Government
Purchase Card from the
Merchant’s Perspective
GSA SmartPay® Training Forum
Washington, D.C.
Thomas Buenaga, Army Relationship Manager
August 3-5, 2016
Agenda
• Transaction Processing
– Authorization flow
– Card payment network participants
• Merchant’s Role in Authorizations
– Types of transactions
– Acceptance requirements
– Reduce risk
• Merchant Transaction Processing Costs
• How a Merchant Gets Started
• Examples of Transaction Costs
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Transaction Processing
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Authorization Flow
Merchant swipes the
card to request an
authorization
Merchant
Cardholder purchases
goods at merchant
Once the response has
been received,
merchant will complete
the purchase
Acquirer sends
response to
the terminal
Response from
Issuer sent to the
Acquirer by
Payment Network
Acquirer sends
authorization
message to
Payment Network
Issuer or Processor will send back their
response to Payment Network
Issuer or Processor will receive
the request from Payment Network
Payment Network
Forwards the authorization
message to Issuer or Processor
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Clearing & Settlement
Merchant Copy
Acme Company
123 Main Street
Washington, DC
~~~~~~~~~~~~~
Terminal: 123456
Time: 14 June 12 11:24AM
Visa
XXXX XXXX XXXX 1234
AUTH: 123456
AMT: $549.99
SIGNATURE _______
Merchant deposits transaction
receipt to Acquirer. For Merchant
with terminals, the information is
downloaded to Acquirer’s (or
Processor’s) host.
The Merchant is paid and the
Acquirer submits the transaction to
the Payment Network for clearing
and settlement
Cardholder reviews
transaction in
Access® Online
Cardholder
Payment Network
Facilitates settlement, pays the
Acquirer and debits the Issuer, then
sends the transaction to the Issuer
The Issuer posts the transaction to
cardholder account and sends the
monthly statement to Cardholder
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Payment Network Participants
Payment Networks connect all parties involved in a transaction
Cardholder
Authorized user of payment cards or other payment products
Issuer
Financial institution that maintains the cardholder relationship. It issues cards
and contracts with its cardholders for billing and payment of transactions
Acquirer
Financial institution that contracts with merchants to accept charge cards for
payment of good and services. An acquirer may also contract with third party
processors to provide processing services.
Merchant
Any business entity that is authorized to accept charge cards for the payment
of goods and services
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Payment Network Participants
• Third-Party Processors are non-client entities that provide services to
client organizations
– Total Systems (TSYS) is U.S. Bank’s third-party processor
– They work to ensure that payment transactions are authorized, settled and
cleared in the most efficient manner possible
• Processors can perform authorizations and various services for an
acquirer or issuer
• Acquirer processor
– Edits the data
– Route transactions from the merchant to the relevant card association
network for authorization, clearing and settlement
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Transaction Processing Overview
Three processes that occur during a transaction:
• Authorization
– Process of approving or declining a transaction
– Authorization is performed by the issuer, their third-party processor or
Visa® standing-in for the issuer
• Clearing
– A transaction is cleared when the account number, final transaction
amount and other transaction related data are successfully transmitted
from the acquirer to issuer
• Settlement
– It is the end-of-day settlement of all cleared transactions and the reporting
of net financial positions of the acquirer and issuer
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Transaction Processing Overview
Purpose of Authorization
• The approval of a transaction by the issuer
– Directly or via third party
• Authorize to control risk
– Limit losses from fraud and bad debt
• Balance the need to control risk
with customer desire for good service
(merchant and cardholder)
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Merchant’s Role in
Authorizations
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Merchant’s Role in Authorizations
• Two types of Transactions
– Card-Present Transaction
– Card-Absent Transactions
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Merchant’s Role in Authorizations
Card-Present Transactions
• Card-present transactions are those in which both the card and
cardholder are present at the point-of-sale (POS)
• Merchants associated with this sales environment include:
– Traditional retail outlets such as department and grocery stores,
electronics stores, etc.
– Automated fuel dispensers and other unattended payment devices
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Merchant’s Role in Authorizations
Card-Present Transactions
• In traditional POS sales environments, merchants are required to take
all reasonable steps to assure that the card, cardholder, and
transaction are legitimate
– Swipe the card through a magnetic card reader, or for EMV (Chip) Card,
insert card
– Verify the card’s features and security elements
– Make sure the card is valid and has not been altered in any way
– Obtain authorization and get the cardholder signature
– Compare the name, number, and signature on the card to those on the
transaction receipt
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Merchant’s Role in Authorizations
Card-Present Transactions
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Merchant’s Role in Authorizations
Card-Absent Transactions
• Card-Absent Transactions are those in which both the card and
cardholder are not present at the POS.
