Understanding Credit Card Processing Fees

Presented By: Jesse A Roldan

WHY DO BUSINESS WITH US?

BVCC. is a register ISO | MSP with Transfirst, LLC., a register agent for the following banks: Fifth Third Bank, Cincinnati, OH 45263 |
Columbus Bank and Trust Co., Columbus, GA 31901 | Merrick Bank Corp., Woodbury, NY 11797
Business Ventures Capital Corporation 546 Hamilton St. Suite 313, Allentown PA 18101 610-572-1712 (M) 610-572-1722 (F)

THE BASICS
Understanding How Credit Card Processing Works

To appreciate the value that our company brings to your business, you must first understand how
credit card processing truly works. Most merchant’s do not fully understand this process. My goal is to
educate you because an informed Merchant is our best customer.

I hope to rationally explain the following in laymen terms:

1. How does a typical credit card or EBT processing transaction truly work?
2. What is Interchange, and why should it be important to you?
3. How are you currently being charged for credit card processing?
4. Why is our Company a better choice for your Credit Processing Business?

The primary source for my information was the US Government Accountability Office Report to
Congressional Addresses (GAO-10-45 Credit Card Interchange Fees) that stemmed from the 2009
Credit Card Accountability, Responsibility, and Disclosure Act.

Transfer of Fees in a Credit Card Transaction

Sources: GAO (analysis); Art Explosion (images)

1. Notice the Majority $2.20 in total fees for this transaction goes to the financial institution
that issued the customers card.
2. This $1.70 is referred to as the interchange rate, and is non-negotiable for you the merchant.
It is set by the issuing bank, and will be applied no matter who your processing company is.
3. The remaining $.50 is split between the Acquiring Bank, and your processing company. This
is your only room for negotiation.
4. Please keep in mind, these numbers are greatly skewed due to large companies processing
the majority of transactions. Chances are that you are paying much higher fees on the
acquiring end of the transaction due to economies of scale.

THE BASICS
Following the Money

Understanding who is getting paid is half the battle. Once you identify where your money is going,
you will be better suited to negotiate your best possible terms. Below is a diagram that explains who
is receiving the money from each fee your merchant account is charged.

Issuing Banks Card Network Merchant Bank
(Card Holder) (Visa / MC) / Processor

Interchange Fees Assessment Fees All Other Fees

Vary From: Charged in many
0.11% varying and
$0.20 & 0.95%
creative ways
to
$0.10 & 3.25%
Non-negotiable Markup over
Interchange
Non-negotiable Ex:
$0.20 & 1.80%

Flat Fees
Ex: Statement
Fees

Surcharges
Ex: Batch Fees

Negotiable
Sources: GAO (analysis); Art Explosion (images)

THE BASICS
What is Interchange?

• Interchange is the classification of rates that member banks of a general processing card network ,
such as VISA or MASTER CARD, charge the merchant for the privilege of accepting their cards.
• These fees typically offset risk to the card issuer, pay operating expenses, and provide rewards to
card holders.
• These interchange fees generally vary from 1 to 3 percent of the total transaction.
• Four main factors determine which interchange fee rates apply to a given transaction
1. Type of Card
2. Merchant Category
3. Merchant Size
4. Processing Mode
• Due to economies of scale certain large merchants, such as grocery stores or gas station chains
qualify for lower interchange rates. However, the vast majority of all merchants do not have this
ability.
• Visa currently has 60 categories of interchange rates, and Master Card has over 240.

Do you, the Merchant, have the ability to minimize interchange fees?

Yes, by training your staff to use a little common sense when processing a transaction, you can affect
the interchange rates applied to your transactions.

