An Introduction to Credit Card Processing and Advanced Merchant Group Advanced Merchant Group is a registered ISO / MSP of BancorpSouth Bank, Tupelo, MS. 600 Louis Drive Suite 202-A Warminster, PA 18974 877.99.SWIPE 215.701.4989 fax
Why it’s a great time to be in the processing Industry Most rapid time of cost changes since the inception of the industry more than 30 years ago. More merchants than ever before entering the marketplace Niche market programs appeal to a wider audience, especially “developing” markets Older Equipment is being phased out in place of newer, faster and more capable equipment Recent Technologies opening new opportunities such as TCIP and huge potentials for wireless services A younger, more “hip” customer base means electronic transactions are the preferred method of payment Companies are recognizing that an “Un-tapped” market exits for business to business transactions
First Data Corporation Western Union Conversions Issuing Acquiring Platforms Previously Independent Processors Retail Wholesale Why build it? Just buy it. Perspective 75% of Domestic Processing 70 % of Card Issuing Omaha CardService International EFS Concord Nashville North Cardnet Paymentech Chase Manhattan
National sales and service company Thousands of agents nationwide Direct ISO relationship with Visa and MasterCard Largest Retail M.S.P. on the FDMS Omaha merchant processing platform. Full Service Support Center to agents and merchants 24 Hours 7 Days Week 365 Days a year Advanced Merchant Group
Advanced Merchant Group Applications Approvals and MID issues Welcome Packs Programming Building Downloading & Deployment Customer Statements On-Line Agent & Customer Access www.advancedmerchantgroup.com Lease Company Set-up Split Funding Accounting Residuals Sales Support Proposals & Quotes Continuing Education Advanced Merchant Group Responsibilities Agent Signed Paperwork
Why is There Visa and MasterCard? Customers Need for Cash Alternative. Convenience of prolonging payments. Convenient Form of Payment, safer than cash. Flexible Pay-Back and Extended Spending Options. Savvy Consumers Prefer Multiple Options. Distinguishes Company from Competition and Lends “Credibility” To The Establishments.
Visa and MasterCard Two Independent Companies Separate Rules, Rates, Programs and Policies Fast and thorough responsiveness to consumer market changes Competing Brand Names Visa and MasterCard = Marketing Company Created, Maintain and Advance the System Established Set of Industry Base Rates Along With Banks And Processors referred to as “INTERCHANGE”
Industry History Convenience from a merchant has always translated into more customers. More Customers mean more REVENUE! “ In the beginning” A NYC retailer would track customer purchases in what can be referred to as a “house account”. As a courtesy, the merchant would go to their bank and transfer funds for their customers. However, in order for this to work the customer needed to have an account at the bank the merchant used. A Manner of currency exchange eventually evolved. The currency exchange system that evolved for the credit card industry is called the INTERCHANGE.
The INTERCHANGE is the group of banks, retailers and processors who belong to the Visa and MasterCard governed trade system and who use the Federal Reserve to deposit funds and pay fees via the ACH system. Visa and MasterCard, although displayed together for marketing purposes only, remain individually operated companies with typically a 60% Visa and 40% MasterCard split in their combined market share. However, recent statistics show that it may be much closer to 50% / 50% and gaining. Industry History Continued
Basic Business In a typical business environment a merchant will purchase products / services from different vendors. The vendor sells the product to the merchant. The merchant then marks up the product to sell to the customer. The customer pays the retail price marked up by the merchant. Bat Ball Glove Sports Store Customer Customer
How Is The Visa & MasterCard Industry Different From “Basic Business” Only One Producer, Manufacture, Vendor System is Wholly Owned By The Card Associations. No Competition to Card Associations. Vertical Market Master list of GOOD AND BAD card numbers and merchants
Visa / MasterCard Rules, Rates, Regulations ISO/MSP- AMG Record Keeping, Money Moving, Bank Affiliation BancorpSouth Bank, Tupelo, MS. Sales Industry Partner Responsibilities Agent Office/Sales Rep Merchant First Data Merchant Services AMG PRICING MAINTAINED THROUGH TO CUSTOMERS
Processing Industry Overview Visa and MasterCard Assigns the interchange industry base rates. Maintains active account Information and industry wide databases. Maintains an industry wide list shared by all processors of merchants who have been “terminated” for not complying with card association rules. This list is known as the Terminated Merchant File. Fraud and Factoring First Data Merchant Services (Processor) Affiliated with BancorpSouth Bank, Tupelo, MS. First Data then marks up the rates to cover for: Dues & Assessments Authorization Settlement of transactions
Agent Independent reseller of Advanced Merchant Group services Gets sell rates to merchant Agent marking compliance guidelines with fines up to $25,000 per occurrence. Representative A reseller for the agent Agent is responsible for training and paying the representative Processing Industry Overview Continued Advanced Merchant Group The 1 st link in the sales chain. 24 hour LIVE Customer Service. Member Service Provider –established direct relationship with Visa and MasterCard. Pass buy rates directly to the agent sales force.
