We have many clients that have multiple merchant accounts. For example, wineries typically have at least two accounts, one for their tasting room set up as a retail account and the other account for their wine club set up MOTO (mail order telephone order). Occasionally they will have a third account for their website, which is set up as a ecommerce account. We set them up this way because it helps them track distinctive parts of their business and most importantly, it saves them money.

Each type of merchant account (Retail, MOTO, Ecommerce, Restaurant, etc.) has different guidelines and rates. So if you have a retail merchant account setup for your website, your transactions will not meet the guidelines of a retail account, resulting in being downgraded which results in a higher rates. I am not going to into specific examples n the post but if you want to see an example of how this works read this post: What is EIRF?

Bottom line: Yes you can, and sometimes should, have multiple merchant accounts. Also, make sure your account is set up correctly to match the environment your transactions are being accepted in.

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I am sure there are going to be some industry insiders that wildly disagree with what I am about to say, but here goes any way. I believe these fees, for the most part, are just another profit center for this industry. Here is why:

• If you pay these fees are you made PCI Complaint? Answer: No you are not.
• Are you given tools or guides for becoming PCI Compliant when you pay these fees? Answer: Only sometimes.
• If you have a security breach and you were not following the rules of the PCI Security Standards Council are you insured against the fines you’ll receive? Answer: Probably not.

So what are you getting for these fees? Most of the time – zip, nada, and nothing!

I know there are exceptions to this but they are few and far between.

The next issue I have with these fees is they typically are added without any foreknowledge of the merchant. In other words they just show up on the statement, with what seems to be hope that the merchant will not see them. If these fees are legitimate why the secrecy? If these fees bring real value why not communicate what that value is? I think the answer is obvious – they provide little to no value so the fees are snuck on to the statement.

The last issue I am going to bring up (I could bring up many more!) is the lack of choice. Typically these fees are not optional, they are mandatory. These fees almost have a feel like they were mandated by the US Government or maybe even God! How dare we question such fees! Here is why I am puzzled about the lack of an option. I have a client that is a restaurant, they have a band new terminal and pin pad, the software file that was installed on that terminal is PCI compliant, the Pin Pad is PCI-PED approved, they have taken their PCI Self Questionnaire. So why do they need to pay this fee, they are compliant, why don’t they have the option to say no to this fee? That would be fair and logical wouldn’t it? I am afraid the answer is that providing such an option would reduce the profit of the merchant account provider.

The truth is that PCI Compliance has created some much needed data security guidelines while at the same time providing a wonderful tool to increase profits for this industry. We can use the fear of a $50,000 fine for not being compliant to manipulate you into paying fees like these. I know this hard to believe that anyone in the financial services area would use such tactics to increase profit. Wait a minute, that is not hard to believe at all is it!

Here are my suggestions for dealing with these fees:

1. If you see these fees on your statements call your provider and ask what you are receiving in return for your money. If you don’t like their answer find a provider who either does not charge these type of fees or actually provides something of value for the fees.

2. Educate yourself on becoming and staying PCI Compliant. Here are some links check out:

The Basics of PCI Compliance

PCI Compliance Guide

PCI Security Council

Security Metrics (They will assist you in becoming compliant)

PCI DSS News and Information Blog

PCI Compliance Demystified blog

Bottom line: Educate yourself about PCI Compliance, take what ever steps you must to become PCI compliant and stop paying these fees if they provide no real value for your business.

Please feel free to add your comments below. I would love to have someone defend these fees, I am very open to being wrong on this.

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Master Card

Change #1 – MasterCard will no longer require the registration of utility merchant locations (MCC 4900); the “U” code is no longer a requirement to qualify for existing Utility Interchange programs.

Change #2 -The following merchant categories with consumer debit transactions will no longer be eligible for the UCAF Debit (Full and Merchant), Merit I Consumer Debit, and Merit III Consumer Debit interchange programs:

• Insurance-Direct Marketing (MCC 5960)
• Insurance- Sales, Underwriting, and Premiums (MCC 6300)

Change #3 -MasterCard will no longer allow Real Estate merchants (MCC 6513) with consumer debit transactions to qualify for Merit III (Base) interchange rate programs.

