Tag Archives: credit card processing

Stripe, Transparency, and User Rights

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Online payment processor Stripe announced on Friday, that the company is committing to transparency and user rights for its customers, following the lead of Google, Twitter, and Host Merchant Services.  For today’s edition of the Official Merchant Services Blog, we will introduce Stripe, as well as discuss what these recent steps mean for the company, and the industry.

Stripe’s recent move is part of an effort to increase awareness of the effects of the legal process on their users. The company is an online payment processor geared toward developers.  They offer to handle everything, including storing cards, subscriptions, and direct payouts to your bank account.  Although some merchants may find that helpful, it may make refunds, voids, retrievals and chargebacks more difficult, since you do not have direct access to your customers’ payment information. The company also charges unusually high fees for acceptance, in an effort to simplify the process with rates starting at 2.9% and 30 cents for any card type.

Stripe charges such a high rate, in an effort to simplify things for merchants. I would like to point out, however that a standard Debit card, using Durbin Debit rates would qualify for a rate of 0.05% and 22 cents under Interchange Plus pricing, the type of pricing offered here at Host Merchant Services.  Since this rate of 5 basis points is so much lower, Stripe’s customers are overpaying by as much as 2.85%. For a transaction of $500, Stripe would charge a merchant $14.5 (2.9%) and an additional 30 cents on a transaction that actually costs them 25 cents (0.05%) and an additional 22 cents, or $0.47 total.  In this case, the flat rate of 2.9% charged, is much greater than the Durbin Debit rate that could be applied, if the merchant was using Interchange Plus.

Stripe is moving towards more transparency, because they sometimes receive legal requests from third parties to stop doing business with certain users.  Stripe is enlisting help from Chilling Effects, a joint project run by the Electronic Frontier Foundation, Harvard, Stanford, Berkeley, and other law schools that publish copyright takedown notices sent to web companies, and its most prominent contributors are Google, Twitter and GitHub.

It’s not clear how often the payment processor is asked to stop working with a site or on what grounds, however the best example of the lack of transparency by the net’s dominant payment intermediaries was demonstrated in the fall of 2010.  Visa, MasterCard and PayPal all cut off WikiLeaks on the grounds it was engaged in illegal activities, after publishing a trove of U.S. diplomatic cables.

Stripe intends to provide transparency reports regularly about how many requests it gets, a practice that was pioneered by Google. Stripe, in regards to a subpoena notification policy also says it’s instituting the same policy as Twitter, committing to informing a user, when not barred from doing so, that someone is subpoenaing their record. This allows the targeted user to try to quash the subpoena in court. Twitter has spent significant resources fighting to allow its users to resist government subpoenas — including winning the right for WikiLeaks associates to try to quash a grand jury subpoena for their Twitter records.

In conclusion, it is a step in the right direction for large Internet companies to be on the side of transparency as well as advocate for the rights of their users.  I hope more web companies step forward in the name of full disclosure in the future.  Host Merchant Services has been committed to transparency from the start, and we maintain the promise of personal service and clarity for all customers.

Groupon Going For Mobile Payments

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Today we enter the realm of mobile payments again for this edition of the Official Merchant Services Blog, as we look at the newest company to enter the already crowded playing field. Daily-deal giant Groupon, Inc. announced the creation of Groupon Payments in late September, a service that will allow merchants to accept credit and debit cards using Apple Inc.’s iPhone or iPod touch.

Groupon is attempting to leverage its existing loyalty services for merchants, and claims to have low card-acceptance prices. The service provides a free card swiper made by Roam Data that plugs into the Apple devices’ audio jacks, or a $100 wrap-around case from Infinite Peripherals for merchants that expect heavier usage.

