Merchant Services Training

1. Merchant Services

2. The ability for
businesses to
accept payments
via payment
cards, typically
debit and credit
cards.
What is Merchant Services?

3. ➢Consumers
➢Merchants
➢MSP/Acquires
➢Card Issuers
➢Card Associations
➢Networks
Who Are the Players?

4. Those that
purchase
goods or
services from
the Merchant.
Consumers Role

5. ➢ The business
•The merchant will transmit
the transactions to the
acquirer/MSP by sliding cards
through the terminal or
magnetic stripe reader.
•The terminal then transmits
the sales authorization request
via a standard phone line
connection to the acquirer.
(Batching)
Merchants

6. ➢The acquirer routes the transaction to a
processor and then to the Card Associations
•Visa System (Visa Net, Base I, Base II)
•MasterCard System (BankNet, INET)
➢Contracts with merchants to accept
merchant sales
MSP/Acquirers

7. ➢Key Responsibilities
•Sales
•Pricing
•Fraud Investigation
•Merchant Acceptance
•Support Services
•Risk Management
MSP/Acquirers Cont'd

8. ➢Any financial institution that issues a credit
card.
➢Brands with a Card Association
•Visa
•MasterCard
•Discover
Card Issuers

9. Primary Roles
➢Branding & Marketing
➢Governing and
enforcing the rules and
regulations
•Industry Risk
➢Managing & Settling
Interchange
Card Associations

10. Visa and MasterCard do NOT:
➢Issue Credit Cards
➢Establish criteria for evaluating applicants
➢Set credit limits offered to cardholders
➢Determine procedures for billing customers
➢Resolve customer service issues
Visa & MasterCard's Roles

11. Visa and MasterCard do:
➢Create advertising and promotional programs
➢Develop new products
➢Conduct clearing and settlement processing of
transactions (Interchange)
➢Set and enforce rules and regulations governing the
use and acceptance of their cards
•Operational procedures
•Interchange procedures
•Graphic design approval of their cards
Visa & MasterCard's Roles

12. The platform which
authorizes, captures, settles and clears
transactions (technology)
➢First Data
➢TSYS
Networks

13. ➢Bucket/Tiered Pricing
➢Interchange Plus Pricing
•Pass Thru Pricing
•Cost Plus Pricing
Different Types of Pricing MS

14. ➢Interchange
•Fees that go to the card issuer
➢Assessment Fees
•Fees that go to the Card Association
•Visa/MasterCard/Discover
➢MSP/Acquirer Fees
•Fees that go to the processor (NEXTEP)
Types of Fees on the Statement

15. ➢Interchange is what is paid to the card issuers
➢Interchange is the largest cost component in
a merchant’s total bankcard charges
➢Interchange set by the card issuers is updated
semi annually
•April & October
•Public Information
Interchange

16. Doesn’t matter if you are a very large
merchant or a very small merchant… It’s the
same for all merchants.
➢There are no additional discounts due to size
➢It’s a common mistake for a merchant to believe
they negotiated their Interchange fees down
•Typically a client that believes this is in tiered
pricing
Interchange Cont'd

17. Interchange is comprised of 100’s of
categories
➢3 Factors that determine the category a
transaction will fall into:
•The merchants industry
•The type card processed
Rewards Based, non rewards
•How the card was processed
Swiped, Keyed-In, Present, Not Present
Interchange Cont'd

18. ➢Visa CPS Retail 1.54% + $0.10
➢Visa Retail Debit 0.05% + $0.15
➢Visa Retail Keyed 1.85% + $0.10
➢Visa Restaurant 1.54% + $0.10
➢Visa Small Ticket 1.65% + $0.04
➢Visa Small Ticket Debit 0.05% + $0.04
➢MC Merit III Base 1.58% + $0.10
➢MC Retail Debit 0.05% + $0.15
➢MC Retail Keyed 1.89% + $0.10
Common Interchange Categories

19. These are Fees paid to Visa/MasterCard/Discover
Visa
➢Acquirer Processor Fee (APF)
•$0.01950 per transaction (credit cards)
•$0.01550 per transaction (debit cards)
➢Visa Assessment Fee
•11 bps (0.11%) per transaction
➢Settlement Network Access Fee (aka Base II Fee)
•$0.0023 per transaction
The APF and Base II Fee typically apply to all Visa
transactions, in addition to the Visa Assessment Fee
Card Association/Assessment Fees

20. These are additional Fees paid on a case by case
basis:
Transaction Integrity Fee (TIF) – Applies to all
transactions involving a Visa that does not meet CPS
requirements
–$0.10 per transaction
Fixed Acquirer Network Fee (FANF) – A monthly
fee that varies based on the number of locations and
volume.
–Variable depending on factors stated above
Card Association/Assessment
Fees - Visa