Visa

Change #4 -Visa is making two adjustments that will affect U.S. transactions processed under all three commercial products (Small Business, Corporate, and Purchasing Cards):

• The Level 2 interchange rate will be increased by five basis points.
• The Standard interchange rate will be increased by 25 basis points.

Change #5 -Additionally, Visa is making adjustments specific to Visa Corporate and Visa Purchase Card products:

• For Visa Corporate products, Visa is reducing the Retail interchange rate by 10 basis points and increasing the Electronic interchange rate by five basis points.
• For Visa Purchase Card products, Visa is increasing the Retail interchange rate by 10 basis points, the Card Not Present interchange rate by 15 basis points, the Electronic interchange rate by 20 basis points, and the GSA Large Ticket rate by 25 basis points and $4.00 per transaction. The GSA Large Ticket program will no longer have a $5,000 minimum.

Change #6 -Visa is introducing a new interchange fee program and rate for domestic debt repayment transactions. The CPS Debt Repayment program (Fee Class 177, 0.35% + $0.50) is limited to Visa consumer debit cards on collectible consumer debit for auto loans, credit card payments, mortgage payments, and student loans.

• CPS/Debt Repayment requirements:
1. US Merchant registered with Visa with MCC of 6012 (Financial Institutions-Merchandise and Services) or 6051 (Non Financial Institutions- foreign currency, money orders (not wire transfer) and travelers cheques.
2. Card must be issued in US
3. Merchant Verification Value must be present and valid
4. CPS requirements are met
5. Processing code must be 50
6. Market specific data identifier must be B (Bill Payment)
7. Special condition indicator must be 9 (existing debt indicator)

And you thought you knew something about how merchant accounts work! After reading this I am sure you now have an idea of how deep the rabbit whole can go when it comes to these things. I even held back disclosing all the changes because most of them will not affect 99% of merchants.

Here are some of my summary thoughts on these changes:

• Most importantly, unless you are accepting payments from government entities or are primarily taking Visa Corporate Cards these changes will have very little, if any effect on you.
• If your rates were increased across the board due to these changes, you may have a good reason to complain since most of the Interchange rates stayed the same.
• If you are accepting credit card payments for debt repayment, Visa says you can only accept debit cards and has some very specific guidelines for doing so. If you re accepting regular cards for debt payment watch out a fine may be in your future from Visa.

My next post will reveal all the changes to Discover Interchange programs. If this post has caused a question to pop up in your mind feel free to contact me or leave a comment below; I will be sure to respond to your inquiry.

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1. Visa has lower Interchange rates for consumer cards used at a supermarket:

2. MasterCard has lower Interchange Rates for consumer cards used at a supermarket:

3. Discover has lower Interchange Rates for consumer cards used at a supermarket:

4. Pin Based debit network fees are lower for supermarkets; here are a few examples:

5. If a merchant account for a supermarket is not set up with Interchange Plus pricing the merchant will not receive these special, supermarket rates. In other words if the merchant account has rate tiers such as “qualified”, “mid-qualified” and “non-qualified” then they are not receiving the benefit due them.

6. To received these lower supermarket Interchange rates the merchant account must be set up with very specific details when it is created. So make sure you are using a merchant account provider that has experience in this area.

7. The acceptable MCC Code required for these rates is 5411.

8. Some banks still require supermarket merchants to register with Visa and/or MasterCard as supermarkets. To do so questionnaires must be filled out with questions like, “how much of the floor space is used for perishable items?” And “How many register lanes do you have?” If you are asked to complete these registrations ask the person you are working with at the merchant account provider if you will pass the tests for certification. If you don’t you may waste a lot of time filling out forms and fielding questions from Visa and MasterCard.

9. If you do not want to go through the process of being certified keep searching for a different merchant account provider that does not require the registration; there should be plenty of them out there.

10. Supermarkets often have fairly sophisticated Point of Sale Software they are using. Make sure your POS Software is certified with the merchant account provider you are planning to use. I have seen many occasions where a supermarket chose POS software only to find out they would have to switch merchant account providers in order to use the new software.

BOTTOM LINE: If you are a supermarket know that you should be receiving lower rates than other retail merchants and find someone who knows how to set you up correctly to recieve these better rates.

If you have any questions about supermarket Interchange rates or anything else to do with merchant accounts feel free to contact me anytime.