Merchants who want use Groupon Payments will be charged fees of 2.2% for Visa, MasterCard and Discover transactions plus 15 cents, and 3% and 15 cents for American Express. If a merchant has ever offered a Groupon deal before or has committed to doing one in the future they are eligible for a discount rate for swiped transactions of 1.8% plus 15 cents for Visa-MasterCard-Discover transactions, and 3.0% plus 15 cents for AmEx sales. Groupon also will charge more for keyed, or card-not-present transactions, with rates starting at 2.3% and 15 cents for Visa-MasterCard-Discover and 3.5% and 15 cents for AmEx.

Groupon is one of the leaders among the national daily-deal offering websites. Senior analyst Rick Oglesby of Boston-based Aite Group LLC said of the program, “Overall, I think it all makes sense. Groupon brings on a tremendous amount of value to merchants due to the volume of eyeballs they attract.”

The numbers appear to back that claim up, the company offers a host of other services that reinforce customer loyalty to merchants, including featured daily deals, deals from national merchants, and Groupon Now! a system for instant offerings available online and through mobile devices. With 250,000 merchant relationships worldwide, the company refused to disclose it’s U.S. merchant count. In terms of customer base, a Groupon investment filing shows they had 36.9 million active consumer customers in the first quarter alone.

Groupon’s program is not without downfalls however; one seems to be the risk of slowing the growth of merchants willing to offer heavily discounted deals. The service is currently available only for Apple devices, and the company hasn’t specified if it will cater to Android phones in the future. Also, it is worth noting that the company does not mention a length of contract or if other fees are involved, including possible termination fees for the service, usually a troublesome sign.

The part of this that I find the most interesting, is that Groupon decided to shun the existing mobile payments companies and create another. Many retailers have made strategic decisions to partner up with mobile payments processors as they see the emerging mobile payments sector as lucrative. Groupon Payments may develop into serious competition for Square Inc., Intuit Inc.’s GoPayment Service, and PayPal.

AmEx To Refund $85 Million To Customers

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For this edition of the Official Merchant Services Blog, we take a look at yet another case of troubling consumer card practices.  Last week, we covered the news that Discover had been hit with a $200 million dollar fine by the U.S. Government for deceptive practices. Just today, American Express entered into a settlement with Bank Regulators, involving the company’s missteps in U.S. card practices.

American Express reached a settlement with several regulatory agencies to resolve previously disclosed card practices problems involving several of the company’s subsidiaries. The Federal Deposit Insurance Corporation (FDIC), Consumer Financial Protection Bureau (CFPB), Board of Governors of the Federal Reserve System (FRB), Office of Comptroller of the Currency (OCC), and Utah Department of Financial Institutions (UDFI) all agreed upon the settlements with AmEx.

The regulators cited violations including those relating to certain aspects of debt collection practices, credit card solicitations, late fee charges, the reporting of disputes to credit bureaus and new account approval processes. Reportedly, American Express has cooperated fully with the FDIC, CFPB, FRB, OCC, and UDFI. The company is strengthening its internal compliance processes and will continue to work closely with its regulators.

The settlement includes plans for developing a remediation process for each of the cited violations and an agreement to pay fines totaling $27.5 million. In accordance with the settlement, the company will establish funds totaling $85 million for customer refunds through its subsidiaries. The majority of those refunds are related to debt collection practices and late fee charges. Impacted customers will be notified as soon as possible.

Some of the subsidiaries involved include American Express Centurion Bank; American Express Bank, FSB; and American Express Travel Related Services Company, Inc.

If you are an AmEx customer, be on the lookout for any notifications that may imply you are entitled to a refund.  We will keep an eye on this story, as well as any other settlements for malicious card practices involving major U.S. Credit Card companies that may arise.

Durbin Double Down

Durbin Double Down [2023 Update]

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In this installment of the Official Merchant Services Blog, we look at the actions several retail trade groups and merchant advocates have taken to further the fight against the antitrust settlement proposed by Visa and MasterCard.  We have touched upon this subject several times before, however these steps may have been the most drastic yet.

In an open letter last week to leading members of congress, the National Retail Federation (NRF), the Retail Industry Leaders Association (RILA), and seven other large retail-related groups expressed their frustration with the pending litigation in the U.S. District Court for the Eastern District of New York, saying that the outcome could further “entrench the Visa/MasterCard duopoly.”

