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SOPA: Rebuttal of RIAA Opinion Pt. 2

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This is part 2 of The Official Merchant Services Blog‘s rebuttal of this New York Times Op-Ed piece titled “What Wikipedia Won’t Tell You” written by Cary H. Sherman, chief executive of the Recording Industry Association of America, which represents music labels.

The Real Slim Shady

Mr. Sherman in his article goes on to accuse Wikipedia of spreading misinformation. He tries to find a smoking gun by suggesting the tech giants have an agenda of their own. He accuses them of bias in terms of the story they present, saying they are bending the truth and not being neutral. He even attacks media outlets that supported SOPA for not “taking advantage of their broadcast credibility to press their case.”

This is amazing. In a piece crafted specifically to present the RIAA’s very biased agenda that is featured in one of those media outlets thus stretching the New York Times’ already damaged credibility — lest we forget Zachary Kouwe, Maureen Dowd or Jayson Blair — Sherman accuses his opposition of doing the exact same thing he is doing. Keep in mind, his own executives were gloating about how well the music industry is doing in 2011. But here he is saying the industry is still being harmed by piracy and that Wikipedia is not telling you the whole story. Sherman simply seems to not be as familiar with how the internet works as his employee Duckworth is. To borrow the ever-popular phrase, he’s doing it wrong. He says, “Misinformation may be a dirty trick, but it works.” Not on the internet. People find you lying to them, or manipulating them, and they either make a mockery of you or turn you off. Sorry Mr. Sherman but in this instance, Citation Needed!

Host Merchant Services image about the Stop Online Piracy Act and the players involved.

First World Problems

Mr. Sherman makes another fatal mistake with his article when he types: “The conventional wisdom is that the defeat of these bills shows the power of the digital commons. Sure, anybody could click on a link or tweet in outrage — but how many knew what they were supporting or opposing? Would they have cast their clicks if they knew they were supporting foreign criminals selling counterfeit pharmaceuticals to Americans? Was it SOPA they were opposed to, or censorship?”

Sherman is playing off of a stereotype about the twitter-age, or Net 2.0 –that everything is simplified and broken down into tiny bits of information. That the online citizen isn’t getting the full story is in fact that’s his main idea. But Sherman has forgotten net 1.0, and the strength of what Google, Wikipedia and all of that data really is. Somewhere between twitter campaigns with STOP SOPA avatars and Sherman’s own e-mail inbox is this huge collective database of information, which includes the exact language of the legislation as written. Every single piece Host Merchant Services has written on SOPA has included this link:

Stop Online Piracy Act PDF

Merchant Services Document Download Graphic

Merchant Services Download Button

Many other articles that covered this topic throughout the past year have given links to all of the relevant data and text. It’s the internet Mr. Sherman. The information is just a click away. Many people not only had access to the bill, they also read it. And so their protest was based on the bill itself. Not on the oversimplification you suggest.

Young, Wild but Not Free

Mr. Sherman then takes a wild swing at all of the people who protested SOPA, suggesting some of them are criminals: “But others may simply believe that online music, books and movies should be free. And how many of those e-mails were from the same people who attacked the Web sites of the Department of Justice, the Motion Picture Association of America, my organization and others as retribution for the seizure of Megaupload, an international digital piracy operation? Indeed, it’s hackers like the group Anonymous that engage in real censorship when they stifle the speech of those with whom they disagree.”

So just because people don’t agree with your agenda, they’re hackers who support Megaupload and want free music? That’s the kind of rookie debate tactic that gets you ridiculed throughout the internet. It’s also misinformation and a huge distraction from the topic. The Megaupload arrest is separate from the SOPA debate. This is obvious. The arrest was made under the current law. The FBI was able to crack down on piracy using what is currently in place. That the federal government was able to successfully attack piracy under the laws currently in place would seem to weaken Sherman’s position. In fact data collected on the topic has shown that once the government moved past the Napster issue that Mr. Sherman was so quick to cry about in the opening portion of his article, piracy started to take a huge hit. In fact, that PDF from the IFPI has some compelling statistics about how much piracy dipped after Limewire was shut down. Apparently the current laws have a lot of teeth if law enforcement goes after the pirates and doesn’t waste time going after citizens or forcing search engines and payment network providers to police the internet.

