Annette Slidge, Sr. Director

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Merchant Processing Overview

• Annette Slidge, Sr. Director
• Paul Gurtner, Director
• Chris Moore, Client Executive
• Glen Green, Regional Sales Manager,

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Agenda

• Merchant Processing 101
• Process Flow
• Merchant Processing Expense
• Statement Review
• Back Office
• Municipalities and Localities
• Payment Card Industry Data Security Standard
  (PCI-DSS)
• Value Added Services
• Electronic Check
• Gift Card
• Convenience fee Guidelines
• Durbin Amendment

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Merchant Card 101The lesson begins
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Define Whos Who

• Issuer A financial institution or other entity
  that issued the Credit Card or Debit Card to the
  Cardholder.
• Acquirer Financial institution or other entity
  that enrolls merchant for the purpose of
  presenting transaction to the Card Assoc, and
  funding merchants for transactions presented to
  the Acquirer
• Card Association MasterCard and Visa
• Consumer Any individual who possesses or uses a
  Payment Device
• Merchant Entity identified on or under a
  processing agreement permitted to submit payment
  to Acquirer.
• Interchange The clearing and settlement system
  for Visa, MasterCard, Discover and Debit Cards,
  where data is exchanged between Acquirer and the
  Issuer through the applicable Card association.
• Foreign network Authorization and Settlement
  network other than Elavon
• Authorization The approval of credit worthiness
  of the transaction
• Settlement The closing of credit card batches
  and the start of the movement of funding to a
  Merchant.

Elavon is YOUR Global Acquiring Solution!
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Process Flow
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Process Flow - Authorization
E-Commerce Transaction
ProtoBase
Counter Transaction
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Process Flow - Funding
E-Commerce Transaction


ProtoBase
Counter Transaction
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Merchant Processing Expenses
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• Association fees
• Interchange Cost
• Assessment Fees
• Miscellaneous Fees
• Elavon Costs
• Processing Fee
• Voice Authorization
• Chargeback

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• Interchange Expense
• Card Brand Fees

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Interchange Costs

• Managed and updated by the Card Associations
• Interchange costs vary in amount based on
• Industry type
• Manner which cards are authorized
• Timeliness of settling batch for payment
• Additional Data provided at the Point of Sale
• Card Product (Consumer, Check Card,
  Commercial/Corporate, Rewards)

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Interchange Fees Best Rates
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Interchange Fees

• Scenario 1 Retail Customer makes a purchase
  with a consumer Visa card at the Department of
  Motor Vehicle. Mag-stripe is read and the
  transaction is settled within 24 hours.
• Scenario 2 Card Not Present Customer calls the
  Department of Motor Vehicles to make a purchase
  with a Corporate Visa.

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Interchange Costs Card Association

• Card Association Fee
• MasterCard Assessment fee is 0.11 plus the
  Network Access Brand Usage (NABU) of 0.0185.
  This is billed on all transactions including
  Sales and Refund settled Items.
• Visa Assessment fee is 0.11 plus the Network
  Acquiring Processing Fee (NAPF) of 0.0195 on the
  Authorization.
• Visa also has authorization-based fees to promote
  the merchant proper use of the Card member credit
  availability.
• Zero Floor Limit Fee applied to any Visa clearing
  transaction submitted without proper
  authorization, 0.10 per transaction
• Mis-Use of Auth Fee applied to authorizations not
  matched by a clearing transaction, 0.045 per
  transaction
• Account Verification allowing merchant to verify
  a cardholder account status with zero dollar
  amount, 0.025 per transaction

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YOU Can Help Control Costs Remember These
Interchange Tips

• Consider
• Only One Authorization per Transaction
• Consider Account Verification Status Check
  according to business need (remember it costs
  0.025/trans)
• Avoid processing 1 Pre-Auth with no matching
  settle transaction (remember it costs
  0.045/trans)
• Avoid processing 1 Sale with no matching settle
  transaction or void (remember it costs
  0.045/trans)

• Always
• Close Batch Daily if not setup on Auto-Close
• Always follow POS device transaction prompts
  entering valid data not pressing enter or 0 to
  by-pass the prompt
• Hand-keyed Transactions Always Enter Address
  Verification ((AVS) Zip Code)
• Commercial Cards Always Enter Sales Tax and
  Customer Code When Prompted at the Point-of-Sale

