2 Agenda Merchant Processing 101 Municipalities and Localities Process FlowMerchant Processing ExpenseStatement ReviewBack OfficeMunicipalities and LocalitiesPayment Card Industry Data Security Standard (PCI-DSS)Value Added ServicesElectronic CheckGift CardConvenience fee GuidelinesDurbin Amendment
4 Define Who’s WhoIssuer – A financial institution or other entity that issued the Credit Card or Debit Card to the Cardholder.Acquirer – Financial institution or other entity that enrolls merchant for the purpose of presenting transaction to the Card Assoc, and funding merchants for transactions presented to the AcquirerCard Association – MasterCard and VisaConsumer – Any individual who possesses or uses a Payment DeviceMerchant – Entity identified on or under a processing agreement permitted to submit payment to Acquirer.Interchange – The clearing and settlement system for Visa, MasterCard, Discover and Debit Cards, where data is exchanged between Acquirer and the Issuer through the applicable Card association.Foreign network – Authorization and Settlement network other than ElavonAuthorization – The approval of credit worthiness of the transactionSettlement – The closing of credit card batches and the start of the movement of funding to a Merchant.Elavon is YOUR Global Acquiring Solution!
11 Interchange Costs Managed and updated by the Card Associations Interchange costs vary in amount based on:Industry typeManner which cards are authorizedTimeliness of settling batch for paymentAdditional Data provided at the Point of SaleCard Product (Consumer, Check Card, Commercial/Corporate, Rewards)
13 Interchange FeesScenario 1 Retail – Customer makes a purchase with a consumer Visa card at the Department of Motor Vehicle. Mag-stripe is read and the transaction is settled within 24 hours.Scenario 2 Card Not Present – Customer calls the Department of Motor Vehicles to make a purchase with a Corporate Visa.
14 Interchange Costs – Card Association Card Association FeeMasterCard Assessment fee is 0.11% plus the Network Access Brand Usage (NABU) of $ This is billed on all transactions including Sales and Refund settled Items.Visa Assessment fee is 0.11% plus the Network Acquiring Processing Fee (NAPF) of $ on the Authorization.Visa also has authorization-based fees to promote the merchant proper use of the Card member credit availability.Zero Floor Limit Fee applied to any Visa clearing transaction submitted without proper authorization, $0.10 per transactionMis-Use of Auth Fee applied to authorizations not matched by a clearing transaction, $0.045 per transactionAccount Verification allowing merchant to verify a cardholder account status with zero dollar amount, $0.025 per transaction
15 YOU Can Help Control Costs Remember These Interchange Tips ConsiderOnly One Authorization per TransactionConsider Account Verification Status Check according to business need (remember it costs $0.025/trans)Avoid processing $1 Pre-Auth with no matching settle transaction (remember it costs $0.045/trans)Avoid processing $1 Sale with no matching settle transaction or void (remember it costs $0.045/trans)AlwaysClose Batch Daily if not setup on Auto-CloseAlways follow POS device transaction prompts entering valid data not pressing enter or “0” to by-pass the promptHand-keyed Transactions – Always Enter Address Verification ((AVS) Zip Code)Commercial Cards – Always Enter Sales Tax and Customer Code When Prompted at the Point-of-Sale
19 Statement Section Merchant vs. Chain Statement Section of Statements News For YouSummaryVolume RecapDepositsVisa/MC/Discover/American Express Processing ChargesCard Association FeesOther Transaction ChargesAuthorization FeesElavon is YOUR Global Acquiring Solution!
