Recent Changes to
Credit Card Processing
ABTEK Financial
. . . educating merchants since 1986
The information contained herein and stated by the speaker is provided as a courtesy and is for general informational purposes only. This presentation is not
intended to be a complete description of all applicable policies and procedures. The matters referenced are subject to change. Individual circumstances may
vary. The information contained herein includes, among other things, a compilation of documents received from third parties. ABTEK shall not be responsible
for any inaccurate or incomplete information. Nothing contained in this presentation is intended to supplement, amend or modify any applicable contract, rule
or regulation.
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Topics Impacting Credit Card Processing

Definitions

Credit card transaction flow

Who makes money when you run a transaction

Different Pricing Platforms

Unique Pricing in the Education Environment

The Durbin Amendment

Visa’s Response – The FANF

MasterCard’s Response – MasterCard License Fee

Current Pending Legislation

IRS Reporting
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Definitions
• Interchange – A combination of a flat per transaction cost and percentage
of sale that goes back to issuer of card (Capital One, Citi, Chase, etc.)
• Assessment – A flat percentage that goes back to the association
(MasterCard, Visa, Discover)
• Sales Discount – Percentage that goes back to processor (company you
have contract with)
• Association – Visa / MasterCard the corporation.
• Issuer – Bank that issues the card. Theirs is the logo next to Visa /
MasterCard. They support the card and billing.
• Acquirer – Merchant bank
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Credit Card Transaction Flow
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Who Makes Money when you run a credit
card?
• Associations:
• Assessment – A flat percentage that goes back to the association.
• Issuer:
• Interchange – Variable, based on card type, how presented, how quickly settled
and type of merchant.
• Typically a percentage and per item fee ranging from 0.05% to 2.95% and
$0.10 to $0.22.
• Roughly 300 different categories.
• Processor:
• Sales Discount – Depends on pricing platform.
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Pricing Platforms
 Fixed Rate: Merchant pays one flat rate based on sales.
 Advantage: Know what you will pay after every sale.
 Disadvantage: Does not take advantage of lower cost cards.
 Billback /Enhanced Billback: Merchant pays a lower flat
percentage, then is charged a premium for higher rate
interchange categories.
 Advantage: Blend of lower flat rate with some premium up
charges.
 Disadvantage: Does not take advantage of lower cost cards.
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Pricing Platforms (continued)
 Tiered Pricing: Merchant pays a flat rate based on qualification
level – Usually three tiers (Qualified, Mid Qualified, Non Qualified).
 Advantage: Ease of understanding – not many categories to learn.
 Disadvantage: Although it indicates a low qualified rate, merchant ends
up overpaying on non qualified and extremely low interchange
categories to make up for it. Also, processor controls which cards hit
each category.
 Pass Through /Interchange Plus: Merchant pays the assessment,
appropriate interchange and sales discount that are all broken out.
 Advantage: Merchant takes advantage of all possible discounts.
 Disadvantage: Can be confusing. THREE HUNDRED CATAGORIES!!
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Unique Pricing in a University Setting
 Interchange categories designed to assist
universities
 Emerging Market
 Visa Credit – 1.43%+ $0.05
 Consumer Credit, Rewards, Signature
 Swiped and keyed transactions
 Visa Debit - 0.65% + $0.15
 MasterCard Debit - 0.80% +$0.25
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Unique Pricing in a University Setting
 Most common cards seen in a university setting.
VS Emerging
Market
VS Regulated
Debit
MC Emerging
Market Debit
MC Reg Debit
MC World M1
MC Enh M1
Other
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Durbin Amendment
Why was it necessary?
 Dodd–Frank Wall Street Reform and Consumer Protection Act of
2010.
 Interchange was initially meant to cover fraud, transaction costs
and other overhead.
 Due to lack of negotiating power by merchants it has become a
major revenue stream for the banking industry.
 On an average $40 transaction, the cost has gone from $.50 in 2000
to $1.00 in 2009
 Impacts institutions with $10 billion in assets or more.
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Durbin Amendment
The Specifics
 Goals – Introduce competition in debit processing network and cap swipe
fees.
 Drastically lowers swiped fees on debit cards.
 Old rate - 0.95% swiped / 1.60% keyed for Visa
 New rate – 0.05% keyed / swiped
 Allows merchants to impose $10 minimum transaction requirement.
 Allows merchants to give tiered cash discounts.
 Does not attack the problem with credit cards only debit.
 Federal Reserve states reducing income of large banks $8.06 billion
annually.
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Durbin Amendment
The banking industry’s response
 Cost to consumers:
 Banks are making up for lost revenue stream by removing
free/low cost checking products.
 Bank of America attempted $5.00 monthly debit fee.
 Multiple banks trending toward charging for bill pay services.
 Cost to Merchants:
 Banks are hitting back at merchants through new fees (Visa
FANF and MC License Fee).
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Visa’s Fixed Acquirers' Network Fee
 Effective April 01, 2012
 Department of Justice Antitrust Division opens
investigation on March 13, 2012
 Card present merchants – based on number of
locations.
 Card not present merchants – based on gross
Visa processing volume.
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Fixed Acquirer's Network Fee
Billing Table
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MasterCard’s License Fee
 Based on overall volume of the previous year.
 Two phased process
 July, 2012 – December, 2012 – 0.0076%
 January, 2013 – 0.0038%
 In an attempt to drive business to PIN debit, PIN
transactions will be excluded.
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Pending Legislation
 Seven years in the making.
 $7.5 billion settlement from card networks to merchants
and potentially allowing merchants to surcharge.
 Merchants must release card industry from future litigation
regarding interchange.
 Opposition to settlement




