Transcript City of Columbia - Merchant Services Presentation

Credit / Debit Card Electronic Payments Industry
Update on Convenience Fees, Utility Program and More!
Presented by:
Michael Hodge, Regional Manager
U.S. Bank Merchant Payment Services
Tel: 503/693.6406
Fax: 503/693.6450
Email: [email protected]
May 09, 2008
Electronic Payment Processing - Methods









Point of Sale Terminals (dial, IP, wireless, conv / service fees)
Point of Sale Software Solutions
Kiosks
IVR (interactive voice response / automated touch-tone)
Web
Recurring Payments
Convenience / Service Fee Solutions
Electronic Check Conversion and Check Verification
Stored Value Card and Gift Card Solutions
Electronic Payment Processing – Methods (cont’d)
Point of Sale Software / Payment Gateways





Turns a desktop PC into a point of sale payment processing solution
Provides cost savings by leveraging your existing PC
Eliminates the need for additional phone lines / terminal devices
It may also be possible to process transactions through existing
accounting software vendors, assuming they have a card payment
module and payment gateway (i.e. Verisign, Authorize.Net, PC Charge,
etc.) that is compatible with merchant processor’s processing
network. This may allow you to integrate a payment solution with your
accounting system(s).
Direct payment gateways (rather than utilizing a third party gateway)
can minimize the number of parties involved for a simpler and more
cost effective solution.
Payment Trends

Government entities accepting credit / debit cards and
ACH for payment more than ever before

“Do More with Less”

Constituents desire for other, more convenient payment
methods

Web and IVR payment solutions

Convenience Fees (fees charged to the payer to recoup
processing costs) becoming commonplace
Merchant Card Processing Fees
Pricing Structures (“Interchange Plus” / “Tiered”)
Interchange Plus = Offers Acceptors the most fair and equitable way to be assessed
processing cost.
Interchange = The cost associated with the Issuing component of the credit / debit card.
Assessment = The cost, per transaction, the Association members (MasterCard / Visa) charge.
MasterCard assessment (.0950%), Visa assessment (.0925%).
Plus = The fees charged by the merchant processor
Interchange and Assessment are not negotiable; they are the same for all service providers.
Tiered = generally means that processing cost are based on 3-5 different levels of pricing, such
as traditional consumer card-swiped (qualified), traditional consumer card “hand-keyed”
(mid-qualified), Corporate/Purchase/T & E Cards (non-qualified), Debit / Check Cards and
Rewards Cards.
Tiered pricing takes into account Interchange and Assessment cost components.
* Remember that in Public Sector, the Association members offer the same Interchange level
for traditional consumer card present and card not present transactions.
Interchange & Assessments
Public Sector
Consumer
Credit Card
Visa
Interchange
Category
Private Sector
Off-line Debit
Card
Consumer Credit Off-line Debit
Card
Card
% Rate
Per
Item
%
Rate
Per
Item
Visa Interchange
Category
% Rate Per Item % Rate
CPS Retail 2
Card Present
(Emerging
Market)
1.43%
$0.05
0.80%
$0.25
CPS Retail
1.54%
$0.10
1.03% $0.15
CPS Retail 2
Card Not
Present
(Emerging
Market)
1.43%
$0.05
0.80%
$0.25
CPS Card Not
Present
1.85%
$0.10
1.60% $0.15
Per
Item
Fees above do not include Assessments (Visa Assessments = 0.0925% / MasterCard Assessments = 0.095%) or service provider’s fees.
Off-line Debit refers to signature based (non PIN based) debit / check card transactions
Emerging Market / Public Sector, and Utility
Interchange Programs

Merchants accepting credit and debit card for utility payments would have their choice of
the Public Sector / Emerging Market or Utility Interchange programs.

One of the primary conditions of the Visa / MasterCard Utility programs is that convenience
fees not be charged to the cardholder. However, if the merchant is charging, or were to
charge convenience fees to the payer, the merchant could still take advantage of the
preferred Public Sector / Emerging Market Interchange programs.