1. Use Pin Based Debit whenever possible. These transactions have the lowest risk of fraud, and the
lowest rates to reflect this.
2. Card Swiping is always better than manually entering the card numbers, as it takes out the aspect
of human error, therefore it is considered less of a risk and merits a better interchange rate.
3. When a card is not present, the risk of fraud is the highest, therefore, the increased risk will be
reflected in the interchange rate. Try to use address verification in this instance.
4. Be sure to close out your batch each day. If a payment sits on your terminal and is not batched by
the end of the next business day, it will be charged a higher interchange rate.

THE PUZZLE OF TIER PRICING
How am I currently charged? Standard Tier Pricing Model

As with any complex financial transaction of this
sort, the devil is in the details. Mid- Non-
Qualified
Qualified Qualified
Transactions
Although there are literally more than 200 Transactions Transactions
Interchange rates, most merchants are paying
only 3 different rates. Over 90% of all Generally Generally Generally
Interchange Interchange Interchange
Merchants work on some type of tier system. Rates from Rates from Rates from
0.95% - 1.60% - 1.95% -
1.05% 1.90% 2.99%
First Tier - Qualified Rate
The qualified rate is most commonly quoted to a
merchant when they inquire about pricing. A
qualified rate is the percentage rate a merchant
1.45% 2.40% 3.29%
will be charged whenever they accept a regular
consumer credit card and process it in a manner
defined as "standard" by their merchant account
provider using an approved credit card Are my Transactions Qualified?
processing solution.
What Percentage of my
Second Tier - Mid-qualified Rate Transactions are Qualified?
This is the percentage rate a merchant will be
charged whenever they accept a credit card that
does not qualify for the lowest rate (the qualified 35% 20%
rate). This may happen for several reasons such Qualified
as:
Mid-Qualified
•A consumer credit card is keyed into a credit
card terminal instead of being swiped Non-Qualified
•A special kind of credit card is used like a 45%
rewards card or business card

Third Tier - Non-qualified Rate
The Ugly Truth
The non-qualified rate is usually the highest
percentage rate a merchant will be charged
whenever they accept a credit card. In most Your Merchant Processor has
cases all transactions that are not qualified or the freedom to determine
mid-qualified will fall to this rate.
•Many Reward Cards, which have higher where to set the tiers in
interchange fees are processed at this rate. relationship to interchange,
•If you fail to run your batch by close of business
the next day, all of your transactions will be and each processor uses this
processed at this rate.
to their advantage.

Seeing Through the Fog

Study this chart carefully and determine which of these two processors provides a better overall
value to you the merchant, assuming the static fees (statements, etc.) are equal among both
providers.

Which Is The Better Value?

Below is a sample of 35 commonly used interchange rates

Tier 1 Tier 1
Visa CPS Retail Debit Qualified 0.95% + $0.20
1.85% + $.20 1.65% + $.18
M/C Merit III Retail Card Present Swipe Rate Debit 0.95% + $0.20
Visa CPS Retail Qualified 0.95% + $0.20
Tier 2
M/C Merit III Retail Card Present Swipe Rate 1.05% + $0.15
Visa CPS Retail Key Enter, Debit Mid Qual 1.80% + $0.10
2.20% + $.18
Visa CPS Card Not Present, Debit Mid Qual 1.80% + $0.10
Visa CPS e-commerce, Debit Mid Qual 1.60% + $0.15
M/C Retail Key Enter Debit Mid Qual 1.64% + $0.15
Tier 2 M/C Merit I Debit, Timing & transaction tolerance limits 1.73% + $0.15
exceeded or Electronic commerce
2.40% + $.20 Visa CPS Retail Qualified Rewards 1.90% + $0.10
M/C World Merit III, Card Present Retail Swipe 1.82% + $0.10
M/C Enhanced Merit III – transaction detail data req 1.82% + $0.10
Visa CPS Retail Key Enter, Mid Qual 1.94% + $0.10
Visa CPS e-commerce, Mid Qual 1.94% + $0.10
Mail/Phone Order & Electronic Commerce – Con Debit 1.96% + $0.10
M/C Retail Key Enter, Mid 1.98% + $0.10
Visa CPS Retail Key Enter, Mid Qual Rewards 1.99% + $0.10
Visa CPS Card Not Present, Mid Qual Rewards 1.99% + $0.10
Visa CPS e-commerce, Mid Qual Rewards 1.99% + $0.10
Visa Commercial Level III0.82% 1.89% + $0.10
Tier 3
Visa Commercial Level II – Purchase, Bus, Corp T& E 2.09% + $0.10
3.30% + $.18
Mail/Phone Order & Electronic Commerce – Con Credit 2.13% + $0.15
M/C World Elite Commercial Face to Face Corp 2.29% + $0.10
Visa Commercial EIRF – Corporate T & E 2.29% + $0.10
M/C World Elite Merit III 2.29% + $0.10
Visa Commercial Card Not Present - Business 2.34% + $0.10
Visa EIRF Electronic Interchange 2.39% + $0.10
Tier 3 M/C Commercial Face To Face or Data Rate II Business 2.41% + $0.10
3.50% + $.20 M/C World Elite Commercial Face to Face Business 2.41% + $0.10
Visa Commercial Card Not Present – Purchasing 2.49% + $0.10
Visa Commercial EIRF – Business 2.54% + $0.10
Visa Commercial EIRF – Purchasing 2.79% + $0.10
Visa Standard Interchange 2.79% + $0.10
Visa Commercial Standard Interchange 2.79% + $0.10
M/C World Key Enter 2.14% + $0.15