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• Elavon Fees

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Elavon Costs Processing Fee

• Transaction processing fee
• 0.025 per transaction (level II)
• Voice authorization fee
• 0.55 per VRU
• 0.65 per voice with AVS
• 1.25 operator assisted transaction
• 3.00 Bank Referral Authorization
• Chargeback fee
• 5.00 per chargeback
• On-Line Reporting
• Merchant Connect Free

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Statement Review
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Statement Section

• Merchant vs. Chain Statement
• Section of Statements
• News For You
• Summary
• Volume Recap
• Deposits
• Visa/MC/Discover/American Express Processing
  Charges
• Card Association Fees
• Other Transaction Charges
• Authorization Fees

Elavon is YOUR Global Acquiring Solution!
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Voice Authorization
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Voice Authorization Is

• An authorization process whereby Merchant calls
  the Voice Authorization Center and provides
  Cardholder credit card/purchase information over
  the telephone
• An operator or an interactive voice response
  (IVR) unit provides Merchant with the
  Authorization Code given by the Card Issuing Bank
• When is this Process Used?
• When the response to an authorization at the
  point-of-sale is Referral or Call Auth
• Merchant can also use this process if an Approval
  Code is received, but is still suspicious about
  the Cardholder, Card or circumstances of the
  Transaction
• - When suspicious, call Voice Authorization
  request a Code 10 Authorization-

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Voice Authorization Definitions

• Referral or Call Auth
• Indicates the Card Issuing Bank is requesting
  Merchant to call the Voice Authorization Center
• Voice Authorization Center will provide
• an Approval Code or ask Merchant to request
  additional information from cardholder (e.g.,
  mothers maiden name, city of birth, first
  elementary school)
• Voice Authorization Center routes this
  information to the Card Issuing Bank which
  provides either an Approve or Decline the
  Transaction
• Code 10
• Term used by the Card Associations referring to
  suspicious or questionable transactions, Cards or
  Cardholders
• When Merchant is suspicious of a Card
  Transaction, contact the Voice Authorization
  Center and request a Code 10 Authorization.
  Using the term allows Merchant to question
  Transaction without alerting the Cardholder
• Follow the instructions given on how to proceed
  by the Voice Authorization Center to minimize any
  discomfort between you and the Cardholder

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Chargeback
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A Chargeback Is

• A transaction disputed by the Cardholder or Card
  Issuing Bank
• If a Merchant receives a Chargeback, the Acquirer
  will debit the Merchants DDA (checking account)
  or designated Chargeback account for the amount
  of the Transaction
• There are many reasons for chargebacks, but the
  most common are
• Returned merchandise
• Terminated services
• Disputes, errors, or fraud
• Merchants must be able to provide proof that the
  disputed transaction is valid and in accordance
  with Visa/MasterCard regulations or risk having
  their account debited for the disputed
  transaction amount as well as chargeback fee

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What Does a Chargeback Mean to Me?

• For the merchant, a chargeback translates into
• Additional processing time and cost
• A more narrow profit margin for the sale
• And, possibly a loss of funds/revenue
• Important Note
• Carefully track and manage the received
  chargeback disputes
• Take steps to avoid future chargeback disputes
• Know your re-presentment rights to chargeback
  disputes
• Always consider taking measures to recover
  losses from customers who are financially liable
  for transactions that were charged back to you,
  the merchant

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Chargeback Info Tips

• While it may not be possible to eliminate
  Chargebacks entirely -
• Merchants can reduce the occurrences by promptly
  resolving issues and disputes with the Cardholder
• Merchant should follow the proper established
  Card Association Authorization and Processing
  procedures
• Chargebacks can be costly, you can help make
  every effort to prevent the chargeback

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How to Prevent Chargebacks

• Remember to-
• Avoid duplicate processing of a Transaction
• Work with the Cardholder to resolve disputes
  regarding the quality of merchandise or services
  rendered
• Refuse to process a Transaction when you receive
  a Declined Code during Authorization
• Call for Voice Authorization if needed
• Call for Code 10 Authorization if you are still
  suspicious of the Cardholder, Card or Transaction
  after receiving an Approval Code