For instance, let us consider a transaction for $100.00. Comparing the two pricing
programs yields the following processing fees (assuming a $100.00 traditional consumer
Visa credit card transaction). Assumption is Interchange plus 25 basis points (0.25%)
Public Sector / Emerging Market Program (example)
Processing Fees:
($100.00 x 1.7725% = $1.7725 + $0.05 = $1.8225)
Utility Program (example)
Processing Fees:
($100.00 x 0.0925% = $0.0925 + $0.75 = $0.8425)
In this example, the difference in processing fees between these two pricing programs is
$0.98 (54% savings) for this $100.00 transaction as a result of the Visa Utility program
pricing.
* Take note Visa / MasterCard offer special Utility Interchange Level for consumer card, yet only Visa offers a
special Utility Interchange Level for business / purchasing card transactions.
PIN Debit
Research indicates that 20% or more of electronically processed transactions are
debit card transactions. PIN debit allows for a flat fee to be applied to these
transactions, rather than the ‘rate plus a per transaction’ fee structure. A merchant
could potentially minimize processing fees significantly by using this service.
For instance, let’s say the transaction in question was $100.00. Comparing the two
pricing programs (non PIN debit vs. PIN or PIN-less debit) yields the following results
(assuming a $100.00 Visa debit / check card transaction).
Non PIN (or non PIN-less) Debit
Processing Fees:
$1.48 ($100.00 x 1.08% = $1.08 + $0.40 = $1.48)
PIN Debit (PIN entered with the transaction)
Processing Fees:
$0.70 (1 transaction x $0.70 flat PIN debit network
authorization fee)
In this example, the difference in processing fees between these two pricing
programs is $0.78 (approximately 50% savings) for this $100.00 transaction as a
result of utilizing PIN (and / or PIN-less) based debit processing services.
Please note that pin pad equipment for point-of-sale and / or software that can
accommodate PIN-less debit would be needed to process debit / check card
transactions in the above mentioned manner.
Convenience / Service Fees







Fees charged to the payer to recoup processing costs
Card Associations’ have rules governing how and when
convenience fees can be charged
Rules are subject to change and interpretation
Typically there must be a “convenience” tied to the
transaction (i.e. non-in person payments)
Rules differ for tax payments versus non-tax payments
MasterCard and Visa rules differ; however if you intend to
accept Visa AND MasterCard then Visa rules take precedent
Merchant is ultimately responsible for compliance with rules
(not a service provider that may have indicated merchant is
not required to follow the rules)
Please note that the information contained within this presentation contains an overview only of convenience fee rules. The rules are
subject to change. The Card Associations ultimately establish and interpret the rules, and determine whether a merchant is in or is
not in compliance with said rules.
Convenience / Service Fees (cont’d)

Tax Payments
-
-

convenience / service fees on Visa / MC transactions in all
payment environments, including in-person, are allowed
convenience / service fees can be percentage based or tiered
(i.e. 2%)
differentiated convenience / service fees allowed for check (ACH)
versus card payments
Non-Tax Payments
-
-
-
convenience fees not allowed in-person (Visa)
convenience fees are allowed in-person (MasterCard)
other conditions used to apply (i.e. separate line and clerk for
credit / debit card payments; MasterCard payments only since
Visa does not allow)
differentiated convenience fees not allowed by Visa, but are
allowed by MasterCard; MasterCard payments only since Visa
does not allow
convenience fees are to be flat (i.e. $1, $1.50) per Visa
direct payments to non-in person payment environments where
possible, if you wish to charge a convenience fee, free up office
resources, and maintain compliance with Card Association rules
Convenience / Service Fees (cont’d)
Latest Trends:
- Kiosk solutions
- Over-the-counter (conv fee) terminal applications
- Web Payments
- IVR
Trends further indicate a shift toward low to no cost
convenience fee applications. With these applications,
the service provider essentially manages the costs (by
means of the convenience / service fee charged to the
payer) on behalf of the merchant so that the merchant
is “revenue neutral” (i.e. not making money on the
solution, and incurring little to no costs to provide the
service).
PCI Data Security Standards (PCI DSS)

Only work with service providers that are dedicated
to keeping payment data secure

PCI compliance

Data security and assessments

Training opportunities

Visa / MasterCard Web sites for listing of compliant
service providers (www.visa.com – search CISP-compliant service providers)
Questions?