U Jelly?

The last straw with Mr. Sherman’s terrible presentation of his organization’s biased agenda comes from his short and shallow rejection of the Online Protection and Enforcement of Digital Trade Act (OPEN). This bill was drafted as an alternative to SOPA and PIPA. This bill was, excuse the irony, carefully devised by tech industry experts in the government — with an eye toward attacking online piracy but closing the wide open holes that the previous bills contained. The Official Merchant Services Blog helped break this story back in early December, with this blog, where we stated: “A bipartisan group of lawmakers have come out in support of a new law that has been proposed as an alternative to SOPA. Under this proposed legislation, the U.S. International Trade Commission (ITC) would be given the power to investigate claims of copyright infringement on foreign websites. The proposal would also allow the ITC to issue cease-and-desist orders to foreign websites that willfully engage in copyright infringement. The lawmakers demonstrate some clever ingenuity here with this proposal by tapping the ITC for the job of piracy oversight. The ITC already investigates patent infringement complaints and can bar infringing products from being imported into the U.S.”

In short, OPEN is an alternative that was everything Sherman asked for in online piracy legislation that we never received with SOPA or PIPA. It was well researched. It deals with the issues. It has input from tech industry savvy and knowledgeable politicians that know what they’re doing. But Sherman’s misinformation sums up OPEN like this: “The diversionary bill that they drafted, the OPEN Act, would do little to stop the illegal behavior and would not establish a workable framework, standards or remedies. It has become clear that, at this point, neither SOPA, PIPA nor OPEN is a viable answer.”

Host Merchant Services image of online piracy

Forget You

Again Sherman glossed over some important aspects of his own organization’s rhetoric. This article found at The Verge cites the RIAA’s opposition to OPEN and its support of SOPA.  The article quotes RIAA Senior Executive VP Mitch Glazier as saying that the ITC “clearly does not operate on the short time frame necessary to be effective.” Glazer cites the delays in the RIM vs. Kodak case — filed in January 2010 but now expected to be ruled on in September 2012 — as a prime example. Glazier sees these delays as hugely damaging, saying that each day a piracy-facilitating website stays online can cost millions of dollars to “American companies, employees and economy,” and be “an ongoing threat to the security and safety of our citizens.”

So again, it’s a case of what Sherman isn’t telling you, while simultaneously suggesting it’s Wikipedia or Google that are obfuscating the issue. The biggest problem with SOPA and what helped get it killed in Congress was that it left things extremely wide open to interpretation. The biggest boon to OPEN is that it requires investigation. Yes, that absolutely does take time. Time needs to be taken. The RIAA doesn’t seem to care about the affects that can happen when a law goes into place allowing swift shut down of websites based on willy nilly complaints or the hidden agendas of competitors. In fact, this is what is wrong with the RIAA’s stance on piracy. They want what caused the protest in the first place. They want to be able to quickly shut down sites with little to no oversight on how the plug gets pulled. So when an alternative is proposed that works more at the a proper speed with investigation, careful consideration of the circumstances and oversight, the RIAA has to denounce that suggestion.

The RIAA keeps pushing for legislation that mirrors SOPA. In fact, this will be the third consecutive year that Senator Ron Wyden [D-OR] will defend our country against the immense loopholes and abusive traits that the RIAA crusades for — Wyden took a stand and singlehandedly curbed the Combat Online Infringement and Counterfeits Act of 2010 (S. 3804) in 2010, and then was at the forefront of halting PIPA this year in the senate. What Sherman is telling us isn’t anything revealing about Wikipedia. No. What Sherman is telling us is that no matter how many times the government tells him that these laws are poorly written and open for abuse, Sherman will keep pushing for this to go through.