When We Run the Numbers

Assuming you processed a $100 transaction in each of the 35 interchange classifications
below for a total of $3500 in transactions processed.
Company A Company B
Tier 1: ($100 x 1.85% + $.20) x 9 = $18.45 Tier 1: ($100 x 1.65% + $.18) x 4 = $18.45
Tier 2: ($100 x 2.40% + $.20) x 21 = $56.40 Tier 2: ($100 x 2.20% + $.18) x 16 = $56.40
Tier 3: ($100 x 3.50% + $.20) x 5 = $52.20 Tier 3: ($100 x 3.30% + $.18) x 15 = $52.20
Total Expenses: $91.55 Total Expenses: $97.60


Tier 1 Visa CPS Retail Debit Qualified 0.95% + $0.20 Tier 1
1.85% + $.20 M/C Merit III Retail Card Present Swipe Rate Debit 0.95% + $0.20 1.65% + $.18
Tier 2
2.20% + $.18
Visa CPS Card Not Present, Debit Mid Qual 1.80% + $0.10
Tier 2 M/C Merit I Debit, Timing & transaction tolerance limits 1.73% + $0.15
exceeded or Electronic commerce
2.40% + $.20 Visa CPS Retail Qualified Rewards 1.90% + $0.10
M/C Enhanced Merit III – transaction detail data req 1.82% + $0.10
Visa CPS Retail Key Enter, Mid Qual 1.94% + $0.10
Tier 3
3.30% + $.18
Visa Commercial EIRF – Corporate T & E 2.29% + $0.10
M/C World Elite Merit III 2.29% + $0.10
Visa Commercial Card Not Present - Business 2.34% + $0.10
Visa EIRF Electronic Interchange 2.39% + $0.10
Tier 3 M/C Commercial Face To Face or Data Rate II Business 2.41% + $0.10
3.50% + $.20 M/C World Elite Commercial Face to Face Business 2.41% + $0.10
Visa Commercial Card Not Present – Purchasing 2.49% + $0.10
Visa Commercial EIRF – Business 2.54% + $0.10
Visa Commercial EIRF – Purchasing 2.79% + $0.10
Visa Standard Interchange 2.79% + $0.10
Visa Commercial Standard Interchange 2.79% + $0.10

If Company A is the better value, how does Company B win your business?

So how would Company B possibly win your business as a merchant? Assuming you are currently
working with Company A for your merchant processing. The sales rep from company B will ask for
your most recent 3 months transaction statements. From this information he will find the following
information and put together a proposal that will probably look very similar to the sample below.

