Why low cost debit card processing might not matter

The vast majority of businesses are offered a low QUALIFIED RATE, also known as a debit card rate, and then other rates kick in. This rate may be meaningless for your merchant account costs, especially if an ecommerce busines or if you have a high dollar ticket average.

To start your review, you need to know what types of cards are typically received in your operation. I call this credit card processing transparency. If you don’t know where you are, you can’t manage it. If your statement doesn’t break out what interchange categories you’re hitting, you need a new processor immediately.

Looking at your statement, what percent of your transactions hit your price plans lowest QUALIFIED RATE? What percentage of your revenues does that equal? I prefer the number of transactions as a key factor since a few unusually large or small dollar transactions could sku the importance of hitting qualified rates.   In a typical card present RETAIL operation, this number is probably in the 20% to 60% range. In that case, you need to focus on ways to reduce your debit card processing, including least cost routing.

But what if you have very little debit card usage? A lot of people won’t use their check card online. A lot of people like to use rewards cards, frequently 50-60% of transactions,  especially if higher dollar purchases. Businesses rarely use check cards.  Your focus should not be on the qualified rate, but on the overall effective rate. I don’t suggest just focusing on the rewards card rate because there are many of them and the most important aspect in controlling costs is the right pricing for all types of cards received.

Case in point:

An ecommerce apparel store has average ticket of $175.  Generally targeting a wealthier demographic, many of the shoppers are executives and business owners. What’s their percentage of transactions use debit cards? 19%. This merchant is on a wholesale price plan with cost plus, also known as interchange plus pricing. Merchants on a typical pricing plan with low cost qualified rate, frequently pay a .40% to 1.0% surcharge for non-qualified transactions, on top of whatever else may apply for the transaction. Confusing? Let me reverse the language. I could charge you a higher qualified rate and still cut your costs if you have a lot of non-debit cards.


1. Your merchant statement must have complete transparency. If you don’t see REWARDS, COMM CARD, CORP DATA RATE I,  and a bunch of other rate categories, call our hotline right now!

2. What percent of your transactions are debit and non-debit? If more non-debit, do you have a great price for that? If you don’t know, call now.

3. Look at your statements every month. As the economy changes, so does card type usage. What was valid last year  may not be this year.

4. If you have more than $100,000 in debit annually, I recommend you speak to a consultant about technologies that could help you reduce your effective rate.

Low cost debit card processing might not matter. You just need to know what to look for and how it impacts your costs.

Senate Approves Debit-Card Swipe-Fee Limits in Bill

U.S. Senate lawmakers handed a victory to retailers over the issue of so-called “swipe fees” for card transactions Thursday evening (yesterday), as antibank fervor continued to play a heavy role in shaping broader regulatory overhaul legislation. Senators voted 64-33 in favor of a measure offered by Sen. Richard Durbin (D., Ill.) that would allow the Federal Reserve to regulate fees on debit card transactions, as well as allow retailers more leverage in negotiating with credit card firms and banks over the fees for card transactions. Nearly 20 Republicans voted to support the measure. The vote sent card companies falling, with Visa Inc. (V) down 7.9% to $79 and Mastercard Inc. (MA) down 7.3% to $215.30, and with Discover Financial Services (DFS) of 2.8% to $14.37 and Capital One Financial Corp. (COF) down 2.6% to $43.75.


The amendment permits retailers to offer discounts for cash, checks or debit cards, or for a particular card brand, and would let merchants set minimums and maximums for credit-card purchases, a practice that is currently against card association rules.

new Mastercard and Discover processing requirements

Calls have been coming in about new MasterCard and Discover processing requirements. Some outlandish, some dead on.

MasterCard and Discover are modifying their rules concerning the processing of debit, prepaid and gift cards. MasterCard’s rule changes go into effect May 1, 2010, and Discover’s rule changes go into effect April 16, 2010. However, MANY ECOMMERCE HOSTS, INCLUDING VOLUSION, AND GATEWAYS, INCLUDING AUTHORIZE.NET,  have gotten an extension.

” MasterCard and Discover have worked together to extend these dates for all merchants using (INSERT VENDOR NAME HERE). Our merchants will now have until June 30, 2011, to implement support for the requirements within their systems.

What are the requirements?
MasterCard and Discover are requiring that all merchants support the following:

– Balance response transactions: For prepaid and gift cards, once the card has been used, the remaining account balance will be transmitted along with the authorization response. The remaining balance must be printed on the customer receipt, displayed on the Web page or point-of-sale terminal, or both.

– Partial authorization transactions: When a customer’s transaction amount exceeds the balance available on their debit, prepaid or gift card, instead of declining the transaction, a partial authorization for the amount available to the customer will be returned. This will allow the customer to pay for the remaining amount with another form of payment. This is called a split-tender transaction.

– Authorization reversals: An authorization reversal is a real-time transaction initiated when the customer decides that they do not want to proceed with the transaction, or if the merchant cannot complete the transaction for any reason. Authorization reversals free up the customer’s available balance on their debit, prepaid or gift card.

Ecommerce companies and gateways are dependent upon processors to exchange the data needed to support the above requirements. Shopping carts need to be able to accept and interact with updated gateway parameters. Gateways need to interact with various processors,  passing data to the gateway, receiving a response, and passing that back through to the shopping cart/ consumer. This is a huge undertaking to ensure all the data passes back and forth correctly.

Excerpt of email received today:

What steps is Authorize.Net taking to support these requirements?
Authorize.Net will be updating our systems over the coming months to support the requirements, but will be dependent on each processor’s readiness. For a table of when we anticipate we will support the requirements with each processor, please visit http://www.authorize.net/support/pafaqs/#when.

What do I need to do to support the requirements?
The steps that you will need to take to support the requirements depend on how you connect to the payment gateway. For example, if you connect using a shopping cart, point-of-sale device, or other solution, you will need to contact your solution provider to confirm that they will be supporting the requirements. If you connect using a direct integration, you should contact your Web developer for assistance. Please direct your Web developer to http://www.authorize.net/support/pafaqs/#do for information on the changes they will need to make.

Do I have to support the requirements?
MasterCard and Discover are requiring all merchants to support the requirements with the exception of merchants that exclusively process transactions via batch uploads, mail order/telephone order (MOTO), or recurring payment transactions. Your Merchant Service Provider (MSP) is ultimately responsible for determining if the requirements apply to your business, so please contact them for assistance in determining if your company is exempt.

Once again, these requirements will not be enforced for Authorize.Net merchants until June 30, 2011. However, we wanted to bring them to your attention now so that you have plenty of time to plan for their implementation.

For more information on the requirements, including how they affect our value-adding services, please visit our FAQ page at http://www.authorize.net/support/pafaqs/.