The groups called on congress to pay attention to the state court settlement, in an attempt to escalate the issue and garner attention from lawmakers and Americans.

The groups argue, “The proposed settlement, which was negotiated by Visa, MasterCard and lawyers purporting to represent the merchant community, is one-sided and preserves the very anti competitive actions that were the genesis of the lawsuits.”

“Given the important oversight role of Congress and your continued interest in this important issue, we write today to urge you to reject the false claims from the card networks and their representatives.” The letter also stated “The proposed settlement does nothing to resolve the failures in the electronic payment market and continued Congressional involvement in these issues is imperative. We look forward to keeping you fully informed as the legal process moves forward and the chorus of objections grows.”

RILA’s Brian Dodge described the problem retailers face, “Visa and MasterCard centrally set fees that are ultimately paid by merchants and collected by issuing banks. With two fee schedules imposed by two companies that control 70 percent of the marker there is no meaningful competition.”

The groups argue that the $7.2 billion dollar settlement is not the problem, even going so far as to accuse Visa and MasterCard of using the pending settlement exchanges as penitence for maintaining the status quo.

In a statement released in July, just after the settlement was announced Visa said it believes that the settlement is in the best interests of all parties involved. “This agreement should remove the distraction of litigation for all parties,” said Joshua R. Floum, general counsel of Visa Inc. “We will go forward with a focus on helping retailers grow their businesses and providing them with efficient and valuable payment options.”

On October 3rd, these retail and trade groups will appear before a court seeking to order the Federal Reserve Board to start over in devising regulations for implementing the controversial amendment’s provisions because the Fed allegedly did not follow the amendment’s dictates in setting the debit card rules now in place. The trade groups and retailers sued the Fed last November in an effort to start the rule-setting process anew. In a May filing, the plaintiffs said the board “manufactured ambiguity” in its interpretation of the amendment’s language. A Federal Reserve spokesperson would not comment about the upcoming hearing, although attorneys for the Fed said the board properly implemented the law’s directives regarding the authorization and settlement costs that could be considered in regulating debit card interchange, as well as which costs to exclude.

Retail groups continue to fight both the Interchange settlement and the Federal Reserve Boards Durbin rules.  There seems to be no end in sight for this case, and only time will tell if the Fed will be forced to reset its Durbin amendment rules and regulations and start anew.

Industry Terms: Basis Points

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This is the latest installment in The Official Merchant Services Blog’s Knowledge Base effort. Well we want to make the payment processing industry’s terms and buzzwords clear. We want to remove any and all confusion merchants might have about how the industry works. Host Merchant Services promises: the company delivers personal service and clarity. So we’re going to take some time to explain how everything works. This ongoing series is where we define industry related terms and slowly build up a knowledge base and as we get more and more of these completed, we’ll collect them in our resource archive for quick and easy access. Today’s term is Basis Points, a term used frequently in the industry and one that is pretty simple to understand but very important to all merchants that take credit cards because they apply to every pricing structure out there.

Basis Points

Basis Points are a unit of measurement with a value equaling one one-hundredth of a percent ( 1/100 of 1%). Basis Points, typically denoted as bp, are sometimes referred to colloquially as “bips” or “beeps.” The same unit of measurement is rarely called a permyriad — literally meaning ‘for every myriad ten thousand’ — and will have a strange looking symbol that looks like a percent sign with two extra zeroes at the end.

It will look like this: 100‱

Basis points are frequently used to express differences in many financial and economical areas such as yield differences between bonds, changes to interest rates, equity indices and fixed-income securities. In a lot of news stories from the media, basis points are used to refer to reports from a central bank’s changes to prevailing interest rates.

The term basis point has its origins in trading the “basis” or the spread between two interest rates. Since the basis was very small, the numbers are quoted multiplied up by 10000, and so a full point movement in the basis is a basis point.

