About accepting credit cards for businesses

Should You Accept Amex?

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Consumers with an Amex card usually have one because of the rewards, it is often difficult to find businesses that accept them and when they do they are often very loyal. The problem has been the high cost of processing and the slowness of getting your money deposited. In Canada there is a new problem that allows merchants to get paid at the same rate as Visa and MasterCard with lower rates. Having said that, the lower rates (cost to processors) are roughly comparable to Visa and MasterCard but vary wildly between processors so be careful.

Bottom line if you get a fair rate it is advisable to accept Amex especially if you are in a competitive business.

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Dealing With Credit Card Scams

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First you should know  how credit card transactions are done:

  1. When a transaction is done the information is sent through the Visa or MasterCard Network to the card issuing bank which authorizes the transaction.
  2. The transaction is authorized based upon there not being any reported problem with the card and there is enough credit on the account.
  3. When you batch for the day the information is sent to the Acquirer (Chase) who bills the bank and puts the money into your account.
  4. When the cardholder gets his statement and complains to the bank or Visa/Mastercard they investigate.
  5. If the transaction is done with the card being present and pin entered the customer is not credited and you are not debited.
  6. If the card was not present and the bank and Visa are satisfied that it is fraud you are charged back for the transaction. This is the Bank and Visa/MasterCard taking this action Chase is just following their bidding.

When determining liability for a fraudulent transaction there is one very important factor “card present” or “card not present”. Any transaction including online where the card is not present and is not used with a terminal is “ card not present” that includes  online transactions where the customer enters their own credit card information.

If you are taking transactions over the phone or online you should verify the billing address and see that it matches the delivery address. If it does not you should investigate before releasing goods.

 

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BUSINESSES BEWARE OF THESE SCAMS!

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We have recently seen an uptick in credit and debit card fraud against local businesses. Here are 3 recent examples:

  1. Customer comes into a store to buy $300 in lottery tickets. The clerk hands the terminal to him to insert his card and pin then looks away. The customer has a phony card but manually enters a stolen credit card number and expiry date. Programs that scan credit card numbers are available online free! Merchant is out $300 plus the chargeback fee.
  2. Customer comes into a store and buy $16 worth of goods. Clerk hands the terminal to the customer and then looks away. The customer changes the amount of the transaction to $116 entering the transaction manually again with a stolen Credit Card number. The customer returns a little later claiming he was overcharged $100 and wants the business to give the cash back to him. In this case the merchant refused (you can’t give cash back for a credit card transaction must be credited to the credit card). The transaction was charged back and the merchant is out $16 plus the chargeback fee.
  3. Customer has a meal at a local restaurant after the meal is finished the server leaves the terminal at the table with the bill amount entered. The customer pays the bill with a debit card then enters a refund for $500 using the correct supervisor code. The business is out $500.

There are many more examples and variances on these scams but you can protect yourself. Our suggestions:

  1. Change your supervisor password most businesses use the default code that comes with the terminals and the crooks know them all!
  2. Have your terminals programmed to require a supervisor to manually key in a transaction.
  3. Balance your deposits daily.

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Which Credit Cards Cost the Most to Process?

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Anyone who has tried to analyze their credit card processing statement knows that the whole system is very complicated. I am going to try to make the costs of certain cards easier to understand. First you need to know the basic cost of processing for the Processors is called Interchange paid to the card issuing bank. On top of that cost you pay network and Processor fees varying from .20% to more than 2% depending upon the Processor’s markups.