Courage Wolf

Host Merchant Services and all other payment network providers have a vested interest in this legislation because they keep getting named in it. These laws keep coming up that require payment processors to be involved in the policing of online content. The issue is just as important to merchant services as the Durbin Amendment. And so The Official Merchant Services Blog is once again here to keep people informed about these developments. The RIAA is singing the same old song about Napster and Piracy trying to push some sympathetic buttons with the people, but at the same time attacking the overwhelming opposition to their agenda, calling them misinformed — and criminal. Suggesting that internet users don’t go beyond twitter messages in the depth of their awareness of issues that pertain directly to the future of their internet usage. And the entire time the RIAA is engaging in this shell-game of misinformation, they’re also gloating about how profitable they’ve been able to make digital music transactions. They claim they know the internet. But Mr. Sherman acts like he still thinks it’s a series of tubes. He might know it’s not a truck, but he’s still doing it wrong.

We’ll leave you with the same message we had days ago when Sherman’s employees were tweeting “DECLARE THAT!”

The bottom line is if Lady Gaga and Pitbull online sales are robust and  legit, it’s probably time to back off the Online Piracy rhetoric.

Rebuttal of RIAA Opinion

SOPA: Rebuttal of RIAA Opinion Pt. 1

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The RIAA just won’t quit. They’re taken up the crusade to push for anti-piracy legislation once again, as seen in this New York Times Op-Ed piece titled “What Wikipedia Won’t Tell You” written by Cary H. Sherman,chief executive of the Recording Industry Association of America, which represents music labels. The content of the piece is incendiary, and that’s being kind. The RIAA is adamant about their stance on piracy and are pressing the issue in every outlet they can. To quote Digital Underground from their Sons of the P album — which currently is not available for legal purchase online due to holes in the DU library in various legit digital music resources — “Like Ice Cube says, Once Again it’s On.”

Everyday They’re Shufflin’

The Stop Online Piracy Act and the Protect Intellectual Property Act were both killed in Congress — shelved because they were too wide open to abuse. The protest against these bills reached a collective crescendo when internet giants Wikipedia and Google and WordPress teamed up with a host of others for an internet blackout. When the largest source of internet information — and grade school kids’ favorite spot for help with their homework — goes dark and the search engine juggernaut that fuels the internet shines its spotlight on your bill, things have finally gotten serious. The U.S. citizens took notice of this blackout, and joined the internet in protest. And Congress heard the people and backed off this poorly written legislation.

But that hasn’t stopped the entertainment lobby. They went back to the drawing board and then returned mere weeks later with a new idea on how to combat online piracy. Unfortunately that new idea was the exact same idea as before. This was seen in the wishlist the International Federation of the Phonographic Industry (IFPI) released. The highlights of this list are essentially that the music industry wants pretty much the exact same things that were in SOPA, the same things that prompted the protest in the first place. A list of seven demands, which include the exact same far reaching calls for search engines and payment processors to police websites individually and be responsible to law enforcement for content they are indirectly connected to.

We’ll get back to this, but for now the point is the music industry felt the need to push for the same stuff that killed SOPA and PIPA. And that came right back to the forefront with Mr. Sherman’s opinion article in the New York Times. Essentially the RIAA wants a do-over and Mr. Sherman is here to tell us why that needs to happen.

Come At Me Bro

So today The Official Merchant Services Blog is going to try to put this issue in its place much like Blake Griffin did to Kendrick Perkins recently. Yes, we are going to Posterize the RIAA. Because the op-ed article indicates the RIAA has soft interior defense and can’t play man to man very well at all. First up we’ll start with the relative hypocrisy of Sherman’s ill-timed article found in this contextual relationship: Suggesting Wikipedia isn’t telling people everything, and then making this comment, “They knew that music sales in the United States are less than half of what they were in 1999, when the file-sharing site Napster emerged, and that direct employment in the industry had fallen by more than half since then, to less than 10,000.”

This is hypocritical because Mr. Sherman is leaving out some very pertinent information — which his employees were just recently bragging about on twitter. As we reported on January 31, the RIAA was excited about the IFPI wishlist because it had a series of statistics that showed the music industry is doing well with digital sales. The music industry claims Wikipedia is being deceptive and then suggests that they are still reeling from Napster, which was effectively scuttled back in 2002. They’re making a play for sympathy from an issue that happened almost a full decade ago, and yet they just got finished gloating about how successful they were this year!

Jonathan Lamy, senior VP of Communications for the RIAA, tweeted that paid subscription services rose 65 percent to 13.4 million in 2011. This tweet was in response to figures released by the IFPI which Lamy was excited to read. Lamy also tweeted that paid digital music services are active in 58 countries, generating $5.2 billion in revenues.