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Last night I went out for dinner with my family and some friends. We all love authentic Mexican food so we went to a real “whole in the wall” restaurant and ate some incredible food. When I was about to pay the cashier I noticed a hand written sign hanging from the wall saying, “$.60 fee added for all Visa and MasterCard transactions.” This an example of what the credit card associations call surcharges or convenience fee.

Are these fees acceptable according to Visa and MasterCard?

The short answer is almost always no. Here are the actual policies regarding these fees:

Visa Rules for Surcharging

Visa Rule: Section 5.2.F of the Visa Operating Regulations Prohibits Surcharge

A Merchant must not: Add any surcharge to Transactions (Travelers cheques and Foreign Currency fees and commissions, as specified in Section 5.2.E, are not surcharges.)

Visa General Rules for Convenience Fees

Visa Rule: Section 5.2.E of the Visa Operating Regulations state:

A Merchant that charges a Convenience Fee must ensure that the fee is:

• Charged for a bona fide convenience in the form of an alternative payment channel outside the Merchant’s customary payment channels
• Disclosed to the Cardholder as a charge for the alternative payment channel convenience
• Added only to a non face-to-face Transaction
• A flat or fixed amount, regardless of the value of the payment due
• Applicable to all forms of payment accepted in the alternative payment channel
• Disclosed prior to the completion of the Transaction and the Cardholder is given the opportunity to cancel
• Included as a part of the total amount of the Transaction

A Convenience Fee may only be charged by the Merchant that actually provides goods or services to the Cardholder.

A Convenience Fee may not be charged by any third-party.

A Convenience Fee must not be added to a Recurring Transaction.

The requirement for an alternate payment channel means that Mail/Telephone Order and Electronic Commerce Merchants whose payment channels are exclusively non face-to-face may not impose a Convenience Fee.

MasterCard General Rule for Surcharging

MasterCard Rule: Section 9.12.2 of the MasterCard Bylaws and Rules state:

A merchant must not directly or indirectly require any MasterCard cardholder to pay a surcharge or any part of any merchant discount or any contemporaneous finance charge in connection with a MasterCard card transaction. A merchant may provide a discount to its customers for cash payments. A merchant is permitted to charge a fee (such as a bona fide commission, postage, expedited service or convenience fees, and the like) if the fee is imposed on all like transactions regardless of the form of payment used.

A surcharge is any fee charged in connection with a MasterCard transaction that is not charged if another payment method is used.

MasterCard General Rules for Convenience Fees

MasterCard rules specifically prohibit merchants from adding a fee for acceptance of MasterCard-branded cards. This is considered surcharging. The prohibition on surcharging ensures that MasterCard cardholders are not discriminated against at the point of sale.

However, surcharging is different from a situation in which particular business cases may warrant imposition of a convenience fee for utilization of specific payment modes, such as internet and telephone. As long as the same convenience fee, (flat rate, percentage based, tiered rate) is applied to transactions made with all payment methods accepted within a specific payment mode (in person, mail, telephone, Internet, etc.) the convenience fee is not considered surcharging. Finally MasterCard does not permit convenience fees to be advertised as offsetting the cost of accepting MasterCard-branded cards.

So there you have it, after you review all the rules above you can see the guidelines are so stringent and what Visa does not cover MasterCard does or vis versa.

What Happens if You Ignore These Rules?

If you get caught charging these fees and you do not meet the guidelines stated above the results will be fines from both Visa and MasterCard. I do not know how they arrive at the fine amounts but I have heard they can be significant, like starting at $50,000. That number could be high but do you really want to find out?

Just in case you are wondering, “how would they catch me?” The answer is usually by a customer complaint. When Visa or MasterCard receive such a complaint they always investigate and aggressively pursue the merchant. They do this because it is in their best interest. Can you imagine if most merchants charged a convenience fee? People would start paying with cash and the associations could lose billions of dollars.

Bottom Line: Allowing your customers to pay by credit card is a convenience that, most of the time, will result in increased sales for your business. Therefore, I suggest you look at your merchant account fees as a simple cost of doing business and be glad you are able to accept them.

For another take on this issue see what people are saying at answers.com on this subject.

Do you agree? Disagree? Have some thoughts to add? Please comment below.

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