• Merchants associated with this sales environment include:
– Mail order/telephone order (MO/TO)
– Internet merchants
• MO/TO and Internet merchants must verify, to the greatest extent
possible, the cardholder’s identity and the validity of the transaction
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Merchant’s Role in Authorizations
Card-Absent Transactions
• At a minimum, the merchant should collect the following details from
the customer:
– The card account number
– The name as it appears on the card
– The card expiration date as it appears on the card
– The cardholder’s statement address
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Merchant’s Role in Authorizations
Card-Absent Transactions
• Why a merchant would process a manual authorization when the card
is present:
– The magnetic stripe is damaged
– Chip reader malfunction
– Declined when card was swiped
– Misunderstood authorization response
• Referral as a decline
• Authorization time out (doesn’t complete loop)
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Visa Acceptance Requirements for
Your Government Purchase Card
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Visa Merchant Acceptance Requirements
Merchants must follow basic card acceptance rules
for all Visa transactions
• Card Acceptance - Accept all types of valid Visa cards
• Minimum/Maximum Purchase - U.S. merchants may establish a
minimum purchase amount (must not exceed $10)
• Surcharging - Permitted to impose a surcharge on cardholders when a
charge/credit card is used (with notification prior to purchase)
• Cardholder Information – Must keep cardholder personal information
confidential as a means to reduce fraud
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Visa Merchant Acceptance Requirements (Cont.)
• Cannot split a sale to avoid obtaining authorization
• Obtain authorization
• No Cash Refunds – Must complete a Visa credit receipt for
merchandise returns or adjustments
• Suppressed Account Number - Ensure that the Visa account number is
suppressed to all but the last four digits
• Delivery of Goods and Services - Transactions cannot be processed
until goods or services have been shipped
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Visa Merchant Acceptance Requirements
When a merchant does not follow basic card acceptance rules for all
Visa transactions:
• Cardholder may issue a complaint or dispute the transaction
• Contact your AC or Customer Service to file complaints such as:
– Surcharging – No disclosure prior to the sale
– Minimum amount > $10
• Dispute the transactions that are:
– No authorization
– No delivery of goods and services
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Visa Merchant Acceptance Requirements
When a merchant receives a transaction dispute they abide by the same
dispute rules as a cardholder
• Merchant must provide documentation to refute the dispute, or can
accept dispute
• Cardholder/Issuer can request a final ruling from Visa
• Cardholder wins dispute, merchant will still have recourse in the court
system
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How Merchants Reduce the
Risk for Potential Fraud
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Mitigation: Card-Present Transactions
• Swipe and transmit full contents of mag stripes
• When a card is swiped the merchant should compare the information
on the card to the transaction receipt
– Match last four digits on the card to those printed on the receipt
– Compare signatures and cardholder’s name
• When MO/TO and Internet merchants accept a card for payment they
have additional tools that can be utilized
• In addition to obtaining the cardholder name, account number and
expiration date, the merchant may ask for:
– The Card Verification Value 2 (CVV2)
– The cardholder’s billing address
– The cardholder’s name
– Verify by Visa (Internet only)
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Merchant Transaction
Processing Costs
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Merchant Costs
Many factors contribute to the cost of processing a transaction
• Largest cost is interchange fee (or rate)
– Fee paid directly from the acquirer to the issuer
– Is set by Visa, the card payment network
• Interchange fees can vary by:
– Charge card type
– Dollar amount
– Number of days between authorization and settlement
– Transaction information provided
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Merchant Costs
• Additional fees an acquirer may charge:
– A per transaction fee
– Chargebacks/disputes
– Monthly/weekly/daily statement detail
– POS equipment and/or PC software
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Interchange Fees
How a transaction affects interchange on your Visa Government
Purchase Card (GPC)
• Visa card type – each card type has it own fee structure. Some card
types are:
– GPC and Corporate card
– Standard cards
– Debit and gift cards
• Dollar amounts – higher transaction amounts can reduce the fee
– Visa large ticket – Transactions greater than $7,200 (approximately)
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Interchange Fees
• Number of days between authorization
and settlement:
– Can vary by card type
– May also vary by merchant (MCC)
– Usually three or seven days
• Transaction information provided during settlement
– No missing Visa mandated transaction info
– Level I, II & III data
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Interchange Fees
Capturing level I, II and/or III data can reduce interchange fees
• Visa incents the acquirer/merchant to provide additional transaction
data
• Level I data consists of:
– Minimum amount of data to settle a Visa transaction
– Merchant name, city, state, transaction date, etc.