The measurement helps in financial analysis because it avoids the ambiguity between relative and absolute discussions about interest rates by dealing only with te absolute change in numeric value of a rate.

But What About Credit Card Processing?

The term basis point in reference to credit card processing and merchant accounts is typically used to refer to the percentage of a sale that a merchant pays to the service provider to process a credit card transaction.

They tend to be used to refer to the discount rate that merchants pay to process plastic. Since credit card processing discount rates are typically less than 5% — with most being less than 2.5% — fractions of a percent often come into play. So basis points make it easier to discuss these tiny amounts without having to resort to extended decimals or fractions.

Discover To Pay $200 Million For Deceptive Practices

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Today the Official Merchant Services Blog will investigate the more than $200 million dollar fine that the U.S. Government issued on Discover Bank. The Federal Deposit Insurance Corp. (FDIC) and Consumer Finance Protection Bureau (CFPB) have ordered Discover to refund approximately $200 million to more than 3.5 million of its customers, as well as pay a $14 million civil penalty to the government. The order comes after the FDIC began investigating Discover last year for deceptive telemarketing practices and sales tactics used to sell consumers various credit card products, such as payment protection, credit score tracking, identity theft and wallet protection.

Consumers reported that these telemarketers would downplay key words during the calls and also used scripts that misled the customer about whether they would actually be paying for the product.  Some Discover customers thought the products were free because of the use of such words as “benefits.”

Some consumers asked for reading material on the products before purchasing them, however they found themselves being billed for the products before receiving the materials.  Some customers were even fully enrolled in the programs without permission, according to the FDIC and the CFPB.

The telemarketers also did not disclose eligibility requirements for certain payment protection benefits, such as exclusions for pre-existing medical conditions and certain employment limitations. Discover is not only required to pay the refunds and civil penalty, but also must make changes to its telemarketing strategies for the products involved.  The company must submit a compliance plan to the CFPB and FDIC for approval.

“Discover has worked hard over the past decade or so to reinvent its brand into one of a first class credit card,” David Johnson, principal with Strategic Vision, (Discover’s PR Company) told CRM Buyer. “This is not something consumers are likely to forget. It will become part of the Discover narrative.”

Unfortunately for Discover, I’m inclined to agree. This is not a story that is going to go away any time soon and we will be on top of any updates or appeals. While on the topic of Discover however, I find it necessary to remind our reader base and all merchants that the ‘Add Discover On Discover’ program is ending in the coming months, and you should know when you will start being charged for the service.  The program started back in 2011, and offered free Discover card processing to customers who could show they had not taken Discover cards for at least six months.  In this way, the program really targeted non-Discover Card merchants and was a strong effort to increase the usage of Discover in retail outlets.

Here’s a quick reference chart for the schedule:

Host Merchant Services continues to adhere to its customer service philosophy of transparency and education. We do not want any merchants confused or unaware of the fees they are charged on their statements. If you have any questions about this program or Interchange and its rates, please contact us.

Industry Terms: Visa International Service Assessment (ISA)

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This is the latest installment in The Official Merchant Services Blog’s Knowledge Base effort. We want to make the payment processing industry’s terms and buzzwords clear. We want to remove any and all confusion merchants might have about how the industry works. Host Merchant Services promises: we deliver personal service and clarity. So we’re going to take some time to explain how everything works. This ongoing series is where we define industry related terms and slowly build up a knowledge base and as we get more and more of these completed, we’ll collect them in our resource archive for quick and easy access.

Today we will take another look at international processing, and the fees associated with accepting an international card.  Yesterday we defined the MasterCard Cross Border Fee, and today we will explain the Visa International Service Assessment.

Visa implemented an international service assessment (ISA) fee of 40 basis points (0.40%) in April of 2008. This fee applies to all transactions involving a U.S. based business and a credit or debit card issued outside of the U.S. The ISA is also separate from interchange rates and from Visa’s standard assessment fee, which is currently 11 basis points (0.11%).

