This is the latest installment in The Official Merchant Services Blog’sKnowledge 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.
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.
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’sKnowledge 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. 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.
This is the latest installment in The Official Merchant Services Blog’sKnowledge 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’s term is the Address Verification System, or AVS.
The system was designed by card issuers to aid in the detection of suspicious credit card transaction activity, and verify that the cardholder’s address info matches what the banks have on file. The service is provided as part of a credit card authorization for mail order/telephone order transactions (MOTO) or Internet e-commerce transactions. A code is received with an authorization result that determines the level of accuracy of the address match. This verification helps secure the most favorable interchange rates for the merchant.
Visa, MasterCard, Discover, and American Express support this service, and when paired with a CVV confirmation the result is a secure, verified transaction. To verify a customer’s address, a merchant will need the cardholder’s billing ZIP code and the house or apartment number of the billing address. The merchant does not need to enter in the street, city or state of the cardholder. While AVS is not intended for use as absolute protection against suspicious transaction activity, it is an important step in securing non-face-to-face transactions. Host Merchant Services recommends to all merchants that they secure these types of orders with both AVS and CVV.
The Official Merchant Services Blog again looks into the mobile wallet world today, by introducing the new product from Visa, Inc. called V.me. Last week we discussed in detail the BarclayCard mobile wallet system, which has come here to Delaware at participating locations in Newark and Wilmington.
Visa plans to roll out its own version of a mobile wallet solution by the end of this year. Although the Card Issuer is the largest in the world, the entrance seems late in a game filled with tough competitors. Visa has been testing a beta of the program with five large online retailers. Buy.com, Bidz.com, Cooking.com, Modnique and PacSun are the retailers currently offering the e-commerce side of the service on their web sites. Customers have the option when checking out to sign up for the program, set up the account and add a card, all without leaving that merchant’s site. Buy.com went live with V.me first in May; the others followed suit a few months after.
The program will eventually allow mobile device users to pay for goods from participating merchants at physical locations, most likely by the end of 2012. V.me uses a ‘hybrid’ security system of the device’s secure element, as well as cloud servers to store customers’ card credentials. This technique is reportedly more secure than the Isis system of storing card information directly on a device’s SIM card. In August, Google decided to upgrade to a cloud based system of storing card data, however they kept reliance on the phone-based element to house a prepaid virtual card that initiates transactions and identifies users.
Visa will also include a location-based offers service with V.me, that will likely use geo-tagging to identify customers most visited locations, and market offers accordingly. Competitor Google Wallet, while nearly a year old, has struggled due to the reliance on NFC-based technology that is not wide spread enough yet. Other companies such as Apple Inc., and MasterCard have also announced their entrance into the mobile payment game. Apple, with its Passbook wallet feature expected in the new iOS 6 will feature QR code reading technology. MasterCard announced a mobile wallet program in May, called PayPass wallet service that claims to be open to third parties for development and flexible to a wide variety of payment brands.
In summary, Visa’s V.me is one of the mobile wallets that I’ll be eagerly waiting for, however it seems a long way off from implementation now. For Delawareans, Barclays’ Barclay Card Mobile Wallet app seems to be the only one to hit the ground running here in the First State. A watchful eye will be kept on this close race of Banks, Card Issuers and Credit Card Processors to see who will be the one to win Mobile Wallet Dominance.
This is the latest installment in The Official Merchant Services Blog’sKnowledge 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 Network Access and Brand Usage (NABU) Fee. We chose this today because of all of the recent changes to Interchange fees released by the major credit card companies.
Network Access and Brand Usage Fee
The Network Access and Brand Usage (NABU) fee was created by MasterCard in 2009, and is fee imposed by MasterCard for all U.S. issued card transactions settled with MasterCard by a U.S. merchant. Effective January 8, 2012 MasterCard’s NABU fee was applied to authorization transactions instead of settlement transactions. MasterCard charges $0.0185 on all settle or refunded credit and signature debit card transactions for its Network Access Brand Usage fee. Revenue generated from the NABU fee goes directly to MasterCard. It is not collected by credit card processors or issuing banks.
