Brion BonkowskiManaging Director
June 20, 2013
Boot Camp Week 3Improve your Payment IQ
Understanding Interchange – Opening Visa & MasterCard’s Kimono
Optimizing Interchange for your Business
Technology/ Gateway Considerations
Trends
Wrap-up / Q&A
Introduction
Who is Interested in Payments?
Ecosystem Recap w/ Terms & Terminology
Interchange Explained
Network & Gateway Costs
Industry Pricing Schemes
Agenda
My Story – Moving into the Payment Space
Who is ROI Payments?
Why a Boot Camp Series?
Introduction
Who? Roles including Finance, IT, Sales, Marketing, and Treasury are all involved in the payment chain
at some point It is rare when someone is specifically assigned to payments, as such many people find
themselves unprepared to navigate the payment ecosystem ROI Payment Webinars attract
A cross section of industries, including state/local government, non-profit organizations, eCommerce, SaaS and payment industry insiders
Senior Finance folks (CFOs, controllers, etc), technology execs, operations managers and sales/marketing team members
Why? People become involved in payment projects and need a holistic overview of the industry so
that they can dive deep into their project, work, etc. Wikipedia and Google searches don’t provide a comprehensive understanding
Result? Everybody can benefit from an increased “Payment IQ” Comprehensive understanding helps in today’s environment (rapidly evolving)
Who is Interested in Payments
Ecosystem Recap
Customer
Cardholder Merchant
TechnologyIssuer Acquirer
Inte
rchange
Processor
Schemes
Let’s Do a Deep Dive into Interchange
A fee paid between banks for the acceptance of card based transactions
Usually it is a fee that a merchant's bank (the "acquiring bank") pays a customer's bank (the "issuing bank")
Fees are set by the credit card schemes
Specific interchange rates are dependent on: Region Type of card issued Type & Size of merchant Type of transaction
Interchange Defined
1; 87%
2; 9%
3; 4%
1 2 3
Typical Fee Breakdown
***2013 Interchange Rates Available Online:http://usa.visa.com/download/merchants/visa-usa-interchange-reimbursement-fees-april2013.pdfhttp://www.mastercard.com/us/wce/PDF/MasterCard%20Interchange%20Rates%20and%20Criteria%20-%20April%202008.pdf
United StatesHighest and most complex
interchange fees in the worldUnder scrutiny by legislators and
orgs like the Merchant Payments Coalition
Average interchange rate is 1.79%
EuropeRegulated by the European
CommissionBroken down into European
Economic Areas (EEAs) and Non-EEAs (two different schedules)
Alternative payments have sprouted as a result of legislation
Interchange by Region
AustraliaReserve Bank of Australia
legislated to lower interchange fees from .95% to .50%
Significantly less rewards cards- nearly all debit
New ZealandNZ Commerce Commission is
trying to pass similar lawsCurrent interchange rate for NZ
is 1.8%
Asia, Africa, South America= Developing Markets
Assessment - 0.11% - applies to ALL gross volume
APF- Acquirer Processing Fee (called NABU with MC): $0.0195/trx for Credit and $0.0155 for debit (in the US)
TIF- Transaction Integrity Fee: $0.10/trx ($0.055 for MC) that does not meet CPS requirements
International Service/Acquirer Assessment Fee (called a cross border fee by MC)- 0.40% (0.80% for foreign settlement)- applies to US acquired transactions by non US issued cards
Additional Network CostsTier Volume Fee
1 < $50 $2.00
2 $50 – $199 $2.90
3 $200 – $999 $5.00
4 $1,000 – $3,999
$7.00
5 $4,000 – $7,999
$9.00
6 $8,000 – $39,999
$15.00
7 $40,000 – $199,999
$45.00
8 $200,000 – $799,999
$120.00
9 $800,000 – $1,999,999
$350.00
10 $2,000,000 – $3,999,999
$700.00
11 $4,000,000 – $7,999,999
$1,500.00
12 $8,000,000 – $19,999,999
$3,500.00
13 $20,000,000 – $39,999,999
$7,000.00
14 $40,000,000 – $79,999,999
$15,000.00
15 $80,000,000 – $399,999,999
$30,000.00
16 >= $400,000,000
$40,000.00
FANF- Fixed Acquirer Network Fee: Varies based on volume- eCommerce monthly fees to the right as a sample
Settlement Network Access Fee- $0.0023/trx for all settled transactions (also called Visa Base II fee)
AVS (Address Verification)- also called “Zero Dollar Verification Fee” - $0.025/ea
Statement Analysis- Sample
MasterCard Business & Purchase Cards
MasterCard International Cards
Visa CNP vs CP
Visa Regulated Debit and EIRF
Good exercise to do in a business on a quarterly basis- and compare to previous quarters
Ongoing Payment Analysis
Hotels/ Car Rental/ Restaurant: 1.54%-2.40% (depending on type of card)+ $0.10
Gas Stations: 1.15% + $0.25 ($1.10 cap)
Non Profits: 1.35% + $0.05
Utilities: $0.75/ea
Industry Pricing Schemes
Downgrades – when a transaction does not qualify for the best (lowest) rate because it does not meet certain criteria. Primary reasons for downgrades: No AVS on key entered Visa cards No sales tax breakout Authorization and settlement variance greater than 20% for Visa (25% for MC) Delay in settlement
Items to watch to ensure transactions are not downgraded: Address Verification System (AVS) request Shipping product within 7-days of the authorization The original AUTH ID from your authorization must be included with the settlement
transaction provided The order number or invoice number in the settlement transaction must be provided The transaction settlement must be no longer than 7-days after the authorization
date The transaction settlement must be no longer than 3-days after the completion of
the sale
Optimizing Interchange for your Business
Level 1, 2, and 3 Data: Added data elements for B2B and B2G transactions such as invoice # and tax identifier – can serve to lower interchange rates.
Some, not all gateways/applications are certified to pass level 2 and level 3 data (purchasing cards)
We recommend ALWAYS passing level 2 data through the gateway in an effort to qualify for the best interchange rate
Level 3 data is specific to government transactions
Ongoing maintenance and monitoring through analytics and downgrade reports
Technology Considerations
Overall- interchange is increasing and has since it’s inception
Regulators have been successful in lowering interchange for certain types of transactions- Reference Durbin Amendment- debit cards lowered interchange fee to .05% and $0.20 (previously 1.80% and $0.10)
Increased competition- alternative payments, mobile, carrier billing, closed loop networks – all put pressure on Schemes
Increased litigation between the schemes, merchant groups, and regulators
Trends
Contact Information:Brion [email protected] x: 2134
Questions & Contact Info