Credit Debit Card Pymts 2008

Credit / Debit Card Electronic Payments Industry Update on Convenience Fees, Utility Program and More!. Payment Trends  Government entities accepting credit / debit cards and ACH for pa

Credit / Debit Card Electronic Payments Industry

Update on Convenience Fees, Utility Program and More!

Presented by:

Michael Hodge, Regional Manager U.S Bank Merchant Payment Services

Tel: 503/693.6406 Fax: 503/693.6450 Email: michael.hodge@elavon.com

May 09, 2008

Electronic Payment Processing - Methods

 Point of Sale Terminals (dial, IP, wireless, conv / service fees)

 Point of Sale Software Solutions

 Kiosks

 IVR (interactive voice response / automated touch-tone)

 Web

 Recurring Payments

 Convenience / Service Fee Solutions

 Electronic Check Conversion and Check Verification

 Stored Value Card and Gift Card Solutions

Electronic Payment Processing – Methods (cont’d)

Point of Sale Software / Payment Gateways

 Eliminates the need for additional phone lines / terminal devices

accounting software vendors, assuming they have a card payment

module and payment gateway (i.e Verisign, Authorize.Net, PC Charge, etc.) that is compatible with merchant processor’s processing

network This may allow you to integrate a payment solution with your accounting system(s)

 Direct payment gateways (rather than utilizing a third party gateway) can minimize the number of parties involved for a simpler and more

cost effective solution

Payment Trends

 Government entities accepting credit / debit cards and ACH for payment more than ever before

 “Do More with Less”

 Constituents desire for other, more convenient payment methods

 Web and IVR payment solutions

 Convenience Fees (fees charged to the payer to recoup processing costs) becoming commonplace

Merchant Card Processing Fees

Pricing Structures (“Interchange Plus” / “Tiered”)

Interchange Plus = Offers Acceptors the most fair and equitable way to be assessed

processing cost.

Interchange = The cost associated with the Issuing component of the credit / debit card

Assessment = The cost, per transaction, the Association members (MasterCard / Visa) charge MasterCard assessment (.0950%), Visa assessment (.0925%).

Plus = The fees charged by the merchant processor

Interchange and Assessment are not negotiable; they are the same for all service providers

Tiered = generally means that processing cost are based on 3-5 different levels of pricing, such

as traditional consumer card-swiped (qualified), traditional consumer card “hand-keyed”

(mid-qualified), Corporate/Purchase/T & E Cards (non-qualified), Debit / Check Cards and

Rewards Cards

Tiered pricing takes into account Interchange and Assessment cost components

* Remember that in Public Sector, the Association members offer the same Interchange level for traditional consumer card present and card not present transactions

Interchange & Assessments

Consumer

Visa

Interchange

CPS Retail 2

Card Present

(Emerging

Market)

CPS Retail 2

Card Not

Present

(Emerging

Market)

Consumer Credit

Visa Interchange

CPS Card Not Present

Fees above do not include Assessments (Visa Assessments = 0.0925% / MasterCard Assessments = 0.095%) or service provider’s fees Off-line Debit refers to signature based (non PIN based) debit / check card transactions

Emerging Market / Public Sector, and Utility

Interchange Programs

 Merchants accepting credit and debit card for utility payments would have their choice of the Public Sector / Emerging Market or Utility Interchange programs

 One of the primary conditions of the Visa / MasterCard Utility programs is that

convenience fees not be charged to the cardholder However, if the merchant is charging,

or were to charge convenience fees to the payer, the merchant could still take advantage

of the preferred Public Sector / Emerging Market Interchange programs

 For instance, let us consider a transaction for $100.00 Comparing the two pricing

programs yields the following processing fees (assuming a $100.00 traditional consumer Visa credit card transaction) Assumption is Interchange plus 25 basis points (0.25%)

Public Sector / Emerging Market Program (example)

Processing Fees: ($100.00 x 1.7725% = $1.7725 + $0.05 = $1.8225)

Utility Program (example)

Processing Fees: ($100.00 x 0.0925% = $0.0925 + $0.75 = $0.8425)

In this example, the difference in processing fees between these two pricing programs is

$0.98 (54% savings) for this $100.00 transaction as a result of the Visa Utility program pricing

* Take note Visa / MasterCard offer special Utility Interchange Level for consumer card, yet only Visa offers a special Utility Interchange Level for business / purchasing card transactions

PIN Debit

Research indicates that 20% or more of electronically processed transactions are debit card transactions PIN debit allows for a flat fee to be applied to these

transactions, rather than the ‘rate plus a per transaction’ fee structure A merchant could potentially minimize processing fees significantly by using this service

For instance, let’s say the transaction in question was $100.00 Comparing the two pricing programs (non PIN debit vs PIN or PIN-less debit) yields the following

results (assuming a $100.00 Visa debit / check card transaction)

Non PIN (or non PIN-less) Debit

Processing Fees: $1.48 ($100.00 x 1.08% = $1.08 + $0.40 = $1.48)

PIN Debit (PIN entered with the transaction)

Processing Fees: $0.70 (1 transaction x $0.70 flat PIN debit network

authorization fee)

In this example, the difference in processing fees between these two pricing

programs is $0.78 (approximately 50% savings) for this $100.00 transaction as a result of utilizing PIN (and / or PIN-less) based debit processing services

Please note that pin pad equipment for point-of-sale and / or software that can

accommodate PIN-less debit would be needed to process debit / check card

transactions in the above mentioned manner

Convenience / Service Fees

 Fees charged to the payer to recoup processing costs

 Card Associations’ have rules governing how and when

convenience fees can be charged

 Rules are subject to change and interpretation

 Typically there must be a “convenience” tied to the

transaction (i.e non-in person payments)

 Rules differ for tax payments versus non-tax payments

 MasterCard and Visa rules differ; however if you intend to accept Visa AND MasterCard then Visa rules take precedent

 Merchant is ultimately responsible for compliance with rules (not a service provider that may have indicated merchant is not required to follow the rules)

Please note that the information contained within this presentation contains an overview only of convenience fee rules The rules are subject to change The Card Associations ultimately establish and interpret the rules, and determine whether a merchant is in or is

Convenience / Service Fees (cont’d)

 Tax Payments

payment environments, including in-person, are allowed

(i.e 2%)

versus card payments

 Non-Tax Payments

allow)

does not allow

possible, if you wish to charge a convenience fee, free up office

resources, and maintain compliance with Card Association rules

Convenience / Service Fees (cont’d)

Latest Trends:

- Kiosk solutions

- Over-the-counter (conv fee) terminal applications

- Web Payments

- IVR

Trends further indicate a shift toward low to no cost

convenience fee applications With these applications, the service provider essentially manages the costs (by means of the convenience / service fee charged to the payer) on behalf of the merchant so that the merchant

is “revenue neutral” (i.e not making money on the

solution, and incurring little to no costs to provide the service)

PCI Data Security Standards (PCI DSS)

to keeping payment data secure

Questions?