I will try to explain how Interchange rates are charged here so when a customer presents a card you will have an idea of the relative cost. There are 5 basic Visa classifications and 4 MasterCard MasterCard credit cards as follows:

Visa

  1. “Classic, Gold, Platimum & Prepaid” also cards with no identifying name. These are the cheapest to processes with an interchange rate of 1.42% (card present) for most businesses and represent about 33% of the Visa & MasterCard cards in circulation.
  2. “Infinite” this is a more expensive card to process with an interchange rate of 1.61% (card present) and represents about 20% of the Visa & MasterCard cards in circulations
  3. “Infinite Privilege” is the premium Visa card with an interchange rate of 2.06% (card present) and represents only about 2% of the Visa cards in circulation
  4. “Business, Corporate, Purchasing and Commercial Prepaid” an Interchange rate of 1.9% for most businesses.
  5. “Infinite Business” is a rewards business card having an Interchange rate of 2.1% for most businesses.

MasterCard

  1. “Core & Prepaid” cards generally do not have any identification as to what type of card they are. These are the cheapest to processes with an interchange rate of 1.44% (card present) for most businesses and represent about 26.5% of the Visa & MasterCard cards in circulation.
  2. “World” cards have the word “World” on them with an interchange rate of 1.71% (card present) and represent about 8% of the Visa MasterCard cards in circulation.
  3. “World Elite” cards have an Interchange rate of 2.06% (card present) and represent about 1% of the Visa & MasterCards in circulation.
  4. “Commercial” cards have an Interchange rate of 2.00% (card present).

The above will give you a basic idea of the cost of specific cards watch for “Infinite Privilege, World Elite and any Business/Commercial cards they cost the most. Also don’t forget that the rates go up when the card is not swiped, tapped or inserted (card not present) into a credit card terminal even online payment. For example a “World Elite” card when not present costs 2.79% plus network fees and your processor’s markup.

*note some cards have proprietary names like “Preferred” that do not relate to the classification of the card look for the names above.

About Debit cards

Originally all debit cards were issued as “Interac” cards and processed though the Interac network. Currently most of the banks are issuing either Visa or MasterCard debit cards, for card present transactions they are still processed through the Interac network but the Visa and MasterCard debit cards can be used like a credit card online or over the phone. The cost for Visa and MasterCard online debit card transactions has an Interchange fee starting at 1.15% plus processor markups and network fees.

 

 

History and Future of Credit Card Processing

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The evolution of credit card processing:

  • Originally specific businesses issued “charge cards” which enabled customers to charge a purchase and pay at the end of the month
  • Then the “Revolving Charge” account was born allowing customers to carry a balance with monthly payments
  • Next networks were formed the first being Diners Club then Visa and MasteCard to processes credit card transactions for cards issued by banks instead of individual businesses.
  • Cards were issued and put through an imprinter, the customer got a copy and the business kept two copies one for the processor and one for them. The business had a “floor limit” over which they had to call the processor for authorization. They also had a list of “bad accounts” they were supposed to check with each sale.
  • Electronic processing came next over phone lines, no more need to call for authorization and less risk to businesses.
  • The Internet sped up processing considerably although less secure than phone lines.
  • To add security and work against rising fraud pins were added to credit and debit card payments.
  • Finally contactless payments to speed up lines using NFC (near field communications) enabling payments using smart phones as well as standard chip embedded credit cards.

The Future:

  • The end of pin numbers is coming and bio metrics will take over. Processors have experimented with everything from finger prints to heart rhythm recognition. MasterCard has been using credit cards in Europe that use fingerprints for some time and they are bringing it to North America. The fingerprint (thumb) is embedded in the card you must have your thumb on the card when it goes into the terminal.
  • E commerce will see enhancements to security as the main thrust in the immediate future. Online fraud is rampant and must be addressed. PCI/DSS compliance is important to businesses and businesses should be compliant.
  • As the crooks evolve so will the processors always playing catch up.

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About Assessment Fees and Input Tax Credits

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Unknown to most businesses and never shown on statements is the fact the Assessment/Network fees are subject to HST. These fees are paid to the networks, Visa, MasterCard, and  Amex. Interchange fees paid to the banks are not taxable as well as most other fees as they are considered banking fees.  You should check with your bookkeeper or accountant but you may be able to claim input tax credits going back four years.

