or commercial data rate 1.

This is a single excerpt of many, many pages related to commercial credit card processing. Merchants need to know there are multiple rules for all types of credit and debit card transactions, not just commercial cards.

What is enhanced data required?  It depends on the card issuer and the card brand. For example, Visa commercial cards for travel & entertainment (T&E) have different requirements than other commercial cards. Do you understand why ” supporting level 2 data” is not enough? 

What terminal will give you the best rate? It’s virtually impossible for a merchant to qualify for the best interchange without a system- what individual has access to all the rules, could keep up with the changes, and could train all employees to do the right thing to qualify your transactions?

1. Your payment solution must dynamically identify the card issuing bank, also known as bin management. Anything else is just not realistic because you can’t depend on employees to become payment processing experts.
2. The solution then must intelligently require the data needed to qualify for the best rate AND pass that data through.  Incredibly, there are solutions that capture data, but do not pass it through. There are even some solutions that capture the data, but then submit their own fake data because they don’t trust your employees to not make mistakes. If you’re particularly adept at reading merchant statements, you can be lulled into believing you have great interchange qualification, however, your company is at great risk of getting caught for violating presentment rules.
3. Your processor must support the receipt of the data. Not all processors can!

Rates and requirements are completely unknown to merchant employees who process transactions (cashiers) and the most educated financial staff. CenPOS proprietary technology is a private cloud, SaaS payment processing platform that AUTOMATICALLY optimizes transactions to QUALIFY for the BEST rates, saving you up to 1.05% per transaction by avoiding downgrades to non-qualified rates.

Contact Christine Speedy, Global Business Development, for more sales, agent, and reseller information.

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 Federal Reserve Board on Wednesday issued a final rule establishing standards for debit card interchange fees and prohibiting network exclusivity arrangements and routing restrictions. This rule, Regulation II (Debit Card Interchange Fees and Routing), is required by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Debit card interchange fees are established by payment card networks and ultimately paid by merchants to debit card issuers for each electronic debit transaction. As required by the statute, the final rule establishes standards for assessing whether debit card interchange fees received by debit card issuers are reasonable and proportional to the costs incurred by issuers for electronic debit transactions. Under the final rule, the maximum permissible interchange fee that an issuer may receive for an electronic debit transaction will be the sum of 21 cents per transaction and 5 basis points multiplied by the value of the transaction. This provision regarding debit card interchange fees is effective on October 1, 2011.

The Board also approved on Wednesday an interim final rule that allows for an upward adjustment of no more than 1 cent to an issuer’s debit card interchange fee if the issuer develops and implements policies and procedures reasonably designed to achieve the fraud-prevention standards set out in the interim final rule. If an issuer meets these standards and wishes to receive the adjustment, it must certify its eligibility to receive the adjustment to the payment card networks in which it participates. Comments on the interim final rule are due by September 30, 2011. The fraud-prevention adjustment is effective on October 1, 2011, concurrent with the debit card interchange fee limits. The Board will re-evaluate this adjustment in light of feedback received during this comment period.

When combined with the maximum permissible interchange fee under the interchange fee standards, a covered issuer eligible for the fraud-prevention adjustment could receive an interchange fee of up to approximately 24 cents for the average debit card transaction, which is valued at $38.

In accordance with the statute, issuers that, together with their affiliates, have assets of less than $10 billion are exempt from the debit card interchange fee standards. To assist payment card networks in determining which of the issuers are subject to the debit card interchange fee standards, the Board plans to publish by mid-July and annually thereafter lists of institutions that are above and below the small issuer exemption asset threshold. Also, the Board plans to annually survey the networks and publish a list of the average interchange transaction fees each network provides to its covered and exempt issuers. This information should enable issuers, including small issuers, to more readily compare the interchange revenue they would receive from each network.

The final rule prohibits all issuers and networks from restricting the number of networks over which electronic debit transactions may be processed to less than two unaffiliated networks. The effective date for the network exclusivity prohibition is April 1, 2012, with respect to issuers, and October 1, 2011, with respect to payment card networks. Issuers of certain health-related and other benefit cards and general-use prepaid cards have a delayed effective date of April 1, 2013, or later in certain circumstances.

Issuers and networks are also prohibited from inhibiting a merchant’s ability to direct the routing of the electronic debit transaction over any network that the issuer has enabled to process them. The merchant routing provisions are effective on October 1, 2011.

The Board’s notices for the final rule and the interim final rule that will be published in the Federal Register are attached.

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

##

• 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.

