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EMV, Card Security Standards, and US Merchants

What is EMV?

EMV smartcard with chip technologyEMV stands for Europay, MasterCard and Visa - and represents the founding entities of a global card security standard - already widely adopted "abroad" - using chip card technology for both contact and contactless transactions.  Cardholder verification - similar to our current magnetic stripe cards - use both pin and signature verification methods. 

The chip or smartcards, contain an embedded microprocessor (the equivalent of a small computer - no kidding!) with strong security features.  EMVco - an organization that consists of the major card brands - exists to ensure specification standards for the chips/cards as well as card acceptance devices.  The increased security gained with these cards is due to unique dynamic digital data for every transaction - reducing the overall risk of fraud (the changing data makes duplication difficult unlike data stolen from cards with magnetic stripes).  Payments are getting both smarter and safer.

How do EMV standards impact US Merchants? 

Chicken or the Egg?

US Banks have definitely been slow to implement widespread EMV chip card technoloy in their consumer issued credit cards but card brands continue to push for migration to the new technology because of the increased security.  Effective this past April 2013 - processors (that's us) are required to support merchant acceptance of EMV chip transactions - a deadline XBS and Priority Payments has met. 

The April 2013 deadline however, was in preparation for a liability shift for fraudulent transactions/activity from issuers to merchants who do NOT process at least 75% of their transactions through an EMV enabled device, by October of 2015 (with an exception for fuel dispensers who have longer).  Visa and MasterCard issuing US banks are substantially increasing issuance of cards with the new technology.  The liability shift adopted by the major card brands is in place to strongly encourage merchants to upgrade to terminals enabled for EMV technology. While merchants must still adhere to PCI DSS standards - VISA is relaxing annual validation requirements (think SAQ) for merchants who meet the 75% of all credit card transactions being EMV authenticated criteria.

Priority Payments XBS and XBS are already placing terminals/POS equipment that is enabled with chip card acceptance technology.  There is a direct correlation between EMV implemenation and reduction in fraud loss.  There's a good deal of time of course, before the liability shift occurs and some kinks that need to be worked out regarding the new technology and current US regulations (Durbin Amendment) - but no doubt,  credit card payment processing in the US is making the move to safer, smarter payment processing with EMV card security standards and technology.  See this chart for more information on key dates for EMV adoption and call us at 800-347-1090 with any questions!

Additional Resources

Click Here for a comprehensive list of EMV FAQ's by Smart Card Alliance - a non-profit, multi-industry association working to promote understanding, adoption, and use of smart card technology.




Visa and MasterCard Settlement and Merchant Surcharging

MasterCard Visa LogoWe first briefed you on pending antitrust litigation launched by retailers against the card brands Visa, MasterCard and American Express and brought on by the US Justice Department back in October 2010.   Visa and MasterCard settled the class action suit in mid 2012 to the tune of billions in merchant refunds and major regulatory changes.  In addition, the card brands will reduce interchange fees going forward, temporarily, until the new regulations resulting from the settlement - are implemented.    There were two primary issues at play -

  1. A money issue - in short that merchants were charged excessive fees to accept the two cards - and that in charging the fees - the two card brands (Visa/MasterCard) and their respective banks violated antitrust laws.
  2. Excessive regulations imposed on merchants who wish to accept the cards.

Todd Zywicki of Forbes followed up the settlement news in August of 2012  by asserting that consumers will be winners in this latest round of interchange attacks.  We agree with his points that free markets and consumer choice should drive interchange fees not politics and judges - and now hopefully - this quick settlement will put an end to the US Governments dabbling in credit card processing and the issue of interchange.   Zywicki points to the disastrous effects of  the Durbin Amendment in the Dodd Frank Financial Reform Act - resulting in a the transfer of billions in profit from big banks to big retailers.  The Act regulated debit card interchange fees, a move that impacted consumers with a barrage of new banking fees - the very "group" Durbin claimed would profit from the new legislation.

