To Swipe or Not to Swipe

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To Swipe or Not to Swipe
Understanding The Cost of Credit Card Payments
RIEMER WEEK 2006 HYATT REGENCY RESORT AND
SPA GAINEY RANCH SCOTTSDALE, ARIZONA
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The PlayersThe Choices

• Issuers
• Financial Institutions that issues cards to
  consumers.
• Acquirers
• Institution or Bank that represents merchants in
  accepting credit cards
• Card Associations
• Visa
• MasterCard
• American Express
• Discover
• JCB

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2005 US Card Statistics
Volume ( Billions)
Visa
1,341
Volume Share
MasterCard/Diners
732
American Express
327
MasterCard/Diners
Discover
96
29.3
Visa53.7
Volume Growth
13.1
AmericanExpress
Visa
639 B
10.9
Discover3.9
MasterCard/Diners
450 B
7.7
American Express
14.9
326 B
75 B
Discover
5.1
Four Quarters Ending June 30, 2005 Source Visa
USA Finance Enterprise ReportingNote Diners
volume is now reported as part of MasterCard due
to the MasterCard/Diners alliance program
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Emerging Markets as Growth Engines2005 US Visa
Volume
Source Visa Volume Report
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Merchant Value PropositionWhy do merchants
accept cards?

• Widely accepted payment method, easy to pay
• Business demand
• creating a competitive landscape around payments
• Business Self Care e-bill potential
• Customer retention
• Business models built around fast, efficient
  payment system
• Improved cash flow, lower handling costs
• Payment (provisional) guaranteed to merchant for
  authorized / approved transactions
• Chargeback liability still exists for merchants

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Cost Elements of Card Acceptance

• Interchange
• Set by Visa, MasterCard, Debit Networks
• Variable rate by industry, payment channel
• Collected by Card Processor
• Paid to Issuer of the credit card
• Dues Assessments
• Set by Visa, MasterCard
• Collected by Card Processor
• Paid to Visa, MasterCard
• Acquirer Fees
• Set by the Card Processor
• May be a Discount Rate, or Unbundled

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Pricing Methodologies

• Discount Rate
• Includes ALL fees-typically including
  Interchange, Dues/Assess, Acquirer Fees. One
  rate theory
• Unbundled
• Breaks out costs to merchant
• pass-through Interchange Dues Assessments
• Acquirer Fees for Authorization, Settlement,
  Chargebacks, Voice Authorizations, etc.
• May include additional per transaction fees,
  plus Chargeback Fees

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Pricing Methodologies
(the nitty-writty stuff)
The DISCOUNT RATE CONTRACT FEE - - Based on
Volume, subject to annual review. Established
by annual contract. Example 100MM processed
1.45 base rate INTERCHANGE RATE - - Fees
charges based on level of qualification, type of
card, fraud protection efforts by merchant.
Varies with EVERY transaction. Example Visa
Credit Card used, card not present, no
signature Rate would be 1.85 for this
transaction DUES/ASSESSMENTS - - Set by Card
Issuer (Visa or Mastercard) Adjusted in October
and April each year PRESENT RATE VISA
.0925 through 04/07 MASTERCARD .095
through 04/07 ACQUIRER FEE - - Set by Credit
Card Processing Partner Adjusted in October and
April each year Example .10 per
transaction, .15 per transaction
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Pricing Methodologies
(MORE nitty-writty stuff)
DISCOUNT RATE is billed as one lump sum for each
transaction and subtracted from the amount paid
to you, the merchant at time of
settlement. EXAMPLE TOTAL OF ALL FEES - -
Based on a 5,000.00 transaction Contract fee _at_
1.45 72.50 Interchange fee _at_ 1.85
92.50 Dues/Assessment fee _at_ .0925
4.63 Acquirer fee (tied to Interchange)
.10 TOTAL FEES 169.73 3.4 of
the sale Misconception - - Contract fee is the
ONLY fee, because merchant signed only the
contract.
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Pricing Methodologies
LEARNING THE CODES
CSV Card Security Verification 3-4 digits
on the back of a credit card/debit card AVS
Address Verification Services Merchant requests
the Zip Code or address numbers of the street
where Cardholder resides (same data for Business
Cards) Can also be described as CVV2 for VISA
and CVC2 for MasterCard or CID for American
Express Discover
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Pricing Methodologies
PERSONAL Credit Card Rate
Fee Settlement CC Swiped, Signed AVS
CSV 1.54 .10 24
hrs CC Not Swiped, Not Signed, No AVS/CSV
2.30 .10 3 days CC Swiped,
under 15.00 purchase 1.65 .04
24 hrs CC punched into terminal AVS
CSV 1.85 .10 24 hrs CC
E-Commerce Internet AVS CSV 1.85
.10 2 days Intl CC Swiped, Signed
AVS CSV 1.10 N/C 2
days Intl CC Not Swiped or Signed, No AVS/CSV
1.60 N/C 2 days Voice
Authorization Call In 2.30 .10
2 days BUSINESS Credit Card CC
Swiped, Signed AVS CSV 1.70
.10 2 days LARGE TICKET PURCHASE
OVER 25,000 CC Swiped, Signed AVS CSV
.95 .35 2 days
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Pricing Methodologies
PERSONAL DEBIT CARD Rate
Fee Settlement DEBIT Swiped, Signed
AVS CSV 1.03 .15 24 hrs DEBIT
Not Swiped or Signed, No AVS/CSV 1.75
.20 24 hrs DEBIT Swiped, under 15.00
purchase 1.55 .04 24 hrs DEBIT
punched into terminal AVS CSV 1.60
.15 24 hrs DEBIT E-Commerce Internet
AVSCSV 1.60 .15 24 hrs DEBIT
CARD Voice Authorization Call In 2.30
.10 30 days
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Pricing Methodologies
PERSONAL Credit Card Rate
Fee Settlement CC Swiped, Signed
AVS CSV 1.64 .10 24
hrs CC Not Swiped, Not Signed, No AVS/CSV
1.95 .10 24 hrs CC Swiped, under 38.64
purchase 1.90 N/C 24 hrs CC
punched into terminal AVS CSV 1.95
.10 24 hrs CC E-Commerce Internet AVS
CSV 1.64 .10 24 hrs CC E-Commerce
Internet NO AVS/CSV 1.74 .10 24
hrs Intl CC Swiped, Signed AVS CSV
1.37 N/C 5 days Intl CC Not Swiped or
Signed, No AVS/CSV 2.10 N/C 5
days Voice Authorization Call In 2.75
.10 30 days BUSINESS Credit Card CC
Swiped, Signed AVS CSV 2.05
N/C 24 hrs LARGE TICKET PURCHASE OVER
25,000 CC Swiped, Signed AVS CSV
1.20 40.00 24 hrs
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Pricing Methodologies
PERSONAL DEBIT CARD Rate
Fee Settlement DEBIT Swiped, Signed
AVS CSV 1.05 .15 24 hrs DEBIT
Not Swiped or Signed, No AVS/CSV 1.64
.16 24 hrs DEBIT Swiped, under 15.00 purchase
1.55 .04 24 hrs DEBIT punched into
terminal AVS CSV 1.64 .16 24
hrs DEBIT E-Commerce Internet AVSCSV
1.05 .15 24 hrs DEBIT CARD Voice
Authorization Call In 2.75 .10 30
days
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Pricing Methodologies
PERSONAL Credit Card Rate Fee
Settlement CC Swiped, Signed
CID 1.00 N/C 24 hrs CC Not Swiped or
Signed, No CID 1.00 N/C 24 hrs CC
Swiped, under 15.00 purchase 1.00 N/C
24 hrs CC punched into terminal CID 1.00
N/C 24 hrs CC E-Commerce Internet
CID 1.00 N/C 24 hrs CC Voice
Authorization Call In 1.00 N/C 3
days
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Controlling Costs
the dollars are in the details