21 Voice Authorization Is… An authorization process whereby Merchant calls the Voice Authorization Center and provides Cardholder credit card/purchase information over the telephoneAn operator or an interactive voice response (IVR) unit provides Merchant with the Authorization Code given by the Card Issuing BankWhen is this Process Used?When the response to an authorization at the point-of-sale is “Referral” or Call Auth”Merchant can also use this process if an Approval Code is received, but is still suspicious about the Cardholder, Card or circumstances of the Transaction- When suspicious, call Voice Authorization request a “Code 10 Authorization”-
22 Voice Authorization Definitions “Referral” or “Call Auth”Indicates the Card Issuing Bank is requesting Merchant to call the Voice Authorization CenterVoice Authorization Center will providean Approval Code or ask Merchant to request additional information from cardholder (e.g., mother’s maiden name, city of birth, first elementary school…)Voice Authorization Center routes this information to the Card Issuing Bank which provides either an “Approve” or “Decline” the Transaction“Code 10”Term used by the Card Associations referring to suspicious or questionable transactions, Cards or CardholdersWhen Merchant is suspicious of a Card Transaction, contact the Voice Authorization Center and request a Code 10 Authorization. Using the term allows Merchant to question Transaction without alerting the CardholderFollow the instructions given on how to proceed by the Voice Authorization Center to minimize any discomfort between you and the Cardholder
24 A Chargeback Is…A transaction disputed by the Cardholder or Card Issuing BankIf a Merchant receives a Chargeback, the Acquirer will debit the Merchant’s DDA (checking account) or designated Chargeback account for the amount of the TransactionThere are many reasons for chargebacks, but the most common are:Returned merchandiseTerminated servicesDisputes, errors, or fraudMerchants must be able to provide proof that the disputed transaction is valid and in accordance with Visa/MasterCard regulations or risk having their account debited for the disputed transaction amount as well as chargeback fee
25 What Does a Chargeback Mean to Me? For the merchant, a chargeback translates into:Additional processing time and costA more narrow profit margin for the saleAnd, possibly a loss of funds/revenueImportant Note:Carefully track and manage the received chargeback disputesTake steps to avoid future chargeback disputesKnow your re-presentment rights to chargeback disputesAlways consider taking measures to recover losses from customers who are financially liable for transactions that were charged back to you, the merchant
26 Chargeback Info & TipsWhile it may not be possible to eliminate Chargebacks entirely -Merchants can reduce the occurrences by promptly resolving issues and disputes with the CardholderMerchant should follow the proper established Card Association Authorization and Processing proceduresChargebacks can be costly, you can help make every effort to prevent the chargeback
27 How to Prevent Chargebacks Remember to-Avoid duplicate processing of a TransactionWork with the Cardholder to resolve disputes regarding the quality of merchandise or services renderedRefuse to process a Transaction when you receive a Declined Code during AuthorizationCall for Voice Authorization if neededCall for Code 10 Authorization if you are still suspicious of the Cardholder, Card or Transaction after receiving an Approval Code
28 How to Prevent Chargebacks Remember to-Verify that Transaction Receipts equal the POS device to eliminate duplicate transactionsInclude a description of goods or services on the Transaction ReceiptDeliver merchandise or services before charging the CardObtain an Authorization CodeInclude the CVV2/CVC2 and AVS Codes for Card Not Present Transactions if applicableSubmit Transaction Receipts on the same day Transactions are authorized
29 How to Prevent Chargebacks Remember to-Make sure an Imprint appears on Manual Transaction Receipts or that the relevant Transaction information appears on the Terminal-generated Transaction ReceiptDo not accept expired Cards or Cards having effective dates prior to the date of the TransactionMake sure the signature on the Transaction Receipt matches the signature on the back of the card
32 Payment Card Industry – Data Security Standards Are you compliant….
33 Payment Card Industry - History Visa instituted the Cardholder Information Security Program (CISP) in June 2001, the program is intended to protect cardholder data—wherever it resides—ensuring that merchants, and service providers maintain the highest information security standard.The CISP and related MasterCard Site Data Protection (SDP) programs were implemented to help ensure consumers that the businesses they are dealing with maintain the security of their bankcard account and other personal identifiable information.Visa and MasterCard aligned their security requirements in December 2004 to form a Payment Card Industry Standard for Security.PCI Data Security Standard requirements can be found at https://www.pcisecuritystandards.org .These data security requirements require all entities that store, process, or transmit card data to be compliant with these payment card industry standards for security.This program generally requires all merchants who store, process, or transmit card data to complete an annual security questionnaire and have their IP addresses scanned quarterly by a VISA/MC certified vendor.Compliance has many benefits: Safe harbor from fines if a location is hacked and the VISA/MC “good seal of approval for” processing, customer confidence and maintain brand reputation.
