The document outlines a boot camp presentation on improving payment IQ, focusing on understanding interchange and its complexities, particularly in the U.S. It discusses the roles of various stakeholders in the payment ecosystem, interchange fees by region, and strategies for optimizing payments to lower costs. The session emphasizes the importance of comprehensive knowledge in navigating the rapidly evolving payment landscape.

1. Brion Bonkowski
Managing Director
June 20, 2013
Boot Camp Week 3
Improve your Payment IQ
Understanding Interchange – Opening
Visa & MasterCard’s Kimono

2.  Optimizing Interchange for
your Business
 Technology/ Gateway
Considerations
 Trends
 Wrap-up / Q&A
 Introduction
 Who is Interested in Payments?
 Ecosystem Recap w/ Terms &
Terminology
 Interchange Explained
 Network & Gateway Costs
 Industry Pricing Schemes
Agenda

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 payment
chain at some point
 It is rare when someone is specifically assigned to payments, as such many people find
themselves 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 and
sales/marketing team members
 Why?
 People become involved in payment projects and need a holistic overview of the industry
so 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 Recap
Customer
Cardholder Merchant
Technology
Issuer Acquirer
Interchange
Processor
Schemes

6. Let’s Do a Deep Dive into
Interchange

8.  United States
 Highest and most complex
interchange fees in the world
 Under scrutiny by legislators and
orgs like the Merchant Payments
Coalition
 Average interchange rate is 1.79%
 Europe
 Regulated by the European
Commission
 Broken down into European
Economic Areas (EEAs) and Non-
EEAs (two different schedules)
 Alternative payments have
sprouted as a result of legislation
Interchange by Region
 Australia
 Reserve Bank of Australia
legislated to lower interchange
fees from .95% to .50%
 Significantly less rewards cards-
nearly all debit
 New Zealand
 NZ Commerce Commission is
trying to pass similar laws
 Current interchange rate for NZ is
1.8%
 Asia, Africa, South
America= Developing
Markets

9.  Assessment - 0.11% - applies to
ALL gross volume
 APF- Acquirer Processing Fee
(called NABU with MC):
$0.0195/trx for Credit and $0.0155
for debit (in the US)
 TIF- Transaction Integrity Fee:
$0.10/trx ($0.055 for MC) that
does not meet CPS requirements
 International Service/Acquirer
Assessment Fee (called a cross
border fee by MC)- 0.40% (0.80%
for foreign settlement)- applies to
US acquired transactions by non
US issued cards
Additional Network Costs
Tier Volume Fee
1 < $50 $2.00
2 $50 – $199 $2.90
3 $200 – $999 $5.00
4 $1,000 – $3,999 $7.00
5 $4,000 – $7,999 $9.00
6 $8,000 – $39,999 $15.00
7 $40,000 –
$199,999
$45.00
8 $200,000 –
$799,999
$120.00
9 $800,000 –
$1,999,999
$350.00
10 $2,000,000 –
$3,999,999
$700.00
11 $4,000,000 –
$7,999,999
$1,500.00
12 $8,000,000 –
$19,999,999
$3,500.00
13 $20,000,000 –
$39,999,999
$7,000.00
14 $40,000,000 –
$79,999,999
$15,000.00
15 $80,000,000 –
$399,999,999
$30,000.00
16 >= $400,000,000 $40,000.00
 FANF- Fixed Acquirer Network
Fee: Varies based on volume-
eCommerce monthly fees to
the right as a sample
 Settlement Network Access
Fee- $0.0023/trx for all settled
transactions (also called Visa
Base II fee)
 AVS (Address Verification)-
also called “Zero Dollar
Verification Fee” - $0.025/ea

10. Statement Analysis- Sample
MasterCard Business & Purchase Cards
MasterCard International Cards
Visa CNP vs CP
Visa Regulated Debit and EIRF

11.  Good exercise to do in a business on
a quarterly basis- and compare to
previous quarters
Ongoing Payment Analysis

12.  Hotels/ Car Rental/ Restaurant: 1.54%-2.40% (depending on
type of card)+ $0.10
 Gas Stations: 1.15% + $0.25 ($1.10 cap)
 Non Profits: 1.35% + $0.05
 Utilities: $0.75/ea
Industry Pricing Schemes

13.  Downgrades – when a transaction does not qualify for the best
(lowest) rate because it does not meet certain criteria. Primary
reasons for downgrades:
 No AVS on key entered Visa cards
 No sales tax breakout
 Authorization and settlement variance greater than 20% for Visa (25% for
MC)
 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 settlement
transaction provided
 The order number or invoice number in the settlement transaction must be
provided
 The transaction settlement must be no longer than 7-days after the authorization
date
 The transaction settlement must be no longer than 3-days after the completion of
the sale
Optimizing Interchange for your Business

14.  Level 1, 2, and 3 Data: Added data elements for B2B
and B2G transactions such as invoice # and tax
identifier – can serve to lower interchange rates.
 Some, not all gateways/applications are certified to
pass level 2 and level 3 data (purchasing cards)
 We recommend ALWAYS passing level 2 data
through the gateway in an effort to qualify for the
best interchange rate
 Level 3 data is specific to government transactions
 Ongoing maintenance and monitoring
through analytics and downgrade
reports
Technology Considerations

15.  Overall- interchange is increasing and has since it’s inception
 Regulators have been successful in lowering interchange for
certain 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, carrier
billing, closed loop networks – all put pressure on Schemes
 Increased litigation between the schemes, merchant groups,
and regulators
Trends

16. Contact Information:
Brion Bonkowski
brion@roipayments.com
212.812.4177 x: 2134
Questions & Contact Info