Payment Processing Merchant Accounts

Determining how much you Pay & should Pay for your merchant services payment
I find myself pouring over competitive statements to determine what customers pay for their merchant services on a daily basis. I have been in the industry now for close to 15 years and I still take pause at some of the credit/debit card schemes I see offered to merchants. The best way to understand how much you pay for your merchant services will take some patience and a little time. However, once you get a handle on it, it will seem like second nature.

Checking your Merchant Processing Statement:
To most merchants this monthly process can be painful, for some merchants, monthly statements are simply ignored. I liken this merchant experience to myself opening a statement from my local utility company. My first reaction is shock, then disbelief and then bewilderment with the thought of my household using so much energy. Next comes the realization that I cannot process thoughts in cubic meters or kilowatts per day. I wonder if merchants can think in terms of "non qualified" or "CDN Bus Nat" as a line item and feel the same way.

Here are a few terms to help you decipher "payment card processor speak" when looking at your Visa or MasterCard "Discount Rate" or % you pay.

Lets start with Electronic or "ELC". This refers to a face to face transaction swiped electronically through a point of sale (POS) device.
Next is Standard or "STD" on your statement. This simply refers to transactions that are not swiped at the POS, but "keyed". This type of transaction is a non face to face transaction, simply branded "card not present". Generally a card typed or "keyed" into the POS over the phone or captured online.

Infinite or "INF" is perhaps the most confusing of all to identify but not impossible. This refers to a Chip card that carries a rewards program such as a travel rewards card. Also, referred to as "EMV", EuroPay MasterCard Visa, the originators of the security standard. The Chip card seems to be absorbing the brunt of the hostility regarding increased fees in the industry. This Infinite card type does not account for all Chip embedded cards but it is on the rise.

On the MasterCard front you will most commonly see a charge for a "High Spend" card. This can be simply listed as "HS". MasterCard does have a "Premium" category but is reserved for a card type issued in the USA, we generally see very few of them in Canada. These are two very different charges so do not confuse them.

Other terms you may see are Consumer card or business card/corporate card or even "FGN" for a foreign card. These terms are easier to identify on your statement than most others.

Now that you have the basics down you will need practice to put all of these terms together.

For example you may see this on your statement: Visa Consumer ELC

Does this mean:
a) Visa Business Card
b) Visa face to face consumer card
c) Visa Infinite Card

If you guessed B you are right.
One more to make sure you've got it.

Visa INF STD
a) Visa Consumer Infinite Card
b) Visa keyed transaction
c) Non face to face Visa Consumer Infinite Card

You've got it! C is the correct answer.

At the end of the day, these charges should not be a mystery to anyone. Make a call to your sales rep or your processor's help line to help you run through the charges with you.

Determining how much you should pay
Now that you understand what card types are coming through your door and how much you are paying for them%u2026 how do you know if it is fair?

Often we hear, "Give me your best rate". This is certainly fair to ask. I think of the last item I purchased, a car. Did I purchase the cheapest car I could find? Did I expect the same discount on the 2-door hatchback vs. the fully loaded SUV? Did I base my entire decision on price? Did I expect the sales person to have some authority to lower the sticker price? All answers are No with the exception of the final question. I did expect the sales person to bargain with me a bit but I knew that the more I spent the greater my discount would be.

This is no different in the world of merchant services. Rates are volume based, and typically, the more money you make, the less you pay. It is also helpful to visit Visa Canada's website along with MasterCard Canada. You will be able to see a listing of "interchange costs" or margin for each card type/category.

The breakdown in fees generated and who receives them are as follows:

1) The bulk of the merchant Discount Rate goes to the issuing bank, this is the interchange.

2) Next is to the processor, who provides the bricks and mortar. They program your terminal, house your helpdesk, employ the sales rep, house your data etc

3) Last on the list believe it or not is the Acquirer; Visa and MC only collect a small assessment fee or brand fee.

Lets take a basic scenario with a $100 transaction you have swiped into your POS device.

Your base rate is 1.65%
Your downgrade fee is 0% for this transaction



According to the new "Code of Conduct" processors must list the "Effective Rate" merchants pay to give a clear understanding of what the true costs are to merchants. Lets take this same scenario with a "keyed" transaction.