Insights on the debit card portion of the Dodd-Frank Wall Street Reform and Consumer Protection Act are presented in this blog article. As complicated as the credit card processing industry is, it’s not surprising that those outside the industry, including the media, miss some important points. The debit card proposal by the Federal Reserve would establish debit card interchange fee standards and prohibit network exclusivity arrangements and routing restrictions. The media response is growing as the end of the public comments period nears, and today I read Debit card fees headed lower for merchants, published by the Sun Sentinel, a South Florida newspaper.

PART ONE: WHAT MERCHANTS REALLY PAY

First, let’s examine the often repeated cost merchants pay. The numbers reference 2009 Federal Reserve data. The “average debit cost is $.44 per transaction based on 1.14% of the purchase price. $.56 on swipe debit and $.23 on pin debit”.  Other than Wal-mart, you can bet most merchants pay more than this. Signature debit interchange is currently .95% for Visa and 1.05% for MasterCard, plus $.15 each. The example below is for a SWIPE RETAIL transaction.

$38.59 Average transaction using standard sale referenced

$.37 @ .95% interchange, non-negotiable.

$.15 per transaction interchange, non-negotiable.

$.04 Dues and assessments, non-negotiable.

$.08 merchant discount at 20 basis points, negotiable.

$.15 authorization, settlement, capture, varies by vendor, partially negotiable.

$.79 total cost to merchant= 2%

My point is that interchange is only part of the merchant cost. Pin debit has changed in the last 24 months. Merchant used to mostly pay a low fixed cost per transaction, but now that has shifted to more closely resemble the interchange table.

Here’s the same example using Interlink, one of the most popular networks.

$.31 @ .80% interchange, non-negotiable.

$.17 per transaction interchange, non-negotiable.

$.00 Dues and assessments, non-negotiable.

$.08 merchant discount at 20 basis points, negotiable.

$.15 authorization, settlement, capture, varies by vendor, partially negotiable.

$.71 total cost to merchant= 1.8%

A $.23 average pin debit cost is a thing of the past. It used to be a flat fee for pin-debit, but now virtually every network has moved to a percent of the sale, plus a pretty high transaction fee and no cap.  See    Pin-debit network fees 2010 chart for more details.

Media reports of merchants adding 1-2% to their products and services to cover costs is probably not enough on the low end. The ‘targeted average interchange is 1.79%’ according to a Visa report two years ago. Only the most efficient merchants are achieving that. Small businesses and many other retailers average over 2%. Internet companies pay higher fees. 2% tacked on to goods and services is more realistic.

PART 2 WHAT IT WILL COST UNDER THE NEW PLAN

Here’s what the proposal states. “Two alternative interchange fee standards would apply to all covered issuers: one based on each issuer’s costs, with a safe harbor (initially set at 7 cents per transaction) and a cap (initially set at 12 cents per transaction); and the other a stand-alone cap (initially set at 12 cents per transaction).”

It LIMITS what card issuers -the banks- can collect! It does not limit what the associations i.e. MasterCard, Discover, and Visa who set interchange rates, can charge. Merchants who think they’ll be paying $.12 a transaction in the future are being misled. Costs will almost certainly go down, but who knows what this will really shape into.

HOW CAN MERCHANTS LEVERAGE DEBIT INTERCHANGE FEE CHANGES

One idea being bandied about is discounts. The same Federal legislation signed into law in July 2010, enables merchants to offer discounts to buyers. For example, a merchant can offer a discount if the consumer chooses debit over credit.

What merchant will want cashiers making decisions about whether the card qualifies and how much of a discount the consumer can receive? The mistakes alone could offset any gains. Lucky for me, we have a technology solution that solves this problem for merchants. Here are some key elements:

• Identifies type of card.
• Automatically calculates discount and puts it on customer receipt.
• Merchant can view trends to determine when to offer the discount. For example, why offer a discount in the morning, if most customers already use their debit card during that time of day?
• Merchant can remotely turn on and off messaging at the consumer terminal with the discount offer.
• Cashiers are completely removed from the process of identifying any type of card. This has proven to increase pin-debit penetration from under 15% to over 75%.

THE REWARDS CARD DEBATE

Are consumers so attached to their rewards they won’t give them up? Everyone understands there is a cost associated with rewards, right? Banks will have to adjust their fees or their rewards plans, but it’s only debit cards, because credit cards are not affected by the proposal. Banks have been expanding rewards card plans on debit cards to collect more fees.  When the consumer enters their pin number, the bank won’t get that fee any more. The merchant also reduces risk because chargeback’s are eliminated. In my opinion, consumers will choose free use of their debit cards over rewards, and simply switch banks if they have to pay a fee.

What will merchants really pay in debit card fees under Fed proposal? I don’t know, but I’m certain of one thing. It won’t be $.12 a transaction.