• Interchange Qualification
• The biggest cost element for card acceptance
• Understand the data requirements for your
  merchant category to qualify for the lowest cost
  interchange.
• Interchange downgrades can be expensive and
  difficult to identify
• Monitor, Monitor, Monitor.interchange
  qualification
• Fraud Protection
• AVS, CVV2, CVS2, CID, Verified by Visa,
  MasterCard SecureCode
• Merchant Risk Council (MRC) www.merchantriskcounc
  il.org
• Payment Card Industry (PCI) Data Security
  Compliance
• understand your responsibilities, requirements
  and potential ramifications
• Analyze Chargebacks
• understand why consumers initiate chargebacks,
  your merchants rights and requirements

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TRAIN THE STAFF
Controlling Costs

• Heres why
• Example 5,000 transaction
• AVS/CSV NO AVS/CSV
• VISA CC 77.10 fees 115.10 fees
• VISA Debit 51.65 fees 87.70 fees
• MasterCard CC 82.10 fees 97.60 fees
• M/C Debit 52.65 fees 82.16 fees

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Controlling Costs

• REQUIREMENTS OF THE MERCHANT
• Provide a secure network internally externally
  (firewalls)
• Install encryption software of sensitive Credit
  Card data
• Restrict access to Credit Card Processing System

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Controlling Costs

• ADDITIONAL
• REQUIREMENTS OF THE MERCHANT
• Set-up Merchant Accounts with each Credit Card
  company)
• Have a company website
• Provide a DEDICATED Server for the Credit Card
  Processing System
• Allow 10 days 2 weeks for set-up

Not Mandatory
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Controlling Costs
Appoint a Payments expert

• Refunds
• issuing timely refunds fewer chargebacks
• Customer Service
• Use an 800 or URL on credit card statement to
  allow customers to call you
• Train CSRs to understand the billing process,
  what the customer sees, and empower them to
  provide resolution to avoid chargeback disputes
• Authorize all transactions including backorders
• Unauthorized transactions pay higher rate of
  interchange
• Re-authorize (recycle) declined transactions
• Timely Settlement
• qualified interchange requires settlement within
  specified timeframe after authorization

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3 Primary Suppliers
Processing Equipment

HYPERCOM NURIT VERIFONE-OMNI
Average purchase Price is 500 - 800
Warranty from supplier 5 Years Warranty
from EBay NONE!
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For More Information

• Special thanks to Chase Paymentech for their
  assistance in the preparation of this
  presentation. For further information please
  contact
• CHASE PAYMENTECH
• 1601 Elm Street
• Dallas, Texas 75201
• [phone]

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Questions?
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Thanks for attending To Swipe or Not To
Swipe If you would like this presentation
made to your Finance Department, SALES/Customer
Service Department, or your Credit Association
Group, please contact me Gene L.
Koenigsberg Corporate Credit Collections
Manager Adams Bros Interiors and Cabinets A
division of Clopay Service Company 9100 S. McKemy
Street Tempe, Arizona 85254 T [phone] F
[phone] Email GLKoenigsberg_at_clopay.com