TRANSACTION PROCESS OVERVIEW What exactly are we selling? We are selling a money moving service to merchants. A service that allows them to accept additional forms of payments from their customers with the peace of mind that they will be PAID . A merchant who only accepts cash limits who they can sell to and therefore also limits the number of potential customers. When the merchant starts to accept checks, they add additional customers. When that merchant starts to accept credit cards as well, they can add 25% to 35% more customers over their current cash check business.
THE TRANSACTION PROCESS Merchant First Data First Data Bank Customer Card is entered at the merchants location. Verifies funds are available. Puts the money on hold . The Bank sends a response back to First Data Approval Denial First Data sends the information back to the merchants terminal. Step 1 Authorization Transaction Time Dial up is 12 to 15 seconds Internet is 3 to 6 seconds Step 2 Batch/Settlement At the end of the day the merchant does a batch or settlement. This moves the money into the merchants bank account. Identifies the issuing bank by reading the first six digits of the card number, referred to as the BIN
AMERICAN EXPRESS DISCOVER DINERS CLUB JCB EBT AUXILLIARY CARD SERVICES AMG IS NOT RESPONSIBLE FOR THESE CARDS Each is an individual company: Approve Merchants to accept the card Approve the transactions Issues a separate Merchant Identification Number Sends separate statements Deposits funds on their own schedule
MOST COMMON TERMINAL FUNCTIONS SALE- Two parts, Authorization and Settlement. VOID- Corrects an error BEFORE the batch. CREDIT- Corrects an error AFTER the batch. BATCH- Daily finalization of transactions, moves the funds. FORCED SALE- Combines a Pre-Authorization number with sale. AUTHORIZATION ONLY- Puts funds on hold, verifies funds
UNDERWRITING LEASING TRANSACTIONAL 3 TYPES OF INDUSTRY RISK
Underwriting Risk “Risk = Rate” Every decision made by a player on this industry is based on perceived risk to the entity involved. That entity could be Visa and MasterCard, a processor, an underwriter, a lease company or sales organization. Underwriting an account means approving a merchant to be able to accept Visa and MasterCard. Much like a bank would look at a merchant in order to give them a loan. Some things the underwriters look at would be: Ownership Average ticket Monthly Business Personal Credit: Credit score Current or former bankruptcy Length in business or previous industry experience Business Credit: Type of Industry – Does it conform to “acceptable” business. Industry history of CHARGEBACKS – Disputed or incorrect charges, up to 18 months liability. Length of time in business.