By now, all merchants should have received notice of the class action suit and preliminary settlement.   Merchants interested in getting their share of the "refunds" can find the details at Payment Card Interchange Fee Settlement.  

After jumping into the class action fray - merchant attention should turn to new regulations  - specifically, and for purposes of this blog - merchant surcharging.   The regulatory change allows retailers/merchants to tack "surcharges" on to any purchase made with a credit card (NOT debit card).  The change takes place January 27th 2013 and the basics are listed here -  

  • Merchants can surcharge - if they do so - it must be the same across all card brands.
  • Merchants must notify Visa/MasterCard and their acquirers in advance of the decision
  • The surcharge cannot be more than the transaction fee charged the merchant (it is not meant to be an additional "profit" area
  • Merchants must notify customers of the surcharge upon store entrance , website page, at the point of sale, and on the receipt.

Showing the surcharge on the receipt is a challenge for processors and acquirers.  It is the reason the card associations are implementing temporary reductions in interchange rates  - to allow time for system and POS updates.  Tricky.

We wonder how consumers will react though, to the big sign in the window or at the register that warns about surcharges on credit card transactions - it's a little weak as a marketing strategy. 

Some folks are NOT happy with the settlement (Walmart, Target and of course, Durbin) - insisting that it is not in the best interest of the consumer.  Others feel that opponents of the regulatory changes are far more concerned about their own wallets.  It's worth mentioning that part of the settlement is that the card associations will not be subject to further litigation regarding the credit card interchange issue....

If you are a merchant with questions and you should be, go to the Visa or MasterCard sites for the ditty on the details.  Priority Payments XBS  and XBS Global anticpates that our merchants will have surcharging capability by mid to late 2013.  Please feel free to contact our customer service with any questions you may have regarding the changes @ 800-935-5961.



USPS Changes Reignite Need for Electronic Payments

Pony ExpressRecent announcements by the USPS, experiencing huge losses still, reflect once again the dramatic global change and an inevitable trend towards electronic and/or digital business operations.  The announcement outlined cost cutting changes in operations including eliminating Saturday mail delivery (excluding packages) and of course, yet another increase in a first class stamp price.  The PMG (Postmaster General) has stepped up the campaign to make this reform a reality - something that in past years the US congress has put a stop to.  

The changes are scheduled for implementation the week of August 5th - 5 day letter delivery (M-F).   Letters will still be delivered however to PO Boxes on Saturdays, and any Post Offices currently open on Saturdays will remain so - so we have that going for us.  Different from reform requests in the past, the PMG claims the legal ability to implement the change without  congressional approval.

Please tell me you're not still driving to the post office to get your "checks" in the mail!  It's 2013!  May as well wait for the Pony Express.  How will this impact your business?  Your collections and accounts receivables?  Cash flow? 

The writing is on the wall - conversion to electronic payments is inevitable.   XBS Global recognized this trend as far back as 2009 - the question is - are you out in front of it or....behind the curve?

Ned Smith - Sr. Writer for Business News Daily gets it, and spells it out clearly in his article Will Business Go Postal When Post Office Nixes Next-Day Delivery - a possibility still looming as Congress continues to drag it's feet leaving the USPS in dire financial shape.  Note these numbers Smith quotes from REL Consultancy - a division of the Hackett Group -focused on maximizing cash flow through working capital improvements.

  • 60% of all invoices are still delivered by mail
  • 40% of all first class mail is currently delivered next day
  • Most businesses typically take 5 weeks to collect payment

How will this all this UPS reform impact your business?  Your accounts receivables and collections?  Cash flow?  It's pretty straight forward - paper invoice delivery will take longer,  mailed payment will....take longer, and so on.  REL Consultancy and Smith both point to electronic solutions - email for invoice delivery and ACH and credit cards for payment of invoices - an inevitable reality (see our 2011 blog).