And then Cara Duckworth. The VP of Communications for the RIAA also cited the IFPI figures and then said: “W/more than half of all music sales coming from digital services, we know how Internet works. “Music=Innovation. Declare THAT. #CES #SOPA.”

What the RIAA isn’t telling you is far worse than what Wikipedia isn’t telling you. But Mr. Sherman isn’t about to concede facts when the agenda needs to continue to be pushed. The music industry is finally getting the hang of the digital market. Their own people brag that they know how the internet works. Declare that! But Sherman’s still waving the Napster suit in your face trying to claim that Wikipedia is obfuscating the issue.

It gets worse.

Born This Way

Sherman writes, “While no legislation is perfect, the Protect Intellectual Property Act (or PIPA) was carefully devised, with nearly unanimous bipartisan support in the Senate, and its House counterpart, the Stop Online Piracy Act (or SOPA), was based on existing statutes and Supreme Court precedents.”

The only thing in that statement that is rooted in the reality of what happened with SOPA and PIPA is that there was a lot of bipartisan work. Unfortunately, the work was bipartisan unity on finding problems with the so-called carefully devised legislation. Tech industry experts on both sides of party lines found the problems and holes in the legislation. As we reported on December 27, 2011, SOPA sparked unity in the federal government. And as we’ve written in our in-depth analysis, the bill was not very carefully devised at all. In that analysis we lean heavily on discussion from Congresswoman Zoe Lofgren [D-CA], an expert in the tech industry. We’ll highlight just a bit of Lofgren’s criticism of this bill, with questions raised: “Section 103 also allows a “portion of” a website to be deemed “dedicated to the theft of U.S. property,” regardless of the culpability of the website as a whole. Like many important terms throughout H.R. 3261, the precise meaning of these words is ambiguous, and will require years of expensive litigation to clarify. However, the plain meaning of the words seems to indicate that any large website could face a risk of termination by payment and advertising providers based solely upon infringing material contained in a single web page. ”

This is not carefully devised legislation. And as we eventually reported, the bill’s own sponsor admitted he did not fully understand the technical aspect of the bill and he backed off of it. Bill sponsor Lamar Smith is quoted in various media sources as saying:  “I have heard from the critics and I take seriously their concerns regarding proposed legislation to address the problem of online piracy. It is clear that we need to revisit the approach on how best to address the problem of foreign thieves that steal and sell American inventions and products.”

To Be Continued

Visa Kicks Open the Door for Chip Cards

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Today The Official Merchant Services Blog discusses a fascinating new development by Visa in the realm of credit card processing, security, and hopefully Mobile Payment Technology.

Smart cards have been slow in gaining traction, especially in the United States. But now Visa is making moves to drag the U.S. into the chip card realm, kicking and screaming if it has to. A recent article on Credit.com reveals as of December 31, 2011, Visa — the largest processor of both debit and credit card payments — had issued more than 1 million credit cards that use “chip” technology to sore consumer payment information. The article notes that this data is being announced rather quickly in relation to Visa’s August 2011 announcement that it planned to start issuing more EMV — Europay, Mastercard, Visa — smart cards to push the industry toward better security and an easier transition to mobile payments.

What is Smart Card Technology?

A smart card, or chip card, is any pocket-sized card with embedded integrated circuits. These cards contain volatile memory and microprocessor components, are made of plastic,and provide strong security authentication capabilities. Because of these characteristics, the technology is being utilized for credit cards by major card companies like Europay, MasterCard and Visa — garnering the nickname EMV. Visa has begun a major push of this technology because of the benefits the technology provides.

What are Those Benefits?

These kinds of smart cards can provide identification, authentication, data storage and application processing. A single contact/contactless smart card can be programmed with multiple banking credentials, medical entitlement, driver’s license/public transport entitlement, loyalty programs and club memberships to name just a few. Multi-factor and proximity authentication can and has been embedded into smart cards to increase the security of all services on the card. In one fell swoop, this technology can bridge the gap between card-swipe style processing and the mobile payment processing that the industry is striving to move toward. The technology lets virtual wallets and contactless payment happen, increasing convenience for consumers. And then it also boosts security, which is the largest concern consumers have with mobile payments.