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How to Prevent Chargebacks

• Remember to-
• Verify that Transaction Receipts equal the POS
  device to eliminate duplicate transactions
• Include a description of goods or services on the
  Transaction Receipt
• Deliver merchandise or services before charging
  the Card
• Obtain an Authorization Code
• Include the CVV2/CVC2 and AVS Codes for Card Not
  Present Transactions if applicable
• Submit Transaction Receipts on the same day
  Transactions are authorized

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How to Prevent Chargebacks

• Remember to-
• Make sure an Imprint appears on Manual
  Transaction Receipts or that the relevant
  Transaction information appears on the
  Terminal-generated Transaction Receipt
• Do not accept expired Cards or Cards having
  effective dates prior to the date of the
  Transaction
• Make sure the signature on the Transaction
  Receipt matches the signature on the back of the
  card

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Municipalities and Localities
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Break Time
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Payment Card Industry Data Security Standards
Are you compliant.
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Payment Card Industry - History

• Visa instituted the Cardholder Information
  Security Program (CISP) in June 2001, the program
  is intended to protect cardholder datawherever
  it residesensuring that merchants, and service
  providers maintain the highest information
  security standard.
• The CISP and related MasterCard Site Data
  Protection (SDP) programs were implemented to
  help ensure consumers that the businesses they
  are dealing with maintain the security of their
  bankcard account and other personal identifiable
  information.
• Visa and MasterCard aligned their security
  requirements in December 2004 to form a Payment
  Card Industry Standard for Security.
• PCI Data Security Standard requirements can be
  found at https//www.pcisecuritystandards.org .
• These data security requirements require all
  entities that store, process, or transmit card
  data to be compliant with these payment card
  industry standards for security.
• This program generally requires all merchants who
  store, process, or transmit card data to
  complete an annual security questionnaire and
  have their IP addresses scanned quarterly by a
  VISA/MC certified vendor.
• Compliance has many benefits Safe harbor from
  fines if a location is hacked and the VISA/MC
  good seal of approval for processing, customer
  confidence and maintain brand reputation.

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What level is your account?

• PCI-DSS is categorized into 4 levels
• Level I Any Merchant processing over 6MM Visa
  transactions annually
• Level II Any Merchant processing between 1MM
  6MM Visa transactions annually
• Level III Any Merchant processing 20K 1MM
  Visa E-commerce transactions annually
• Level IV Any Merchant processing less that 20K
  Visa E-commerce transactions, or less than 1MM
  Visa transactions regardless of the channel

PCI-DSS
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12 Guidelines for PCI Compliance

• Install and maintain a firewall configuration to
  protect cardholder data
• Do not use vendor-supplied defaults for system
  passwords and other security parameters
• Protect stored cardholder data
• Encrypt transmission of cardholder data across
  open, public networks
• Use and regularly update anti-virus software
• Develop and maintain secure systems and
  applications
• Restrict access to cardholder data by business
  need-to-know
• Assign a unique ID to each person with computer
  access
• Restrict physical access to cardholder data
• Track and monitor all access to network resources
  and cardholder data
• Regularly test security systems and processes
• Maintain a policy that addresses information
  security

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Non-Compliance Risks, Fines, Fees, Costs, Loss

• Damage to brand/reputation
• Investigation costs
• Remediation costs
• Ongoing compliance audits
• Victim notification costs
• Financial loss
• Fines Fee
• Non-compliance (each brand issues separate fines)
• Re-issuance
• Fraud Loss

• Data loss
• Chargebacks for fraudulent transactions
• Operations disruption
• Sensitive info disclosure
• Denial of service to customers
• Possibility of business closure
• Potential legal liabilities beyond the
  Association rules

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4 New PCI DSS Self Assessment Questionnaires (SAQ)

• In an effort to make the process of becoming PCI
  DSS compliant more streamline, the PCI Council
  has developed 4 new SAQs for merchant
  validation. New SAQs are as follows
• SAQ A  Addresses requirements applicable to
  merchants who have outsourced all cardholder data
  storage, processing and transmission.
• SAQ B  Created to address requirements pertinent
  to merchants who process cardholder data via
  imprint machines or standalone dial-up terminals
  only.
• SAQ C  Constructed to focus on requirements
  applicable to merchants whose payment
  applications systems are connected to the
  internet.
• SAQ D  Designed to address requirements relevant
  to all service providers defined by a payment
  brand as eligible to complete an SAQ and those
  merchant who do not fall under the types
  addressed by SAQ A, B, or C.
• The new questionnaires and further information
  can be found at https//www.pcisecuritystandards.
  org

