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INCREASE MARGINS BY NEGOTIATING MERCHANT SERVICES CONTRACTS Mike Barnidge – Credit Manager Kim Stegmeir – SR Credit Analyst Laura Jenkins – JR Credit.

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Presentation on theme: "INCREASE MARGINS BY NEGOTIATING MERCHANT SERVICES CONTRACTS Mike Barnidge – Credit Manager Kim Stegmeir – SR Credit Analyst Laura Jenkins – JR Credit."— Presentation transcript:

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2 INCREASE MARGINS BY NEGOTIATING MERCHANT SERVICES CONTRACTS Mike Barnidge – Credit Manager Kim Stegmeir – SR Credit Analyst Laura Jenkins – JR Credit Analyst Also starring… Megan Schultz – Wells Fargo Merchant Services

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4 Agenda for Today Explain the Merchant Process Explain the Fees Identify What is Changing Discuss Mobile Processing and Online Processing Step Briefly into PCI Compliance Present Negotiation Strategies and a Negotiated Offer Merchant Services

5 27% of all point of sales transactions are cash This is expected to drop to 23% by % of all point of sale transactions are completed with a card 31% By Debit 29% By Credit Cards Remaining 6% by Gift Card Finally – Checks bring up the caboose at 7% Why is this important? Virtual Currency is coming as well… * Report by Javelin Strategy and Research - June 2012

6 Plastic is convenient Plastic drives up the overall ticket more than cash alone Plastic reduces your risk (theft) Plastic reduces your trips to the bank Plastic allows you to transact business in the way your customers want to Plastic is easy Before we get overwhelmed and confused…

7 Explaining the Game Who are the Players? What does the process look like? Who gets paid?

8 Who are the Players? Acquirer– Bank, Financial Institution or ind. Company that maintains a merchants credit card processing relationship, receives all transactions from merchant to be distributed to card issuers. Processer – data processing company that contracts with the Acquirers to provide processing systems that connect with the interchange system for clearing and settlement on behalf of Acquirer. Possible that the acquirer is its own back end processor. Credit Card Network – Visa, Mastercard, Amex, Discover, Diners… Issuing Bank– The card association member that issued a payment card to an individual and maintains that cardholder relationship.

9 Oh, yeah, and…

10 Buyer Presents Card for Purchase Gateway

11 Swipe Machine/Internet Initiates Authorization Gateway

12 Gateway Manages Information Traffic Gateway

13 Issuing Bank Approves or Declines Gateway

14 Response Provided to Buyer/Seller Gateway

15 Exchange of Goods Gateway

16 Exchange of Funds Gateway

17 Final Steps Issuing Bank Sends funds to the Credit Card Network Credit Card Network passes those funds, through the processor, to the Acquiring (Merchants) Bank. Acquirer deposits or settles the transaction into the merchants bank account Who wants to make some money?

18 Interchange + Assessments + Rate Issuing Bank Interchange Rate and Per Item Fee (1.54% + $0.10 example) Credit Card Network Assessments (.11% example) Processor Communication Fee Batch Processing Fee Acquirer Setup Fee Annual Fee Monthly Fee Statement Fee Rate – Margin for Acquirer $1.64 $0.13 $0.15 $1.25 Effective Total Effective: $3.17 Profit $$$$ SG&A Cost of Goods Sold

19 Interchange + Assessments + Rate Issuing Bank Interchange Rate and Per Item Fee (1.54% + $0.10 example) Credit Card Network Assessments (.11% example) Processor Communication Fee Batch Processing Fee Acquirer Setup Fee Annual Fee Monthly Fee Statement Fee Rate – Margin for Acquirer $1.64 $0.13 $0.15 $1.25 Effective Total Effective: $3.17

20 Issuing Bank Interchange Rate and Per Item Fee (1.54% + $0.10 example) A fee paid between banks for the acceptance of card based transactions. Varies based on card type. Percentage + per item fee. Interchange updated twice a year.

21 Credit Card Network Assessments (.11% example) Charged by Visa, MasterCard, Amex, etc. Primary source of V/MC revenue (costs and margin) Basis Points on volume plus a per item fee for network access and brand usage

22 Communication fees are the cost related to moving a sales transaction from one point to another. Batching refers to settling the charges to your terminal by sending the completed transactions for the day to the acquiring bank for payment. Make sure you batch out within 24 hours. Process or Network Communication Fee Batch Processing Fee

23 These fees vary significantly depending on the offer on hand. Make sure you calculate these items on each offer to find the true effective rate! Its a volume game. It also depends on the types of cards you accept. Make sure you are in the ballpark. Look at your Total Fees / your Total Volume Processed. Acquirer Setup Fee Annual Fee Monthly Fee Statement Fee Rate – Margin for Acquirer (0.15%)

24 Where Do I Negotiate? Issuing Bank Interchange Rate and Per Item Fee (1.54% + $0.10 example) Credit Card Network Assessments (.11% example) Processor Communication Fee Batch Processing Fee Acquirer Setup Fee Annual Fee Monthly Fee Statement Fee Rate – Margin for Acquirer Focus Negotiations Here

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26 Credit Card vs. Debit Card CREDIT CARDDEBIT CARD Buy now, pay later Higher interchange fees More risk In person transactions Online/over the phone transactions Transfers funds directly Lower interchange fees Less risk Pin-based (on-line) Signature based (off-line)

27 The Durbin Amendment Went into effect October 1, 2011 Reasonable and proportional debit card rates Introduce competition to the debit processing network Senator Richard Durbin

28 What does this mean for YOU? Maximum interchange fee: 0.05% of the transaction value plus $0.21 plus $0.01 for fraud prevention (.0005 x $38.00) + $ $0.01 = $0.24

29 What does this mean for YOU? Minimum dollar amount on credit card transactions Discounts to customers Two-tiered network option

30 CHECKOUT FEE As of January 21, 2013 Surcharge on purchases made with Visa or MasterCard credit cards Post a notice!! Amex and Discover?

