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.

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.

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 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 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.

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.

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.

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.

MasterCard recently announced a new authentication method for online transactions.  Visa / MC have had online authentication programs out for several years now.  Visa’s is called Verified by Visa, MasterCard is called MasterCard SecureCode.  These two programs work great when the two pieces of the puzzle fit together.  One, the cardholder must be using a bank that participates in the program and many do not.  The second piece is the merchant must be using a credit card processing platform and/or shopping cart that is compatible and capable of collecting this information. Many do not as well. The new authentication process is to use cell phones and text messages. When they try to make a purchase online, it will send them a text message to their phone to enter into the computer when prompted for it to verify the transaction. The service is first being offered in Brazil and maybe eventually make its way to the US. I however believe the use will be limited like the current verification programs the two brands already have in place now. I think everyone should use and support them that way cardholders do not have to deal with stolen credit cards as often. It doesn’t cost them anything, but having to deal with a stolen credit card can be a big pain.

I watched this movie over the weekend.  It is about two guys that grew up in poverty.  The older brother initiated the original startup of A&R Cellular.  A company that sold wireless services.  One thing I noticed, which I’m sure was accurate, is they were calling on businesses asking if they needed the service.  The catch was I kept hearing them say no obligation.  A few years later, they went into the credit card processing business. They changed the company to A&R Bankcard and starting calling on businesses about their credit card processing rates. I then hear the same line, no obligation. Everything was going great, they were growing the business. At one point, they sold a piece of their portfolio for one million dollars. Around 2002, they had a buyout offer from any unknown company to me, BGL for 30 million. They became greedy and asked for 50 million.

During the renegotiation of that deal, the FTC finally started investigating the company. The older brother did receive about two dozen notices or calls from the guy from the FTC, but simply ignored them. It finally came crashing down on them. The FTC took the company down. I’m not sure if this part is true, but the brother thought the FTC was hurting an innocent company. If their business practices was how the movie portrayed, then they deserved what they received. Lying and telling merchant’s false information to get merchants signed up is unethical and will eventually come back to bite you, as the A&R brothers soon learned.