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Compromise Statistics
Food Service Industry represents the majority of
the compromises Retail Industry is the next
largest industry with compromises
Trustwave data is gathered from more than 300
card compromise cases
Source of data is from the Trustwave March 2008
quarterly report
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Value Added Services
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Value Added Services

• Electronic Check Services (ECS)
• Conversion
• Conversion with Verification
• Conversion with Guarantee
• Gift Card
• Closed network solution
• Reloadable Card
• On-line Services
• Outsourcing to Elavon for delivering cards

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Elavon ECS Solution Offering
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Elavon's Electronic Check Service

• Innovative product that supports full portfolio
  of flexible solution and service level options
• Not a one-size-fits-all solution
• Provided in partnership with leading financial
  institutions
• Extension of services from bank partner, not
  third-party provider
• Retailer gets one-stop solution for debit and
  credit cards, electronic check, consolidated
  statements and even online reporting
• Extensive image storage and reporting capabilities

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Checks Supported

• Supported with Single Sided Imagers
• Consumer checks
• Business Checks
• Corporate Checks
• Convenience Checks

• Supported with Dual Sided Imagers
• Money orders
• U.S. treasury checks
• Cashiers checks
• Federal Reserve checks
• Government Checks
• Payroll checks
• Third-party checks
• Travelers checks

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ECS Service Level Options

• Conversion with Guarantee
• Checks are converted into electronic transactions
  and all funds are guaranteed
• All paperwork is eliminated no follow-up needed
  from merchants
• The retailer assumes no risk for all qualified
  and approved transactions
• Conversion with Verification
• Checks are imaged and converted into electronic
  transactions
• Routed for verification either through the
  participating Visa bank or through EnCircle for
  ACH submission
• Retailer retains the risk of returned items for
  all transactions
• Conversion only
• Checks are imaged and converted into electronic
  transactions, retailer performs own authorization
• Retailer retains the risk of returned items for
  all transactions

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Point of Purchase (POP) Solution

• Enables merchants to convert checks to electronic
  transactions in a check present/consumer present
  environment at the time of check acceptance
• Utilizes Direct DDA, the ACH network and Check
  Replacement Documents (CRDs) for authorization
  and clearing
• Signature required
• Check must be returned to check writer
• Posted and take away consumer notification
  required

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Accounts Receivable Conversion (ARC) Solution

• ARC is used for check present/consumer absent
  transaction environments
• receivable payments
• mail order receivables
• drop-box/lock-box environment
• Customers are provided a notice explaining that
  checks will be processed electronically
• Offer Consumer Opt Out Service with PC Solution
• Utilizes the ACH network and Check Replacement
  Documents (CRDs) presenting and clearing
• Online real-time or batch delivery of transactions

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Elavon Gift Card Solution
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Gift is a Quickly Growing Industry

• Gift Card Sales
• 50 billion in 2005
• 57 billion in 2006
• 61 billion in 2007
• 65 billion in 2008 (estimated)
• 80 billion by 2011
• Gift Card Popularity
• The 1 gift during the holiday season
• 50 of gift cards received during the holiday
  season were redeemed by the end of January
• Average breakage ranges from 4-15

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Its Much, Much More than a Gift Card Program

• Promotional Marketing Tools
• Discount cards mailed to target prospects
• Gift with purchase
• Come back rewards
• Corporate Incentives
• Sell to companies to use as employee incentives
• Use internally for rewards or spiffs
• Prepaid Vehicles for Recurring Services
• Coffee shops, auto detail, movie theaters
• Merchandise/Service Returns
• Cash back is not the only way
• Customer Appreciation
• Turn service issues into a retention opportunity
• Fund Raisers
• Sell cards at a discount to schools/non-profits

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Merchant Benefits

• Increased Sales
• Attract new customers to the business
• Retains full face value no cash back
• Switching from paper certificates to gift card
  can result in 2-4 times the volumeby
  capitalizing on impulse purchases
• 61 of recipients spend more than the card value
• Most consumers spend 25 more than the face
  value of the card when redeeming a card received
  as a gift
• Reduced Costs
• More efficient and cost effective than paper
• Industry average is 1.22 to issue and 1.22 to
  redeem
• Increased Security Reduced Fraud
• Cards have no value until activated
• Easy to Use
• Works seamlessly with same solutions used for
  credit cards
• Electronic reporting and tracking

