Merchant Account Blog - Straight Pass Through » Interchange

Visa and MasterCard Interchange Program Changes

Robb Lejuwaan — Sat, 06 Dec 2008 00:54:30 +0000

I had planned to write this post several months ago but we have been so incredibly busy that I had to put this on the back burner. So finally, here is a summary of the key changes that occurred in October to Interchange from Visa, MasterCard:

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.

Interchange Program	Old Rate	New Rate
Business Card -Level 2	2.00% + $0.10	2.05% + $0.10
Business Card-Standard	2.70% + $0.10	2.95% + $0.10
Purchasing Card-Level 2	2.00% + $0.10	2.05% + $0.10
Purchasing Card-Standard	2.70% + $0.10	2.95% + $0.10
Corporate Card-Level 2	2.00% + $0.10	2.05% + $0.10
Corporate Card-Standard	2.70% + $0.10	2.95% + $0.10

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.

Interchange Program	Old Rate	New Rate
Corporate Card-Retail	2.20% + $0.10	2.10% + $0.10
Corporate Card-Electronic	2.20% + $0.10	2.25% + $0.10
Purchasing Card-Retail	2.20% + $0.10	2.30% + $0.10
Purchasing Card-Card Not Present	2.40% + $0.10	2.55% + $0.10
Purchasing Card-Electronic	2.45% + $0.10	2.65% + $0.10
GSA Large Ticket	0.95% + $35.00 (1.35% min.)	1.20% + $39.00

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:

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.
Card must be issued in US
Merchant Verification Value must be present and valid
CPS requirements are met
Processing code must be 50
Market specific data identifier must be B (Bill Payment)
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.

10 Things Supermarkets Need to Know about Merchant Accounts

Robb Lejuwaan — Thu, 18 Sep 2008 06:37:26 +0000

Do you or one of your clients operate a supermarket? Is so, there are a few things you should know that could result in some significant savings on merchant account fees. Here is the list:

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

TRANACTION TYPE	RETAIL	SUPERMARKET
Swiped Consumer Card	1.54% + $.10	1.24% + $.05
Swiped Debit Card (Less than $19.41)	1.03% + $.15	1.03% +$.15
Swiped Debit Card (More than $19.41)	1.03% + $.15	Flat $.35

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

TRANACTION TYPE	RETAIL	SUPERMARKET
Swiped Consumer Card	1.58% + $.10	1.48% + $.05
Swiped Debit Card (Less than $19.41)	1.05% + $.15	1.05% +$.15
Swiped Debit Card (More than $19.41)	1.05% + $.15	Flat $.35

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

TRANACTION TYPE	RETAIL	SUPERMARKET
Swiped Consumer Card	1.62% + $.10	1.40% + $.05
Swiped Debit Card	1.02% + $.16	1.02% +$.16

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

DEBIT NETWORK	RETAIL	SUPERMARKET
Interlink	.75% + $.15 (Capped at $.50)	$.24
Star	1.25% + $.03 (Capped at $.45)	$.24
Pulse	.65% + $.10 (No cap)	$.21

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.

Video: It’s Time to go Interchange Plus! (October Rates Changes)

Robb Lejuwaan — Fri, 22 Aug 2008 00:15:10 +0000

Watch this video to learn about changes to Interchange coming in October and why, if you have a merchant account with tiers (qualified, mid-qualified and non-qualified), it is time to switch your account to an Interchange Plus price model.

Check back here in the next few days for more specifics on the coming changes to Interchange.

What is Straight Pass Through – Video

Robb Lejuwaan — Tue, 29 Jul 2008 08:32:04 +0000

If you would like to lower your merchant account fees by switching to a “straight pass through” account go here, fill out the short form and we’ll have you saving money in no time.

If you would like us to analyze your current merchant account and show you how much a “straight pass through” merchant account can save you go here, and we’ll have the numbers back to you with in 24 hours.

Where do Processing Fees Come From? Pt. 2

John Robinson — Wed, 16 Jul 2008 17:05:03 +0000

By John Robinson, of Cocard Synergy

For the remainder of this discussion, I’ll discuss interchange fees and then a little about the fees to the merchant account provider. The assessment fees paid to the associations, both being small and not negotiable, can wait for another day.

Interchange fees usually make up roughly 80% of the fees you pay per transaction. (If they are less, then you are almost certainly being overpaying for your merchant account.) They’re the fees paid to your customers’ banks. These issuing banks are members of either Visa or MasterCard’s association, and issue cards with those logos on them. They define what the interchange fees will be based on what kinds of cards they’ve given your customers and whether or not you include certain information when entering a transaction.