The Effective Rate changed so the merchant and the processor paid more for the transaction. The processor profit increased but the merchants' profit decreased slightly ($0.36).

This brings two items to light: Merchants pay more for the cards that require downgrades and processors make more with cards that require downgrades.

As a merchant you must watch your Discount Rate but it is becoming more apparent that the downgrade fee is just as important. It is not uncommon for a merchant's effective rate to be between 2% and 3%. It all depends on the card types that come through the merchants door and the method in which they are accepted.

At BNA, we believe we have struck the right chord between discount rates and downgrade fees. We have the ability to customize your service to ensure you do not pay more than you have to. Volume is the key to all processors and that volume begins with one merchant referring to another.

Let BNA analyze your statement today for a no obligation quote.

There is a new kind of payment card available in Canada! It is called a "Pre-Paid Card"and while they are not credit cards, they can be used in the same way, with the same level of security.

These cards are often referred to as "stored value cards" because the customer pays to "load them up". They can be used in-store, online, at ABM's and anywhere the same brand of credit card is accepted.

Traditional cash paying customers will enjoy the convenience, and the transaction processes as quickly as a credit card so everyone wins.

There are a few different types of pre-paid cards available, so the best thing to do is research your options first.

Multi-purpose cards are reloadable, meaning you can add more money to the card whenever you want and keep on using it. These cards are currently offered under the MasterCard and Visa brand and can be used anywhere that credit cards are accepted.

Non-reloadable prepaid cards are offered under the Visa brand as "gift cards" and can only be used where Visa credit cards are accepted. This card generally has less fees than the multi-purpose card, but they don't offer as much flexibility and cannot be used at an ABM's for cash withdrawals because they are not reloadable, so you can only use them until you have used up all the money that is loaded on them.

Pre-paid travel cards can be used outside of Canada, even if they are not specifically marketed as "travel cards". Some "travel cards" will allow you to store large amounts of money on them. You can use these instead of traveler's cheques which is extremely secure and convenient.

Payroll cards are the newest card out there right now, and many employers and organizations are using them to replace the old style paper cheques for such things as payroll, benefits or expenses. Right now they are only offered under the MasterCard brand. Terms and conditions are set between the employer or organization and the issuer. There may be fee's associated with this card, so check thoroughly before you opt in.

Following are some of the many benefits associated with pre-paid cards:

- If you don't have a credit card and want to rent a car, buy a plane ticket or purchase something online

- You can give the card as a gift

- Can be handy if you don't have a bank account or don't want to carry cash

- MasterCard and Visa branded pre-paid cards have zero liability protection

- Combine the convenience of a credit card with control over how much money you spend

- At a POS terminal, pre-paid card transactions are faster than accepting a personal cheque, and at gas stations, they can be used for pay-at-pump purchases

- Set up is simple; you use the same hardware you currently use to process your credit card transactions

For more information, contact BNA Smart Payments

"Chip and PIN is a computer chip embedded in credit and debit cards that require consumers to enter a PIN number whenever the debit or credit card is used."

You simply cannot go anywhere today without hearing about a case of Identity theft. Canada's fastest growing crime, Identity theft and the fraudulent use of debit and credit cards totaled well over $10 million dollars in 2007*. Worldwide Identity theft is responsible for over $15 billion in stolen funds and is projected to climb higher each year.

But that's not all. Until now the credit card and financial institutions have taken on the majority of the risk, leaving retailers and merchants virtually untouched.

That system is no longer acceptable.

In 1993, when fraud associated with credit and debit cards started to escalate, three of the world's largest financial institutions, Europay, VISA International and MasterCard International, launched a study group to find ways of stopping fraud. In 1999 they launched the company EMVCO which set about developing a set of standards for payment processing, which we called EVP.

Rolled out first in Europe for the compliance date of 2005, EVP or Chip and PIN as it's now called, showed a reduction in fraud cases by $36 million dollars within the first six months of 2006. Other countries also show significant drops in their cases of fraud by implementing the EVP/Chip and PIN standards.