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Guidelines for Convenience fee
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Convenience Fee Rules Overview

• Imposing a Convenience fee is permissible under
  the following conditions
• Transaction must be processed in a non
  face-to-face environment
• The Payment channel needs to provide a true
  convenience to the cardholder and the card member
  must have the ability to pay the transaction in
  another environment without fees
• The fee needs to be disclosed prior to the
  completion of the sale with an opportunity to
  cancel the transaction prior to the cardholder
  being charged.
• This fee must be disclosed as a convenience fee
  and not a surcharge.
• Convenience fee needs to be applied to all
  payment channels (Visa, MC, AMEX, DI, ACH).
• Visa requires that all fees must be a fixed
  amount MC and Discover allow percentage based
  fees.
• Visa requires that all Convenience Fees be
  assessed in the same transaction amount.
• Visa does have programs specifically for Tax
  Payment programs that have different allowances.
• Visa and MasterCard both prohibit establishing
  minimum or maximum transaction amounts for a
  purchase.

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Convenience Fee exception

• Commonwealth of Virginia State Law

2.2-614.1. Authority to accept revenue by
commercially acceptable means service charge
bad check charge. A. Subject to 19.2-353.3,
any public body that is responsible for revenue
collection, including, but not limited to, taxes,
interest, penalties, fees, fines or other
charges, may accept payment of any amount due by
any commercially acceptable means, including, but
not limited to, checks, credit cards, debit
cards, and electronic funds transfers. B. The
public body may add to any amount due a sum, not
to exceed the amount charged to that public body
for acceptance of any payment by a means that
incurs a charge to that public body or the amount
negotiated and agreed to in a contract with that
public body, whichever is less. Any state agency
imposing such additional charges shall waive them
when the use of these means of payment reduces
processing costs and losses due to bad checks or
other receivable costs by an amount equal to or
greater than the amount of such additional
charges. C. If any check or other means of
payment tendered to a public body in the course
of its duties is not paid by the financial
institution on which it is drawn, because of
insufficient funds in the account of the drawer,
no account is in the name of the drawer, or the
account of the drawer is closed, and the check or
other means of payment is returned to the public
body unpaid, the amount thereof shall be charged
to the person on whose account it was received,
and his liability and that of his sureties, shall
be as if he had never offered any such payment. A
penalty of twenty-five dollars or the amount of
any costs, whichever is greater, shall be added
to such amount. This penalty shall be in addition
to any other penalty provided by law, except the
penalty imposed by 58.1-12 shall not apply.
(2002, c. 719.)
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Convenience Fee exception - Courts

• Commonwealth of Virginia Courts Statue

17.1-275. Fees collected by clerks of circuit
courts generally. A. A clerk of a circuit
court shall, for services performed by virtue of
his office, charge the following fees 27. For
the acceptance of credit cards in lieu of money
to collect and secure all fees, including filing
fees, fines, restitution, forfeiture, penalties
and costs, the clerk shall collect from the
person presenting such credit card a reasonable
convenience fee not to exceed four percent of the
amount paid.
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Durbin AmendmentDodd - Frank Act
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Durbin Provisions

• Minimum Purchase Amounts Merchant may now apply
  a minimum fee not to exceed 10.
• Maximum Purchase Amount Government Agencies and
  Higher Education Institutions are now permitted
  to set a Maximum amount
• Surcharge Merchants are not permitted to add a
  surcharge to a transaction amount however,
  merchants are permitted to give a discount or
  offer an in-kind incentive for payment by any
  method of payment (cash, credit, debit etc).
  Merchants may not offer discounts that favor one
  issuer or network over another.
• Debit Interchange Regulations Require that
  Debit Interchange fees be reasonable and
  proportional to the incremental cost to the
  issuer processing the transactions. The Federal
  Reserve will establish standards for assessing
  whether Debit Interchange Fees (general use
  reloadable prepaid cards are exempt) are
  reasonable and proportional. Final Debit
  Interchange Rules will be issued by April 21,
  2011 and will be in effect July 21, 2011

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• We Appreciate Your Continued Partnership!