Visa and MasterCard merchant card acceptance policies state that merchants cannot set a minimum for accepting credit cards on a transaction. If you accept the card, you must accept for all transactions. This has not stopped businesses, especially restaurants and quick stop stores from posting signs with $10 minimum charge. The repercussion for merchants can be fines and removal of card acceptance privileges. Additionally there are state laws that address this issue and conflict with the card association regulations.

Why do merchants want to set a minimum fee? The problem is the high cost of credit and debit card processing relative to their profit margins. For example, a typical sale costs the merchant a percentage rate and a per item fee. If 2% plus $.20 per item, that’s the equivalent of 4% fee for accepting a card for payment.

The 2010 Durbin amendment specifically addresses this issue in this section:

• Setting of maximum/minimum transaction thresholds for use of a credit card

It’s important to note that the Durbin Amendment is still a work in progress that will give the Federal Reserve new powers. Not everyone thinks this is a great idea, as we published in the article

Financial Industry responds Durbin amendment on interchange

Merchant services for political campaigns tend to cost more than for retail merchants. Why? The main reasons are their lack of knowledge about the subject and then all the other reasons. Other reasons include how payment is collected, the types of cards presented, and the credit card processing price plans they are on. Below I’ll address each issue in brief.

First their lack of knowledge makes it easier for other companies to charge them more money. Think used car salesmen 25 years ago. Small campaign races will generally pay more than big races because there is little to process. This is simply an ROI issue just like with small businesses. But what about the bigger campaigns?

How do politicians collect money for campaign contributions? The most popular are checks in the mail, donor cards collected at speaking events (check or credit card which is key entered later), and online donations. The donor card exposes the politician to substantial risk. Where are the cards stored while traveling from one event to the next? Who opens the mail? Who keypunches the data? What kind of training have they had in protecting card data? Do you perform background checks on volunteers who see donor cards?

• Reduce risk by keypunching data into a virtual terminal on site.
• Reduce risk and cost by attaching a card reader to a computer. You’ll save about 0.5% by swiping vs key entering.
• Always securely shred card data upon completion of transaction. With a well-developed donor form, you can detach or cut off the credit card data while still keeping critical information on the form such as payment amount. Record the authorization number and date processed on the form for your records.

Costs are affected by the type of card presented for payment. You can’t control this. But you also need to know the merchant services game because this is a big gotcha. In my experience, the card type can relate to the type of race; the bigger dollar donors use rewards or corporate cards. Campaigns targeting smaller donations attract a high amount of debit cards, up to 50%. Here’s the big catch on merchant agreements- QUALIFIED RATE. Chances are 80% of cards presented will never hit the qualified rate. So what’s your non-qualified rate? What’s your best rate for corporate cards for a MOTO merchant account? (Interchange is 2.2% plus $.10 per transaction. )

Common Visa interchange rates for reference: RETAIL= swiped card. MOTO = mail order or phone order. Ecommerce rates are the same, but account set up and rules are different. Below is a very small list of the 500 or so possible rates. We see every day on merchant accounts.

• debit/check card, swipe .95% plus $.20 per transaction
• debit/check card, MOTO 1.53% plus $.10 per transaction
• credit card, swipe 1.79% plus $.10 per transaction
• rewards card, MOTO 1.95% plus $.10 per transaction
• Commercial card MOTO 2.2% plus $.10 per transaction
  Downgrade costs can be nearly 1%, and remember, these are interchange costs. Your fees will be higher.

Credit card processing price plans vary widely for this industry, but in general, are much higher than others. That’s not because the raw costs are higher, its because the payment processors take bigger profits. Remember what I said about the used car salesman. Credit card processing is not the core skill of the average politician and it may not be for the finance manager either. One of the most valuable assets of a politician is their time. Therefore they tend to copy what others in their party are doing, or simply look for the easiest solution that solves many of their time issues.

Ecommerce solutions for politicians are plentiful as they are for non-profits. I have no problem with payment processing costs being higher than average if you get a robust software package at no cost. Companies have to recoup their investment somewhere. But what if you pay for the software and the payment processing?

Let’s look a little deeper into an example such as Click & Pledge. It has lots of cool features to manage donors and build an online community. They also have an integrated payment processing solution option. I had to read several sections a few times, and based on what I read,  I’m still not sure. Can you use their other features but not the payment processing/ They have API section which looks like a yes, but the non-existent comments in the forum make me wonder.