21. Misuse of Authorization Fee – A fee for a Visa
authorization that was not followed by a matching
clearing transaction or in the case of a cancelled or
timed out transaction, not properly reversed from the
system.
–$0.045 per transaction
Zero Floor Limit Fee – A fee for a transaction that
can't be matched to be a previously approved or
partially approved authorization. It applies to
settlement transactions submitted without proper
authorization.
–$0.10 per transaction
Card Association/Assessment
Fees - Visa

22. Zero Dollar Verification Fee – This fee applies to Zero
Dollar Verification messages (approved or declined).
ZDV messages include the verification of the card
account number, address verification (through the
Address Verification System) Card Verification Value 2
(CVV2) and Single Message System (SMS) acquired
Account Verification authorizations. The Visa Misuse of
Authorization Fee does not apply to these requests. The
fee only applies when a merchant verifies the
cardholder's information without authorizing an amount
against their card.
•$0.025 per transaction
Card Association/Assessment
Fees - Visa

23. ➢Network Access and Brand Usage Fee (NABU)
•$0.01950 (after 6/30/2013)
➢MasterCard Assessment Fee (MC's Acquirer Brand
Volume Fee)
•11 basis points per transaction (0.11%) - For
transactions less than $1,000
•13 basis points per transaction (0.13%) - For
transactions greater than $1,000
This does not apply to signature debit card
transactions regardless of size.
Card Association/Assessment Fees –
MasterCard

24. International Service Assessment Fee – A fee that
applies to US transactions paid for with a card issued
outside of the United States
–40 basis points per transaction (0.40%)
International Acquirer Fee – A fee that applies to
US transactions paid for with a card issued outside of
the United States.
–45 basis points per transaction (0.45%)
Card Association/Assessment
Fees - Visa

25. Cross Border Assessment Fee (Foreign) – A fee
that applies to transactions paid with a card issued
outside the US paid in a currency other than US
dollars.
• 80 basis points per transaction (0.80%)
Acquirer Program Support Fee - A fee
assessed on international transactions settled by
US based merchants in currency other than the
US dollar.
• 85 basis points per transaction (0.85%)
Card Association/Assessment Fees –
MasterCard

26. Cross Border Assessment Fee (Domestic)
A fee that applies to transactions paid with a card
issued outside the US paid in US currency.
● 40 basis points per transaction (0.40%)
Acquirer License Fee (ALF) or License
Volume Fee A fee assessed on gross MasterCard
processing volume
● 4.5 basis points per transaction (0.0045%)
Card Association/Assessment Fees –
MasterCard

27. AVS Fee (Card-Not-Present)
A fee assessed each time a merchant utilizes the
address verification service when processing a
transaction.
● $0.0075 per transaction
AVS Fee (Card Present)
A fee assessed each time a merchant utilizes the
address verification service when processing a
transaction.
● $0.005 per transaction
Card Association/Assessment Fees –
MasterCard

28. Account Status Inquiry Fee – A fee assessed for
inquiries made where a merchant authorizes an
amount on a cardholders account, but instead
validates aspects of the account. Account status
inquiry transactions may include requests for address
verification service (AVS), card validation code
(CVC2), or both.
●$0.025 per transaction
Processing Integrity Fee - MasterCard began
charging this fee to encourage merchants to abide by
the proper authorization standards.
●$0.055 per transaction
Card Association/Assessment Fees –
MasterCard

29. The processing Integrity Fee is assessed for the
following reasons:
➢ Card-present: Transactions are not settled, cleared, or
reversed within 24 hours of the original authorization
transaction/request.
➢ Card-not-present: Transactions are not settled, cleared, or
reversed within 72 hours of the original authorization
transaction/request.
➢ No reversal: An authorization transaction cannot be
matched to a corresponding settlement record after a period of
120 days.
➢ Exempt merchants: Travel and entertainment merchants
classified as MCC 3351-3441, 3501-3999, 4411, 7011 and
7512 are exempt from the Processing Integrity Fee.
Card Association/Assessment Fees –
MasterCard

30. Data Usage Fee
●$0.01850 per transaction
Discover Assessment Fee
●10.5 bps (0.105%) per transaction
Data Transmission Fee
●$0.0025 per transaction
Card Association/Assessment
Fees – Discover

31. International Processing Fee – A fee that applies to
all US transactions paid for with a card issued
outside of the US.
●40 basis points per transaction (0.40%)
International Service Fee – A fee that applies to all
US transactions paid for with a card issued outside
the US.
●55 basis points per transaction (0.50%)
Card Association/Assessment
Fees – Discover