There are a number of other fees that may be subject to HST but a ruling from the CRA would be needed as the Acquirers and Networks have not been very forthcoming on this. Any fees from a financial institution in Canada do not attract HST, Acquirers are owned by or are banks. However it gets fuzzy when looking at the fees, who is charging them the Acquirer or the ISO( Independent Sales Organization which is not a bank). Stay tuned we will keep you informed.

Update:

We have been describing Global Payments as an Acquirer in Canada however they are not they are an ISO  according to their web site:

 “Global Payments Direct, Inc. is a registered ISO of Wells Fargo Bank, N.A., Concord, CA.
Global Payments Direct, Inc is a registered ISO of BMO Harris Bank N.A.
© 2018 Global Payments Inc. All rights reserved.”

Note: ISO can have more than one Acquirer Affiliation.

Acquirers are financial institutions or owned by financial institutions and do the actual transaction processing and move the money around. ISOs (Independent Sales Organizations) basically resell the services of the Acquirers.

 

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How, When, Where and From Whom Do You Accept Electronic Payments?

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There is no such thing as an ideal processing program that works best for all merchants, how when where and with whom you accept payments will make a big difference on the pricing program and processor you choose. Some of the variables that make a difference:

  • If the majority of your transactions are face to face, card present with the general public most low fee programs will work.
  • If you qualify for one of the industry categories with special interchange fees including, Everyday Spend, Grocery, Gas and charities an Interchange Differential program (most common) will probably not work as well as an Interchange Plus program.
  • If you do many transactions online or by phone with the card not being present, plans with low base rates will not help you because that rate does not apply to any of your transactions.
  • If you do a lot of remote sales you might want to take advantage of some of the new options for remote transactions, cheaper and better (see the image above).
  • If you do most of your transactions with other businesses or high rewards cards, plans with low base rates will not help you because that rate does not apply to any of your transactions.
  • If you do business seasonally you want a plan that you can suspend fixed costs during the down time.

We can go on but you get the idea, a processing plan should be customized to your business not only for cost savings but to make your business work efficiently.

 

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Thinking of Changing Credit Card Processors? Read This First!!

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Under the code of conduct for the credit and debit card industry businesses have certain cancellation rights that avoid early cancellation fees. Notwithstanding that you have to make sure you cancel properly. According to the code you can cancel under the following conditions:

1.       By giving notice in writing a minimum of 90 days before your contract term expires. We should note that auto renewals can now be for an additional term of 6 months maximum.

2.       By giving notice in writing within 90 days of receiving notice of a fee increase or new fee. “Payment card network rules will ensure that following notification of a fee increase or the introduction of a new fee, or a reduction in applicable interchange rates not passed on to merchants, merchants will be allowed to cancel their contracts without penalty”.

3.    Some Processors were giving notice but not telling what the change was so the government changed the rule to give businesses 90 days to cancel after they can assess the effect of the changes. “FCAC’s Commissioner expects that PCNO rules will ensure that the 90-day period during which merchants will be able to cancel their contracts without penalty should begin only after the merchants are able to reasonably assess the impact of the fee changes on their businesses. Furthermore, merchants must be allowed to cancel contracts without any penalty within 90 days of actually being able to assess the cost implications.”

The above covers the Code of Conduct rules but as always should the processor breach their contract by say charging fees higher than the contract fees for instance you would have a right to cancel (we have seen several instances of this).

Cancellation fees vary by Acquirer and ISO. Acquirers are the people that do the processing and move the money around. The big 6 in Canada are:

1.       Moneris: early cancellation fee $300

2.       First Data: early cancellation fee $250 for Visa and $250 for MasterCard

3.       TD Merchant Services: early cancellation fee $300

4.       Global Payments: early cancellation fee “*Liquidated Damages”

5.       Elvaon: no early cancellation fee

6.       Chase Paymentech: early cancellation fee $300

There are also a large number of ISO (Independent Sales Organizations) who resell the services of the above Acquirers they must disclose their Acquirer(s) on their web site. Note just because your statement come from one of the Acquirers if you signed with and ISO they can set their own early cancellation fees.  A number of ISOs who process through Elavon charge a cancellation fee.