Once upon a time, issuing banks earned all their money from fees charged to their cardholders; meaning the merchant fees were fairly low and meant only to cover costs. However, as time went on, certain types of cardholders (namely those using rewards cards, signature cards and commercial cards) often paid on time and in full, leaving the banks without income from late fees and interest fees in those areas, so the banks looked for ways to increase revenue on the use of credit cards by those cardholders.

Likewise, merchants often wish to still accept cards when some of the provided information doesn’t match with the issuers’ databases, and obviously the banks want to hedge against potential losses in these transactions by increasing the cost to do them.

Also, they need to cover the costs of their rewards programs…and so there you go. Banks will be banks, and they have shareholders, etc. In other words they must make their profit someway.

But:

Do you remember I said, back in Part 1, that there’s a fee area which could “vary wildly”? This happens to be something you and your merchant account provider have some control over…and which is the basis of our philosophy here.

Obviously things like the credit card volume figure into the profit margin merchant account providers are shooting for. We need to know we’re making enough off a small account to justify giving it as much love and service as one of our large accounts…I can’t speak for other providers, but we won’t take on accounts that we can’t give a lot of attention to. However, there are other factors that account for those wildly varying fees.

Most merchant account providers don’t stick to a certain margin above their costs for a particular transaction. Most add additional profit on transactions that have a higher interchange cost. For example, if a provider is charging a .30% spread above their cost on a regular consumer card, that’s what you’d expect them to charge above their cost on a rewards card. Now, in a face to face retail environment (where cards are swiped), a rewards card has an interchange cost that’s .11% above a regular card, so a retail merchant should expect to pay only an additional .11% on those cards. However, many providers charge .35% or .50% or higher. Then, if you ask why rewards cards are so expensive, they’re not untruthful when they say, “Well, it costs more for us”…they’re just omitting that it was only .11% more.

You shouldn’t need to be an expert, but you should know enough to spot an expert and be able to keep an eye on whether they’re actually providing good service or not. What you need is a basic understanding of who gets these fees, how much, and which part you can negotiate and work with. And a great provider (such as Cocard Synergy!) should be willing to show you this.

Where do Processing Fees Come From? Pt. 1

John Robinson — Sat, 12 Jul 2008 00:14:48 +0000

By John Robinson, of Cocard Synergy

For the really short answer, check out Who Gets Your Merchant Account Fees?

Here’s the plain ‘ol short answer:

Originally these fees were created to cover the cost of processing for your customer’s bank (the “issuing bank ”), and to make small profit for the bank giving you your money (the “acquiring bank”)—hey, they deserve something for their troubles. Nowadays, these fees also create a secondary profit center for the banks that issued the cards.

(This discussion, by the way, will only be covering Visa and MasterCard. American Express and Discover are different animals.)

All right. Ready for a little more detail?

Whenever you accept a credit card from a customer, there are some actual costs for the banks. First, banks need to provide all sorts of security and fraud prevention, set up systems to see if a customer has enough credit or reported their card stolen, enable alerting when a card isn’t authorized, keep up the networks, staff call centers, transfer funds between issuing and acquiring banks , etc.

The fees break down something like this:

The issuing bank’s cut is called the “interchange fee.” Depending on card type, what kind of cardholder information you were able to present, and environment (ie, brick-&-mortar vs. e-commerce), this could cost 1-3% + roughly $0.10 per transaction.
Visa and MasterCard then need to take their cut, referred to as an “assessment fee”, which is .0925% + $0.0029 for Visa and .095% + $0.005 for MasterCard. The “pennies” part of the assessment is usually called “Base II” or “Access Fee”.
The network takes a cut, usually $0.04 to $0.08 a transaction.
The remainder, which can vary wildly, is usually split between the acquiring bank, and the company servicing your account. Don’t split hairs here, because sometimes they’re one and the same, but even if not, it’s an agreement between the two that establishes this cut. However, there is still cost to the acquirer, for settlement and clearing of funds, as well as staff, would otherwise be losses to the bank.

Where do all those fees go?

Robb Lejuwaan — Wed, 02 Jul 2008 23:24:05 +0000

Adam J. Levtin , a professor Georgetown Law School, recently wote a real easy to understand article about who all the fees assocated with a merchant account go to at CreditSlips . Here is an excerpt:

"Here’s the deal. You purchase $100.00 of goods at a merchant on a credit card. The merchant receives $100 minus the "merchant discount fee," of say $3.00 which is taken out by the merchant’s bank (the "acquirer bank"). The acquirer bank keeps perhaps $.40 and remits $.10 to the credit card network (MC or Visa–Amex and Discover are a little different so I’ll leave them out of this) as an authorization, clearing, and settlement fee, and $2.50 to your card issuer (the "issuer bank"), which is the interchange fee. The interchange fee is thus technically a fee paid by the acquirer to the issuer, not by the merchant or the consumer. But leaving this formalism aside, it is a fee on merchants and consumers. The interchange fee sets a floor for the merchant discount fee (often it is explicitly priced to merchants as "interchange plus"), and merchants pass along at least part of the interchange fee to consumers "

To read the rest of this article click here .