32. Card Associations
Some other common Card Associations:
➢American Express
➢Diner's Club
➢JCB
➢Electron
➢Interlink
➢PULSE
➢Star
➢NYCE
➢Tempo

33. Bucket/Tiered Pricing
Cards are categorized into tiers
➢All the cards within a tier are charged the same rate
(usually whatever the highest interchange rate is
within that card set)
•Interchange is still assessed on all of the cards but the “buffer” goes to the processor as profit
–If the blended interchange rate was 1.89% but the cards within that tier were
assessed 2.20%, the remaining 0.31% goes to the processor. Interchange is
set in stone.
»Just because a processor collects 2.20% for interchange… doesn’t mean it’s going to send
more to the card issuers than what the posted interchange rate is.
➢Bucket and Tiered Pricing will always be more
expensive than Interchange Plus Pricing

34. Card Associations
➢The fees (rates) are set by the Card Associations
●Visa, MasterCard
➢Fees (rates) are the same
for every merchant
regardless of size
➢Public information found on the internet

35. Bucket/Tiered Pricing
Qualified Interchange Bucket/Tiered Rate
CPS Small Ticket Debit 0.05%
CPS Retail Debit 0.05%
Merit III 1.58%
Merit Debit 0.05% 1.78%
Merit Insurance 1.43%
World Supermarket 1.58%
Service Industries 1.15%

36. Bucket/Tiered Pricing
Mid-Qualified Interchange Bucket/Tiered Rate
Business Level II 2.05%
Business Retail 2.20%
Commercial B2B 2.40%
High Value Merit I 2.20% 2.55%
Corporate Data Rate III 1.90%
World Elite Merit I 2.20%
Merit Elite Enhanced III 1.73%

37. Bucket/Tiered Pricing
Non-Qualified Interchange Bucket/Tiered Rate
High Value T&E 2.75%
High Value Standard 3.25%
Business Level 4 2.81%
Commercial Card Not Pres 2.65% 3.41%
Signature Business Credit 2.95%
Business Visa 2.90%
Corporate Data I 2.63%

38. Trigger to know a client has Tiered or
Bucket Pricing
You’ll see things like:
●Qualified
●Mid Qualified
●Non-Qualified
●Blended rates

39. Frustrations with Bucket/Tiered
Pricing
➢Hidden Fees
➢Higher Fee Structure
➢Ability for processor to increase fees without increasing rates
●Transferring more cards from qualified to mid-qualified or
non-qualified
➢When merchant issues a client a credit, they don't get their
interchange fees back.
➢Lack of uniformity across industry – Tiers are different amongst
processors
● Impossible to give accurate comparisons
➢Lost Savings from Durbin Amendment

40. Durbin Amendment
➢The Durbin Amendment is part of the Dodd Frank Wall Street
Reform and Consumer Protection Act
● October 1, 2011
● Capped Interchange Fees that Large Banks Could Charge
at 0.05% plus $0.21
➢Any business being billed on a Bucket/Tiered pricing platform pay
➢the processor's qualified rate instead of the newly capped rates.
➢The per transaction loss is substantial considering that qualified
rates are typically 1.65% or higher.

41. Bucket/Tiered Pricing
We don’t place any of our clients in this
pricing model. Interchange Plus pricing is
more cost effective for our clients. It’s also
easier for clients to understand their statements.

42. Dilbert's Confusology

43. Interchange Plus Pricing
Interchange and Assessment Fees are passed
on directly to the merchant.
➢No Tiers with additional profit buffers built in
➢Save the customer money
Processor Fees are separate on the bill
➢Easy to see
➢Easy to understand
➢More cost effective for the merchant

44. Nextep's Fee Structure
I. Interchange Fees are Passed on to the Card Issuers.
II. Assessment Fees are Passed on to the Card Associations
– Visa, MasterCard, Discover, Amex
III. Processor Fees
➢Allocation in basis points for gross dollar amount
processed (Flat rate)
➢Allocation in cents per transaction (Fixed amount)
– Authorization and Settlement
➢ Fees assessed for services rendered
– No made up fees

45. Processor's Fees
Two Types of Fees the processor typically charges:
➢Basis Points & Cents per transaction
➢Other Fees:
•PCI Compliance Fees
•IRS Regulatory Compliance Fees
•Statement Fees
•Per Batch Fees
•Internet Payment Gateway Fees
•Minimum Monthly Fees
•Retrieval Fees
•Chargeback Fees
•Address Verification Fees
•Voice Authorization Fees
•Annual Fees
•Early Termination Fees

46. Other Fees
PCI Compliance (Data Security)
➢Monthly Fee for PCI compliance monitoring
Regulatory Compliance Fee
➢Monthly Fee for the 1099 that the IRS requires
be sent monthly.
Statement Fees
➢The monthly fee to product a monthly accounting
of all transactions.