• Your Tier Rates are already fixed by Company A, and your bill will read.
• X number of charges Tier 1 (Qualified)
• Y number of charges Tier 2 (Mid-Qualified)
• Z number of charges Tier 3 (Non-Qualified)
• However, this does not account for which interchange rates each Tier Includes.
• Company B will then use this information to compare tier rates, not the true cost.
• As you can see below, Company B will lead you to assume that his Tier Settings vs. Interchange
will be exactly the same as Company A, and then simply compare Tier Rates for you.
• This will always appear to provide a savings to you the merchant, but now you know better.

 Notice, that Company B boasts
that they will save this merchant
over $150 every month.

 In reality, we now know that
Company B will most likely cost
this merchant well over $150
more each month.

 They do this by comparing Tier
Rate Charges, not where their
Tier Rates are set according to
interchange.

With this many moving parts,
you can now see why so many
merchant are in the dark. It
leaves you at a clear
disadvantage, as you can
never compare apples to
apples.

INTERCHANGE PLUS
A BETTER WAY TO DO BUSINESS

Wiping the Slate Clean

In order to understand Interchange Plus pricing, you have to first shake off the your current way of
thinking about merchant services. Very often the first question anyone asks us when we approach
them on the subject is: “What’s your rate?”. These merchant’s have been trained to think this way
from years of working with the “Tier System” and the countless sales reps that continually push these
numbers and promises of savings to the merchant.

As we have pointed out in the previous pages, a better question might be what is that merchant paying
to their service provider? Due to all the moving parts of the Tier System it is virtually impossible for the
merchant to know. As with any financial transaction, the less you know, the more it will cost you. ..
Literally.

So let’s change the game. Instead of focusing on what the merchant processor is offering as a rate, let’s
focus on what the merchant processor is actually grossing as a profit margin.

Follow your Money What is Interchange Plus Pricing

•Between $.20 & 0.95% - $.10 & 3.25% Put simply, Interchange Plus is nothing more
Interchange •Variable / Non Negotiable than adding our merchant account pricing to the
Fees interchange rate from the Issuing Bank and the
Assessment Fee from the Card Network .
•0.11% from Visa or Master Card
Assessment •Fixed / Non Negotiable We wipe the slate clean of the Tier Rates. You
Fees
essentially will see exactly where every penny of
your money goes. You will be able to tell how
•Interchange Plus, 2 Fixed Fees
much money our firm, is making from your
Payment •Fixed / Negotiable business on each and every transaction. There
Corp
are no hidden fees, every penny is accounted
for.

The numbers
This form of transparency has most likely never
been offered to you before. For years, only the
Example: A $100 transaction largest of corporations, such as Big Box
will cost this merchant $2.49 Stores, Fast Food Chains, and large retail
merchants have had the negotiating power to
overcome the Tier Rate Game.
Business Ventures Capital Corp
0.45% + $.18 = $0.63
We , believe every business owner
VISA/MC Assessment Fees has the right to know exactly how
0.11% = $0.11 much they are paying for merchant
services.
Interchange Rate (Sample)
1.60% + $.15 = $1.75

Revisiting the Numbers

Let’s look at our same Interchange chart again. But this time, let’s apply the interchange plus pricing
model to the interchange rates. Revisiting our same parameters from earlier, a $100 transaction in
each interchange category for a total of 35 transactions and $3500