For example, the ISA fee of 0.40% will be added to a transaction where a customer uses a Visa-branded card issued out of the United States to buy something here in Delaware.

The ISA is one of two fees Visa currently charges for international card usage, the other is the International Acquirer Fee, a separate 45 basis point fee (0.45%), which applies under the exact same circumstances as the ISA. Visa began charging the IAF in October 2009.

The total fees Visa charges for a transaction involving an international card processed in the U.S. is the sum of the ISA fee (0.40%), the Visa standard assessment (0.11%), and the International Acquirer Fee (0.45%), which comes to almost a full percent above interchange, 96 basis points (0.96%).

industry terms: MasterCard cross border fee

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This is the latest installment in The Official Merchant Services Blog’s Knowledge Base effort. We want to make the payment processing industry’s terms and buzzwords clear. We want to remove any and all confusion merchants might have about how the industry works. Host Merchant Services promises: we deliver personal service and clarity. So we’re going to take some time to explain how everything works. This ongoing series is where we define industry related terms and slowly build up a knowledge base and as we get more and more of these completed, we’ll collect them in our resource archive for quick and easy access.

Today we will define the MasterCard Cross Border Fee. MasterCard charges an additional fee to merchants for all transactions acquired in the United States that involve a credit or debit card issued outside of the United States. For example, if a cardholder uses a Canadian-issued MasterCard to make a purchase from a business here in Delaware, that merchant will be assessed a cross border fee for accepting an international card.

Introduced in 2006 by MasterCard, the fee was originally 10 basis points. Since then, it has been raised to 30 basis points in 2007, and then to the current level of 40 basis points in 2008. The cross border fee is initially charged to acquirers, who then pass the fee on to merchants.

If the transaction is settled in U.S. dollars, the cross border fee is 40 basis points (0.40%) above the interchange rate for that card. If settled in a foreign currency however, the fee is increased to 80 basis points (0.80%). This fee, along with MasterCard’s acquirer program support fee, are the only two volume-based fees that MasterCard charges on transactions involving credit cards issued in another region than where they are acquired.

NRF Opposes Interchange Settlement

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It’s been a little while since the Official Merchant Services Blog touched on the increasingly sensitive topic of the Credit Card Interchange Settlement. We first talked about the possibility of ‘The Big Cash Comeback’ when the settlement was first announced, and later we discussed the opposition to the settlement.

Seven years after the first lawsuits were actually filed against the bank card networks and some leading banks, a tentative settlement was reached on July 13 of this year.  The agreement has had many mixed reviews, and some big name retailers have come out against it, including most recently the National Retailers Foundation, the nations largest retail trade association.  The NRF’s members operate 3.6 million stores nationwide, however the organization itself is not involved in the lawsuit, which includes individual and class merchants as well as trade-group plaintiffs.

Under the proposal, the main defendants, Visa and MasterCard will pay $6.6 billion in damages and temporarily reduce interchange rates to save merchants another $1.2 billion. Merchants also will get greater freedom to surcharge card transactions and could form bargaining groups to negotiate interchange with the networks. In return, the networks will be freed from future legal challenges from merchants regarding interchange rates and merchant rules, even from merchants that didn’t participate in the current lawsuit.

I think the key points here are the temporary reduction of interchange rates as well as the fact that all merchants give up their rights to sue Visa and MasterCard upon accepting the settlement.  Merchants will most certainly be satisfied by the reduction of interchange rates, but the drop will only be temporary.  After a few months Visa and MasterCard will raise them again, and continue to collect outlandish fees for credit card transactions.  Also, not every merchant is involved in this suit. I don’t think it’s a good deal for merchants to give up any of their rights, particularly the rights to any future litigation.

The National Association of Truck Stop Operators (NATSO) released a statement on Monday, announcing their dismissal of the settlement, “We joined this lawsuit in search of real reform to a broken system, one that is shielded from normal competitive forces. This proposed settlement does not achieve this goal. It lacks meaningful fixes to a system that allowed Visa and MasterCard to set artificially high swipe fees and provided retailers and consumers with no choice except to pay.”

