Tag Archives: payment processing

B2B Credit Card Interchange Rate

B2B Payment Processing Solutions and Interchange Rates

B2B, or business to business, describes a transaction in which the customer is another business rather than of an individual. Whether it’s goods, services, or both, B2B payments include transactions such as purchasing supplies to do business, buying lunch for employees, or paying for travel expenses. Though the payment methods for B2B transactions are often the same as for B2C (business to consumer), credit card and checks – there are differences that need to be taken into consideration. Often times businesses use “business credit cards” which have a high interchange fee compared to consumer credit cards. In this article, you will learn about “Level 1, 2, and 3 data” – a way to lower interchange fees substantially for B2B transactions.

Transition to B2B Credit Card PurchasesB2B Credit Card Interchange Rate

Businesses are increasingly moving away from invoices and checks to pay for business to business goods and services and moving toward using a business credit card to separate business expenses from personal expenses.

When setting up business to business credit card purchases, merchants can qualify for lower B2B interchange rates when processing business credit cards. By leveraging lower interchange rates for B2B credit card processing, businesses can save potentially hundreds if not thousands of dollars.

The Cost of Doing Business – Without DataPayment Processing Credit card machine on a table

Without taking advantage of lower interchange rates, B2B credit card processing is expensive to process. The worst rate is 3.26% + $0.10 (the MasterCard rate with no AVS data). The lower rates require a business to jump through some hoops, also known as levels, in order to qualify for these lower rates. These hoops are data. The more data a business provides via a transaction, the smaller the interchange fee for that transaction.

Level 1, 2, and 3 Data – The Higher the Level, the Lower the Fees

Level 1 Data

The basic level, Level 1, is a transaction providing the least amount of data to the credit card brands. All transactions are required to reach Level 1 whether they are B2B or B2C. Merchants must provide the merchant name, purchase amount, date, and billing zip code. This level offers only a small reduction in interchange rates.

Level 2 Data

In order to reach Level 2 interchange rates, a business must provide Level 1 data, as well as other data including sales tax amount, tax indicator, and other details of the transaction. While Visa and Mastercard have different requirements for this level, Discover doesn’t offer lower rates for Level 2 or Level 3. And American Express supports Level 1 and Level 2 while it does not support Level 3.

Level 3 Data

Level 3 requires all of the data from Levels 1 and 2 plus other data such as item commodity code, SKU description, product code, and even more data points involving the transaction. Not only do the credit card brands vary in their interchange rates depending on the Level, but they also can change these rates. Thus, a merchant must be vigilant in checking the requirements.

Lower Interchange Fees for Businesses

Merchant credit card processing services can help businesses get the lowest rates possible by properly classifying the business’s MCC code, which can reduce interchange rates, by helping a business properly process large sales, over $6,500, which also can reduce interchange rates, and by providing a business software or terminals specifically for B2B sales equipped with the Level 2 and Level 3 information, which reduces interchange rates. While B2C transactions might focus on the markup, merchants want to look at the total cost for B2B transactions.

Top 6 Retail Payment Trends in 2019

Point of Sale and Digital Payment Diversity Keeps Merchants on Their Toes

More than halfway through 2019, merchants are responding to the variety of paths consumers are choosing to pay for goods and services. From the mobile point of sale tablets retailers carry around the store to the tap-n-go options from both mobile wallets and contactless cards, consumers are adopting many options in making payments.

What must merchants do to win? Will the retail business flourish in adopting new technologies? To help answer these questions, we’ve assembled the patterns and forecasts that retailers should pay attention to in the coming months.

1. mPOS = Mobile Point of Sale

Payments made via mPOS, either a smartphone or other wireless device, are replacing the traditional point-of-sale terminal. Whether your local clothing store retailer walks up to you holding your potential purchase with a tablet to close the sale or your local coffeehouse spins a phablet toward you for your payment, mPOS is a growing trend offering merchants flexibility, as well as mobility to their paying customers. With the added functionality food trucks and other mobile businesses can have their POS in their pocket and not worry about recording the transactions in their accounting software when they get home.

2. Mobile Wallets

]In addition to big tech offering pay apps, retailers are creating their own app-based payments. Starbucks alone is the leader in all point-of-sale purchase apps, beating out big tech in the mobile wallet ambition. With loyalty programs offering points and discounts, retailers can leverage the consumer drive for convenience. Coffee drinkers like walking into their coffeehouse and picking up their cup of coffee waiting for them.