INTERCHANGE MADE SIMPLE TO UNDERSTAND
Visa CPS Retail Debit Qualified 0.95% + $0.20
M/C Merit III Retail Card Present Swipe Rate Debit 0.95% + $0.20
35 Transactions / $3500
Visa CPS Card Not Present, Debit Mid Qual 1.80% + $0.10 Total Expenses: $91.92
M/C Merit I Debit, Timing & transaction tolerance limits 1.73% + $0.15
Profit to the Payment Corp:
exceeded or Electronic commerce $15.75
Visa CPS Retail Qualified Rewards 1.90% + $0.10
M/C Enhanced Merit III – transaction detail data req 1.82% + $0.10 • No Tier Rates
Visa CPS Retail Key Enter, Mid Qual 1.94% + $0.10 • No Hidden Fees
• No Guessing Games
• Just Facts
As your processor’s fees
Visa Commercial EIRF – Corporate T & E
M/C World Elite Merit III
2.29% + $0.10 are the only negotiable
2.29% + $0.10
Visa Commercial Card Not Present - Business 2.34% + $0.10 fees in the entire
Visa EIRF Electronic Interchange
M/C Commercial Face To Face or Data Rate II Business
2.39% + $0.10
transaction, doesn’t it
2.41% + $0.10
M/C World Elite Commercial Face to Face Business 2.41% + $0.10 make sense to focus on
Visa Commercial Card Not Present – Purchasing
Visa Commercial EIRF – Business
2.49% + $0.10
2.54% + $0.10
these costs, as they are
Visa Commercial EIRF – Purchasing 2.79% + $0.10 the only costs you can
Visa Standard Interchange
Visa Commercial Standard Interchange
2.79% + $0.10
2.79% + $0.10
control?

The PAYMENT CORP Fixed Fees It’s Time To Partner

Now that you understand the Interchange Plus
pricing model. I’m sure you want to know what
fixed fees can be expected from our company.

Batch Fee: $0.18
All batch closing and batch inquiries are
considered “transactions” and will be billed at
the same rate as V/MC/Disc trans fees unless
specified.

Monthly Service Fee: $9.95
Also referred to as the Statement Fee. This fee is
used to offset our fixed cost of processing and
mailing out statements each month to you the
merchant.

Monthly Breach Coverage: $6.95
Consider Breach Coverage as a form of
insurance. In the event you are found The Fine Print
responsible for a secure information
leak, resulting in identity theft, this coverage will Cross border international transaction
cover you responsibility for the losses up to assessments/program support, MC network
$100,000. It is mandatory on all new accounts access/brand usage (NABU), Visa US acquirer
through our processor, but can be removed after processing fee (APF), Visa Zero Floor Limit, Visa
the account has been opened for 1 month. misuse of the authorization system may apply.
Further Visa/MC/DISC mandated fees, including
association Base II and kilobyte fees, may also
Monthly Minimum Fee: $25 apply
Applies to Discount Rate & capture fees. It costs
us money to keep your account open and active. BVCC does not add any additional hidden fees
If for some reason, your processing fees do not we pass interchange pricing directly through to
equal $25 in gross profit to our company in a the merchants at 100% of cost.
given month, we will charge you the remainder
of the $25 minimum fee. This will not be
assessed on most accounts.

NEED NEW PROCESSING EQUIPMENT?
Retail Processing Equipment

Retail VeriFone Vx510LE - $575.99 Retail Hypercom T4205 - $485
Retail VeriFone Pin Pad 1000SE - $150 Includes Internal Pin Pad
Hypercom P1300 Pin Pad $150

In the field Equipment Financing

Equipment Model Monthly
Pricing
Hypercom, T4205, 24 Mb, Dial $19.95

Hypercom, Pin Pad P1300, 6” $5.85

VeriFone Vx 510LE $22.50

VeriFone Pin Pad 1000SE $5.85
Way 1581 GPRS, Wireless Terminal / Cell
Way, 1581, TDES/SDES - $23.00
Phone
Wireless
Retail: $485.00
Way S40 Printer - Retail: $242.00 Way, S40 Printer $9.50
One time SetUp: $99.00
Additional: $24.99 Monthly Gateway Fees
$0.15 per transactions
ASK ABOUT OUR FREE TERMINAL PLACEMENT PROGRAM OR RENTAL PROGRAM

Understanding Credit Card Processing Fees

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