Who Get’s Your Merchant Account Fees?

Robb Lejuwaan — Wed, 25 Jun 2008 20:44:44 +0000

The Biggest Chunk: The Issuing Bank (the bank that “issued” your customer’s their credit card)
This part of your fees are called “Interchange.” Depending on the type of business, size of transaction and type used these fees range between 1.03% and 2.70% plus transaction fees of $0 to $0.15.

Next: Visa or MasterCard (the associations)
These are called “Assessments.” Visa gets 0.0925% and MasterCard gets 0.095%

Then: The Networks (like phone networks, but for transactions)
These typically charge a fee for each authorization and capture and sometimes a small percentage of the captures transaction amount (.02% – .06%).

Followed By: Your Processor and the Acquiring Bank (the bank that gives you your customer’s money)
These can charge almost whatever they want, as long as you as the merchant will let them. Typical amounts are from .30% to 1.50%.

This is, of course, a pretty simple overview. For more details, check out:

Where do Processing Fees Come From? Pt. 1

Happy Day Merchants! Interchange Fees before Congress! (Again)

Robb Lejuwaan — Wed, 28 May 2008 14:05:17 +0000

By John Robinson

I just came across something I’m sure you’ll all love: the potential for merchants as a group to negotiate interchange fees with the Visa and MC member banks! There’s a bill being looked at by the Judiciary Committee Antitrust Task Force called “U.S. House of Representatives bill 5546 ”, aka “Credit Card Fair Fee Act of 2008.” You’ve got to love the sound of that.

Read about it HERE .

And click on these names if you want to know more about the Merchant Payments Coalition and get involved, or the National Retail Federation , another big player for the merchants.

Now, there’ve been attempts before, so don’t get too excited. However, I would suggest that you get in touch with your representatives offices and let them know your feelings on this topic.

Well, cross your fingers!

Interchange Compliance – Guidelines

Robb Lejuwaan — Fri, 28 Mar 2008 01:03:29 +0000

Rules. It seems like we have more rules in our lives every day doesn’t it? I am writing this post to make you aware of some more rules. These rules are for merchant accounts and if you don’t follow them you will you will be fined! Well maybe not fined but you will end up paying more for your merchant account.

It would be real nice if these rules were posted for all merchants to see and then follow. However, that is not the case. Finding what these rules are, even in this age of the internet, is extremely hard to do. That is where I come in. I may not be an interchange compliance expert but I do know the key rules that apply to most of my clients.

Let’s look at how this system of rules (guidelines) work. Here are a few examples:

Example one: You own a book store and you have 34 transactions in one day, all swiped and face to face. You have a new point of sale (POS) system that unbeknown to you was not set up to auto batch at night. The result? Your authorized transactions just sit there, they don’t batch and no money is deposited into your bank account. Best of all of the Visa transactions that do not settle with in 24 hours will be downgraded to a card category named EIRF . Cost of the fine – .76% increase to your discount rate and that is if you have straight pass through . If you have tiers on your merchant account statement like “mid-qual” the penalty will probably be much worse, even up to 2.0% or more!

Example two: You own a B2B cigar distributorship, so most of your transactions are with business or commercial cards. You were set up with a payment gateway like authorize.net when you opened your merchant account. When you login in to the gateway to enter a transaction you are not asked for a tax amount. This is results in a downgrade to a card category named Commercial Card Standard. Cost of fine – .85% increase to your discount rate if you have straight pass through.

How is a merchant to know if these downgrades are happening to them? Would your monthly statement tell you? Maybe, but have you tried to read one of those lately? How about your merchant account sales rep? Maybe, but I have spoke to many that did not even know there were more categories than “qualified,” “mid-qualified” and non-qualified” (I am not exaggerating at all!). So what are you to do? Find somebody who knows this stuff. Whether it is me or someone else does not matter just find someone and have them review your merchant account statement. You will be happy you did.

To help you along with this tomorrow I will be writing part two of this post and will provide you with a list of the 10 most important interchange guidelines to know about. In the mean time if you would like me to review your merchant account statement you can fax it to my attention at (714) 624-3833 or fill out the form here .

Merchant Account Blog - Straight Pass Through » Interchange

Visa and MasterCard Interchange Program Changes

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