Merchant Services Training - NEXTEP Processing


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Merchant Services Training - NEXTEP Processing

  1. 1. Merchant Services
  2. 2. The ability for businesses to accept payments via payment cards, typically debit and credit cards. What is Merchant Services?
  3. 3. ➢Consumers ➢Merchants ➢MSP/Acquires ➢Card Issuers ➢Card Associations ➢Networks Who Are the Players?
  4. 4. Those that purchase goods or services from the Merchant. Consumers Role
  5. 5. ➢ The business •The merchant will transmit the transactions to the acquirer/MSP by sliding cards through the terminal or magnetic stripe reader. •The terminal then transmits the sales authorization request via a standard phone line connection to the acquirer. (Batching) Merchants
  6. 6. ➢The acquirer routes the transaction to a processor and then to the Card Associations •Visa System (Visa Net, Base I, Base II) •MasterCard System (BankNet, INET) ➢Contracts with merchants to accept merchant sales MSP/Acquirers
  7. 7. ➢Key Responsibilities •Sales •Pricing •Fraud Investigation •Merchant Acceptance •Support Services •Risk Management MSP/Acquirers Cont'd
  8. 8. ➢Any financial institution that issues a credit card. ➢Brands with a Card Association •Visa •MasterCard •Discover Card Issuers
  9. 9. Primary Roles ➢Branding & Marketing ➢Governing and enforcing the rules and regulations •Industry Risk ➢Managing & Settling Interchange Card Associations
  10. 10. Visa and MasterCard do NOT: ➢Issue Credit Cards ➢Establish criteria for evaluating applicants ➢Set credit limits offered to cardholders ➢Determine procedures for billing customers ➢Resolve customer service issues Visa & MasterCard's Roles
  11. 11. Visa and MasterCard do: ➢Create advertising and promotional programs ➢Develop new products ➢Conduct clearing and settlement processing of transactions (Interchange) ➢Set and enforce rules and regulations governing the use and acceptance of their cards •Operational procedures •Interchange procedures •Graphic design approval of their cards Visa & MasterCard's Roles
  12. 12. The platform which authorizes, captures, settles and clears transactions (technology) ➢First Data ➢TSYS Networks
  13. 13. ➢Bucket/Tiered Pricing ➢Interchange Plus Pricing •Pass Thru Pricing •Cost Plus Pricing Different Types of Pricing MS
  14. 14. ➢Interchange •Fees that go to the card issuer ➢Assessment Fees •Fees that go to the Card Association •Visa/MasterCard/Discover ➢MSP/Acquirer Fees •Fees that go to the processor (NEXTEP) Types of Fees on the Statement
  15. 15. ➢Interchange is what is paid to the card issuers ➢Interchange is the largest cost component in a merchant’s total bankcard charges ➢Interchange set by the card issuers is updated semi annually •April & October •Public Information Interchange
  16. 16. Doesn’t matter if you are a very large merchant or a very small merchant… It’s the same for all merchants. ➢There are no additional discounts due to size ➢It’s a common mistake for a merchant to believe they negotiated their Interchange fees down •Typically a client that believes this is in tiered pricing Interchange Cont'd
  17. 17. Interchange is comprised of 100’s of categories ➢3 Factors that determine the category a transaction will fall into: •The merchants industry •The type card processed Rewards Based, non rewards •How the card was processed Swiped, Keyed-In, Present, Not Present Interchange Cont'd
  18. 18. ➢Visa CPS Retail 1.54% + $0.10 ➢Visa Retail Debit 0.05% + $0.15 ➢Visa Retail Keyed 1.85% + $0.10 ➢Visa Restaurant 1.54% + $0.10 ➢Visa Small Ticket 1.65% + $0.04 ➢Visa Small Ticket Debit 0.05% + $0.04 ➢MC Merit III Base 1.58% + $0.10 ➢MC Retail Debit 0.05% + $0.15 ➢MC Retail Keyed 1.89% + $0.10 Common Interchange Categories
  19. 19. These are Fees paid to Visa/MasterCard/Discover Visa ➢Acquirer Processor Fee (APF) •$0.01950 per transaction (credit cards) •$0.01550 per transaction (debit cards) ➢Visa Assessment Fee •11 bps (0.11%) per transaction ➢Settlement Network Access Fee (aka Base II Fee) •$0.0023 per transaction The APF and Base II Fee typically apply to all Visa transactions, in addition to the Visa Assessment Fee Card Association/Assessment Fees
  20. 20. These are additional Fees paid on a case by case basis: Transaction Integrity Fee (TIF) – Applies to all transactions involving a Visa that does not meet CPS requirements –$0.10 per transaction Fixed Acquirer Network Fee (FANF) – A monthly fee that varies based on the number of locations and volume. –Variable depending on factors stated above Card Association/Assessment Fees - Visa