34 What level is your account? PCI-DSS is categorized into 4 levelsLevel I – Any Merchant processing over 6MM Visa transactions annuallyLevel II – Any Merchant processing between 1MM – 6MM Visa transactions annuallyLevel III – Any Merchant processing 20K – 1MM Visa E-commerce transactions annuallyLevel IV – Any Merchant processing less that 20K Visa E-commerce transactions, or less than 1MM Visa transactions regardless of the channelPCI-DSS
35 12 Guidelines for PCI Compliance Install and maintain a firewall configuration to protect cardholder dataDo not use vendor-supplied defaults for system passwords and other security parametersProtect stored cardholder dataEncrypt transmission of cardholder data across open, public networksUse and regularly update anti-virus softwareDevelop and maintain secure systems and applicationsRestrict access to cardholder data by business need-to-knowAssign a unique ID to each person with computer accessRestrict physical access to cardholder dataTrack and monitor all access to network resources and cardholder dataRegularly test security systems and processesMaintain a policy that addresses information security
36 Non-Compliance: Risks, Fines, Fees, Costs, Loss Damage to brand/reputationInvestigation costsRemediation costsOngoing compliance auditsVictim notification costsFinancial lossFines & FeeNon-compliance (each brand issues separate fines)Re-issuanceFraud LossData lossChargeback’s for fraudulent transactionsOperations disruptionSensitive info disclosureDenial of service to customersPossibility of business closurePotential legal liabilities beyond the Association rules
37 4 New PCI DSS Self Assessment Questionnaires (SAQ) In an effort to make the process of becoming PCI DSS compliant more streamline, the PCI Council has developed 4 new SAQ’s for merchant validation. New SAQ’s are as follows:SAQ A: Addresses requirements applicable to merchants who have outsourced all cardholder data storage, processing and transmission.SAQ B: Created to address requirements pertinent to merchants who process cardholder data via imprint machines or standalone dial-up terminals only.SAQ C: Constructed to focus on requirements applicable to merchants whose payment applications systems are connected to the internet.SAQ D: Designed to address requirements relevant to all service providers defined by a payment brand as eligible to complete an SAQ and those merchant who do not fall under the types addressed by SAQ A, B, or C.The new questionnaires and further information can be found at: https://www.pcisecuritystandards.org
38 Compromise Statistics Food Service Industry represents the majority of the compromisesRetail Industry is the next largest industry with compromisesTrustwave data is gathered from more than 300 card compromise cases* Source of data is from the Trustwave March 2008 quarterly report3838
40 Value Added Services Electronic Check Services (ECS) Gift Card ConversionConversion with VerificationConversion with GuaranteeGift CardClosed network solutionReloadable CardOn-line ServicesOutsourcing to Elavon for delivering cards
42 Elavon's Electronic Check Service Innovative product that supports full portfolio of flexible solution and service level optionsNot a one-size-fits-all solutionProvided in partnership with leading financial institutionsExtension of services from bank partner, not third-party providerRetailer gets one-stop solution for debit and credit cards, electronic check, consolidated statements and even online reportingExtensive image storage and reporting capabilities
43 Checks Supported Supported with Single Sided Imagers Consumer checksBusiness ChecksCorporate ChecksConvenience ChecksSupported with Dual Sided ImagersMoney ordersU.S. treasury checksCashier’s checksFederal Reserve checksGovernment ChecksPayroll checksThird-party checksTravelers checks
44 ECS Service Level Options Conversion with GuaranteeChecks are converted into electronic transactions and all funds are guaranteedAll paperwork is eliminated – no follow-up needed from merchantsThe retailer assumes no risk for all qualified and approved transactionsConversion with VerificationChecks are imaged and converted into electronic transactionsRouted for verification either through the participating Visa bank or through EnCircle for ACH submissionRetailer retains the risk of returned items for all transactionsConversion onlyChecks are imaged and converted into electronic transactions, retailer performs own authorization
45 Point of Purchase (POP) Solution Enables merchants to convert checks to electronic transactions in a check present/consumer present environment at the time of check acceptanceUtilizes Direct DDA, the ACH network and Check Replacement Documents (CRD’s) for authorization and clearingSignature requiredCheck must be returned to check writerPosted and take away consumer notification required