UNQUALIFIED/UNACCEPTABLE BUSINESS All sexually oriented or pornographic merchants Consulting firms or firms operating in the following: Real estate seminars auction houses investment programs/opportunities “ get rich quick schemes” Credit repair or protection mortgage reduction services Telemarketing companies involved with the following products: Personalized gifts Novelty items Custom made items Pseudo-pharmaceuticals Cosmetics Charities (other than nationally based, well known events) Chain letters Pyramid or multi-level marketing distribution Drug paraphernalia Collection agencies or firms involved in recovering/collecting past due receivables Travel clubs / Travel agents or tours Sports forecasting or odds making Check cashing Lotteries Fortune tellers
EXPLANATION OF WHOLESALE –VS- RETAIL The cost associated with the Risk of accepting potentially fraudulent merchants can shift from processor on “Retail” or AMG “Wholesale”. Chargeback – A disputed charge. Initiated by the cardholder Processor settles the dispute “ Experience” of chargebacks is a problem at 1% of sales Responsibilities: Underwriting Merchant Processing Agreement Flexible Pricing Programs “ Fraudulent Transaction” Risk
Lease - A long term financing option for merchants who do not want to pay for a terminal up front. The leasing company is separate from the processor and leases are approved or declined separately from the Merchant Account. Business Type and expected business longevity. Prior Industry Experience Start-up Business Personal Credit Business Financials Lease Factors and Funding information available by contacting your Agent office. A Lease Funding Calculator is available to you by logging on at www.merchantaccountsources.com . LEASING RISK
Equipment Think of POS Terminals as if they were cars. Buy Sell Lease Upgrade Downgrade Roll cost into new one New Used – no guarantee Refurbished – certified pre-owned Definition: The mechanism used to submit transactions to Visa/MasterCard Three types of “Equipment” are: 1. Hardware Terminal – Point of sale terminal with swipe wedge. 2. Software Terminal – Windows based manual entry programs or cash register integrated program. Offline Real time PC Based Industry Specific 3. Virtual Terminal – Internet based terminal for “REAL TIME” processing. Common Equipment Manufactures Verifone Hypercom Lipman
Buying Vs. Leasing + Ownership No Long Term Commitment Cover Overall Terminal Cost - Up Front Cash Owner is responsible for repairs + Payment Overtime No Cash Outlay Insurance Option Tax Deductable - 3-4 Year Commitment 2-4 Times as Costly as Buying Buying Leasing
Visa and MasterCard review the WHO, WHAT, WHEN, WHERE and HOW of every transaction. Typical Risk Factors Include: Type of Card Accepted Corporate SIC Code Batch and Settlement Information on transaction, example: Name or Expiration date Additional Information if requested, example: Zip code, PO Number Special pricing for specific industries. Address Verification TRANSACTIONAL RISK
Electronic Processing Evolution Time line from Paper
INTERCHANGE EXPLANATION Visa and MasterCard respond quickly to marketplace conditions, specific industry exceptions and consumer spending habits. As a result of this close scrutiny, the number of interchange categories that describe possible transaction lost has grown to over 200. Interchange is the industry’s base rate for services. Regardless of how big or how small a company is everyone’s rate starts at interchange.
Swiped 3 Tier Pricing Qualified Mid Qualified Non Qualified MOTO 2 Tier Pricing Qualified MID Qual MOTO Non Qualified What’s a Qualified?
Industry Specific Program Examples Lodging Supermarket Petroleum Emerging Markets
What’s the deal with Walmart? Why do we care? Credit Vs Offline Debit And Pin Based Debit Explanation Rewards Cards Update effective 04-01-05 FOR DISCUSSION
Basic Fees Discount Rate – Percentage of sale including tax. Per Item – Access charges for each inquiry into the Visa and MasterCard System. Statement Fee – Mailing, Accounting and Printing Monthly Minimum – Fee charged against Rate Bump – Additional Fees for Mid and Non Qualified Discount Rate. Qualified – Best cost for industry type. Mid Qualified – Higher fees due to something not qualified. Non Qualified – Corporate cards, foreign network cards, untimely batching of transactions. Highest cost category.
Pricing Basics Volume = Transactions multiplied average ticket Average ticket = Volume divided by the number of transactions. Number of Transactions = Volume divided by average ticket Visa and MasterCard volume ONLY no other card types. Average ticket is VERY important.
Transactional Cost Analysis AMG/ Agent cost = Average ticket multiplied by discount fee then add the agent cost per item. Merchants Current Cost = Average ticket multiplied by current discount fee add the per item. Salesman Quoted Cost = Average ticket multiplied by quoted discount fee add the per item. Merchant Savings = B – C Agent Profit = C – A * Bottom line cost for quoted cost of transactions must be above corresponding schedule A fees.