Mobile Wallet Payment Apps

3. Contactless Payments

Using NFC, near-field communication, or “contactless cards,” allow you to tap and go much like the big tech pay mobile wallet technology. An estimated 100 million contactless Visa cards will be issued in the US in 2019. Instead of taking an average of 30 seconds to insert an EMV chip, contactless only takes 15 seconds, saving 15 seconds per transaction. Many mobile wallets also have this functionality including Apple Pay and Google Pay.  The upgrade to a contactless machine is easy and most good merchant services companies are supplying them for free.

NFC (near field communication)

4. Alexa, Order Me a Pizza

Consumers now want to tell Alexa, Google, or Siri to order and pay for a pizza, handle banking transactions, or pay their bills. Security still has a long way to go with voice-activated mechanisms handling point of sale for merchants. Selling online isn’t just having an ecommerce shopping cart. Integrating into the popular search giants is gaining a ton of traction in the online/convenience shopping community. In doing so, your products can be voice ordered through smart devices. I bet your local competitor isn’t doing that!

mobile voice-activated point of sale

5. Blockchain wallets and Money Transfers

Blockchain, the record-keeping technology behind bitcoin, can track transactions securely while keeping costs in check in machine-to-machine, M2M, exchanges. Security is also the sticking point on this technology thus far. Walmart is integrating blockchain technology into their mobile wallet to make it more secure and save money in transfers, which won’t rely on a third party. While blockchain is still in its early stages for retail it is picking up momentum in the back end of many payment apps.

6. P2P = Peer-to-Peer

Younger generations are turning to mobile apps that allow them to transfer money quickly and easily to one another such as Venmo. From payment for dog sitting to paying half the dinner bill, the next wave of consumers are more comfortable with using P2P payment apps than ever before. Now, Venmo is able to be used as an NFC mobile wallet and can be used the same as Apple Pay in retail locations. Call your merchant services provider to find out how to accept NFC at no additional charge. 

While new alternatives to the point of sale provide seemingly exponential choices in paying for something, most consumers still prefer the traditional methods, namely credit, debit, and cash. Even the most tech-savvy consumer with a mobile wallet in his pocket still carries cash and a credit card.

P2P peer-to-peer mobile payment apps

Visa Introduces APIs for Merchants to Facilitate Installment Payment Plans

Installment payments are currently being used with great success in other countries but it has yet to become prevalent in the U.S. Based on some recent news from Visa, that might soon be changing.

The latest from Visa

e-commerce payment installmentsIn June, Visa revealed its intention to enter the POS installment payment business.  By using APIs, this would allow businesses that accept Visa credit card payments through merchant services to offer installment plans to their customers.

 

An installment plan is set for a certain duration, during which customers make payments in equal amounts on a schedule, until the payment total equals the purchase price. For example, the classic as seen on tv ads used to say “three easy payments of $19.99” – that was an installment payment structure.

 

These installment options will be offered by Visa Next, a new website that is expected to become a source of innovative and exciting payment solutions.  This particular product will be available in January 2020.

What this means for merchants and consumers

Visa API merchantBusinesses that use merchant services to facilitate credit card payments will be able to take advantage of this new opportunity.  But how will this benefit them? Good question. 

 

Giving consumers payment options is always good for business. These installment payment plans are likely to accomplish that because they make it easy and quick to set up the plan. However, this isn’t the case right now. Our standard method, right now, for offering consumers a payment plan involves the consumer getting a loan for the amount of the purchase through a third party lender, and paying it off through them.  

 

Here’s how it normally goes:

 

  •     Consumers are given installment options.
  •     They must sign up with a certain provider.
  •     Consumers must complete the application process.
  •     They may or may not get accepted.
  •     If accepted, they can apply their funds to the purchase.
  •     This must be repeated for each different merchant.

 

With Visa using APIs for installment payments, none of that will be necessary. Customers will simply be given the opportunity to choose a payment plan using an account they already have. 

 

This will be more convenient for customers, making it easier for them to set up a payment plan, which could increase sales for businesses that offer these plans.

Interchange Plus vs Tiered Pricing

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Interchange Plus vs Tiered Pricing

Interchange Plus vs Tiered Pricing

No one wants to pay more than necessary for credit card processing, which can already eat into profits. When comparing merchant services, it’s important to understand how different pricing systems work. Many merchant account providers advertise very low fees as a teaser, even though most transactions do not qualify for these rates.