31 STATES THAT PROHIBIT SURCHARGES

32 Things to Consider Surcharge could cover the swipe fees Additional expense for customers Consumers spend more $$$ with credit cards Your environment

33 Re-Cap The Durbin Amendment $10 minimum for credit card transactions Offer incentives THESE ARE BOTH LEGAL Checkout Fee Add surcharge for Visa/MasterCard 10 States CREDIT CARD COMPANIES ARE NOT READY

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35 Apple is trying to kill the cash register

36 Mobile Processing – Square Square - $275 Monthly Under $400 Monthly Limit of $21,000 Manually Entered – 3.5% + $0.15 Square - No Monthly 2.75% per transaction Next day deposits Transaction business with proper tax from anywhere. Owner of Square created Twitter

37 Mobile Processing – Ebay/Paypal 2.7% Per Swipe Accept echecks Next day deposits Transaction business with proper tax from anywhere.

38 Those Look Easy, Why Wouldnt I Do That? The larger the transaction, the more costly it is. Another vendor and signon? How are you going to update your POS?

39 Merchant OS Utilizes Innerfence Credit Card Terminal Updates root sales data Monthly fee based on plans

40 Quickbooks Utilizes Intuit GoPayment Connects to Quickbooks Financial software Monthly fee based on plans

41 PCI Compliance Payment Card Industry Data Security Standards All companies that process, store, or transmit cc data information must maintain a secure environment. Simple No, Nos Just run the card you have on file. Check your receipt Secure environment Every employee gets a login to critical data

42 These arent the droids you are looking for Historys Greatest Negotiator

43 Where Do I Negotiate? Issuing/Consumer Bank Authorization Request Fee Credit Card Network Interchange Rate + Interchange Per Item Fee based on card type Processor Communication Fee Batch Processing Fee Acquirer Setup Fee Annual Fee Monthly Fee Statement Fee Rate – Margin for Acquirer Focus Negotiations Here

44 Brand new to the business Start by requesting 3 offers Drill down the offers to sniff out differences – where is money being made? Prove your numbers, dont agree to goals. Sign up conservatively. Make customer service a priority because you will need help

45 Just Completed My Rookie Contract Analyze the most cost prohibitive items Analyze the convenience, address your concerns i.e. This STUPID MACHINE! Forecast your growth Be patient with the process

46 You should be paying ME to put your machine in my store Know exactly what you need. Multi location? Online? Mobile? Shop your whole relationship. Spend your time wisely on negotiations. Ask for more…then ask again…then ask one more time. Is that your best offer? Is that your lowest price? How do I get your lowest price? The Unassuming Negotiator

47 QBP Association Pricing Benefits Special Pricing achieved by leveraging the QBP Relationship Full range of processing options Partnership benefits – 24/7 support, next day funding with Wells Account

48 Pricing Summary No Set Up Fee No Annual Fee No Annual Compliance Support Fee No Monthly Minimum Processing Fee

49 Pricing Options Terminal Account – NO POS Interchange + Assessments + Rate = IC % $5 Monthly Service Fee POS System Account – POS Integration Interchange + Assessments + Rate = IC % $5 Monthly Service Fee Gateway/Virtual Terminal Account - Internet Interchange + Assessments + Rate = IC % $31 Monthly service/gateway fee

50 Dedicated Merchant Contact Megan Schultz

51 If you only remember 3 things… Know exactly what you need by establishing must haves and nice to haves Focus your time on what you can negotiate - large dollar items assessed by Acquirer. Establish your Effective Rate. Help your team understand the impact of their actions. Card not present transactions, credit card #s on a post it note, failing to settle nightly. Ok, one more – Identify your own per transaction goal based on effective rate

52 Focus Negotiations on the fees of the Acquirer (Annual, Monthly, Per Location, Statement, POS Connectivity) Be aware of the language, but dont get worked up about it Interchange Fee = Interchange + Per item fee BPs (bips) – basis points; 1 BP is = to.01% Batch and/or Settlement – nightly process to finalize transaction Total Effective Rate = Total Merchant Fees/ Total Card Volume Processed $425 / $10,000 = 4.25% Establish communication around effective rate Gateway 1.Calculate your rate – how concerned should you be? 2.Compare effective rate to what you were sold on in the first place. 3.Seek out two more offers (We already got you one). 4.Determine your needs – Online? 3 Locations? POS Connection? 5.Set a goal for your effective rate. 6.Negotiate better pricing that incorporates your needs and desired effective rate. 7.Track results. Do This When Get Back to the Shop


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