Durbin's Interchange Amendment passes into Law with HR 4173

On July 21st 2010 President Obama signed into law, Barney Franks Restoring American Financial Stability Act of 2010.  The purpose of the bill is to protect American consumers from abusive financial practices and create accountability and transparency in our financial systems.  Some of the specifics of the Act can be read from the actual bill (link above) or Wikipedia already offers a solid outline on the regulatory agency's and issues - check it out.

Tucked neatly inside the bill is what interests us - the Durbin Amendment .  In basic terms, the bill amendment gives the Federal Reserve final say on whether or not debit card interchange fees proposed by Visa and MasterCard are reasonable and proportional to the actual processing costs. It would also allow merchants to offer discounts for non-card purchases as well as the power to set minimum/maximum card purchase amounts.  Not surprisingly the amendment was strongly supported by our largest retailers and merchant groups, claiming their lower costs would also benefit the consumers via a lower cost of goods.

Like the rest of the law - it will take time to clarify, study and then finally implement - and the federal government has a year to determine what reasonable and proportional is.  Banks with assets under $10 billion are exempt from the regulation.

Advocates of the amendment often refer to all interchange as a "hidden tax", but interchange was introduced with credit cards and why is this cost of doing business different from the cost of utilities, shipping, and various overhead that we know from business 101 is incorporated into the cost of goods sold?  A May 2010 article in the WSJ was the first I've read lambasting what we tend to forget - cards have been a coup for retailers and consumers.  The consumer gets protection in the case of a bad purchase or return policy, rewards, efficient tracking and reporting on purchases, payment convenience and the retailer increases sales, reduces theft at the register, limits fraudulent checks, etc.  There ARE benefits. 

So what's going to happen?  the fall out as it were? only time will tell but there are lots of opinions out there, some pro the regulation, some not so much.

No one knows for sure but here's what's being bandied about -

• Merchants - will set minimum purchase amounts for consumers to use cards, may offer cash discounts or charge a surcharge to use a credit card (that's gonna hurt), and will see lower processing costs for debit cards if the Fed's say current rates are too high.  Will savings be passed along to the consumer/buyer - most guess no. 
• Banks - have billions in revenue at stake that may be lost.  If this happens chances are consumers will see an uptick in other fees - checking accounts, annual credit and even debit card fees, etc.  Rewards programs could be eliminated. Banks are not non-profit entitys - if they lose money in one area - they will look to create it in others.  The consumer will pay the price.
• Buyers/Consumers - may lose the ability to make low end purchases with a debit card (under $10? under $20?), will see an increase in overall banking fees, credit could get tighter if banks tighten reins because their capital base is squeezed, more limited payment options.
• Community Banks and Credit Unions - not included in the regulation if revenues are under $10 billion,  were not pro its passage.  They worry that merchants will find a way to not accept their cards at the POS because of the higher interchange costs and they will not be competitive in issuing debit cards - may lose customers.

Most surmise that the only group that will benefit of course, are merchants, whose cost of accepting debit cards will likely go down. We'll see.

In the meantime, we are in agreement with a recent June article by Kate Fitzgerald in ISO & Agent Weekly - an industry rag - where she quotes a report by the Mercator Advisory Group -

"The amendment "appears to largely view debit payments as though they were a 'public utility,' failing to recognize the substantial innovations and competition occurring in this area surrounding fraud and security needs, risk assessment, timely settlement, guaranteed payment, and other social benefits."  Interchange represents the cost of a business to business transaction in an remarkably competitive market with rapid innovation. Who should determine this cost? Who determines your cost of goods? your services? 

Whatever happens, we'll let you know....keep an eye on that bank account - associated costs may grow next year, and for gosh sakes carry cash... in some instances, it may become your only payment option. One step forward, two steps back?

 

 

Square, Mobile Credit Card Processing and Jack Dorsey

K - we promised more on this and Dorsey and Square are moving along in Beta, press, pricing and more - let's talk!

First - take a look at our first blog re Dorsey's Square - the card reader, the premise and the promise of a very unique credit card processing product - with your iPhone or Droid.  Awesome.  What's new since our first writing...