There are two common pricing models used for payment processing: tiered pricing and interchange plus pricing. Here’s how they compare.

Tiered Pricing
Tiered pricing is probably the most common pricing model for merchant services. While it’s advertised as an easy pricing method that makes statements simpler, the truth is it merely lumps hundreds of interchange rates into just three tiers or buckets. The processor may advertise the rate of the lowest tier, but most transactions will fall into tiers with a much higher rate. A debit card, which usually has the lowest interchange rate, can be billed using the same high rate as a rewards credit card, for example.

There are no set guidelines that determine which cards go in which category which leads to massive overcharging to merchants. Some payment processors have an incentive to downgrade transactions into a lower tier to boost profits. Transactions can be downgraded for any number of reasons, including using terminal software that isn’t updated, tips and tax that aren’t entered separately, or batches that aren’t settled within 48 hours. Not all of these factors are in your control.

As a merchant, you will have no way to predict which rate you will pay for transactions or how much you are being charged above the set interchange rate. You can’t even effectively compare tiered pricing quotes between payment processors because you don’t know what the mid- or non-qualified rates are — just the lowest available rate — and you won’t know the criteria the processor uses to categorize transactions.

Interchange Plus Pricing
Rather than using tiers, the interchange plus pricing model passes the set interchange rates directly to the merchant “plus” a small markup. Because the interchange rates are not changed or lumped into arbitrary categories, you can predict your payment processing costs and know what you are paying above interchange.

The only downside of interchange plus pricing is it does take time to understand the different rates you will pay for different types of transactions and credit cards. Your statements will be longer, but with greater clarity and transparency.

In the not so distant past, interchange plus pricing was only available to merchants with high credit card volume of $25,000 or more. Today, interchange plus credit card processing can be available to small and even new businesses. Interchange plus pricing is a smart choice with only two rates to consider: the transaction fee and the interchange markup fee. This pricing model is the safe and transparent choice with no arbitrary criteria you must meet.

Protect Your Business from Credit Card Skimmers

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Protection from Credit Card Skimmers

Protect Your Business from Credit Card Skimmers

Each year, companies sign on to take advantage of merchant services offered for credit card processing. Skimmers are quickly becoming a threat to unsuspecting customers as companies rely more heavily than ever on point of sale services for their businesses. As a merchant, you want to protect your customer from all potential forms of credit card scams.

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Trump to Repeal the Durbin Amendment

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President Trump may be gunning to reform the Dodd-Frank Act, in particular one of the most contentious policies of the act: the Durbin Amendment.

The Durbin Amendment—passed as a stipulation of the Dodd-Frank Act—allows the government to set price caps on fees for card transactions. Before 2009, interchange rates were set by banks and merchants involved in the transaction process.

The passing of the Durbin Amendment resulted in the stagnation of free services offered to consumers: before 2009, 76% of banks offered free checking accounts. After Dodd-Frank and Durbin, that number dropped to 45% in 2011, 39% in 2012, and 37% in 2015. This decline has forced some Americans to avoid banking entirely.

The goal of The Durbin Amendment was to pass savings to consumers by giving merchants fee breaks on interchange rates. Instead, 77% of merchants’ prices have stayed the same, while 22% have increased.

What would happen if President Trump and congress overhauled Dodd-Frank and repealed Durbin in its entirety?

A return to the pre-2009 era of interchange rates would result in retailers negotiating the cost of card transactions. This could lead to larger businesses paying less per transaction, while smaller businesses could take a more significant hit.

There is something to be said for retailers’ motivations: the largest proponents of keeping Durbin in the Dodd-Frank Act are massive outlets like Walmart, Walgreen’s, etc.

For the individual consumer, this could mean a change in the price of goods, depending on where they shop. It could also mean an increase in the number of free services that many banking institutions provide to incentivize the clientele that they’ve lost since 2009 to return, now that the burden of card processing fees are no longer shifted onto the consumer.

Either way, these changes are not likely to take place any time soon: Height Securities analyst Edwin Groshans theorizes that these regulation changes may not take place for at least another year. Ultimately, the ability to amend or repeal Dodd-Frank lies with the regulators in charge of these sanctions, not just with the President or congress, and any changes made will be hard-fought, given that the act was initially considered to prevent the irresponsible banking practices that lead to the 2008 market crash.