Their rates are among the highest I’ve seen at 4.5% and $.35 per transaction. But wait- that’s not for all cards. “Visa & MasterCard may add additional fees for affinity and cards which earn points. These cards are referred to as non-qualified cards and typically have 1% surcharge associated with them. The fees are not being charged by Click & Pledge and we have no control over which cards will be charged as a non-qualified card.”  So merchants can expect to pay up to 5.5%. Basically they’ve locked in at least 2% profit (also known as 200 basis points) by my estimation, and that’s very high in todays marketplace.

Two percent is about double the norm for a small business from what I’ve seen, although that market is not my specialty. Maybe solutions like this are still a good fit for your campaign. But before  you buy, ask if you’re allowed to use your own merchant account. In most cases you’ll do better far on price and there are other benefits as well. For example, if I were managing your account, I’d make sure you had the right type of merchant accounts for different situations to meet Visa and MasterCard regulations. You’ll get advice and handouts for volunteers on proper data security. We can assist with your check processing, including remote deposit capture. We can assist with payment type and provide risk management advice to help protect you against embarassing data security breaches.

Keep more money from your online donations. Get a merchant account separate from your software or web host.

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.

The FALL 2009 ASSOCIATION INTERCHANGE COMPLIANCE GUIDE included over 100 changes, making it one of the larger updates in recent history. Merchants at the same time were switching suppliers with fever, however the new updates won’t really be felt until the November or December merchant statements are reviewed.

The fall rush to change suppliers is most likely a result of the multiple new Visa fees and the MasterCard brand usage fee added this year, which went into effect April-July. Requirements to qualify for specific interchange rates for International interchange programs are outlined. Many larger merchants will see rates approaching or over 3% when all fees are added, for foreign card transactions. For example, MasterCard
COMMERCIAL DATA RATE II = 2.25 %( US Location w/Global Corporate Acquirer Program Support Fee .55%) . (Non US Issued Cards Only.)

Additionally, as previously reported, new requirements are in effect to qualify for certain B2B credit card transactions. B2B Merchants can expect to see effective rates rising above 3% in the card not present environment.

WORLD ELITE RESTAURANT = 2.20% + $.10
HIGH VALUE RESTAURANT = 2.20% + $.10
ELECTRONIC PAYMENT ACCOUNT DATA RATE I = 2.65% + $.10
ELECTRONIC PAYMENT ACCCOUNT DATA RATE II = 2.40% + $.10

The changes this fall continue to expand the need for merchants to work with processors who provide the following:
- Transparent reporting so the merchant can clearly identify interchange rates qualified for.
- Interchange management- interchange continues to grow more complicated and merchants who best control costs will have a payment processor who helps them with interchange management.
- Flexible Technology to manage interchange- this is probably the single biggest growth area in the payment processing industry as merchants need to get away from static systems and move to smart technology with least cost routing solution.

Are there special credit card processing rates for non-profits?

Yes, there are special rates for non-profits. Specifically, there are special INTERCHANGE RATES. In order to qualify for them, you must be on a price plan that enables you to take advantage of them. We call this wholesale or interchange plus pricing. Typically we offer this for merchant accounts processing more than $1 M annually. Interchange plus is what large companies such as Home Depot or Barnes and Nobel pay. It always includes a % of the transaction, a per item fee, Visa/MasterCard dues and assessments, and a merchant discount. Over 95% of your costs are in the % of the transaction, so that is the area that must be controlled or MANAGED.

The most meaningful way to lower your costs is to hit levels of interchange with a lower rate. We can get your non-profit into a program where you’ll hit interchange rates lower than what most retail accounts pay, that is a lower % per transaction. Some of your transactions such as visa rewards cards will process at the same as for profit companies. However some transactions will process at a lower rate, usually at 20 basis points or .2% lower than the lowest rate for profit companies.

In my experience, most non-profits have not been offered these special interchange rates. You can save $2000-$10,000 per million dollars in donations just on this one item. National non-profits typically save 25-50% by implementing my recommendations and services. Which is easier? Finding a donor to give you $100,000 + every year, or calling me one time and saving that much on your expenses every year?

Here’s how you can check to see if you are getting the best rates for your non-profit.