No more waiting, no more paper invoices, or checks!  Businesses, especially B2B merchants, should be working their way towards their own reform - the switch to electronic invoicing,  and ACH and credit card payment processing.


Can You Benefit from B2B/B2G Level 3 Payment Processing?

manufacturingIs your company established to process credit card payment transactions as a "retail" or “B2B” merchant account?  

Are many of your customers businesses as compared to individual consumers?  Are you a manufacturer or distributor?

If so, your account should be established as a B2B merchant account, not as a "retail" merchant account.

 Nearly 100% of businesses are setup as "retail" - a setup that results in 30 to 50% higher costs to process commercial and purchasing cards.  Credit cards that are increasingly presented for payment to B2B merchants.

 Why do “retail” merchants pay higher fees than “B2B” merchants to process the exact same credit card and transaction?

Consider -

The average storefront retail merchant processes credit cards by swiping the card at the point of sale.  This payment processing environment is referred to as card present or swiped.  Swiping a credit card is considered a low risk transaction - the card is there, you can request ID and compare signatures if you choose.   

When a retail merchant keys (types) in a credit card number (like a B2B/B2G, manufacturer or distributor typically does) - it's processed as a keyed or card not present transaction - the cost charged to process the card goes up significantly to a mid-qualified transaction.  The cost to process credit cards increase - along with the risk and/or costly programs associated with specific card types (rewards, detailed procurement reporting, etc.).  

 In addition to higher costs for card not present processing - retail merchants also pay even higher non-qualified interchange rates to process Commercial/Corporate Cards, regardless of swiped or keyed.

These are exactly the cards most often used for B2B payments/purchasing. Examples of these common cards are P-cards (Purchasing & Procurement), Commercial, Corporate or Business cards. 

MasterCard, Visa, American Express, and Discover all provide drastically lower interchange rates (for substantial savings) for merchants properly set up as B2B and processing Commercial Cards.   The low level 3 rates are provided as merchant incentive to provide the data in the proper B2B format. 

 How do you know if you are improperly set up as a “retail” merchant, when you should be set up as “B2B”?  

1 - If you are keying transactions into a standard credit card terminal, you’re processing payments as a retail merchant. 

2 - If you are keying transactions into a Virtual Terminal (at a computer) that does not prompt for Level 3 B2B data, you are processing payments as a retail merchant. 

3 – If your costs for processing credit card transactions seem much higher than they should be… retail merchant? 

What can you do?  

Connect with an electronic payments professional that specializes in B2B/B2G to analyze your current processing statement and methods.  Analysis will include a breakdown of the ratio and types of cards presented to your company for payment.  If the analysis suggests a B2B solution with Level 3 processing, our electronic payment professionals will ensure a seamless transition for your company to B2B payment processing.  There are typically no costs or change in business operations associated with the transition. 

Being classified as a B2B merchant and implementing these best business practices can save your company 30 to 50% on current payment processing costs… a significant savings.  That's what you do. 

In fact, that's what we do.  B2B merchants should contact Priority Payments XBS at 800-347-1090 or drobb@prioritypayments.com to learn more about processing payments at the lowest rates available for B2B merchants like yourself.  Lower B2B/B2G rates that are established for companies just like yours. 

Mobile Payments with Contactless or NFC Technology

Posted by Sharon Robb on in ,

The term mobile payments refers to several types of transactions that originate from mobile devices such as smart phones or tablets. However, making headlines as the next possible "big" trend in payment processing in the US - is mobile payments using NFC or near-field communications (contactless).

Michael Koploy an ERP Analyst for Software Advice gives a comprehensive overview in his recent article (January 2012) of the components required to pull off utilizing contactless technology at the point of sale -

  • A consumer/buyer with a smartphone outfitted with NFC technology or radio-frequency identification (RFID) chips.
  • The smartphone requires an application such as Google Wallet, a "virtual" wallet that stores the credit card information (only works for Sprint Nexus S users who also have a Citibank Mastercard or a Google prepaid card - limited to date, but a competitive program is in the works in ISIS)
  • A merchant with an NFC enabled credit card processing terminal or a stand alone NFC reader (MasterCard PayPass)

At the point of sale, the consumer uses a pin to access the information in the virtual wallet, waves the smart phone in front of the terminal (close proximity, 2-4 inches) and voila! a mobile payment transaction occurs.