National Association of Convenience Stores
Restaurant Association
National Retail Federation
Wal-Mart and Target
 The hearing has been pushed back until at least late
January.
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IRS Reporting Requirements
 Housing and Economic Recovery Act of 2008
 The goal is to ensure that all income is reported.
 Originally intended to roll out January, 2012, it has now been pushed back
until January, 2013.
 Process to verify TIN/Legal name is electronic file match
 Initial test files resulted in only 25% matches.
 Non compliance penalty will be 28% of gross sales.
 You will not get that money until you file your taxes.
 Please confirm with your processor that all merchant accounts are
compliant.
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IRS Reporting Requirements
 Housing and Economic Recovery Act of 2008
 The goal is to ensure that all income is reported.
 Originally intended to roll out January, 2012, it has now been pushed back
until January, 2013.
 Process to verify TIN/Legal name is electronic file match
 Initial test files resulted in only 25% matches.
 Non compliance penalty will be 28% of gross sales.
 You will not get that money until you file your taxes.
 Please confirm with your processor that all merchant accounts are
compliant.
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Reminder: Get PCI Compliant
Recent University Data Theft Headlines
 Cornell University ( November 2, 2012)
 2,000 people associated with university resulting from
unintended disclosure.
 University of Georgia (October 16, 2012)
 8,500 current and former students resulting from a hack.
 Northwest Florida State University (October 10, 2012)
 279,000 students resulting from hack.
 Colorado State University (August 21, 2012)
 19,000 students resulting from unintended disclosure.
 Yale University (July 19, 2012)
 1,200 students and staff resulting from hack.
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Additional Resources
 www.abtekusa.com
 http://www.gao.gov/new.items/d1045.pdf
 http://www.mastercard.us/merchants/support/interchange-rates.html
 http://usa.visa.com/merchants/operations/interchange_rates.html
 http://www.discovernetwork.com/
 http://www.whateverymerchantshouldknow.com
 http://www.americanbanker.com/bankthink/Visa-Fixed-Acquirer-NetworkFee-antitrust-1050440-1.html
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Recent Changes to Credit Card
Processing
Arthur Berry
ABTEK Financial
(800) 544-9145
[email protected]
ABTEK Financial
Thank You!
. . . educating merchants since 1986
Copyright 2009, First Data Corporation. All Rights Reserved.