– Purchase order or invoice number
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Interchange Fees
• Level II data consists of:
– Travel industry data
– Sales tax
– Purchase order or invoice number
• Level III data consists of:
– All level II data
– Transaction line item detail
• Items purchased
• Unit of measure/cost
• Freight or shipping amount, etc.
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How a Merchant Gets Started
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Getting Started
Starts with a request from a DoD customer to accept a Visa GPC for
payment
• How does the merchant get started?
• What questions should a merchant ask?
• What are the benefits to accepting the card?
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Finding an Acquirer
To get started, the merchant will need to find an acquirer to process
credit card transactions by:
• Talking with their business bank
• Ask other businesses in the community
• Obtaining references
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What Should a Merchant Ask?
• Pricing
– Does transaction type affect costs
• POS terminal and/or PC software requirement
– Lease or purchase
– Chip enabled
• What other services do they provide
– Dispute resolution
– Reporting
• Funding and billing requirements
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What’s in it for the merchant?
• Accelerate funds availability (possibly next day)
• Loss of sale from not accepting cards
• Expanding customer base
– Accepting internet sales
• Streamline invoice and payment process
• No check fraud or non-sufficient funds (NSF) issues
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Enrolling With an Acquirer
The acquirer has been chosen, what is next to get started?
• Merchant application
• Which transaction information to be provided
– Level I,II and/or III data
• POS card capture equipment
– Lease or purchase
• Implement, train employees and deploy
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Why Accept Cards
Some reasons why merchants decide to accept cards:
• Customers tend to buy more
– Larger quantities
– More purchases more often
• Reduced risk vs. checks
• Faster receipt of funds
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Why Not Accept Cards
Some reasons why merchants decide not to accept cards:
• Upfront costs
– Interchange
– Acquirer fees
• Merchants can’t include the cost of card acceptance in pricing
– Utilities
– Colleges and Universities
• Low dollar spend, not cost effective
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Examples of Transaction Costs
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Transaction Example
For the following 3 transaction fee examples, the scenario that will be
used is:
• A GPC is used
• The purchase amount is $10,000.00
• Meet the Visa mandated transaction requirements
• Type of transaction information to be provided
– Level I/III, Visa large ticket and missing data
• Average transaction fee assessed to the merchant is 3%
– Will vary depending on transaction type
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Transaction Example
Transaction fee example 1
• Merchant swipes the GPC and gets approval
– Can also be key entered
• Supplies only level I (basic) transaction data
• At settlement, the merchant is assessed 3% fee
– Includes Visa interchange and acquirer fee
• $10,000 x 3% = $300 is the fee the merchant pays to accept GPC with
level I data
• $10,000 x 2.5% = $250 is the fee the merchant pays to accept GPC
with level III data
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Transaction Example
Transaction fee example 2
• Merchant swipes the GPC and gets approval
– Can also be key entered
• Supplies Visa large ticket transaction data
• At settlement, the merchant is assessed
1.2% + $39 fee
– Includes Visa interchange and acquirer fee
• ($10,000 x 1.2%) + $39 = $159
• $159 is the fee the merchant pays to accept GPC for payment with
Visa large ticket data
– (does include acquirer fee)
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Transaction Example
Transaction fee example 3
• Merchant swipes the GPC and gets approval
– Can also be key entered
• Does not meet the minimum Visa transaction data
• At settlement, the merchant is assessed 3.95% fee
– Includes Visa interchange and acquirer fee
• $10,000 x 3.95% = $395
• $395 is the fee the merchant pays to accept GPC for payment
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Transaction Example
Things merchants will do to reduce/recover their transaction fee or make
the sale
• Charge a fee to accept the GPC
– As long as it is permitted and Visa rules are followed
• Invalid level II or III data to qualify for lower rate
– For level II will split transaction and populate the tax amount field
– For level III, will populate with invalid data
• Push a transaction through without an authorization
– To avoid the decline and make the sale
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Questions?
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Thank You!
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