MasterCard interchange changes for Utility, Real Estate and Insurance merchants
Posted on Wednesday, October 15, 2008 by Bryan Johnson
MasterCard announced some changes to their interchange pricing today that will be effective October 3, 2008.
As some quick context if you are new to this. Here is an oversimplification: merchants pay fees to accept credit cards. Financial institutions that issue credit and debit cards make roughly 75% of the fees that merchants pay (merchant account providers charge the other 25% of the fees). When MasterCard makes changes to 'Interchange', they are adjusting the wholesale pricing of the fees that make up MasterCard and their financial issuing institution's 75% of fees. To the casual observer in this industry - these updates below won't make a lot of sense without some additional context.
Utilities
- Merchants no longer need to register for their Utility Program
- MC is discontinuing their Service Industries Incentive Program (SIIP). The SIIP program offered a lower discount rate and transaction fee. Utilities will now be charged a fixed fee per transaction which is lower on average than rates paid on SIIP and closer to pin debit rates.
Real Estate
- Discontinuing two Debit interchange categories (Merit III and UCAF), otherwise pricing stays the same.
Insurance
- Similar to utilities, discontinuing the discounted SIIP rates. Merit III, Merit I Merchant/Full UCAF Debit are no longer eligible.
Telecommunications
- Similiar to utilities and insurance, discontinuing the discounted SIIP rates but Merit III, Merit I Merchant/Full UCAF Debit are still eligible.
Related Posts
Where do credit card fees come from?
California Data Breach Law Vetoed - Again
Posted on Friday, October 03, 2008 by Bryan Johnson
Computer World reports the following today:
For the second time in 12 months, California Gov. Arnold Schwarzenegger has vetoed proposed legislation that would have required retailers and other businesses operating in the state to take specific steps to prevent credit and debit card data from being compromised.
The latest version of the bill — known as the Consumer Data Protection Act, or AB 1656 (download PDF) — would also have required retailers that accept payment card transactions to disclose more details about any data breaches to the individuals affected by them. The bill was approved by the California State Assembly on a 74-1 vote last month, a week after the state Senate passed it by a 34-3 margin.
But in a veto message that he sent to state legislators on Tuesday (download PDF), Schwarzenegger said he was refusing to sign the bill for the same reasons he turned down the original version of the measure last October. "As I stated in last year's veto of a similar bill, this bill attempts to legislate in an area where the marketplace has already assigned responsibilities and liabilities that provide for the protection of consumers," Schwarzenegger wrote.
The governor said that requiring companies to notify consumers about breaches, even when there is no evidence of any personal data actually being stolen, would result in "significant costs" for businesses and the state government. In addition, he said, the controls mandated in AB 1656 would lock companies into current credit card data security best practices, creating a disincentive for them to adopt new and more comprehensive industry standards and ensuring that the law would remain "static in the face of future, unseen concerns."
Seems like practical, good decision making to me. Nice work Schwarzenegger.
Annual Credit Card Billing Subscriptions
Posted on Thursday, October 02, 2008 by Bryan Johnson
Coming up with the optimal pricing structure for a product or service is tough. Beyond factors such as competitor pricing and target market price point analysis, merchants need to consider the limitations that accompany collecting money via a credit card.
The reason behind the limitation: financial risk. Merchant account providers are on the hook for the money their customers process. For example, if a company accepts 1,000 annual subscriptions at $129 and then declares bankruptcy two months later, the merchant account provider is responsible for paying back the full $129,000 to cardholders when they file chargebacks.
Some merchant account providers will maintain a hardline for anything greater than 30 day recurring billing cycles while others with a bigger appetite for risk may allow quarterly, semi-annual or annual billing from the start. This becomes less of an issue if a company has a demonstrated track record and financial strength.
Whatever billing strategy a company pursues, it's a good idea to make sure that all billing intentions and practices are fully disclosed upfront to avoid future problems.
Related:
Jason Fried of 37signals has a good post about their experience with this.
Visa working on payment applications for Android
Posted on Tuesday, September 30, 2008 by Bryan Johnson
Last month Visa announced that they are moving to alert customers of suspected credit card fraud via mobile phone. This week they announced more ambitious plans to build online payment applications with Nokia for Google’s Android.
The goal is to allow users to make remote and contactless payments as well as transfer money. Remote payments should be marked user convenience and transferring money is a big move for Visa into a space they've not been before. The biggest barrier to contactless payments will be the required point of sale upgrades to allow for Near-Field Communications (NFC) where users just wave their phone a few inches from the device.
Visa Transaction Alerts via email and mobile phone
Posted on Friday, August 22, 2008 by Bryan Johnson
Digital Transactions reports today that in 2009, in an effort to reduce credit card fraud, Visa will provide cardholders the ability to be instantly notified via email or text message of any usage of their debit, credit or ATM card. The service is in beta with a number of U.S. and Canadian banks.