First Look at your merchant statement. Go to the section, usually the last page or two, which shows INTERCHANGE COSTS. Do you have this section? If not, you are not on a price plan that lets you participate in the program.

Second. If you have the interchange cost section, you’ll see things like VISA RETAIL DEBIT, COMMERCIAL DATA RATE 2 ETC. Do you have one that says EMERGING MARKETS OR EMG MKT? If you do not see this category on any of your past statements, you are not participating in the program.

Both conditions are required whether you are accepting donations online or swiping cards for event registrations and auctions.
If you answered no to either question, and your non-profit is processing at least $1 million annually, please call and I will help you keep more donor dollars to use for your organization programs.

Would you like a PDF presentation with actual examples of what to look for on your merchant statement? Call the hotline 954-942-0483 and we will send it to you.

How do I determine my merchant tier? What is my merchant level? Can I get lower rates with a different merchant level? What are level 4 PCI Compliance requirements? Merchants are rightfully confused about their merchant level, especially small businesses because many times I have heard a smaller company say. “We renegotiated our rate. Our processor told us our volume has grown so they moved us up to the next level.”

I’ve never actually encountered a company that met the criteria for ‘lower rates’ based on qualifying for a new level. See the threshold level chart. This is where the confusion starts.

As you can see, only the largest companies qualify for special lower interchange rates and it is based on VOLUME meeting a specific threshold level. What happens is the salesperson makes up a story to retain the account, or the merchant processor has their own internal criteria that they use to ‘qualify’ a merchant for different rate levels they use. These are not directly tied to interchange, but rather directly tied to the merchant processor profits.

What most merchants need to be concerned about is what level they are required to meet for PCI Compliance because most of them will never qualify for lower interchange tiers. PCI Compliance transaction volumes do not correlate to Visa interchange threshold levels.

The interchange fees summary report by federal reserve of Kansas City in 2005 examines trends in interchange fees, including credit cards and debit cards. What is the economic rationale for interchange fees? What opinions do participants in the payment system have about interchange? What role, if any, should central banks and other public institutions play in establishing or overseeing interchange fees?

The conference included people from all sides of the equation, including industry, banking, and government. The report includes an overview of the interchange system, how it works, and who gets what money. Key sections include:
- A four party card payment system
- Economic analysis of interchange fees
- Network issuer, acquirer, and merchant perspectives
- antitrust and regulatory perspectives
- panel of central bankers
Text includes discussion on pin debit and many important issues.

The summary concludes the need for intervention in the credit and debit card markets was hotly contested and finding a common ground will be difficult. There was agreement more transparency will be beneficial to participants and in the public interest.

Interchange Fees in Credit and Debit Markets Summary of Federal Reserve Bank of Kansas City Conference (PDF download)

Pin debit refers to a credit card transaction in which the buyer enters their 4 digit personal identification number (PIN) into a merchant terminal in lieu of a signature, when using a debit card.

Debit cards are usually associated with a checking account, but may also be a savings account. Regardless of the account, the card will ALWAYS have the DEBIT symbol on the front of the card. Newer cards usually have a holographic Debit symbol.

With PIN DEBIT the merchant pays a fee to the debit network instead of Visa & MasterCard interchange. This fee is under $1.00 per transaction, usually around $0.50 and the fees vary by debit network.

With SIGNATURE DEBIT, Visa & MasterCard have different interchange rates for debit card usage. With very few exceptions, such as processing greater than $420 million annually in debit or for supermarkets, the lowest rate for debit card interchange, which all payment processors pass on to merchants, is 1.03% plus $0.15 per transaction. More details are available by checking the latest interchange rates.

Pin-based debit transaction merchant fees include:
1. Per transaction charge from your Credit Card Processing services company.
2. Debit network charge (Debit Network Acquirer Fee). This fee varies depending upon your region of the country and the network that the cardmember’s issuing bank belongs to. The region determines which debit network the individual transaction will clear through.

Debit network acquirer fee examples:
Interlink Retail $0.175 + .75% (max of $0.525)
NYCE Retail Std $0.1375 + .65% (max of $0.6875)
Pulse (Includes Tyme) 0.16 + .65% (max of $0.71)
STAR (Includes MAC, Cash Station & Honor) $0.1625 + .65% (max of $0.6425)

Pin debit is best used if your average transaction is over $25. That’s generally a good break even point as to whether it’s cheaper to process via pin debit or signature debit.