Many of us in the industry are keeping our eyes on this technology, but few believe 2012 will be the year it takes off - there are a number of things impeding quick adoption in the US.

  1. We sorely lack the payments infrastructure. Most merchants do not have a reader or an integrated NFC terminal and so far consumers are not pounding on the sales counter insisting on using their virtual wallet and smartphone for payment.
  2. Liability and cost (ah ha!) - Angela West of PC World points out that NFC transactions are CNP (card not present), similar to e-commerce, as vs. CP (card present) which is typical of retail merchants. CNP transactions, where mag stripe data on the back of the card is not read/swiped at the point of sale, are processed at a higher interchange rate (i.e. cost the merchant MORE) and transfer the liability for fraud, from the card issuer, to the merchant.
  3. Does contactless payment increase sales? In Amy Gahran's cnn.com article (Nov. 2011) she quotes Google's VP of Payments, Osama Bedier "Merchants adopt new payment systems because they increase sales." Will customers buy more? Will ticket averages grow? Merchants will want answers to these questions before adopting new contactless technology.
  4. Are applications like Google Wallet secure? See Keith Wagstaff's Feb. 10th online article for TIME... hardly.

We can all agree,the current system of presenting credit and debit cards for payment at the point of sale is already quick and efficient - so do we really need NFC? We also know that merchants are resistant to change and in a payments world where most ISO's were giving equipment away - hesitant to invest in new hardware.

Koploy believes value added services that can be activated through NFC technology will drive consumer and merchant adoption of the new payments technology. Think daily deals, rewards and discounts. Payment industry professionals echo the belief that marketing will pave the path to acceptance, but discounts are not enough.

Grahn's article summarizing our sluggish trek towards NFC in the US, cites principal payment professionals who take Koploy's thoughts about merchant opportunity even further. Consider Dickson Chu, managing director of digital networks for Citi's Global Enterprise Payments unit -the NFC merchant opportunity is to "deepen the customer relationship" and David Marcus, PayPal's VP for mobile - "Today, retailers learn about customers at the least effective time -- just when they're leaving the store. They'd like to know about you when you arrive at the store, so they can customize your shopping experience and treat you properly."

Whatever happens - and we'll keep you posted, the indisputable march towards a cashless society moves forward, now inexplicably entangled with a rapidly declining privacy in the personal preferences, interests and wants that dictate our buying habits. Weird.

Recurring ACH and Credit Card Payment Vital with USPS Troubles

The United States Postal Service (USPS), deep in the red, announced the closing of over 200 mail processing centers - a move  that will add at minimum an additional day for most first class deliveries.

That's another day for invoices to reach customers and another day for the returning check payment.  Cash flow will take another hit for businesses that continue to rely on this traditional method of customer payment.  FindLaw, a Thomas Reuters business, and a leading provider of online legal information and Internet marketing solutions for law firms, writes in an article on cash flow basics that "One of the first things businesses can do to maximize cash flow is to audit billing, collections and payables systems for efficiency" even "requiring up front deposits or credit cards."

Now is the time. The USPS is clamoring to raise prices for all forms of mail delivery - they must. Next year the price of a first class stamp will go up to .45 and experts say it is not enough.  For those merchants and businesses mailing invoices, statements, and repeat invoices and statements - the writing is on the wall.  Traditional paper invoice and check payment is no longer cost effective.

Utility and pest control companies, professional services, B2B companies, and many others need to adjust old processes and incorporate electronic invoicing, click and pay, recurring ach (automated clearing house - i.e. direct debit!) and credit card payments.  The cost of traditional collection methods is astronomical in comparison - and inefficient at best.  Collections can take 30, 60 and 90 days - why not collect immediately by drafting your customers checking account as soon as services are rendered or products shipped?