  21. 21. Misuse of Authorization Fee – A fee for a Visa authorization that was not followed by a matching clearing transaction or in the case of a cancelled or timed out transaction, not properly reversed from the system. –$0.045 per transaction Zero Floor Limit Fee – A fee for a transaction that can't be matched to be a previously approved or partially approved authorization. It applies to settlement transactions submitted without proper authorization. –$0.10 per transaction Card Association/Assessment Fees - Visa
  22. 22. Zero Dollar Verification Fee – This fee applies to Zero Dollar Verification messages (approved or declined). ZDV messages include the verification of the card account number, address verification (through the Address Verification System) Card Verification Value 2 (CVV2) and Single Message System (SMS) acquired Account Verification authorizations. The Visa Misuse of Authorization Fee does not apply to these requests. The fee only applies when a merchant verifies the cardholder's information without authorizing an amount against their card. •$0.025 per transaction Card Association/Assessment Fees - Visa
  23. 23. ➢Network Access and Brand Usage Fee (NABU) •$0.01950 (after 6/30/2013) ➢MasterCard Assessment Fee (MC's Acquirer Brand Volume Fee) •11 basis points per transaction (0.11%) - For transactions less than $1,000 •13 basis points per transaction (0.13%) - For transactions greater than $1,000 This does not apply to signature debit card transactions regardless of size. Card Association/Assessment Fees – MasterCard
  24. 24. International Service Assessment Fee – A fee that applies to US transactions paid for with a card issued outside of the United States –40 basis points per transaction (0.40%) International Acquirer Fee – A fee that applies to US transactions paid for with a card issued outside of the United States. –45 basis points per transaction (0.45%) Card Association/Assessment Fees - Visa
  25. 25. Cross Border Assessment Fee (Foreign) – A fee that applies to transactions paid with a card issued outside the US paid in a currency other than US dollars. • 80 basis points per transaction (0.80%) Acquirer Program Support Fee - A fee assessed on international transactions settled by US based merchants in currency other than the US dollar. • 85 basis points per transaction (0.85%) Card Association/Assessment Fees – MasterCard
  26. 26. Cross Border Assessment Fee (Domestic) A fee that applies to transactions paid with a card issued outside the US paid in US currency. ● 40 basis points per transaction (0.40%) Acquirer License Fee (ALF) or License Volume Fee A fee assessed on gross MasterCard processing volume ● 4.5 basis points per transaction (0.0045%) Card Association/Assessment Fees – MasterCard
  27. 27. AVS Fee (Card-Not-Present) A fee assessed each time a merchant utilizes the address verification service when processing a transaction. ● $0.0075 per transaction AVS Fee (Card Present) A fee assessed each time a merchant utilizes the address verification service when processing a transaction. ● $0.005 per transaction Card Association/Assessment Fees – MasterCard
  28. 28. Account Status Inquiry Fee – A fee assessed for inquiries made where a merchant authorizes an amount on a cardholders account, but instead validates aspects of the account. Account status inquiry transactions may include requests for address verification service (AVS), card validation code (CVC2), or both. ●$0.025 per transaction Processing Integrity Fee - MasterCard began charging this fee to encourage merchants to abide by the proper authorization standards. ●$0.055 per transaction Card Association/Assessment Fees – MasterCard
  29. 29. The processing Integrity Fee is assessed for the following reasons: ➢ Card-present: Transactions are not settled, cleared, or reversed within 24 hours of the original authorization transaction/request. ➢ Card-not-present: Transactions are not settled, cleared, or reversed within 72 hours of the original authorization transaction/request. ➢ No reversal: An authorization transaction cannot be matched to a corresponding settlement record after a period of 120 days. ➢ Exempt merchants: Travel and entertainment merchants classified as MCC 3351-3441, 3501-3999, 4411, 7011 and 7512 are exempt from the Processing Integrity Fee. Card Association/Assessment Fees – MasterCard
  30. 30. Data Usage Fee ●$0.01850 per transaction Discover Assessment Fee ●10.5 bps (0.105%) per transaction Data Transmission Fee ●$0.0025 per transaction Card Association/Assessment Fees – Discover
