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Payments IQ Bootcamp #3 - Understanding Interchange, Opening Visa / MasterCard’s Kimono
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Payments IQ Bootcamp #3 - Understanding Interchange, Opening Visa / MasterCard’s Kimono


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In this webinar, ROI Payments provides an in depth education on Interchange -- the primary cost of transacting credit and debit card payments. Participants will increase their Payments IQ by …

In this webinar, ROI Payments provides an in depth education on Interchange -- the primary cost of transacting credit and debit card payments. Participants will increase their Payments IQ by understanding how interchange works, the primary costs and how to analyze and optimize Interchange fees you're being charged as a business processing electronic payments. Additional topics include interchange differences by region and future trends to watch for in the payment landscape.

Published in: Economy & Finance, Business

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  • 1. Brion BonkowskiManaging DirectorJune 20, 2013Boot Camp Week 3Improve your Payment IQUnderstanding Interchange – OpeningVisa & MasterCard’s Kimono
  • 2.  Optimizing Interchange foryour Business Technology/ GatewayConsiderations Trends Wrap-up / Q&A Introduction Who is Interested in Payments? Ecosystem Recap w/ Terms &Terminology Interchange Explained Network & Gateway Costs Industry Pricing SchemesAgenda
  • 3.  My Story – Moving into the Payment Space Who is ROI Payments? Why a Boot Camp Series?Introduction
  • 4.  Who? Roles including Finance, IT, Sales, Marketing, and Treasury are all involved in the paymentchain at some point It is rare when someone is specifically assigned to payments, as such many people findthemselves 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 andsales/marketing team members Why? People become involved in payment projects and need a holistic overview of the industryso 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
  • 5. Ecosystem RecapCustomerCardholder MerchantTechnologyIssuer AcquirerInterchangeProcessorSchemes
  • 6. Let’s Do a Deep Dive intoInterchange
  • 7.  United States Highest and most complexinterchange fees in the world Under scrutiny by legislators andorgs like the Merchant PaymentsCoalition Average interchange rate is 1.79% Europe Regulated by the EuropeanCommission Broken down into EuropeanEconomic Areas (EEAs) and Non-EEAs (two different schedules) Alternative payments havesprouted as a result of legislationInterchange by Region Australia Reserve Bank of Australialegislated to lower interchangefees from .95% to .50% Significantly less rewards cards-nearly all debit New Zealand NZ Commerce Commission istrying to pass similar laws Current interchange rate for NZ is1.8% Asia, Africa, SouthAmerica= DevelopingMarkets
  • 8.  Assessment - 0.11% - applies toALL gross volume APF- Acquirer Processing Fee(called NABU with MC):$0.0195/trx for Credit and $0.0155for debit (in the US) TIF- Transaction Integrity Fee:$0.10/trx ($0.055 for MC) thatdoes not meet CPS requirements International Service/AcquirerAssessment Fee (called a crossborder fee by MC)- 0.40% (0.80%for foreign settlement)- applies toUS acquired transactions by nonUS issued cardsAdditional Network CostsTier Volume Fee1 < $50 $2.002 $50 – $199 $2.903 $200 – $999 $5.004 $1,000 – $3,999 $7.005 $4,000 – $7,999 $9.006 $8,000 – $39,999 $15.007 $40,000 –$199,999$45.008 $200,000 –$799,999$120.009 $800,000 –$1,999,999$350.0010 $2,000,000 –$3,999,999$700.0011 $4,000,000 –$7,999,999$1,500.0012 $8,000,000 –$19,999,999$3,500.0013 $20,000,000 –$39,999,999$7,000.0014 $40,000,000 –$79,999,999$15,000.0015 $80,000,000 –$399,999,999$30,000.0016 >= $400,000,000 $40,000.00 FANF- Fixed Acquirer NetworkFee: Varies based on volume-eCommerce monthly fees tothe right as a sample Settlement Network AccessFee- $0.0023/trx for all settledtransactions (also called VisaBase II fee) AVS (Address Verification)-also called “Zero DollarVerification Fee” - $0.025/ea
  • 9. Statement Analysis- SampleMasterCard Business & Purchase CardsMasterCard International CardsVisa CNP vs CPVisa Regulated Debit and EIRF
  • 10.  Good exercise to do in a business ona quarterly basis- and compare toprevious quartersOngoing Payment Analysis
  • 11.  Hotels/ Car Rental/ Restaurant: 1.54%-2.40% (depending ontype of card)+ $0.10 Gas Stations: 1.15% + $0.25 ($1.10 cap) Non Profits: 1.35% + $0.05 Utilities: $0.75/eaIndustry Pricing Schemes
  • 12.  Downgrades – when a transaction does not qualify for the best(lowest) rate because it does not meet certain criteria. Primaryreasons for downgrades: No AVS on key entered Visa cards No sales tax breakout Authorization and settlement variance greater than 20% for Visa (25% forMC) 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 settlementtransaction provided The order number or invoice number in the settlement transaction must beprovided The transaction settlement must be no longer than 7-days after the authorizationdate The transaction settlement must be no longer than 3-days after the completion ofthe saleOptimizing Interchange for your Business
  • 13.  Level 1, 2, and 3 Data: Added data elements for B2Band B2G transactions such as invoice # and taxidentifier – can serve to lower interchange rates. Some, not all gateways/applications are certified topass level 2 and level 3 data (purchasing cards) We recommend ALWAYS passing level 2 datathrough the gateway in an effort to qualify for thebest interchange rate Level 3 data is specific to government transactions Ongoing maintenance and monitoringthrough analytics and downgradereportsTechnology Considerations
  • 14.  Overall- interchange is increasing and has since it’s inception Regulators have been successful in lowering interchange forcertain 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, carrierbilling, closed loop networks – all put pressure on Schemes Increased litigation between the schemes, merchant groups,and regulatorsTrends
  • 15. Contact Information:Brion Bonkowskibrion@roipayments.com212.812.4177 x: 2134Questions & Contact Info