MasterCard began charging the NABU fee is April of 2009. Prior to the $0.0185 charge, MasterCard assessed a $0.005 Acquirer Access Fee to transactions run through its network.
Since revenue from the NABU fee goes directly to MasterCard, most processors assess the fee to businesses at cost. However, in the case of tiered pricing the NABU fee is bundled with a business’s general qualified, mid-qualified and non-qualified rates. Although uncommon, it is possible for processors to markup the NABU fee even for businesses that are billed via more transparent interchange plus pricing.
To avoid confusion, the NABU fee is NOT related to:
Breaking News from The Official Merchant Services Blog: MasterCard and Discover have announced interchange increases and modifications to take effect October 2012. Specific association modifications such as these are beyond the control of payment processors like Host Merchant Services. They come directly from the big card associations themselves. These changes affect all merchant card processors and their customers, meaning these changes in fees and rates travel in a straight line from Visa, MasterCard and Discover to the merchants.
The Meat and Potatoes
MasterCard will be reducing the Consumer Debit rate from 1.64% + $0.16 to 1.60% + $0.15. MasterCard will increase the Small Ticket Debit rate from 1.30 + $0.02 to 1.30 + $0.03.
Discover Card will be enacting several changes to their PSL Public Services interchange fee programs. Rates will increase from 1.50% +$0.10 to 1.55% + $0.10. Discover PSL Card-Not-Present/E-Commerce Premium Plus will increase from 2.30% + $0.10 to 2.35% + $0.10. Discover will also increase Key Enter Premium Plus from 2.10% + $0.10 to 2.15% + $0.10.
Add These Fees to the Pile
These changes come on the heels of a series of changes we reported back in February. Visa’s new Fixed Acquirer Network Fee and Transaction Integrity Fee made all of the headlines back then, but MasterCard also implemented its new annual Acquirer License Fee. This fee took effect in July 2012. MasterCard also implemented a new annual Type III Third Party Processor (TPP) Registration Fee in July 2012.
MasterCard based these fees on a full year of 2011 volume for each merchant, and for 2012 only the fees are 50% of the total fee calculated — since they cover only half of the year. MasterCard passed these fees through on a pro-rata basis and all acquired MasterCard credit and signature debit volume was utilized to determine the annual volume for both programs. PIN debit volume was excluded.
The changes to Discover Card’s PSL Public Services interchange fee programs are also in addition to a series of changes Discover announced back in February. Discover introduced a US Commercial Large Ticket Interchange program, increasing its assessment fee by .005%. Discover also changed existing card present Interchange rates for transactions less than $15 for Express Service merchants (Local Commuter, Bus Lines, Toll & Bridge Fees, Restaurants, Fast Food Restaurants, News/Dealer Stands, Laundries, Dry Cleaners, Quick Copy & Reproductions, Parking Lots/Garages, Car Washes, Motion Picture Theaters and Video Entertainment Rentals) and less than $25 for Taxi/Limo merchants.
Pay Attention to Your Statement
As stated above, these changes are made directly to Interchange rates from the Card Associations. Unlike Visa’s much ballyhooed FANF, which is a completely new fee and not subject to regulation from the Durbin Amendment, these fees fall under the scope and purview of Interchange, and thus Durbin.
Merchants will begin to see the following text on their August Statements to explain the changing fees:
Visa, MasterCard, Discover Card Services have announced category introductions and modifications to their current interchange structures. These changes may affect your current pricing effective October 2012. Further detail specific to these changes and impacts to your merchant account will be detailed on your September merchant statement. As previously disclosed on your February and March merchant statements, MasterCard introduced the new MC licensing fee. Beginning in August 2012, the new licensing fee of $.005 will be included with the MasterCard NABU billing and appear as “MC assoc NABU/license fee”. Thank you for your continued business.
This is the latest installment in The Official Merchant Services Blog’sKnowledge Base effort. We want to make the payment processing industry’s terms and buzzwords clear. We will eliminate any and all confusion merchants might have about how the industry works. At Host Merchant Services, we promise to 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 the resource archive for quick and easy access.
Card Verification Value (CVV)
In continuing with our E-Commerce focused blogs this week, I thought it would be appropriate to introduce the term Card Verification Value, or CVV. There are two types of CVV codes, called CVV1 and 2, respectively. The CVV1 is embedded in the magnetic stripe of track 2 of a card. The purpose of the first CVV is to verify data stored on a card is valid and was issued by a bank when used in person.
The second and more prominent CVV2 is a three-digit code (Visa, MasterCard) printed on the back of credit and debit cards. American Express cards have a ‘Unique card code’ that is four-digits long and printed on the front. Discover has a 3-digit code on the back of its cards, but refers to this as a CID (Card Identification Number). These codes are used in card not present transactions occurring over the Internet, or MOTO as an added security feature to prevent fraudulent purchases. The code is meant to verify that the customer has the card in their possession.
Security Benefits
For Merchants:
Merchants requiring CVV2 codes for their card not present transactions can dramatically reduce fraud in their businesses. Using this extra layer of protection can stop breached or fraudulent cards from going through. Avoiding potential retrievals and chargeback fees.
For Consumers:
Entering your CVV2 code when purchasing online products verifies that you are who you say you are. Under Visa regulations, merchants cannot store CVV2 codes in their databases. This means any card numbers lost in a breach would be less useful. In this sense, a consumer is protected on both sides of a transaction, once when verifying the purchase, and then again in terms of breach or fraud security.
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. The Host Merchant Services promise, 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 the resource archive for quick and easy access. Today’s term is EMV, or chip-based cards.
Europay, MasterCard, Visa (EMV)
EMV cards, also known as smart cards, were developed and backed by four of the major card brands. First implemented in Europe, the cards rely on an imbedded microchip to send and receive payment data with a merchant’s EMV-enabled terminal or POS system.
The chips, only about 3 by 5 mm in size, transmit unique numbers to the payment processors each time the cards are used. This increases the security since the customers’ name and signature are not used or stored. Making the chip-based cards unaffected by breaches.
These cards have been used in Europe for more than a decade and have appeared in Canada as recently as two years ago. So what’s holding the United States up? That’s right, you guessed it, the price tag. Javelin Strategy & Research estimates the cost of deployment for EMV in the U.S. at about $8.6 billion. The major card brands, however, have decided to make the push from the current magnetic strip standard, to the more secure form, EMV.
AmEx joins the club
In late June, American Express announced that it would be joining Visa and MasterCard, in requiring the chip-based cards. Visa began an aggressive push last year for EMV cards; the company claimed more than a million of the cards were in circulation at the end of 2011. AmEx, however, will require they be implemented in April 2013, instead of the 2015 mandate set by Visa and MasterCard.
Fraud Free
You may find yourself asking, at such a large implementation cost, are EMV cards really worth it? The answer is yes! The savings comes in the form of decreased fraud. The chip-embedded cards are much harder to duplicate than their magnetic strip enabled counterparts. Criminals can modify or replace the information on mag-stripe cards easily. Whereas the signals EMV cards give off, cannot be duplicated.
Fraud in the United States amounted to more than $3.56 billion in 2010. Globally, the U.S. contributed to about 27% of payment-card purchases, yet accounted for 47% of global payment-card fraud.
In summary, EMV cards are coming to the U.S. whether merchants want to accept them or not. The cost to implement them may cause a bit of a sticker shock, but the long-term benefits of virtually eliminating card fraud heavily outweigh it. The decreased fraudulent charges will eventually translate into more savings for you, the merchant.