The Credit.com article quotes Stephanie Ericksen, head of authentication product integration at Visa Inc. as saying “Migrating the U.S. market to chip will help build an infrastructure for accepting NFC mobile payments, enhance international acceptance and reduce fraud.”

TransFirst Sets Guidelines

TransFirst, Host Merchant Services’ acquirer and one of the premier providers of transaction processing services and payment processing technologies in the U.S., has issued a mandate in response to the EMV push. TransFirst says that Visa will require U.S. acquirer processors and sub-processor service providers to be able to support merchant acceptance of chip transactions no later than April 1, 2013. Visa also intends to institute a U.S. liability shift for domestic and cross-border counterfeit card-present point-of-sale transactions effective October 1, 2015, and for fuel-selling merchants by October 1, 2017.

Many of these dates are long-term projections and would seem to be a little far out there in comparison to the fast-paced results Visa is achieving already with their shift to chip cards.

The Carrot on the Stick

TransFirst explains that Liability Shift is often used as the incentive to encourage acquirers or issuers to move to chip transactions. For magnetic stripe swipe transactions, POS counterfeit fraud is mostly absorbed by the card issuers. But in the EMV shift Visa is pushing, the party that is not chip-capable will be liable for frauds that would have been prevented if the transaction were processed with a chip-on-chip connection.

It would seem that Visa is happy with the fast embracing of their chip transition but are still giving the acquirers and the merchant service providers and the merchants years to implement this fully before holding them liable.

In preparation for Visa’s Accelerated Chip Migration plan, TransFirst will migrate new terminal deployments on the following POS Terminals to chip capable versions of the same devices. Once implemented, non-chip capable versions of these terminals will no longer be available for purchase through TransFirst:

  • Verifone’s Vx570
  • Hypercom’s T4205
  • Hypercom’s T4220
  • Hypercom’s M4230

How Chip Cards Work

These new cards work in a similar fashion to the cards they are replacing. Users present them when making a purchase and from there the transaction follows the steps detailed in the Host Merchant Services Infographic found here. But the cards are different from swipe cards in some very important ways. Consumers do not swipe these cards. Instead they wave them over a sensor. This is the exact same style of payment that mobile phone based “virtual wallets” look to employ. You wave your smart card across a sensor, or you wave your smart phone across a sensor. Payment made. Visa also plans to allow chip cards to work with PIN codes, bringing debit under the umbrella.

The Mobile Payment Connection

Visa is heavily invested in the future of Mobile Payments. Which is not surprising as you can see from Host Merchant Services‘ coverage of the topic in its article archive. Past blogs have noted that the biggest obstacle Mobile Payments face with U.S. consumers is concern about the safety of the transactions. Visa’s hoping that the added security that the chip technology provides will overcome that obstacle and finally tap them into the billions of dollars of revenue that Mobile Payments are predicted to have in the coming years. As Ericksen says in the Credit.com article, “Since announcing our roadmap last year, we have seen strong interest among U.S. issuers large and small to invest in chip technology, as today’s milestone shows.”

Durbin Amendment Back In the News [2023 Update]

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The Official Merchant Services Blog returns to a topic that it covered thoroughly throughout 2011: The Durbin Amendment. With the Stop Online Piracy Act getting most of the headlines lately, Durbin Amendment’s continued impact on the payment processing industry has gone into stealth mode. Until today that is. Stick with us as we offer a whirlwind roundup of all things Durbin related.

Bank of America Took a Beating

We’ll start off our tour Durbin tidbits with this article by ABC News. Apparently Bank of America took a substantial hit from their plan to charge $5 per month to use debit cards. According to the article: “Bank of America’s failed plan to impose a $5 monthly debit card fee led to a 20 percent increase in closed accounts in the last three months of 2011 and a public relations headache.”

The article quotes Bank of America CEO Brian Moynihan as saying, “yes, we had some impact from the $5 debit fee. That’s why we made a decision to reverse it.”

It wasn’t all bad news for Bank of America though, as the bank reported earnings of $2 billion in the last three months of 2011, up from a net loss of $1.2 billion in the same period a year ago, boosted in part from a one-time gain on the sale of China Construction Bank.