Mobile Rent Payments May Kick off Soon

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For the majority of individuals in the property management sector, a checkbook is a vital device that lets vast sums of money be transferred from one point to another without carrying briefcases full of bills. It is also a perfect way of making payments tenuously (mainly rent payments and even utility bills). With millennials promptly flinging over check books for mobile payments, however, it has made the rental industry rethink if it should start implementing mobile payments. For the majority, that is a tool that is to be applied soon.

In 2000, it was noted that the use of checkbooks dropped by almost half of what was used in previous years. A report from WePay indicated that more than 52% of millennials have never actually used checks; this makes a sound case for seeking an alternative mode of payment.

One famous developer, Jonathan Eppers who is the founder and Chief Executive of RadPad, believes that the perfect solution might be all that is needed, with satisfactorily expedient and robust mode making it as easy to pay your rent as it is to pay cash.

For instance, RadPad has by now been used to make transactions of an accumulative total of 120 million U.S. dollars in rent. However, Eppers points out that the mobile payments technology is new to many individuals.

For property management managers, it wasn’t necessary for them to change before. There was no reason for them to shift since checks worked fine for them. Furthermore, because rental houses were primarily occupied, it wasn’t necessary to make things more convenient to attract more tenants since they would just show up either way.

That might be changing, however, as many firms comprised of huge names such as Square are making an entry into the rental market and providing these services.

The major thing to take into consideration is that the situation on the ground that will make paying rent more convenient for tenants might not be put into place during the coming days. It might require a condition such as the introduction of an enhanced economy or purchasing homes becoming much more popular than renting.

For this reason, it is advisable for a landlord to get ready for such prospects and have a new rent payment method in place.

Walmart Pay

Walmart Pay to Deepen Information about Shopper Habits

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Businesses are striving to stay on top of trends in consumer behavior, and mobile payments have been a hotbed of activity. Walmart Pay just rolled out nationwide, and the company is hoping that the app will help them collect more information about how customers use their products and make purchasing decisions. Credit card processing has seen huge changes recently, and new mobile payment apps like Walmart Pay and Apple Pay are certainly capitalizing on this trend.

Mobile Applications are seeing a ton of investment from the tech sphere, and Walmart is only one of the many companies trying to launch their propriety applications for their customers. The applications are supposed to make purchases easier for consumers. The app can track purchase history, which will allow customers to reorder frequently purchased items.

The application also speeds up the checkout process in-store, which is intended to increase the frequency that customers will visit Walmart and open their wallets. Walmart Pay is also intended to provide more information to the company. Businesses of all sizes are interested in the big data trend, and this application will help them further analyze the purchases and products that customers are viewing.

Walmart Pay also incorporates mobile payments, another major industry trend. Other apps like Apple Pay have been allowing consumers to create e-wallets that allow them to pay using their smartphones. This has been a major shakeup for credit card processing firms, and there have been many startups looking to help companies take mobile payments. While mobile payments have yet to catch on in a major way in the United States, Walmart is hoping that they can help move the needle on this.

The company is rolling out the application nation-wide, after testing the product in smaller markets across the United States. The application does not yet support third-party e-wallets, but customers can currently connect the application with debit, credit and prepaid cards. The company might decide to pair with Apple Pay in the future, but for now the options are slightly more limited. Time will tell if this application sees mainstream adoption. One thing is for sure, the evolution of e-wallets and retailer applications is going to be a transformative force for firms that do credit card processing.

Bank of America to pay $772 Million Penalty

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On Wednesday April 9, 2014 Bank of America settled a lawsuit and agreed to pay $772 million in penalties for deceiving millions of customers into buying costly and unneeded services when they signed up for credit cards.

The Crux of the Case

The Consumer Financial Protection Bureau said that Bank of America illegally deceived 2.9 million customers into buying extra credit card services those customers did not need and that Bank of America charged others for needless credit monitoring between 2000 and 2012.

“Bank of America both deceived consumers and unfairly billed consumers for services not performed,” Richard Cordray, director of CFPPB told the Associated Press. The settlement deal is the largest refund amount ordered to date by the CFPPB, and is the biggest settlement over credit card “add-on” services won by the federal government.

Bank of America will also have to pay an additional $20 million penalty to the Consumer Financial Protection Bureau and $25 million to the Office of the Comptroller of the Currency.