Electronic invoices have customizable templates to incorporate company logos, etc., recurring payments can be automated - entered and forgotten- reliably debiting your customers account month after month with no further input by the merchant - with customizable receipts emailed upon debit. 

With ACH payment processing and/or recurring credit card billing, collection costs can be reduced to a pittance with a transaction cost that pales in comparison to traditional methods. 

The PSI DSS SAQ - Is it Costing You?

Posted by Sharon Robb on in ,

PCI DSSIf you are a credit or debit card processing merchant you should know - PCI DSS compliance and verification, and the SAQ or Self Assessment Questionaire, is an annual requirement.  Those merchants who forget to reverify will typically pay their payment processor non compliance fees monthly - IN ADDITION to their standard monthly PCI DSS fee.  As we review statements here at XBS Global, we are seeing monthly non compliance fees that range anywhere from $10 to $50.  I suspect there are merchants paying more.

The Payment Card Industry (PCI) Self Assessent Questionnaire (SAQ) has caused a lot of angst for merchants attempting to keep up with PCI DSS (Payment Card Industry Data Security Standards). The standards are proving to be a moving target and the SAQ an exercise in frustration.  For the most recent information and updates merchants should definitely turn to thePCI Security Standards Council.

Card data security will not be going away.  Card data references any personally identifiable data associated with the cardholder such as account numbers, social security numbers, even names, addresses, expiration dates, etc.  The Sony breach in April 2011 was staggering and sobering, as was the May 2011 breach at Michael's stores nationwide (under investiation by the US Secret Service!). 

For the vast number of merchants who feel they are being squeezed by credit card processing fees - here is one you can eliminate.  If you need assistance with the SAQ -call your payment processor but for pete's sake - complete it EVERY YEAR.

Level III Processing, B2G, P Cards and Commercial Cards - Just Do It!

Posted by Sharon Robb on

Onvia estimates that "government spending accounts for one half of every US dollar spent or half the nations Gross Domestic Product."  So...if you're a B2B merchant who wants to increase sales, well....local, state and federal government is looking good. 

They also advise Level III payment processing capability for any merchant or supplier who hopes to do B2G business.  The government, like an increasing number of small, mid and large businesses uses commercial and purchasing cards (p cards) for purchases of all sizes. If you are a supplier or merchant in this arena, it's time to get a move on and be a part of your customers procurement management solutions.

Other events continue to point to your customers need for effective management of working capital and overall improvement in operational efficiency.  Take the pending insolvency of the United States Postal Service (USPS).  Alex Husted - who directs the catalog business of a global imaging and photonics company says in a recent B2B article that he is "anticipating double digit postal rate increases ANNUALLY and then tops it off with the of course foreseeable "expectation of increasing paper prices". The questionable future of mail delivery and rising costs continue to create genuine niche sales opportunities for our merchants.  Time to "embrace card payments" by incorporating Level III processing in your web, print and social media sales channels.  It's a benefit to your customer.

Besides new customers and increased sales what else is in it for our merchants?  Lower interchange rates for p cards and commercial cards.  Yes, lower payment processing costs through special interchange rates provided by Visa and MasterCard when accepting these unique cards, centrally billed to the organization using them, with Level III processing.  Merchants can save 30% to 50% on these transactions which encourage increased data that supports industrial buyers and keeps fraudulent card use low.

Level III processing requires purchase transactions to have more line item detail than other types of processing such as tax ID's, invoice and order no#s, item descriptions and codes, quantity, freight, etc.  SAAS solutions such as 3 Delta Systems are high performance B2B/B2G payment platforms that meet secure, complex payment processing requirements, reduce costs and risk and increase productivity.