  31. 31. International Processing Fee – A fee that applies to all US transactions paid for with a card issued outside of the US. ●40 basis points per transaction (0.40%) International Service Fee – A fee that applies to all US transactions paid for with a card issued outside the US. ●55 basis points per transaction (0.50%) Card Association/Assessment Fees – Discover
  32. 32. Card Associations Some other common Card Associations: ➢American Express ➢Diner's Club ➢JCB ➢Electron ➢Interlink ➢PULSE ➢Star ➢NYCE ➢Tempo
  33. 33. Bucket/Tiered Pricing Cards are categorized into tiers ➢All the cards within a tier are charged the same rate (usually whatever the highest interchange rate is within that card set) •Interchange is still assessed on all of the cards but the “buffer” goes to the processor as profit –If the blended interchange rate was 1.89% but the cards within that tier were assessed 2.20%, the remaining 0.31% goes to the processor. Interchange is set in stone. »Just because a processor collects 2.20% for interchange… doesn’t mean it’s going to send more to the card issuers than what the posted interchange rate is. ➢Bucket and Tiered Pricing will always be more expensive than Interchange Plus Pricing
  34. 34. Card Associations ➢The fees (rates) are set by the Card Associations ●Visa, MasterCard ➢Fees (rates) are the same for every merchant regardless of size ➢Public information found on the internet
  35. 35. Bucket/Tiered Pricing Qualified Interchange Bucket/Tiered Rate CPS Small Ticket Debit 0.05% CPS Retail Debit 0.05% Merit III 1.58% Merit Debit 0.05% 1.78% Merit Insurance 1.43% World Supermarket 1.58% Service Industries 1.15%
  36. 36. Bucket/Tiered Pricing Mid-Qualified Interchange Bucket/Tiered Rate Business Level II 2.05% Business Retail 2.20% Commercial B2B 2.40% High Value Merit I 2.20% 2.55% Corporate Data Rate III 1.90% World Elite Merit I 2.20% Merit Elite Enhanced III 1.73%
  37. 37. Bucket/Tiered Pricing Non-Qualified Interchange Bucket/Tiered Rate High Value T&E 2.75% High Value Standard 3.25% Business Level 4 2.81% Commercial Card Not Pres 2.65% 3.41% Signature Business Credit 2.95% Business Visa 2.90% Corporate Data I 2.63%
  38. 38. Trigger to know a client has Tiered or Bucket Pricing You’ll see things like: ●Qualified ●Mid Qualified ●Non-Qualified ●Blended rates
  39. 39. Frustrations with Bucket/Tiered Pricing ➢Hidden Fees ➢Higher Fee Structure ➢Ability for processor to increase fees without increasing rates ●Transferring more cards from qualified to mid-qualified or non-qualified ➢When merchant issues a client a credit, they don't get their interchange fees back. ➢Lack of uniformity across industry – Tiers are different amongst processors ● Impossible to give accurate comparisons ➢Lost Savings from Durbin Amendment
  40. 40. Durbin Amendment ➢The Durbin Amendment is part of the Dodd Frank Wall Street Reform and Consumer Protection Act ● October 1, 2011 ● Capped Interchange Fees that Large Banks Could Charge at 0.05% plus $0.21 ➢Any business being billed on a Bucket/Tiered pricing platform pay ➢the processor's qualified rate instead of the newly capped rates. ➢The per transaction loss is substantial considering that qualified rates are typically 1.65% or higher.
  41. 41. Bucket/Tiered Pricing We don’t place any of our clients in this pricing model. Interchange Plus pricing is more cost effective for our clients. It’s also easier for clients to understand their statements.
  42. 42. Dilbert's Confusology
  43. 43. Interchange Plus Pricing Interchange and Assessment Fees are passed on directly to the merchant. ➢No Tiers with additional profit buffers built in ➢Save the customer money Processor Fees are separate on the bill ➢Easy to see ➢Easy to understand ➢More cost effective for the merchant
  44. 44. Nextep's Fee Structure I. Interchange Fees are Passed on to the Card Issuers. II. Assessment Fees are Passed on to the Card Associations – Visa, MasterCard, Discover, Amex III. Processor Fees ➢Allocation in basis points for gross dollar amount processed (Flat rate) ➢Allocation in cents per transaction (Fixed amount) – Authorization and Settlement ➢ Fees assessed for services rendered – No made up fees
  45. 45. Processor's Fees Two Types of Fees the processor typically charges: ➢Basis Points & Cents per transaction ➢Other Fees: •PCI Compliance Fees •IRS Regulatory Compliance Fees •Statement Fees •Per Batch Fees •Internet Payment Gateway Fees •Minimum Monthly Fees •Retrieval Fees •Chargeback Fees •Address Verification Fees •Voice Authorization Fees •Annual Fees •Early Termination Fees
  46. 46. Other Fees PCI Compliance (Data Security) ➢Monthly Fee for PCI compliance monitoring Regulatory Compliance Fee ➢Monthly Fee for the 1099 that the IRS requires be sent monthly. Statement Fees ➢The monthly fee to product a monthly accounting of all transactions.
