October 2013 Interchange Adjustments

October is typically a month when new pricing adjustments occur in the merchant processing business. The credit and debit card brands, specifically Visa, MasterCard and Discover, make adjustments to their pricing structures and/or services. Once this occurs, the merchant processing companies then generally restructure some of their pricing to prevent profit loss, spread out new costs or otherwise either stay competitive or profitable. Some account managers will choose to absorb certain costs or prevent some merchants from seeing increases in their billing, however it is also possible that some of these posted increases will be used as an excuse to increase fees across the board and not simply for the actual items affected. For this reason, it is always important to read the fine print, or at least the monthly announcements on each processing statement.

Here is a quick breakdown of the recent changes from October, 2013, effective from the beginning of the month. The changes may look small at first, but remember that these tiny amounts add up when they are per transaction. For the card issuing companies, this can mean a huge increase in revenue (although, to be fair, theoretically the increases are designed to deal with corresponding costs already being incurred).

The New Costs

All Discover transactions now have

Small Business Saturday is coming!

American Express's Small Business Saturday® Is Coming

Small Business Saturday® takes place on the Saturday after Thanksgiving. This year (2013), the American Express sponsored event is taking place on November 30th. The timing takes advantage of the "peak" holiday shopping season and has a noticeable impact on the sales of participating merchants. Consumers were estimated to spend $5.5 billion last year during Small Business Saturday® and hopes are that this year will be even stronger.

Since 2010, this shopping "holiday" fits neatly between Black Friday and Cyber Monday. Whereas Black Friday focuses on big box retail establishments and Cyber Monday on e-commerce businesses, Small Business Saturday encourages holiday shoppers to visit small, local brick and mortar stores.

For merchants who accept AMEX cards, there is the opportunity to create free personalized online ads that will run in the weeks leading up to Small Business Saturday. Qualifying businesses may be featured in ads on local websites and may also be featured on ShopSmall.com. To take advantage of this, merchants must apply by November 4th, 2013. Information on eligibility is available along with the Terms of Participation on the AMEX web site.

Advertisements created through American Express for this campaign are scheduled to run from 11/11–11/30. AMEX also offers themed graphics for merchants to use on their web sites or in physical marketing materials. It's a pretty cool campaign, drawing attention to this important segment of commerce that is often overlooked by our consumer culture around the holidays.

PCI DSS 3.0: The end of store and forward on mobile?

It is time for new PCI changes to get implemented. Last February (2013), the PCI Security Standards Council released a document on mobile payment security guidelines. While it is not the most entertaining read in the history of guidelines, it does shed light on some of the changes we are going to see implemented in the industry over the coming year. In November, expect to see a new set of regulations being handed down, to be fully implemented by the star of 2014. But most processors, not wanting to find themselves caught in the awkwardness of being out of compliance when the date hits, attempt to get on the bandwagon as early as possible and will demand the same of their merchants.

PCI Program Update for North American Bancard Merchants

A notice came out today, September 17th, 2013, from the folks over at North American Bancard, which also provides the Phone Swipe and PayAnywhere products in the mobile processing field. Merchants who are on the mobile "Pay As You Go" plan (also known as Option B for Phone Swipe) should note that this information will not apply directly to their accounts, since those types of accounts have the compliance fees rolled into their higher percentage along with all other incidental costs (which is why Phone Swipe may be so much more cost-effective for merchants who do under $2,500 per month).

Here is an excerpt from the NAB correspondance:

"The monthly fee for PCI non-compliant merchants will be increasing from $6.95 to $14.95. This increase is effective for Global merchants and for First Data merchants. Your merchants will continue to receive messages on their statements notifying them when PCI billing will occur.

Note that the annual PCI compliance-related fees will not be increasing. Those fees will remain the same as they have for the past three years: $79 for all main accounts ($99 if non-compliant) and $19.95 for each additional account with the same Tax ID number and/or same Principal/Social Security Number ($24.95 if non-compliant). We are proud to say that these annual fees continue to be lower than those of our top competitors despite the fact that our compliance programs offer significantly better levels of protection and that our costs for the programs continue to increase."

NAB, just like most payment processors, sends their merchants notices regarding Payment Card Industry security standards and compliance issues in the merchants' monthly processing statements. Frequently merchants forget to check their statements for these announcements, which may also include rate or fee increases due to higher percentages being charged by Visa, MasterCard or Discover, that the processor might pass along to the merchant. It is essential that merchants remember to check their monthly statements, not only to verify that they are not being overcharged or billed for something that they do not understand, but to ensure that they are up to date on any changes or responsibilities regarding their accounts.

Harbortouch "Free" POS System Program, Simplified

I recently had the opportunity to expand my consulting service with the products offered by Harbortouch, aka United Bank Card, Inc. (UBC). UBC is a very similar company to the other processors I use, in terms of size and offerings and the flexibility of pricing, so there was little incentive for me to go through the paperwork until I looked deeper into their Point of Sale terminal program. As it happened, I had a client who was looking for a POS system and we decided to do some number crunching and some feature comparisons. What we found surprised me.   