Small Lenders Strike it Big

The next little bit of Durbin aftermath comes from this article by NACS online. As was seen in the Host Merchant Services in-depth analysis of the legislation, The Durbin Amendment only applies to lending institutions with assets over $10 billion. Smaller banks and credit unions are exempt from the Durbin Amendment. As a result of being exempt, a Wall Street Journal report cited by the NACS article states that these institutions have been “collecting fees that are often three times those imposed on cards by large banks.” 

For comparison, the article says: “The WSJ notes that a $100 sweater purchased with a debit card would incur a fee of 95 cents on a card issued by a smaller bank and only 26 cents for those issued by big banks. “

The article also suggests that banks face further uncertainty by April 1, 2012, when “all U.S. banks and credit unions must offer retailers more choices of companies used to process debit card transactions, a move that is expected to lower interchange fees further.”

New Target: Credit Card Swipe Fees

Time Magazine Online Feature Moneyland reports something that Host Merchant Services has already touched on before in The Official Merchant Services Blog — that Credit Card Swipe Fees may be the next target of legislators and financial reform. From the Time article: “There’s another interchange fee fight in the offing — this time over credit cards. According to CNBC, equity analysts who cover the financial sector have expressed worry that ongoing litigation involving several major banks could lead to a cap of 0.5% on credit interchange fees — one-fourth of what’s currently charged — potentially dragging down bank earnings. If that happens, consumers who are used to generous credit card rewards programs complete with double miles, accelerated earnings, and big sign-up bonuses might get a rude awakening.”

The Official Merchant Services Blog on December 13, 2011 covered the topic of a Credit Card Swipe Fee. In that blog we wrote: “the plan would end up working much like the Durbin Amendment has worked. Where the idea of reform would get overshadowed by how banks and credit card companies reacted to the law. There would be some shifting, so in that sense the reform would cause change. But that eventually the burden for paying for any losses that banks and credit card companies get forced into through reform would end up squarely on the shoulders of the consumers.”

The Time article notes something that Host Merchant Services already pointed out regarding a Credit Card version of the Durbin Amendment — Banks would take another huge hit because Durbin has language that freed up banks and merchants to market and promote options to the consumer directly. In short, Durbin’s language freed merchants up to promote credit over debit. And because of that, a lot of merchants did just that as Banks offered new programs to make credit the more attractive choice. Subsequent changes that would now penalize Banks for doing that would create a lot of negative momentum for Banks and added onus for consumers who get stuck with no good choices overall.

New Hampshire Law

This article from credit.com reveals that one state legislature is already making moves to see a Credit Card Swipe Fee Cap become reality. As the article states: “A piece of legislation introduced in the New Hampshire House of Representatives, House Bill 1319, has drawn some attention for the way in which it would drastically alter the credit card landscape between businesses and payment processors. The law will limit the amount banks chartered within the state are able to charge businesses for processing credit card transactions to just 1 percent of the total purchase value.”

The article goes on to state that many businesses pay costs that range from 0.67 percent of the transaction’s value to 4.76 percent and that a MasterCard spokesperson told the Nashua Telegraph that the average 1.75 percent.

Cash Still Rules Everything Around Me

Our last news brief on the topic of the Durbin Amendment and swipe fee caps is a little different. This article from the Huffington Post shows a study that reveals cash is still king. The gist of the article: “More than three-quarters, or 79 percent, of consumers said they made a cash purchase in the last seven days, according to a report released on Tuesday from Javelin Strategy & Research, a market research group for financial services. Compare that to about 65 percent of credit and debit cardholders who say they swiped their plastic in the last week.”

The article suggests that this is a consumer reaction to card swipe fees. The article states that consumers are choosing to pay for items with cash to avoid fees on small, everyday purchases. The convenience of plastic gets overrun by the savings consumers perceive they get from going back to cold, hard cash. The study indicates that cash is replacing debit for small purchases, and credit is replacing debit for big purchases and the Durbin Amendment’s lasting legacy may simply be that it pushes Debit out of the consumer’s arsenal of payment options.