47. Other Fees
Per Batch Fees
➢A Fee for each time the merchant batches out and sends
the data to the processor to be processed for payment.
•It's important that your clients batch out within 24 hours or MasterCard
will charge a processing integrity fee. Even higher assessments are tagged
after 72 hours.
Internet Payment Gateway Fees
➢A monthly fee associated with maintaining a merchant’s
secure payment gateway to accept payment online.
•Can include initial setup fees and per transaction fees

48. Other Fees
Minimum Monthly Fees
➢A minimum amount the processor is guaranteed to receive.
•Usually around $25/month (some processors charge this fee)
Retrieval Fees
➢A fee if the processor has to retrieve the transaction that has been
disputed by the merchants customer.
➢Request copies of receipts, video footage, any documentation of
the sale from parties involved.
➢Conduct investigation.
Chargeback Fees
➢A fee charged by the bank when a chargeback is issued to a
merchant – Typically fraud.

49. Other Fees
Address Verification Fees
➢The fee charged to perform an address verification
•Common with online processing
•Minimizes fraud to the merchant
Voice Authorization
➢This is the fee charged if the merchant calls
Visa/MasterCard for manual voice authorization.
•Typically protects the merchant against fraud.
Annual Fees (Renewal)
➢The annual fee charged to maintain the merchant’s
account. - Not all MSP’s charge this fee.

50. Other Fees
Early Termination Fees
➢ Some processors charge the Merchant for
terminating their contract early.

51. PCI Compliance
PCI DSS
➢Payment Card Industry Data
Security Standard
➢Security Guidelines for all
businesses that accept credit
cards.
➢Compliance is mandatory for
all merchants
• Protect and secure all
confidential card holder data

52. PCI Compliance
Penalties for lack of compliance:
➢Fines of $500,000 per data security incident
➢Fines of $50,000 per day for non-compliance with published standards
➢Liability for all fraud losses incurred from compromised account numbers
➢Liability for the cost of re-issuing cards associated with the compromise.
➢Suspension of credit card acceptance by a merchant's credit card account
provider
➢Loss of reputation with customers, suppliers and partners
➢Possible civil litigation from breached customers

53. EMV & Smart Cards
By October 15, 2015 merchants will be required
to upgrade their terminals to be compatible with
EMV/Smart Cards.
EMV
➢Technology that uses smart cards to secure customers data.
Smart Card
➢A credit card that has a micro chip with memory and
micro processing technology

54. EMV & Smart Cards
➢The microchip uses a one-time-use password
that protects each transaction.
➢Transmits a unique and different cryptogram
for every transaction.
● Criminals are unable to replicate
code to perpetrate fraud.
➢Cryptogram prevents card skimming and card
transplanting.

55. EMV & Smart Cards
How are smart cards processed?
➢EMV is card present technology meaning the card must
be within a few inches of the reader – near field
communication (NFC)
➢Inserted into an EMV card reader
EMV technology and Smart Cards have been
adopted in every major market outside of the
United States.

56. What Merchants Need
to Know
If a merchant plans on upgrading their terminals in the
near future, they should upgrade to terminals compliant
with the new requirements.
Plan on budgeting the cost of new terminals compatible
with the EMV technology by mid 2015.

57. NEXTEP Statements
Components of the Statement:
I. Summary of Card Deposits
a) Breaks out total for each type
of card processed.
II. Summary of Interchange
a) Details every card processed
and the interchange rate
assessed.
III. Summary of Card Fees
a) Details Card Association Fees
and Processor Fees

58. NEXTEP Statements
Components of the Statement:
IV. Summary of Misc. Fees
a) Statements, gateways, etc.
V. Summary of batches
a) Details total amount batched and
what date for reconciliation
purposes.

59. NEXTEP Statements

60. NEXTEP Statements

61. NEXTEP Statements

62. NEXTEP Statements

63. Summary of Card Deposits

64. Summary of Interchange

65. Summary of Interchange

66. Summary of Interchange

67. Summary of Card Fees

68. Summary of Card Fees

69. Summary of Batches

70. Summary of Batches

71. Sample Proposal

72. Sample Proposal

73. Application

74. Application

75. Application

76. Application

77. Questions?
Contact us:
Scott Johansen – Operations Manager, NEXTEP Processing
sjohansen@NEXTEPprocessing.com
702-749-4000