Bottom line, when you cancel do it in writing within the time allotted and make sure your processor confirms that there are no cancellation fees. Also always a good idea to cancel your PAD agreement.

*”Liquidated Damages” are calculated as the fees the processor feels they would have collected should you have completed your contract. The actual definition is not very specific but are generally in the thousands of dollars.

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Notice of New MasterCard Fees

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Most businesses will receive a notice this month of new MasterCard authorization fees. These fees will apply when you pre-authorize a credit card transaction, if you never pre-authorize you will not be affected. If you are looking for an opportunity to cancel your current processing contract and find a new processor you should not be subject to any early cancellation fees providing you give notice within 90 days of receiving the notice.

However be careful and do this right! Many times sales reps will tell you that you have the right to cancel but not stress the importance of giving proper written notice. Here is what we do for our clients:

  1. Send written notice including all pertinent information of the account and get proof of delivery
  2. Include a request to inform us if they disagree with the fact that there are no cancellation fees
  3. Cancel the PAD agreement when the account has been paid out.

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Time to Update Processing Plans

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If you accept credit cards you know the way you are billed for these transactions is very confusing. Some of the processors are now promoting “new”, “Simplified Pricing Program”. However “new” is not really true it is just an “Interchange Plus” or “Cost Plus” program. Not a problem though it is, in my opinion the best of the pricing programs.

“Simplified” might be a bit of an overstatement as there is no simple way to understand any of the pricing systems. Actually the simplest program is flat fee pricing which is generally more expensive than the other programs because the actual cost to the processors is so complicated depending upon the cards that you accept, how you accept them and your business category. “Interchange Plus” is the best in our opinion as it is the most fair based upon the actual costs of processing credit cards to the processors or “Interchange Fees” and easier to understand. Interchange for most processing plans makes up the largest portion of the fees and is the fee paid to the card issuing banks. You can look up the Interchange tables here.

The important question is how do you compare your old system to the new, the good news is that it really isn’t that hard. The vast majority of businesses being converted to “Interchange Plus” are coming from an “Interchange Differential” program. Comparing the two is actually easy you only need 3 facts:

  1. Your new “transaction fee” %
  2. Your old “transaction fee” %
  3. Your old “non-qualified fee” %

Here is an example of a Visa comparison

  1. New transaction fee is .30%
  2. Old transaction fee is 1.51% (this is what you pay total for “Qualified” transactions which are about 50% of the cards in circulation). Note they are called the same thing but are completely different you might think you fee has dropped when it has actually increased.
  3. Your old “non-qualified” fee is .25%

The result is:

  1. Your “qualified” card that originally cost 1.51% now cost 1.42% (Visa interchange) plus .25% or 1.67% total, an increase of .16%
  2. Your original “non-qualified” fee would have been:
    1. The interchange rate for the card accepted in this example a Visa Infinite card at 1.61%
    2. Plus the difference between the original transaction fee of 1.51% and the qualified Visa rate of 1.42% or .09%
    3. Plus the non-qualified fee of .25%
    4. Total of the old fee 1.61% + .09% +.25% = 95%
    5. The new “simplified fee is 1.61% (interchange) plus .30% or 91% a decrease of .04%

In this case if this is normal business dealing face to face with the general public there would be an increase in rates as cards are split about 50/50 between qualified and non-qualified.  If you are having problems with the above formulas comparing the “Qualified” rates should give you a good idea if you are saving or paying more.

 

For more information visit: www.smallbizassist.ca

Submitted by: Rick Smith President SmallBizAssist, small business consultants specializing in payment processing. 7/1/2018