The writing is on the wall.  If you are a merchant currently selling in a B2B environment that does not process payments via a Level III processing solution, your cost of processing commercial and p cards is probably astronomical and a seriously quantifiable detriment to your daily cash flow.  If you think you have a service or product for the B2B market, using Level III payment processing provides your customer with the increased data needed for efficient, cost effective operations and cash management.  If your competitor provides it and you don't...well. 

It's a sales tool. Use it and grow.

New Durbin Amendment Debit Card Interchange Regulations Take Effect

Posted by Sharon Robb on in , ,

The July 2010 Restoring American Financial Stability Act or Dodd-Frank bill as it is often referred to finally implements new regulations on October 1 of this year regarding it's heavily debated Durbin Amendment.  The amendment gave the Federal Reserve Board the power to set "reasonable" debit card interchange rates and give merchants a choice in selecting the transaction network (routing regulations will go into affect April 2012, some even later).  

The initial recommendation was to have debit card interchange capped at 12 cents per transaction - but to the outrage of amendment supporters - the final cap was set at 21 cents per transaction plus 5 basis points of the total transaction value (.05%).   The cap represents huge revenue losses for debit card issuers, i.e. banks (those with less than 10 billion in assets are exempt from the regulations further complicating the overall financial services impact).

Who among us are the winners and losers as the bill goes "live"?

Merchants - The largest of retailers are going to save big with already negotiated interchange cost plus pricing that streamlines electronic payment costs, as much as 50% over current debit card interchange costs.  Thelarger precentage of merchants and retailers striving to turn a profit in our distressed economy will likely see no reduction in payment fees despite the Durbin Amendment because of their pricing structure.  These same merchants will take the brunt of lost debit rewards and free business checking programs. 

Banks - Will survive, at least the big ones.  Most have new strategies, products and fee structures to replace lost revenues ready to roll out if they have not already done so.

Consumers - Not good. The banks survival strategy will directly and negatively impact consumer wallets. The biggest Durbin Amendment supporters such as the Merchants Payment Coalition point to the consumer as a big winner through lower costs for products and services.  This would be great, but doubtful.  Similar regulation in other countries show savings go to the merchant with no peter down affect.

What we will feel is the elimination of debit rewards programs and most certainly free checking.  Banks may charge annual fees for debit cards and/or  charge a monthly flat fee for so many transactions or perhaps for using the debit card in a "purchase" environment vs ATM.  Most of these notices from the major banks have already gone out.  My sons SunTrust account will even charge a monthly flat fee for debit cards for the poor lowly college student when used for purchases. 

David John of the Heritage Foundation in his 2011 March article,The Durbin Debit Card Interchange Fee Hurts Consumers makes some powerful observations.  Some consumers, frustrated with new debit card fees will return to credit cards that have interest charges and even higher fees or even less consumer friendly, store-value cards.  Lower and moderate income families could find it easier to to fall into the destructive cycle of debt.  Interest paid on consumer deposits may drop further as banks attempt to stem revenue losses. Credit will tighten. Again. 

In John's call to repeal the legislation he points to the positives of millions of American consumers who have moved consistently from credit to debit card use - spending their own money verses borrowing it from the card issuer.  Keep in mind that debit cards are the fastest growing way to pay when it comes to non cash. According to the 2010 Federal Reserve Payments Study US consumers made 37.9 billiion payments using debit cards in 2009, up 14.8 percent from 2006.

XBS Global is a merchant account provider, a merchant and of course, a consumer. 

Our business model is to assist merchants in payment optimization and provide ongoing professional and trustworthy consultation in a complex financial industry.  In this we firmly stand behind efforts to lower electronic payments fees for all merchants.

As a merchant, we aim for best business practices, keeping ALL costs as low as possible and fully incorporate customary and standard expenses into the long term business plan and model.  This includes payment processing costs.

Congress is way out of its league with this Amendment and we echo John's concerns  - "Any law or regulation that artificially increases the cost to consumers of using their own money and directs them toward greater uses of debt or riskier debit card substitutes is inherently anti-consumer".