My first impression was that the Harbortouch program would probably fall into the "too good to be true" category. Everyone who has been around the block knows that "free" terminals generally means that you get to borrow the equipment if your pricing structure is high enough. That's fine for most businesses, because the minimum pricing requirements to qualify for equipment placement are usually offset by the savings of not having to purchase new equipment combined with the ability to exchange a defective or outdated machine at little or no cost. The one thing that often does get merchants with equipment placement is that they are likely (but not always) locked into a 3-year term with a cancellation fee that is higher than the price of a terminal. But here we are talking about standard counter-top card swiping terminals and nothing beyond that. When moving into POS territory, things become a bit more complicated. And, in this case, more enticing.

Phone Swipe Tablet Placement Program Update

What It Is

The new Phone Swipe processing plan from North American Bancard offers a free tablet for merchants to use and lower rates than "Pay-As-You-Go" plans, or even most monthly processing plans.

Who It's For

The merchant requirements for this new processing program ("Option C") are a little steeper than in  the standard Phone Swipe programs. For "Option A," which has a $14.95 monthly cost but a wide range of structures customized by the agent for each merchant, the only real minimum is that the merchant processes over $2,000 each month (and really should tend toward $2,500 and up), because that is where it becomes cost-effective. For "Option B," commonly known as the "Pay-As-You-Go" plan, there are very few requirements at all. 

In order to process with the "Option C" plan, however, merchants need to be processing over $10,000 every month and also must have a processing history to show this. At least the most recent month's statement will be required to submit to the underwriting department after the application is sent in (via a secure web form filled out by the merchant after receiving an email from the agent who is setting it up). 

What's the Catch?

Recommended Solutions

One Size Does Not Fit All

One of the most important things for merchants to remember is that what works best for one business may not be a good fit for another. This applies in almost every area of business, and the processing set up for a business is no different. Except in one way: every merchant wants the cheapest solution that will serve their needs.

The problem is, what saves one merchant money may not save another merchant who does business very differently. Having the lowest transaction fees is terrific until it means that all transactions are going to have to be stored for later because a merchant is trying to save on mobile processing fees, only to discover that more charges are downgraded and other charges are simply not approved... In fact, there are dozens of considerations to be made before ensuring that the merchant has the best program set up.

Some generalizations remain true

It is always in the best interest of a merchant to save money. The rates and fees set by Visa, MasterCard, Discover, American Express, et al,  are varied by card type and transaction type, and even have built in adjustments by industry. There are ways in which the processing companies have worked to save merchants on some types of charges while profiting off other types of charges. This was the birth of "Tiered" pricing.

A good "Tiered" deal may actually save a merchant money over an Interchange-based plan. This may be the case when the Mid- and Non-Qualified markups are not excessively high and the Qualified rate itself is low, because many cards may be processed at very little profit or even at a loss for the processing company, versus the consistent markup on every charge as processed via an Interchange-plus agreement. These kinds of "Tiered" plans are pretty rare, however, and many merchants find that their "Tiered" rates are raised periodically to compensate for the increase in Interchange costs for a few card types every six months or so. This is also assuming that the Interchange-plus plan is based on the typical "book rates" from most processors (likely 50 basis points over cost).

I generally believe that Interchange-based plans are the most fair-minded and often the most cost-effective. There is no undue rounding up on rates, no downgrading. And there is usually no additional transaction fee to go along with the downgrades, either. A merchant pays the cost of processing with a nominal surcharge on the total and a reasonable fee per transaction. This "cuts the fat" and makes the costs much more equitable most of the time. Still, this sort of plan sometimes looks complicated and does not work best for every merchant, so the pros and cons must be examined.

Recommended Solutions

I like to put my merchant clients into a narrow range of solutions whenever possible. For some, they have an existing POS system that needs to be reprogrammed and it is as simple as discovering what processing company will interface best with the POS system and then setting an account up with the proper parameters and lowest available cost. I'll use the First Data network for most POS systems, because I can provide that through a third party at much less than First Data usually charges merchants who have accounts directly set up through their processing wing. Plus, I'll do it with no long-term contracts and without cancellation fees. I can also process over the Global Payments network, or through a gateway like Authorize.net. For most high volume businesses, this sort of solution is perfect for them. They have the hardware already, I'll simply provide them with better numbers. I'm not precisely in the POS business, but I have the ability to set up several types of systems and can provide a limited range of them as well.

PhoneSwipe Just Got Better

This is just a quick update for those interested in the fast-paced world of mobile processing. As we all know, SquareUp is in bed with Starbucks now. The little white cube is becoming more and more ubiquitous. SquareUp's goal is to make smartphones the new wallet, something that Google also has its eye on and even PayPal has jumped into the game. But what about just getting the best rates for a mobile solution, without the additional motive of sticking your customers with a singular means of paying that only a select few merchants can accept?

Stripping away the branding and the nifty (if unnecessary for the most part) bells and whistles, you are left with a small group of needs. Merchants want low rates and they often want a modest POS system to make transactions easier. While Square does offer a nice version of their software for the iPad, and now some iffy flat monthly rates that might save a small business some money (in a rather narrow window, if you ask me), the recent upgrades in the PhoneSwipe service offered through North American Bancard seem to make it a much more obvious choice for a wider range of businesses.

Lets look at the updated terms rolled out this month.