The system will allow users to set transaction amount notification thresholds. If a transaction is suspicious users can immediately call a 800 number to report it. Today it takes 98 days on average to detect identify theft and 72 days for bank card fraud (Javelin Research).
This type of notification service has the potential to dramatically reduce that. So in short, Visa is shifting fraud screening and prevention costs to cardholders. Nice work Visa.
Gen Y Preferred Online Payment Method
Posted on Wednesday, August 13, 2008 by Bryan Johnson
Interesting because I thought PayPal would have much higher preferred status among this demographic.
Credit Card: 65%
Debit Card: 22%
Checking: 8%
PayPal: 3%
Other: 2%
Generation Y includes those born in 80's to 90's (18 - 28 year olds). Thank you First Annapolis for the data and Transaction Trends for publishing.
Largest indictment of credit card hackers to date
Posted on Wednesday, August 06, 2008 by Bryan Johnson
The Justice Department unveiled possibly their largest indictment of credit card data hackers yesterday. Nine people from the U.S. Estonia, Ukraine, China and Belarus are being charged for allegedly stealing over 40 million credit card records from nine retailers.
They successfully stole credit card data by using 'sniffing' programs on both wireless networks and on cash registers. Once captured, the criminals would load the data onto the magnetic strip of blank credit cards and then withdraw cash from ATM's.
The issuing financial institutions of the stolen cards take large financial losses because cardholders are not responsible for fraud - they are. For example, Justice Department reports that at one Dave & Busters restaurant location the sniffing program captured roughly 5,000 cards that resulted in over $600,000 of losses to the finanical institutions that issued those cards.
The affected retailers include Sports Authority, Office Max, BJ's Wholesale Club, Marshall's, T.J. Maxx and a few others.
Other related posts:
The cost of a credit card breach
PCI Compliance basics
The cost to become PCI Compliant
Tax, Fuel, Debt, Recurring and GSA V/MC Interchange Updates
Posted on Wednesday, July 23, 2008 by Bryan Johnson
Visa & MasterCard have announced some pretty significant changes. Visa is out with two new categories: Debt Repayment and Government to Government. Tax Payment is officially coming out of pilot and interchange reductions at the pump. MasterCard introduces a recurring billing 'preauthorized request' - a great idea. All these will be effective October 3rd, 2008:
Visa Updates
Debt Repayment Programs for U.S. consumer auto loan, credit card, residential mortgage and student loan for debit card only.
- Availability for Financial Institutions Merchandise & Services, Non Financial Foreign Currency Money Orders (no wire transfers) and Travelers Cheques).
- Cannot be used for bad debt, uncollectible debt charge-off debt and debt sold to collection agencies.
Fuel - Trying to reduce the pain at the pump (and appease angry gas station owners):
- Consumer Debit Cards: a maximum interchange amount is now in place, replacing what was formerly a discount rate and transaction fee that varied with amount.
- Consumer Credit Cards: lowered by as much as .50 bps on certain cards and consolidated into a single rate for 6 different card types- Automated Fuel Dispenser (AFD) Partial Authorization
- Partial Authorization: POS Vendors will be required to support this functionality by 10/3/08. As some context, when a consumer swipes a card today today at an AFD an authorization is done for $50 to check validity and availability of funds before approving to pump. That's referred to as a 'Partial Authorization' so if the consumer only pumps $40 of fuel the initial $50 authorization, the merchant can capture for the $40. A problem with that method is that if a check (Signature Debit) or pre-paid card is used and the card does not have the available funds it will be denied. With the Partial Authorization implemented, the issuer would respond with the available amount instead of denying the transaction.
Tax Payments - Visa has had this program in pilot mode for several years now:
- Merchants are required to register for this - no sign up fees before April 1, 2009.
- Existing interchange rates will apply * Interchange rate of $2.50 will apply to consumer debit transactions that are qualified
- Service or convenience fee may be assessed. Fee can be variable for consumer credit and commercial cards but a flat fee must be charged for consumer debit transactions and may not exceed $3.95 (could they make it any more difficult?)
Commercial Card GSA - Introduction of Government-to-Government interchange program (G2G). Level II & III data is not required.
- $5,000 minimum has been removed * Special interchange rate for transactions over $8,750 is removed with interchange rate increasing .25 bps and $4.
- GSA Purchase cards will not be available for Commercial Card Level III rates.
MasterCard
Test transaction for Recurring Billing
- $1 authorization for account status before requesting full amount authorization. (nice work whomever came up with this idea!)
- What's going on MasterCard? Only 1 Update?
