Credit / Debit Card Electronic Payments Industry Update on Convenience Fees, Utility Program and More!. Presented by: Michael Hodge, Regional Manager U.S. Bank Merchant Payment Services Tel: 503/693.6406 Fax: 503/693.6450 Email: [email protected] May 09, 2008.
Point of Sale Software / Payment Gateways
Pricing Structures (“Interchange Plus” / “Tiered”)
Interchange Plus = Offers Acceptors the most fair and equitable way to be assessed
Interchange = The cost associated with the Issuing component of the credit / debit card.
Assessment = The cost, per transaction, the Association members (MasterCard / Visa) charge.
MasterCard assessment (.0950%), Visa assessment (.0925%).
Plus = The fees charged by the merchant processor
Interchange and Assessment are not negotiable; they are the same for all service providers.
Tiered = generally means that processing cost are based on 3-5 different levels of pricing, such
as traditional consumer card-swiped (qualified), traditional consumer card “hand-keyed”
(mid-qualified), Corporate/Purchase/T & E Cards (non-qualified), Debit / Check Cards and
Tiered pricing takes into account Interchange and Assessment cost components.
* Remember that in Public Sector, the Association members offer the same Interchange level
for traditional consumer card present and card not present transactions.
Fees above do not include Assessments (Visa Assessments = 0.0925% / MasterCard Assessments = 0.095%) or service provider’s fees.
Off-line Debit refers to signature based (non PIN based) debit / check card transactions
Public Sector / Emerging Market Program (example)
Processing Fees: ($100.00 x 1.7725% = $1.7725 + $0.05 = $1.8225)
Utility Program (example)
Processing Fees: ($100.00 x 0.0925% = $0.0925 + $0.75 = $0.8425)
In this example, the difference in processing fees between these two pricing programs is $0.98 (54% savings) for this $100.00 transaction as a result of the Visa Utility program pricing.
* Take note Visa / MasterCard offer special Utility Interchange Level for consumer card, yet only Visa offers a
special Utility Interchange Level for business / purchasing card transactions.
PIN Debit Programs
Research indicates that 20% or more of electronically processed transactions are debit card transactions. PIN debit allows for a flat fee to be applied to these transactions, rather than the ‘rate plus a per transaction’ fee structure. A merchant could potentially minimize processing fees significantly by using this service.
For instance, let’s say the transaction in question was $100.00. Comparing the two pricing programs (non PIN debit vs. PIN or PIN-less debit) yields the following results (assuming a $100.00 Visa debit / check card transaction).
Non PIN (or non PIN-less) Debit
Processing Fees: $1.48 ($100.00 x 1.08% = $1.08 + $0.40 = $1.48)
PIN Debit (PIN entered with the transaction)
Processing Fees: $0.70 (1 transaction x $0.70 flat PIN debit network authorization fee)
In this example, the difference in processing fees between these two pricing programs is $0.78 (approximately 50% savings) for this $100.00 transaction as a result of utilizing PIN (and / or PIN-less) based debit processing services.
Please note that pin pad equipment for point-of-sale and / or software that can accommodate PIN-less debit would be needed to process debit / check card transactions in the above mentioned manner.
Convenience / Service Fees Programs
Please note that the information contained within this presentation contains an overview only of convenience fee rules. The rules are
subject to change. The Card Associations ultimately establish and interpret the rules, and determine whether a merchant is in or is
not in compliance with said rules.
Convenience / Service Fees (cont’d) Programs
- convenience / service fees on Visa / MC transactions in all payment environments, including in-person, are allowed
- convenience / service fees can be percentage based or tiered
- differentiated convenience / service fees allowed for check (ACH) versus card payments
- convenience fees not allowed in-person (Visa)
- convenience fees are allowed in-person (MasterCard)
other conditions used to apply (i.e. separate line and clerk for credit / debit card payments; MasterCard payments only since Visa does not allow)
- differentiated convenience fees not allowed by Visa, but are allowed by MasterCard; MasterCard payments only since Visa does not allow
- convenience fees are to be flat (i.e. $1, $1.50) per Visa
- direct payments to non-in person payment environments where possible, if you wish to charge a convenience fee, free up office resources, and maintain compliance with Card Association rules
Convenience / Service Fees (cont’d) Programs
- Kiosk solutions
- Over-the-counter (conv fee) terminal applications
- Web Payments
Trends further indicate a shift toward low to no cost
convenience fee applications. With these applications,
the service provider essentially manages the costs (by
means of the convenience / service fee charged to the
payer) on behalf of the merchant so that the merchant
is “revenue neutral” (i.e. not making money on the
solution, and incurring little to no costs to provide the