Stop Online Piracy Act Controversy [2023 Update]

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The Official Merchant Services Blog is going to be quick today. The Holiday Shopping Season is still going great and merchants are still reaping the rewards of the boost in business. But we wanted to take a moment to step out of the holiday shopping mindset and look toward the future. We’d like to point you to a new law before Congress that could have a huge impact on e-commerce and your company’s website: The Stop Online Piracy Act.

The Basics

Let’s get the basics out of the way first. What is the Stop Online Piracy Act (SOPA)? The Stop Online Piracy Act (SOPA) is also known as H.R. 3261. It was introduced in the House of Representatives on October 26, 2011 by Lamar Smith [R-TX] and a bipartisan group of 12 initial co-sponsors. This bill, intended to help stem online piracy and backed by companies like Disney, Viacom, and Time Warner, has set off the alarms of many sites and companies on the internet because it essentially allows the government and private corporations to censor entire sites that they fear are illegally distributing copyrighted material.

Host Merchant Services has provided an extensive review and analysis of the bill here. We look at the entirety of the law and its controversy, as well as a very focused review of what the law has to say about merchant service providers so that our merchants can get an idea of what is in store for them if this bill passes.

What it Means for Merchants

SOPA is being fueled by the entertainment industry, and as such it contains language that allows for a very broad sweeping attack on copyright infringement –– throughout the internet. A Gamespot Article found here calls it “the law that will break your internet.” What it means for businesses and their websites, as well as payment processors, is the law allows copyright and trademark holders to contact advertisers and others who do business with sites that encourage or even allow infringement to ask them to stop. There is no requirement that those copyright holders contact the offending businesses first.

While on the surface this may seem like a great idea because it does give the Department of Justice the teeth it needs to attack online piracy, opponents of the bill argue that the legislation could have ramifications for innocent companies that provide a storefront for a wide variety of small businesses. With a large site like Amazon or eBay, having to take proactive measures to police piracy among their many sub-merchants is a herculean task that could all be unraveled by just one person with an axe to grind. And that gets right to the heart of the problem with the law: the way it is currently written there would be no way to determine that the person reporting the piracy was being truthful.

In short, your business could be interrupted by your website getting shut down. Your website could get shut down due to a report through one of many different channels. Since payment processors are included in this law, it could be something as simple as someone making a claim of piracy about your site, but doing so against your processor, and so your processor has to suspend your site’s ability to take payments.

Moving Forward

The Official Merchant Services Blog will keep you updated on this law as it develops. Currently the most interesting tidbits are:

  • Maria Pallante, Registrar of U.S. Copyrights, has endorsed the legislation.
  • Lamar Smith, sponsor of the bill, has backed off his initial aggressive support of the stance, and can be quoted as saying “I’m not a technical expert on this. I’m trying to ferret this out.”
  • Microsoft, Apple and other members of the Business Software Alliance have backed away from supporting the bill 5 days after the initial hearing before the House Judiciary Committee.

Any questions about SOPA? What are your feelings about this law? Do you think it could interrupt your business? Do you think it has the potential to be abused by web surfers with an axe to grind? Do you think it can effectively police online piracy?

Tiered vs. Interchange Plus Part 2

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The Official Merchant Services Blog continues it’s two-part series on Tiered Pricing vs. Interchange Plus. After yesterday’s blog defined what Three-Tier pricing looks like, we now take a closer look at how it falls apart and does not save merchants money. Then we’ll outline Interchange Plus pricing and highlight why Host Merchant Services uses this plan to save its merchants money.

Where the Problems Occur

The three tiers of a typical Tiered Pricing plan are commonly referred to as rate buckets or buckets. And Merchant Service Providers who use tiered pricing structures for their customers utilize a “qualification matrix” that dictates which rate bucket the various interchange categories will qualify to. That means that the fees can shift from month to month as a merchant consistently fails to meet the “standard” transaction of the Qualified bucket. Thus each month they consistently have to pay surcharges from the other two buckets which aren’t adequately displayed or described on their statement.