Pricing - it's out.  Currently Square is charging 2.75% of the sale and 15 cents/transaction for card present and 3.75% for keyed transactions (card not present - always more costly).  As far as standard industry pricing goes - the swiped fee is high, the keyed is high, the transaction cost is pretty average. Square does not take into account standard industry discount pricing (qual, mid qual and non qual).  No costs for payment gateways though, or PCI, statements or monthly minimums - attractive...if you are a merchant with low processing volume.

A recent Fast Company article by Noah Robischon touts the device as an evolution and "champion" in the big bad credit card processing industry (we suffer this indignity a lot but I like this rag...must they???).  We AGREE with Fast Company - we like the product - it's cool and of a new era but take umbrage with a few liberties in the article and well, portions of the Square site and claims.

The article -

1. The "disruption that could be caused by Square in the convoluted credit card system".  Ah convoluted - agreed - we'd like things (i.e. all those interchange rates) to be simpler (like taxes maybe?) but credit card system?  card issuing and acceptance are far from one and the same - vague terms like these are confusing and muddy the waters.
2. "the card company"...same thing. This is? Visa? MasterCard? the issuing bank? the ISO (independent sales organization?) - all different interests and roles.
3. Merchant Fees and chargebacks are deducted at the month end making it difficult for businesses to gauge cash flow? (Square settles daily)  Um, anytime a merchant likes he can opt for daily assessments, in fact, if you have lousy credit the processor will insist - it's not a plus and inhibits cash flow.  Why pay daily when you can divy up at the months end?) - and todays processors give merchants 24/7 real time access to the daily details of their transactions, chargebacks, sales volume, and costs - todays merchant is more savvy than Robischon gives credit and so is the big bad processor. 
4. As a "result of the financial crisis, more and more of a microscope is being placed on this industry".  The scrutiny of interchange has rightly been in place for a long time - long before the financial crisis caused in large part by the subprime housing debacle.
5. Square has a more transparent pricing alternative.  Since Visa and Mastercard went public - wholesale pricing has been available to every size merchant - it doesn't get any more transparent than cost plus.
6. A Free "reader" - don't know a merchant account provider today that isn't giving away equipment - old hat.

Don't get me wrong - we like the concept of Square!  but with 1000 "Beta" users already, I doubt Visa or MasterCard is sweating bullets that this is what will evolutionize electronic payments. We still maintain that the concept and product serves a unique market - P2P payments and the small volume merchant.  Neat product - disappointing article.

The Square site and cost comparisons to a "typical merchant account" - oh come on - have you googled merchant account lately??

1. No contracts - pulllleeeaze - 17 pages of terms and conditions covering underwriting, card network rules, reserves, PSA (payment services agreement) that must be signed prior to processing, no guarantee or warranty that service will work or be available and well, so on. 
2. Free Reader - already addressed this - you want a free one - ask any merchant provider - no problem.  You want a free, wireless credit card processing terminal? - they'll probably give you that too....
3. Free setup - Google please - we've been providing free applications and set up for YEARS and so is just about everyone else.
4. Card present discount rate???  1.79 quoted by Fast Company as industry average - close - pretty ballsy of Dorsey to claim 2.9%.!

Lastly, when you don't get funded or your money is held in reserve - who ya gonna call?  Not Square - I guess you can email though.  I can think of at least a million merchants who definitely might not like that.

Come on guys - we like your product... it is techie, gadgety cool - but let's make sure we put it ALL out there.  Squares terms and conditions (contracts in laymen terms) also notes transaction limits on the site - but we can't find'em - crucial to processing merchants....don't want to get that big order only to have the funds held because of going over the established "limits".

We don't like the complexity of the industry any more than our merchants do (try training new staff!) - but the issue is not as black and white as some such as Robischon would make it out to be.

Payment Card Industry Data Security Standards and the Law

PCI DSS continues to create questions for our merchants. 

Who created the standards? Are they law ? (very nice but do we have to?) who's enforcing all this stuff? and so on.

The standards are developed by a security council comprised of the major card brands and most everything you need to know can be found on their site -  PCI Security Standards Council.  You can find merchant requirements by size right here on our PCI DSS blog.

Enforcement and the law are other issues.

Currently PCI DSS is "enforced" by the card brands and put in place by payment processors.  The processor works with each merchant and merchant account to ensure standards are met and the merchant is charged for the cost of compliance.  Merchants found to be out of compliance, who experience a data breach, can be fined by Visa or MasterCard and risk losing credit card processing privileges (think livelihood folks).

Two issues stand out when it comes to the law, merchants and securing the confidential data of consumers using credit cards to purchase goods and services - notification of data breaches and PCI DSS compliance. 

Data Breach Notification.  If a breach is detected by a merchant...do they have to tell and WHO do they have to tell?  Currently and amazingly, there is no federal law legislating actions regarding a data breach though they are in the works.  S.139 - the Data Breach Notification Act is still alive but hasn't gone any further since November of 2009, H.R.2221 Data Accountability and Trust Act - last point of action- was passed in the House in Dec. 2009.  These things take time. 

Your state may be another story.  Since 2002 and California's SB1386, many states have enacted notification laws requiring companys to notify consumers if their data has been lost or "compromised".  Typically the laws address what must be reported to the consumer - type of data compromised, who must report the breach, how consumers will be notified (electronically, in writing, etc.) and how quickly. 

To see if your state has a law regarding security breaches check this list from the National Conference of State Legislatures - almost all do. 

While each law is different, in addition to notification - legislature seems to be moving towards merchant liability in security breaches (maybe data security ISN'T such a bad idea!).  In other words, states are also enacting PCI DSS compliance law.

The state of Minnesota is the first to make merchants (2007) not compliant with PCI DSS liable for associated financial institution costs in instances of security breaches (i.e. reissuing cards, customer refunds for unauthorized charges, closing and reopening accounts, etc.).  Could be costly.

In 2009 Nevada updated its encryption law to mandate all businesses in the state that accept credit and debit cards be PCI DSS compliant - pretty strong statement.  In March of 2010, Washington enacted merchant liability laws relevant to PCI DSS compliance similar to that of Minnesota.  Businesses with a breach, found to be out of compliance, will be held financially responsible for costs associated from the incident.  Merchants take note - these laws apply to out of state businesses transacting business in the state. 

It's worth noting here I guess that some of these new laws are relevant only to merchants handling a large number of transactions or level I merchants.  We suspect however, that not only will other states follow suit but to some degree, eventually - all levels of merchants will be held liable for compliance.

Moral of the story?  PCI DSS is not going away.  Expect standards to get tougher if anything and while the federal government is lagging - states are taking steps to protect consumer card data.  If you're a credit card processing merchant - you should be too.

 

 

 

 

 

Interchange Fees - Will Banks Enjoy a Reprieve Amid the Chaos?

And by chaos you know what I mean - the financial debacle in the US, right now.  The Dow's up -but for how long? Lending is non-existent, bankers are still drawing some ah, unusual salaries and bonuses and now Barney Frank of the House Financial Services Committee says the issue of interchange fees is not on the 2010 agenda.

Arggghhhh.  That's for my merchant friends.  I can tell by the way they hang up when we call them to market our electronic payment services that they are confused about what we do....we don't make money on interchange.  We do collect interchange fees for card issuing banks for each credit or debit card transaction run by our merchants.  We PROCESS the transaction.  Whew!  just wanted to clarify... again. 

If you're still confused about interchange revisit our blog on the issue -you're certainly not alone. 

What is of concern is the rising cost of these fees - set by VISA and MasterCard and paid to the banks that issue their branded cards - for the merchants that pay them.  Merchants and advocacy groups have been pushing for years for interchange fee regulation and caps - claiming the fees force them to raise the costs of their goods and services to the consumer.  Maybe.

Unfortunately the issue is complex.  Will the regulation of fees really mean a cost reduction on the consumer end of things?  A November 2009 article in the New York Times examines the outcome of just such an act when the Australian government stepped up in 2003, cutting merchant fees in half.  The results have been predictable - tough to sort through. 

While merchants are paying less - it would seem sometimes the consumer is paying more - with less available credit, fewer or shrunken rewards programs (no!), higher annual credit card fees, and shorter time periods before the accumulation of interest on balances.

More bizarre is the unexpected surcharges by Australian retailers and merchants to the consumer that uses a credit card (not allowed currently by the card networks but with deregulation....) - and this after their own costs have been lowered.  Not only are some merchants covering costs with the surcharges, some are making a profit. Now that's a fine how do you do! 

Yes, US banks make billions from interchange fees.  They have lobbied hard against government intervention and claim that the consumer will experience rising costs with credit card use and fewer benefits should the fees be capped or regulated. Again, maybe.

Of course last year keep in mind - a new trend developed that will no doubt ooze into 2010, maybe even beyond - record losses.  In yet another NY Times article last year, Banks Brace for Credit Card Write Offs, authors Dash and Martin tout estimates of between 82.4 to 186 billion in overall losses for card issuing banks, as the US continues to shed jobs and with that, the ability of Americans to pay their credit card bills.

What to believe? What to do?

Only that at the very least, for 2010 anyway - interchange fees will remain intact - plan on it.  Merchants should be aware of costs and educate themselves on how to implement cost saving processing methods.  The credit card processing industry seems hell bent on ever increasing complexity. 

To do this, you need an electronic payments professional you can count on, not entry level sales staff.  That's just the way it is.  ASK your provider...how long have you been in this industry? Review your methods and pricing, secure a professional relationship and focus on what you do best - you're own products and services.

Merchant Account Cash Advance - Is it an Option for You?

I waited to write this post, in hopes that the new year would wreak some sense out of the chaos regarding the "credit crunch" that has besieged US businesses.  The information "out there" is ...conflicting at best.  But you don't have to be a news junkie to get the gist - US businesses are failing at alarming rates - and cash flow seems to be a predominant issue. 

According to the American Bankruptcy Institute - an organization that tracks insolvency in this country, business bankruptcies increased by 44% from 2006 to 2007, and 54% from 2007 to 2008. Ouch.

Ironically, a recent article in the December 2009 issue of CFO poses the argument that access to credit is not at issue - and the "contraction in small-business credit is actually due to a lack of demand".  Is this possible? The author Alix Stuart goes on to cite a survey by the National Federation of Independent Business (NFIB) in September in which only 10% of 827 small business owners surveyed said they couldn't access financing.

What's with all the bankruptcies then?

The fact remains that SBA lending between September of 2008 and 2009 was down by 35% (remember even with SBA backing - it's your bank's money being loaned).  Even private investment in US small business remains markedly low when compared to recent years.

General consensus despite the naysayers remains - access to capital for todays new and veteran business owner remains negligible.

Merchant cash advance for processing merchants remains an option for access to capital.  This advance is based on a merchants future credit card processing sales.  Unlike a traditional loan there is no set payment amount because payments are based on a percentage of the monthly credit card sales volume and as such fluctuates with the merchants income - a big plus. 

Remember some of the other benefits we've touted in our blog post - no personal guaranty, quick approval times, fast cash in the bank, etc.  The drawback is typical of fast money - cash advances can be costly....but if the alternative is bankruptcy, is it worth it?

Unlike in years past, even merchant cash advance providers are taking a closer look at the merchants they work with.  Merchants must show a processing history of 4 months to even a year as well as a certain monthly volume in sales, may be asked to produce an active property lease, and/or may even have their credit checked (say it ain't so! is there no end to the scrutiny?).

As a merchant account cash advance provider we don't claim to know or provide advice as to whether this option is a good one for each and every one of our very unique merchants...but we can't help but think it's a viable one - if bankruptcy is looming. 

Typical merchant use for cash advance use to be things like paying taxes and remodeling, but our industry is touting new uses by their merchants with the money advanced on future sales.  Not just in survival mode, merchants are using the money to refine their product lines or tweaking their brands in reaction to the marketplace. 

We like this.

 

 

Credit Card Processing Equipment

Free equipment, free credit card processing terminals!  An online search for merchant accounts, credit card processing or credit card terminals and printers creates a brouhaha of results such as these.

So is this a good thing?

A word or two - about credit card processing "equipment".

A free standard credit card terminal and/or credit card imprinter, software or some lower end free solutions are fine for newly processing or low volume merchants.  Understand that free is a relative term however, and accepting these programs ties you to the loaning merchant account provider and payment processor for the length of use.  Usually a few additional "conditions" in the paperwork.  Might work.  

Keep in mind however, that in the overall equation of credit card processing - the free equipment offer is a small component - while the merchant account itself - pricing, fees, how the application is processed and set up - is what largely determines a merchants monthly costs to process sales via credit cards.

Yes XBS has free equipment programs - but free equipment doesn't meet the needs of every business -not by any stretch of the imagination. 

Credit card processing equipment has changed radically with technological advances over the past 40 years, - think about it.

When I worked my way through college waitressing and tending bar I used a credit card imprinter for restaurant charges.  Walked around with a wad of credit card receipts in my apron (if any went lost there went the merchants sale and money!) to be accounted for, tallied and I suppose - literally mailed out to the payment processor in the morning by the bookkeeper - talk about labor intensive!  and secure? ah, not.  I'll bet those funds didn't hit the business bank account for a good 7-10 business days - what a drag.

Compare that to todays equipment and security requirements (PCI DSS) by card associations- processing credit card transactions in real time with secure data encryption methods, via the internet, phone lines or cell phone service.  Funding in 24-72 hrs depending on your processor.  Transaction authorizations in seconds (they used to expect merchants and their employees to pour through outdated books of bad cards - get real!). 

There is immeasurable value in these advances - lower costs - processing and labor, increased cash flow, integration with additional POS equipment and accounting systems.  Heady stuff! In addition to all the benefits - like most technological advances (think computers) - costs are not as high for these products as they once were.  Investing in state-of-the-art credit card processing equipment for a busy, viable, growing business - is a worthwhile endeavor.

Watch out for proprietary equipment!  Some equipment and solutions only work with specific processors.  Today's equipment should be reprogrammable so that should you need or want to - you can change payment processors.

Again, like computers, credit card processing terminals have operating systems (progressive versions) and a certain amount of memory. Two terminals can appear to be the same when in reality they have different performance, function and memory capability, a factor that can influence some of the wildly varied pricing you may see across the internet - vendor by vendor.

Due diligence please to equipment!  Todays equipment costs, like the capital investments we make in computers and other hardwares and their operating systems, typically create tomorrows savings, efficiency's and streamlined processes.

What is important, is that you get the best value for your business.  That may or may not be, free credit card processing equipment.

 

Recent PCI DSS Breach Focuses on Merchant Responsibility

Recent news that a group of restaurants are pushing a class action lawsuit against Radiant Systems - a Georgia POS vendor and it's Louisiana reseller for allegedly installing a non compliant POS payment processing program and POS equipment- brings culpability to the forefront. 

The restaurants or merchants were notified by the card associations that their systems had been hacked and credit card information had been stolen.  Apparently card data was allegedly being stored by the program - a breach of PCI DSS basics. 

The big news is the card associations immediately penalized the merchants for the breach.  They were not only fined, but charged for the forensic audits and a number of other costs associated with the fraud. Ouch.  Could your business or restaurant sustain the financial drain as well as the reputation damage of such an event? Should it have to? (the essence of the suit is no - that's what the payment processor and POS vendor is for!).

Jury's out still - but either way - it's probably not an issue any size business that is processing credit cards can afford to be lackadaisical about.  Restaurants are typically level III or IV merchants when it comes to compliance - a PCI DSS level with it's fair share of inherent risk.

Merchants should ensure all of the integral parts of their payment processes are PCI DSS compliant - today's pain could be tomorrows relief!

 

 

 

Credit Card Processing tested at Kettles by Salvation Army

Fascinating news in this mornings Observer - Charlotte's Salvation Army is testing credit card acceptance - Visa, MasterCard and American Express - at a number of red kettles this Christmas season throughout the city.

Jim Price - the agency's director, points out that folks appear to be carrying less cash than in years past (pretty observant) and other payment options seem to be called for. 

Apparently - the idea has been tested in a Salvation Army chapter in Dallas/Fort Worth and guess what? Credit card donors gave an average of $14 at the Kettle, compared to the average $2 given by cash donors.

What's interesting about this picture?

• It is textbook credit card processing benefits - i.e. using credit cards can increase the amount of your average ticket or sale or in this case donation.
• Using credit cards makes tracking sales easier.
• The salvation army is a smart merchant, combining what we know about trends in credit card use and cash on hand.
• Mobile or wireless credit card processing is easy!

The Salvation Army is not rated by Charities Navigator because of the agency's religious mission and thus a lack of reporting requirements -but sure has been around doing good works for a long time. 

Charlotte's Salvation Army Chapter is working to serve more families than ever before, like all of our charitable organizations this year.  Check out the agencies mission and give'em a call if you have the faith in their missions and outreach.

We can certainly say this about the organization - their implementation of a program to accept cashless transactions or credit card payments-donations is smart, cost effective and likely to increase cash flow.

I like that in my charities.

B2B Processing Growth Not Impacted by Economy

Kate Fitzgerald's recent article in Cards & Payments put some umph in recommendations that wholesale or business to business merchants give some serious thought to accepting credit and purchase cards for payments.

It seems some major card issuers are seeing purchasing and T and E (travel and entertainment) card activity on the move...upwards - as more businesses make the shift from spending with paper check to plastic.  The benefits are bountiful in tough economic times - primarily - the ability to track and control costs across the board.  Benefits go deeper - but substantial cost savings are a great place to start.

But how does this affect the wholesale merchant or business providing services and products to these businesses that now purchase with cards?

Fitzgerald notes that key categories for purchasing card transactions include computers, telecom and printing equipment, media and advertising services, as well as transportation and delivery serivces. 

Merhants who sell these products and services to other businesses should take note, processing commercial cards with the wrong equipment or without a specialized B2B merchant account can be costly.  B2B credit card processing or wholesale processing is more than just taking cards.  Level II processing requires the appropriate input of information with the transaction and Level III processing means the appropriate equipment, programming and merchant account...if you want to process your customers cards at the lowest possible interchange or discount rate.

Besides keeping your customers who now buy products with corporate credit or purchasing cards happy, your business can benefit from reduced paper transactions in the same way your customers have.  Consider Fitzgeralds references to the cost of an average paper transaction - $90...up to $150 in large organizations!  How about eliminating paper invoices and bulky statements? 

It's true, accepting the card vs a check has a cost to it as well - interchange fees and the cost of the service, but quick, guaranteed payment via the card is huge, not to mention those overhead cost savings Fitzgerald touts. 

Purchasing cards are being touted as the norm in as little as "five years" ...will you be a B2B processing merchant by then? or more importantly, will you be a profitable, B2B processing merchant?  

 

 

 

Merchant Cash Advance

Working Capital for Processing Merchants - Not a Moment Too Soon

Is the economy looking up? How are your receivables?  Did the bank close the line of credit? Slash your credit card limit?

These issues have been a mainstay in the media for the last year, including their impact on small business.  Access to cash in the recession has become unusually difficult - and it was never easy.

Despite the stimulus, small to mid size businesses continues to feel the credit crunch.  Creative financing is a fact of entrepreneurship.  Family funding (pursue with caution), credit cards, SBA and bank loans, personal lines of credit.  Some of the options come with impossible paperwork including years of tax returns, financial projections, business plans and a promise to hand over our first born.  Financing was tough - now it appears non-existent. 

Merchant cash advance products and services based on a merchants future Visa and Mastercard sales have been around for a while.  Clearly these are not loans.  There is no specific payback date and often monthly payments are based on overall card processing volume - hence the payment can fall or rise based on whether the merchant has a good or bad month.

Like all legal contracts and financial products, merchant cash advance requires research and education.  Cash advance is not inexpensive but it comes with a great many benefits in times like these - 

• access to cash can be quick, with no indepth paperwork required from the merchant (usually requires 4-6 months of card processing statements).
• there is no personal guaranty or collateral required - remember the money is advanced against the merchants future sales
• approval rates are high with minimal qualifications
• statistics show that despite its cost - many merchants renew their cash advances

Some of the top uses for merchant cash advance amongst merchants appear to be remodeling, inventory, tax payments, and working capital.  The monies can be used for any business purpose and the purpose is not a part of the application process.

A cash advance based on a merchants future processing sales is clearly an option that calls for consideration when it comes to a need for immediate cash flow, something the SBA and our financial institutions are simply not renowned for.