But an interesting shift started to happen...VISA Canada started to see an increase in fraud locally. In fact, experience has shown that when EMV rolls within a country, fraud moves to the adjacent country where Chip and PIN hasn't been mandated.

Now, it's come to Canada

VISA Canada, MasterCard Canada and the Canadian Interac Association have come together to implement Chip and PIN in Canada and reduce fraud.

The Compliance deadline in Canada was in October 2010



What does this mean to you?
As a retailer, this means that you will be liable for fraudulent use of credit or debit card.

But by becoming EMV/Chip and PIN compliant you can significantly reduce your risk.

Firstly, the PIN PAD used at your store must be a certified EMV compliant device. You may have to upgrade your current equipment, software and privacy policies.

As well, you'll need to train your staff about handling these new Chip & PIN embedded cards and dealing with customers who are unfamiliar.

Don't despair; Canadians are among the highest users of debit cards in the world. Another bonus; Chip and PIN cards can be accepted even if the communication link to the processor is down. Currently, debit cards cannot be accepted if the communication link is down, and credit cards require a long and arduous process of calling in for authorization.

Take action now to protect your business, consider the time it will take to implement this change at your location. Let us help you plan, design, and roll out your Chip and PIN implementation.

Occasionally, a cardholder will dispute a charge that appears on his/her monthly bankcard statement and/or it may be discovered that the proper
bankcard acceptance and authorization procedures were not followed at the point of sale. If this happens, your bank or processor will notify you of the dispute and debit the amount from your settlement/deposit account. This is called a "chargeback."

Chargeback's represent lost revenue. Below is a list of some of the reasons they occur:

- Merchants fail to respond to a request for a ticket copy within the allowable time limit

- A card has expired and there was no authorization at the time of purchase

- Duplicate charges to the card for one transaction

- A merchant posts a credit to a card, but the transaction doesn't post to the accountholders card

- The cardholders signature is missing

- Transactions form mail or telephone order that are completed by an unauthorized user

- The card was fraudulent.

- Cardholder disputes the quality or receipt of merchandise.

- The amount charged to the card was incorrect.

- Processing errors were made during the transaction.

- Proper authorization was not obtained. Although chargeback's cannot always be completely avoided, there are steps you can take to help prevent them. The more you know about processing procedures, the less likely you might be to do, or fail to do, something that could result in a chargeback.

- Have proof that the card was present by making sure you swipe all cards through your terminal.

- Get an imprint whenever a card has to be manually keyed into a terminal. Be sure that all of the transaction information shows up on the imprinted copy including the amount, business name and location, and the cardholder's signature.

- If the credit card is declined when swiped through the terminal, do not continue to try and get an authorization. Instead you should request a new form of payment from the cardholder.

- Verify that the number on the screen matches the embossed number on the credit card.

- Obtain an authorization number for the full amount of the sale - do not break the sale into several smaller amounts.

- Never altar a sales draft

- Always compare the cardholder's signature to the signature on the back of the card. If the signature panel is blank, have the cardholder sign it. If the cardholder refuses, you should request another form of payment.

- Have your return policy pre-printed on the credit card sales draft and signed by the cardholder at the time of the original sale. The refund policy must be close to the cardholder's signature to be recognized by Visa or MasterCard.

It is said that the only constant in life is change. In the busy world of retail, that can't be more true! Today in retail, we are faced with many challenges that simply didn't exist before. Shopping habits are always changing, new competitors enter the marketplace and the speed of technology can quickly spell the difference between success and failure.

In this account, it's not only a retailer's responsibility to acknowledge these changes, but to understand the role that today's technology can play in driving their operation to success.

Technology is often looked at as "a double edged sword". If you learn how to control it, you should benefit from the rewards that can come along with it. If you choose to adopt new technology just for the sake of technology it will quickly lead to wasted time and loss of revenue.

The POS software is one of the most important technologies that retailers must adopt. They are the central nervous system of any retail operation.

However, a large portion of today's retailer's are still struggling with issues because they are entering transaction details into the Electronic Cash
Register's or into a non integrated POS system and then into a POS terminal to process their debit and credit card transactions.

Change is upon the retail industry and integrating payments into your POS system should be a top priority.