Pricing Example - Swiped Merchant Current Rates 1.75% & .25 Proposed Rates 1.78% & .20 Volum e = $20,000 Average Ticket = $35.00 Number of Transactions = 571.00 Volume 16,000 3,000 1,000 Number of Transactions 457 85 28 Percentage of Business 80% 15% 5%
Pricing Example Qualified: Current Rate ($35.00 X 1.75%) + .25 = .86 Quoted Rate ($35.00 X 1.78%) + .20 = .82 AMG/Agent Cost ($35.00 X 1.70%) + .17 = .77 Profit Per Transaction .82 - .77 = .05 Savings Per Transaction .86 - .82 = .04 Total Profit of Transactions .05 X 457 = $22.85 Total Savings of Transactions .04 X 457 = $18.28
Pricing Example Mid - Qualified: Current Rate ($35.00 X 2.52%) + .25 = 1.13 Quoted Rate ($35.00 X 2.35%) + .20 = 1.02 AMG/Agent Cost ($35.00 X 2.28%) + .17 = .97 Profit Per Transaction 1.02 - .97 = .05 Savings Per Transaction 1.13 – 1.02 = .11 Total Profit of Transactions .05 X 86 = $4.30 Total Savings of Transactions .11 X 86 = $9.46
Pricing Example Non - Qualified: Current Rate ($35.00 X 3.25%) + .25 = 1.39 Quoted Rate ($35.00 X 3.15%) + .20 = 1.30 AMG/Agent Cost ($35.00 X 3.05%) + .17 = 1.24 Profit Per Transaction 1.30 – 1.24 = .06 Savings Per Transaction 1.39 – 1.30 = .09 Total Profit of Transactions .06 X 28 = $1.68 Total Savings of Transactions .11 X 86 = $2.52
Pricing Example Totals Recap Savings Qualified $18.28 Mid Qualified $9.46 Non Qualified $2.52 Total $30.26 Profit Qualified $22.85 Mid Qualified $4.30 Non Qualified $1.68 Total $28.83
SALES TIPS Don’t Be A Salesman! 1 Minute Mindset “ Who are you talking to?” Be a Shopper Be a Consultant Be an Educator Be a Problem Solver But Know The Problem First
Where Do I Start Checklist Corporate Name Contact Name Contact Title Contact Phone Contact Fax Contact Email Best time to contact Corporate Location Number of Locations Other DBA’s or associated entities What does the company sell? Products and Service How does the company do business? Primarily swiped or non-swiped? What percent of business is swiped, keyed and corporate? What is the current monthly volume, average ticket and number of transactions? Per location? Company wide Who is the current Processor? What are the company’s current rates? Arrange for copies of statements. What, if any, are the problems the company is having with their current processing? What kind of equipment does the company use? POS Hardware PC Software Internet Virtual Terminals AMG SECURE PAY
Finding Business & Marketing Finding Business Business Organizations Social Organizations Field “Referrals” Delivery & Service Current Client Referrals Accountants, Printers, etc. Vertical Markets & Associations Marketing Cold Calls Warm Leads Mailing Email Website Tele-markets
Getting Statements Start with friendly sources. Everyone needs to know that statements are needed for “apples to apples” comparison. Finding the “Gate Keeper” Don’t get fooled into responding to generic rate questions. What are your best rates? The merchant who does not want to provide statements is NOT a prospect.
Statement Help Fax statements and agent contact information to: 1.215-701-4989 Call AMG Agent Support to review website training for online proposals. Let us train one of your staff to do proposals in house.
Common Objections Too much trouble I’m with my bank I have great rates I just switched I have to check with my “partner” I have a cancellation fee
Some Notes On Income Successful agents sign-up EVERY single merchant they can. Career volume merchants may be tight on profit margins. Per Item fees are a bigger percentage of income transaction discount rates. Profitability is based on portions of a penny. More volume does NOT automatically mean bigger earnings!
Application Process And Time Lines Submission, Processing & Approval 24 hours for swiped 48 hours for non swiped File building, downloads, deployment 1 full midnight cycle after approval Training, troubleshooting 24 hours after deployment Follow Up’s 1 day, 3 day, 1 week and 90 days Residuals Paid on the 30 th of the month after first full month of processing.
Agent Website Services Track Merchant Status View & Enter Merchant Notes Equipment Listings Residual Reporting & Tracking Proposals Trainings Lease Funding Information & More!
Additional Products Check Services Gift & Loyalty Cards ACH Processing Cash Advance AMG Payment Gateway
Contact 600 Louis Drive Suite 202-A Warminster, PA 18974 Phone: 877.99.SWIPE  Fax: 215.701.4989 [email_address]