This statement echo’s the cries of dissenters, who say the settlement protects the status quo more than anything, and will not change the way the networks set interchange.

In conclusion, the settlement still faces harsh criticism, and Visa and MasterCard have not had much to say to those who oppose it.  Only time will tell if the plaintiffs decide to accept the deal, or push back for a settlement more in their favor.  Host Merchant Services will keep you informed of all the latest news involving this legal battle between the merchants and the card-issuing giants.

How Does Credit Card Processing Work?

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Today The Official Merchant Services Blog gets extra visual with a step by step breakdown of how Credit Card Processing works.

This is the latest installment in The Official Merchant Services Blog’s Knowledge Base effort. We want to make the payment processing industry’s terms and buzzwords clear. We want to remove any and all confusion merchants might have about how the industry works. Host Merchant Services promises: the company delivers personal service and clarity. So we’re going to take some time to explain how everything works. This ongoing series is where we define industry related terms and slowly build up a knowledge base and as we get more and more of these completed, we’ll collect them in our resource archive for quick and easy access. Today we build off of our previous knowledge base entry on just credit cards. We noticed that we’ve been adding to this database for months now and kind of skipped over some of the most basic elements of the industry. So now that we’ve defined credit cards, we want to take you on a journey through credit card processing, detailing exactly how it happens.

CREDIT CARD PROCESSING

Host Merchant Services is able to guarantee its customers savings and the lowest rates possible. By understanding how credit card processing works, where the money gets made off of the transactions themselves and where those hidden fees actually are, you can gain some valuable insight into how Host Merchant Services is able to make its guarantee. Here’s a step-by-step breakdown that sheds light on where the fees from each transaction come from:

How Does Credit Card Processing Work?

The way credit card processing companies make money for themselves can sometimes be a confusing labyrinth where fees are hidden, percentages are tied to things not listed on statements and the deal you think you are getting isn’t the best deal you can actually get. Host Merchant Services is dedicated to giving its merchants the lowest price guaranteed, and the company strives to maintain transparency with no hidden fees. So take a walk with us and see behind the curtain as you learn exactly where the money is being made when you swipe a customer’s credit card.

Step One: A customer visits a store.

Step Two: Customer purchases $10 worth of merchandise.

Step Three: The customer swipes his credit card through a payment processing terminal such as a Hypercom T4205 from Equinox Payments to pay for the merchandise.

Step Four: The card reader recognizes who the customer is and contacts the bank that issued the credit card.

Step Five: The customer’s bank sends $10 to the merchant’s bank.

Step Six: Then the merchant’s bank deposits $9.80 to the merchant’s bank account.

Step Seven: That remaining 20 cents, a 2% fee, is taken from the $10 and given to the customer’s bank.

Step Eight: The customer’s bank then splits the 20 cents with the credit card company.*

* Depending on the specific company, country and merchant, the percentage can range from 1% to 6%. The amount the bank gets and the amount Visa gets is a negotiated deal. Also, Visa and MasterCard charge the banks an annual fee to be a part of their network in the first place.

Where The Money Gets Made

Credit card companies make money in a variety of ways. This graphic lists four of them.

Credit Card Companies make money in a variety of ways. Here are the four most common:

One: The most common way credit card companies make money is through fees, such as the annual fee, overlimit fee and past due fees.

Two: Another way credit card companies make money is through interest on revolving loans if the card balance is not paid in full each month.

Three: As explained above, the card issuer (the bank that issued the card and/or the issuer network, be it Visa, MasterCard, Discover) makes a percentage of each item you purchase from a merchant who accepts your credit card. The rates range from 1% to 6% for each purchase.

Four: The card issuer can also make money through ancillary avenues, such as selling your name to a mailing list or selling advertisements along with your monthly billing statement.

SOURCE: Information for this article was gathered from www.creditscore.net, the movie Superman III, Wikipedia and Authorize.net.

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