And because these fees and surcharges from the other two bucket rate tiers are often hidden, that makes it difficult to accurately compare rates and fees from competing providers unless a merchant knows how each provider will be qualifying those categories. Because the categories aren’t directly comparable and because the qualification matrix can shift fees on a merchant from month to month, a common occurrence is a merchant can look at two separate tiered pricing offers from different Merchant Services Providers that look nearly identical because they use the same language for each tier, and yet could be different by hundreds of dollars each month.

Merchants Have to do the Hard Part

This puts the responsibility squarely on the shoulders of the merchant. They need to read the fine print of their statement and understand the subtle differences between the tiers to note when they get shifted to a different tier. This is the most common way Merchant Services Providers make money. The sales pitch when signing the merchant focuses on the low end bucket that saves the customer the most money. But then once the processing starts, buckets shift and the merchant gets a lot more charges than they initially signed up for.

So if your statement shows that you have a lot of mid-qualified or non-qualified surcharges each month, it’s time to consider switching to Interchange Plus, the pricing structure that Merchant Service Providers like Host Merchant Services offers.

The Advantage of Interchange Plus

Interchange Plus pricing is based on the “interchange” tables published by both Visa and MasterCard. At first that may seem like a daunting pricing plan. But it ends up being a lot easier to understand, completely transparent to the merchant, and less expensive than tiered pricing plans. Interchange plus pricing has the merchant pay the exact interchange fee from the tables in addition to a flat markup fee from their Merchant Services Provider. That’s where the name comes from: It’s the Interchange fee Plus the markup fee. This eliminates all of the hidden fees you would find in a tiered pricing plan. And gets rid of surcharges that merchants would incur for transactions that don’t fit the standardized portion of the rate bucket matrix. You pay what you are told you will be paying.

This makes it less popular than tiered pricing plans where Merchant Services Providers can make quite a bit of money off of those surcharges due to the latitude they have in defining their tiered bucket rates. But Interchange Plus makes statements easier to read, customer service easier to provide to merchants, and savings much easier to guarantee. All of those elements are cornerstones of Host Merchant Services. So Interchange Plus is the best fit for the company and for their customers.

Tiered Pricing vs. Interchange Plus

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Today The Official Merchant Services Blog is going to delve into the murky world of hidden fees and tiered pricing plans. This is the first in a two-part series and it focuses on Tiered Pricing. Host Merchant Services offers an Interchange Plus pricing plan. The company offers this plan because of its transparency and the savings it can provide when compared to the far more popular tiered pricing plans. To get a better grasp of why Interchange Plus works so good for Host Merchant Services, it helps to understand what is happening with a tiered pricing plan and how that kind of plan works.

Hidden Fees From Tiered Pricing Plans Unfair to Merchants

Tiered credit card pricing can be unfair to small business owners. Many credit card payment processors calculate merchant costs using a tiered pricing structure. These tiered pricing levels increase the costs for merchants by suggesting they are paying one rate, but hiding other fees into the statements and in the end the merchant is paying a higher percentage. The answer to this problem is Interchange plus pricing.

Host Merchant Services uses Interchange Plus. And this pricing structure is the most transparent and easiest to read system in terms of the statement and the way fees are charged. The merchant sees everything they are being charged for in their statement. Nothing is hidden, and there are no shenanigans employed in getting merchants to think they are saving with a low rate that ends up being made up for in a series of other fees snuck into each statement.

Three tier pricing is currently one of the most popular pricing structures used in the payment processing industry. Here’s a table that defines the three tiers:

It’s all About The Surcharges

Tiered pricing plans start with the qualified rate. This is the standard fee a merchant is charged when they accept and process a credit card or debit card transaction. This is also the lowest rate the merchant can incur. Transactions that don’t qualify for the standard set forth at that rate get hit with various surcharges. And its these surcharges where the processor starts to make a lot of profit. And its these surcharges which are usually the hidden fees that don’t show up on a merchant’s statement.

There are over 500 different interchange categories between the major credit card companies and each category has its own charge that is comprised of a percentage and often a per transaction fee. The three tier pricing structure merges all of these charges into three buckets. And a Merchant Services Provider has its own discretion, to an extent, as to which bucket or tier they place these categories.

These underlying interchange categories are not disclosed on a tiered pricing plan so there’s no way of knowing into which bucket each category is being charged. This is where hidden fees crop up.