Delving into the details of the settlement, some of the misleading practices included Bank of America telemarketers telling customers that the first 30 days of a service were free when instead the customers were charged. Also, the bank led customers to believe that they were merely agreeing to receive additional information about add-on services, when in fact the bank was enrolling those customers into the services during calls.

Bank of America released a statement saying that the bank had already refunded money to a “majority” of the affected customers.

Bank of America’s Been to the Dance Before

This isn’t the first time Bank of America has been hit hard by its desire to charge customers fees. Back in 2011, when the Durbin Amendment going into effect was all the rage, Bank of America came up with a plan to charge their customers a fee for using their debit cards.

Bank of America stated its reason for this fee was to offset predicted losses the bank would incur because of the Durbin Amendment.

This went over like a lead balloon, and eventually Bank of America backed off this idea. It’s no mere coincidence that this fee and the resultant backlash heralds from the time period covered in the lawsuit. It seems back in those days, Bank of America was just really into adding fees for everything it could think of.

Transparent Pricing and No Fees

Host Merchant Services was hip to the pitfalls of fees right from its inception. HMS delivers personal service and clarity. The company promises no hidden fees. And a transparent pricing plan so that its customers are not saddled with all of these “add-ons” that Bank of America was so gung-ho about in 2011.  HMS  believes that when you get your statement every month, you should understand every item, and it should match what you were promised in the sales process.

Wal-Mart Sues Visa

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The swipe fee antitrust lawsuit that The Official Merchant Services Blog has been covering for a few years now has an update: Wal-Mart, accusing Visa of excessively high card swipe fees, is suing Visa for $5 billion. The action by Wal-Mart is being taken because Wal Mart opted out of the settlement of the class action lawsuit between merchants and Visa and MasterCard.

This follows our previous report of the Minnesota Twins also opting out of the settlement. Wal-Mart filed the suit Tuesday, March 25, in the U.S. District Court for the Western District of Arkansas, where Wal-Mart is headquartered.

Wal-Mart’s Side of the Suit

Wal-Mart, the world’s largest retailer, is seeking damages from price fixing and other antitrust violations that it claims took place between January 1, 2004 and November 27, 2012.

In its lawsuit, Wal-Mart contends that Visa, in concert with banks, sought to prevent retailers from protecting themselves against those swipe fees, eventually hurting sales. Wal-Mart stated in court documents: “The anticompetitive conduct of Visa and the banks forced Wal-Mart to raise retail prices paid by its customers and/or reduce retail services provided to its customers as a means of offsetting some of the artificially inflated interchange fees. As a result, Wal-Mart’s retail sales were below what they would have been otherwise.”

Wal-Mart contends that that the way Visa set up the swipe fees violated antitrust regulations and generated more than $350 billion for card issuers over the time period in question, in part at the expense of the retailer and customers.

Case History

The antitrust case against Visa, MasterCard and several issuing banks stemmed from the dispute relating to the percentage of credit card transaction fees that retailers must remit to the credit card processing network. The fees generally range from 1.5 to 3 percent and are shared with the bank that issued the card. Also known as “swipe fees,” these charges serve to underwrite the supporting infrastructure that allows businesses to accept and process credit cards.

Large retailers and supporting associations have repeatedly complained about the costs associated with accepting credit cards and the fees for merchant services. These grievances resulted in a number of lawsuits filed in 2005, which were eventually consolidated into a single case known as the Payment Interchange Fee and Merchant Discount Antitrust Litigation.

There were 139 parties involved as plaintiffs, and the case was active for over eight years. In July 2012, a settlement was reached that provided $6 billion in damages to affected retailers and another $1.2 billion for a temporary reduction in interchange fees. As a further concession, Visa and MasterCard eliminated certain rules for merchant services that prohibited surcharging, which is a practice that allows retailers to recoup credit card costs by passing them on to the consumer.

After a settlement was reached in the case, major retailers such as Target, Nike, Home Depot, Lowes, Starbucks and Best Buy ultimately opted out of the settlement. Major trade organizations, including the National Restaurant Association (NRA), have voiced significant opposition to the agreement. In fact, the NRA strongly encouraged its constituent members to reject the settlement and highlighted the potential negative impact it could have on the emerging mobile payments market.

The Saga

To review the full extent of this ongoing saga, you can read our previous coverage of this settlement: