Pin-based debit used to be FREE

Posted by: Curtis Stevens on January 11th, 2010


NY Times released a very interesting article last week about pin-based debit transactions.  I have been in this business for years and even I learned a few things about the history of pin-debit.  Pin-debit is starting to become very big business, a big percentage of all electronic transactions.  With the whole economy down and consumers trying to avoid creating themselves more debt, more consumers are starting to use debit cards more frequently than ever before.  When debit cards first started gaining traction in the 1980′s, the small debit networks didn’t charge any fees to process the cards using a pin number.    Sometimes, merchants even received a small kick back as the banks saved money by not having to process a check.  That all changed when Visa entered into the market with their Visa debit card that could be signed for and still attached to their checking account.  This then made the banks money and become appealing to all of them.

As you can see in the chart, the fees for pin debit has been steadily climbing.  You will notice the huge spike in 2007 and that is because Visa’s network (Interlink) removed the cap that debit networks always had.  The cap was a set amount that all transaction costs would not exceed, such as 55 cents, regardless of transaction amount.  By looking at the price in the late 90′s, you can see that they do not have very much cost to process pin-debit transactions. The big reason is they are tied to a checking account, which only gets authorized based on available funds.  Whereas credit cards are attached to lines of credit and consumers can default on that.  Debit cards however isn’t debt, but the same thing as writing a check and ut 100% secure for the bank.  If you do not take advantage of pin-debit transactions, why not call your credit card processing to set that up?  If they cannot handle this for you, then give us a call.

Discover reports a Q4 decline, I bet I know why

Posted by: Curtis Stevens on December 17th, 2009

Discover released its fourth quarter financial results and they declined compared to this quarter last year.  I’m guessing this has to do with them becoming an association instead of their traditional role.  For decades, Discover played all parts of the role in credit card processing. They were the card issuer, processor and merchant bank. In other words, they gave out the cards to consumers, approved merchants for acceptance and processed all the transactions. I believe sometime in 2008, they started to become an association like V/MC. Instead of them assuming liability on the merchant’s site, banks such as Wells Fargo & HSBC became acquirers for Discover like they are for Visa/MC. Why would all this matter you ask? Before, Discover charged higher discount rates to merchants and they kept 100% of the profit. Now, they have Interchange like V/MC and that is all they collect. What the merchant pays on top of that goes to other people in the chain. Also, the Interchange rates are quite a bit less than what Discover was charging merchants directly 3 or 4 years ago.

7-Eleven extends processing contract with Heartland

Posted by: Curtis Stevens on December 17th, 2009

7-eleven has extended their current processing agreement with Heartland for another 7 years.  I was a little surprised to hear this.  7 years is a long time.  Plus with Heartland’s breach earlier this year, I was surprised to hear a big company like 7-eleven sticking around.  Just because their network was breached, that doesn’t mean they are not secure now, but generally news like that doesn’t go over well.  However, that is great news for Heartland and I think that is awesome.  I am also guessing that the pricing they are paying is extremely low.  From all the quotes and pricing I have heard of current merchants paying with Heartland, it wouldn’t shock me at all if they gave the pricing away very cheaply.  Other associates I know in the credit card processing business would agree with me on this. Granted, with a merchant this size, they generally demand very low pricing, but I also bet that their pricing is probably so low, it isn’t worth the headaches that come with 5,800 locations.  Before the breach, Heartland claimed to have over 250K locations.  I wonder how many they have now after the breach.

Boston merchants are using cash discounts to lower processing fees

Posted by: Curtis Stevens on December 14th, 2009

The Boston Globe reported that a local Japanese restaurant in Boston has started a modest revoke against Visa/MC.  They are offering cash discounts for consumers that pay with cash.  Such as, on Sundays, maki rolls go for 55% off for cash paying customers.   Diane, the owner of the restaurant hopes this inspires more customers to use cash instead of credit and lower their overall credit card processing bill. Diane doesn’t understand why they must give all that money to the credit card companies. She pointed out that during a down economy, the card issuers haven’t lowered their rates, in fact they have increased some. She is in fact correct on this. However, there is a cost to accepting cash as well. It works fine for small business owners that can oversea the business on a daily bases, but for businesses that are company or franchise owned, cash has a big cost as well. You have theft, loss on miscounting, risk of robbery, etc. Think of it this way, you have a store you own in another stay. You have a manager running that store for you. Now, you have that drawer full of cash that must be managed, handled, accounted for on a daily bases. Credit cards makes everything electronic and eliminates many of the issues cash creates. The downside is there is a cost to it. However, if V/MC would stop increasing Interchange completely during these harder times and maybe reduce it some, I think it would make everyone feel a little happier.

Is your retail business entitled to some cash back from Visa/MasterCard

Posted by: Curtis Stevens on December 9th, 2009

Many retailers will receive some cash back from Visa/MasterCard due to a lawsuit brought by some of the top largest retailers that was settled in 2003.  It totals over 1 billion.   The original settlement was for 3.1 billion, which 1.85 billion has already been paid and were allowed to pay it on an installment plan.  Instead of making yearly payments, they will pay 1.1 billion all at once this fall.  This means they will receive a little less than agreed, but it does mean they will receive it all at once instead of over the next 2 years per the original agreement. This is a little good news for the credit card processing industry I suppose. I’m glad V/MC had that much money to pay, which they probably have plenty more due to their profit margin. The payments will go out to over 600,000 merchants and the amount is based on their volume of signature debit card transactions.  The lawsuit itself was about V/MC rules of honor all cards, which merchants must honor all cards if they wanted to accept them.  Now, merchants can choose to either accept debit or credit or both.

A comparison site for credit card processing

Posted by: Curtis Stevens on December 3rd, 2009

A comparison shopping site is definitely a new concept for the merchant account service industry.   Sean, its founder, formed Transfs as a comparison site for merchants that want to easily obtain quotes from multiple credit card processing companies. The whole site is based on Interchange plus pricing quotes. The merchant enters some basic information about their business and the processors bid for their business. At the end, the merchant selects the processor that have chosen to do business with. Only at that time, the processor will see the merchant’s contact information to finalize the deal. I spoke to Sean about their service and it seems to be doing quite well for them. He mentioned that have had very small merchants doing 20K a month to merchants doing over 2 million a month use their service.

A local business donates 20K meals

Posted by: Curtis Stevens on December 3rd, 2009

A successful business person has recently donated 20,000 meals to the needy for the holiday season.  This businessman has several companies with one being a credit card processing firm. All the donations come from him personally. With his generosity, it has enabled him to become even more successful by developing key relationships with other local businesses. Last year he donated 8,000 meals which this year is a big increase over last year. I think it is great when other business people share what they can when they are able to. It helps make the word a better place. His credit card processing firm is called Global Electronic Technology. Personally, I have never heard of them, but I am assuming the company must be doing very for the owner to be able to afford to give 20,000 meals to people in need.

Have cash back credit cards expired

Posted by: Curtis Stevens on December 2nd, 2009

A recent report showed that there is a decline in the number of cards being issued that are tied to cash back offers.  Back in 2005, there were over 40 cards and now less than 15.  It appears many of them are going to other forms of rewards, such as points and airline miles.  All of these cards are known as rewards cards.  Merchants essentially pay for the rewards are the Interchange is higher for these types of cards.  The future may shift on these types of cards due to the economy, changes in people’s spending habits and possible government regulation in the future if that day does come.   Reward cards have become a bigger expense for merchants and a profit area for some credit card processing companies. Many processors charge merchants heft fees when they process reward cards. The downside is if reward cards disappear, overall credit card usage would decline as many consumers simply use credit cards as a convenience and pay the bill off every month. A larger percentage than you may imagine do this actually.  I personally am  a firm believe behind this philosophy, only using credit cards as a convenience and nothing more.

The white house crashers

Posted by: Curtis Stevens on December 1st, 2009

I’m sure you have heard it on the news, the couple that were able to slide through security and meet the president himself at the recent state dinner.  How is this related to the credit card processing you may ask? I will explain in a little bit. Apparently the couple recently filed for bankruptcy and it seems that they did this to be able to sell their story or information to help pay their debts. The Salahil’s have a vineyard company that seemed to do great in 2007, but almost nothing in 2008. The story mentions that the business they own, owes money to several different credit card processors. $25K to a merchant provider that offers rewards, $8.7K to EPS for chargebacks, $3K to another processor and $28 to BB&T for a machine. That is the risk merchant providers take that most merchants do not understand. We are liable for every dollar we fund. If chargebacks come in, we must pay them if we are not able to collect from the merchant. It is not a happy day when you take on losses like that and I hope those processors are able to recover some of those funds if any.

Bank of America & others are increasing APRs

Posted by: Curtis Stevens on December 1st, 2009

I saw on the news yesterday a report stating that BOA has sent out a letter to 40 million cardholders telling them their interest rate on their credit card is going up again.  It seems all the big banks are taking advantage of this opportunity before the credit card act that was passed earlier this year goes into affect.  From a business perspective, the credit card processing industry may see some negative results from this. If consumers are paying more on their credit card, they may spend less, which would mean merchants process less credit cards and more cash & checks. If you are a checking processing company, you may see an increase in your usage. From a personal standpoint, I have always believed you should live within your means and have self financial control. There are rare occasions where people have lived as conservatively and responsibly as possible, but something happens to put them in a bind, even though they did everything right. Such as they have an 8 month emergency fund, monthly expenses are quite a bit lower than monthly income, etc. In those cases, I have sympathy for them. It is the people that simply spend money they should not and it is catching up to them now. If they lived a sound financial life, then it wouldn’t matter what the banks did to the interest rate as they do not carry a balance. I strongly believe credit cards should only be a convenience, nothing more. But too many people do not have any self control and must have or do things and then worry when they are in trouble.

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