Today, The Official Merchant Services Blog is going to tackle a big picture topic in the world of credit card processing. Two weeks ago there was a proposed settlement of a lawsuit against Visa Inc., MasterCard Inc. Lawyers involved in the case claim it is the largest antitrust settlement in U.S. history. The card companies agreed to pay more than $6 billion to settle lawsuits from retailers claiming that the card issuers engaged in anti-competitive practices.
The July 13 settlement proposal — which still needs the OK by a judge — has stipulations that drop requirements that retailers charge the same price for cash and credit purchases. This opens the way for millions of businesses to add checkout fees when customers pay with plastic. In short, the settlement lets retailers push the cost of swipe fees off of them and onto the consumer directly.
A Paradigm Shift
This decision has really started to hit home for me personally. Just last week I was in the emergency room at Christiana Hospital waiting for a family member to be admitted. I got there around 5 a.m. and was in a rush so didn’t really bring much of anything with me. Hours later, I was hungry and in need of a snack. And I didn’t have any cash on me. But the vending machines at this hospital are state of the art. Which means they have fully equipped credit card swipers, allowing you to purchase snacks from them without pocket change or single dollar bills. That realization hit home with me as I noted both the power of credit card processing to be present in all aspects of my own life, and just exactly how much closer we’ve really gotten to being a cashless society. One of the last holdovers from the previous generation’s use of coins — vending machines — were now accepting credit cards. It was convenient and really helped me out in a time where I was far too worried about everything but having cash on me.
It will allow merchants the power to offset their processing fees in a very direct fashion that gives them control and power.
It will give the consumers themselves the incentive to start using cash again.
That first bullet point is good for the credit card processing industry as it allows merchants to feel more in control of their business and lets credit card processors offer more attractive savings directly to potential merchant accounts. But that gets offset by the second bullet point, as the consumer is then the direct decision maker on the purchase and has the power to affect the entire credit card processing industry by not using the plastic at all.
So Something’s Gotta Give, Right?
This boils down to an issue of convenience for the consumer. Plastic has always been the more convenient option. It’s easier to carry around than cash. And with a huge push still being made by Mobile Payment Processing Technology to make it even easier than plastic, cash still seems like it can be on the way out as we still careen quickly toward a cashless society.
But when faced with a choice between using cash and saving money, or using plastic and taking the hit on added surcharges directly, there will be a lot of consumers who will gladly switch back to cash. It won’t be that hard an adjustment to ease back into one’s daily life for shopping habits.
But, E-Commerce
The thing is, though, there’s still a really big chance these surcharges are going to hit consumers hard as too much advancement has been made in the technological infrastructure of a cashless society — namely the rise of e-commerce. Consumers today have taken to shopping online, and all of those sales utilize a credit card. A Rasmussen Reports poll in April 2012 showed that 43% of Americans said they have gone through a full week without paying for anything in cash or coins. And The Official Merchant Services Blog has reported avidly on how pervasive and commonplace online shopping has become for the typical U.S. Consumer. A move back to cash may simply not be all that effective now that people are used to the convenience and control that online shopping — and mobile shopping — provides.
Don’t Forget Durbin
This decision is the second major event concerning limitations placed on swipe fees in credit card processing. Last year the Durbin Amendment to the Dodd-Frank Act took effect. This amendment placed a hard cap on debit card swipe fees. And it’s affect is still rippling through the payment processing industry as big banks, the credit card associations, and processors all try to figure out ways to recoup the billions of dollars in projected losses that stem from having the swipe fee capped at 24 cents or so.
The one thing we can learn from the Durbin Amendment, however, is that the use of convenient swiping that debit cards provide has not been ground to a halt by Durbin, and e-commerce is still booming. It seems unlikely that this settlement concerning credit card swipe fees will curb the growth of e-commerce to the point where we take a huge step back into a cash-filled society.
That first bullet point is good for the credit card processing industry as it allows merchants to feel more in control of their business and lets 
This decision is the second major event concerning limitations placed on swipe fees in credit card processing. Last year 