  47. 47. Other Fees Per Batch Fees ➢A Fee for each time the merchant batches out and sends the data to the processor to be processed for payment. •It's important that your clients batch out within 24 hours or MasterCard will charge a processing integrity fee. Even higher assessments are tagged after 72 hours. Internet Payment Gateway Fees ➢A monthly fee associated with maintaining a merchant’s secure payment gateway to accept payment online. •Can include initial setup fees and per transaction fees
  48. 48. Other Fees Minimum Monthly Fees ➢A minimum amount the processor is guaranteed to receive. •Usually around $25/month (some processors charge this fee) Retrieval Fees ➢A fee if the processor has to retrieve the transaction that has been disputed by the merchants customer. ➢Request copies of receipts, video footage, any documentation of the sale from parties involved. ➢Conduct investigation. Chargeback Fees ➢A fee charged by the bank when a chargeback is issued to a merchant – Typically fraud.
  49. 49. Other Fees Address Verification Fees ➢The fee charged to perform an address verification •Common with online processing •Minimizes fraud to the merchant Voice Authorization ➢This is the fee charged if the merchant calls Visa/MasterCard for manual voice authorization. •Typically protects the merchant against fraud. Annual Fees (Renewal) ➢The annual fee charged to maintain the merchant’s account. - Not all MSP’s charge this fee.
  50. 50. Other Fees Early Termination Fees ➢ Some processors charge the Merchant for terminating their contract early.
  51. 51. PCI Compliance PCI DSS ➢Payment Card Industry Data Security Standard ➢Security Guidelines for all businesses that accept credit cards. ➢Compliance is mandatory for all merchants • Protect and secure all confidential card holder data
  52. 52. PCI Compliance Penalties for lack of compliance: ➢Fines of $500,000 per data security incident ➢Fines of $50,000 per day for non-compliance with published standards ➢Liability for all fraud losses incurred from compromised account numbers ➢Liability for the cost of re-issuing cards associated with the compromise. ➢Suspension of credit card acceptance by a merchant's credit card account provider ➢Loss of reputation with customers, suppliers and partners ➢Possible civil litigation from breached customers
  53. 53. EMV & Smart Cards By October 15, 2015 merchants will be required to upgrade their terminals to be compatible with EMV/Smart Cards. EMV ➢Technology that uses smart cards to secure customers data. Smart Card ➢A credit card that has a micro chip with memory and micro processing technology
  54. 54. EMV & Smart Cards ➢The microchip uses a one-time-use password that protects each transaction. ➢Transmits a unique and different cryptogram for every transaction. ● Criminals are unable to replicate code to perpetrate fraud. ➢Cryptogram prevents card skimming and card transplanting.
  55. 55. EMV & Smart Cards How are smart cards processed? ➢EMV is card present technology meaning the card must be within a few inches of the reader – near field communication (NFC) ➢Inserted into an EMV card reader EMV technology and Smart Cards have been adopted in every major market outside of the United States.
  56. 56. What Merchants Need to Know If a merchant plans on upgrading their terminals in the near future, they should upgrade to terminals compliant with the new requirements. Plan on budgeting the cost of new terminals compatible with the EMV technology by mid 2015.
  57. 57. NEXTEP Statements Components of the Statement: I. Summary of Card Deposits a) Breaks out total for each type of card processed. II. Summary of Interchange a) Details every card processed and the interchange rate assessed. III. Summary of Card Fees a) Details Card Association Fees and Processor Fees
  58. 58. NEXTEP Statements Components of the Statement: IV. Summary of Misc. Fees a) Statements, gateways, etc. V. Summary of batches a) Details total amount batched and what date for reconciliation purposes.
  59. 59. NEXTEP Statements
  60. 60. NEXTEP Statements
  61. 61. NEXTEP Statements
  62. 62. NEXTEP Statements
  63. 63. Summary of Card Deposits
  64. 64. Summary of Interchange
  65. 65. Summary of Interchange
  66. 66. Summary of Interchange
  67. 67. Summary of Card Fees
  68. 68. Summary of Card Fees
  69. 69. Summary of Batches
  70. 70. Summary of Batches
  71. 71. Sample Proposal
  72. 72. Sample Proposal
  73. 73. Application
  74. 74. Application
  75. 75. Application
  76. 76. Application
  77. 77. Questions? Contact us: Scott Johansen – Operations Manager, NEXTEP Processing 702-749-4000