46 Accounts Receivable Conversion (ARC) Solution ARC is used for check present/consumer absent transaction environmentsreceivable paymentsmail order receivablesdrop-box/lock-box environmentCustomers are provided a notice explaining that checks will be processed electronicallyOffer Consumer Opt Out Service with PC SolutionUtilizes the ACH network and Check Replacement Documents (CRD’s) presenting and clearingOnline real-time or batch delivery of transactions
48 Gift is a Quickly Growing Industry Gift Card Sales$50 billion in 2005$57 billion in 2006$61 billion in 2007$65 billion in 2008 (estimated)$80 billion by 2011Gift Card PopularityThe #1 gift during the holiday season50% of gift cards received during the holiday season were redeemed by the end of JanuaryAverage breakage ranges from 4-15%48
49 It’s Much, Much More than a Gift Card Program Promotional Marketing ToolsDiscount cards mailed to target prospectsGift with purchase“Come back” rewardsCorporate IncentivesSell to companies to use as employee incentivesUse internally for rewards or spiffsPrepaid Vehicles for Recurring ServicesCoffee shops, auto detail, movie theatersMerchandise/Service ReturnsCash back is not the only wayCustomer AppreciationTurn service issues into a retention opportunityFund RaisersSell cards at a discount to schools/non-profits
50 Merchant Benefits Increased Sales Reduced Costs Attract new customers to the businessRetains full face value = no cash backSwitching from paper certificates to gift card can result in 2-4 times the volume…by capitalizing on impulse purchases61% of recipients spend more than the card valueMost consumers spend 25% more than the face value of the card when redeeming a card received as a giftReduced CostsMore efficient and cost effective than paperIndustry average is $1.22 to issue and $1.22 to redeemIncreased Security & Reduced FraudCards have no value until activatedEasy to UseWorks seamlessly with same solutions used for credit cardsElectronic reporting and tracking
52 Convenience Fee Rules Overview Imposing a Convenience fee is permissible under the following conditions:Transaction must be processed in a non face-to-face environmentThe Payment channel needs to provide a true convenience to the cardholder and the card member must have the ability to pay the transaction in another environment without feesThe fee needs to be disclosed prior to the completion of the sale with an opportunity to cancel the transaction prior to the cardholder being charged.This fee must be disclosed as a convenience fee and not a surcharge.Convenience fee needs to be applied to all payment channels (Visa, MC, AMEX, DI, ACH).Visa requires that all fees must be a fixed amount; MC and Discover allow percentage based fees.Visa requires that all Convenience Fees be assessed in the same transaction amount.Visa does have programs specifically for Tax Payment programs that have different allowances.Visa and MasterCard both prohibit establishing minimum or maximum transaction amounts for a purchase.
53 Convenience Fee exception Commonwealth of Virginia State Law§ Authority to accept revenue by commercially acceptable means; service charge; bad check charge.A. Subject to § , any public body that is responsible for revenue collection, including, but not limited to, taxes, interest, penalties, fees, fines or other charges, may accept payment of any amount due by any commercially acceptable means, including, but not limited to, checks, credit cards, debit cards, and electronic funds transfers.B. The public body may add to any amount due a sum, not to exceed the amount charged to that public body for acceptance of any payment by a means that incurs a charge to that public body or the amount negotiated and agreed to in a contract with that public body, whichever is less. Any state agency imposing such additional charges shall waive them when the use of these means of payment reduces processing costs and losses due to bad checks or other receivable costs by an amount equal to or greater than the amount of such additional charges.C. If any check or other means of payment tendered to a public body in the course of its duties is not paid by the financial institution on which it is drawn, because of insufficient funds in the account of the drawer, no account is in the name of the drawer, or the account of the drawer is closed, and the check or other means of payment is returned to the public body unpaid, the amount thereof shall be charged to the person on whose account it was received, and his liability and that of his sureties, shall be as if he had never offered any such payment. A penalty of twenty-five dollars or the amount of any costs, whichever is greater, shall be added to such amount. This penalty shall be in addition to any other penalty provided by law, except the penalty imposed by § shall not apply.(2002, c. 719.)
54 Convenience Fee exception - Courts Commonwealth of Virginia Courts StatueFees collected by clerks of circuit courts; generally.A. A clerk of a circuit court shall, for services performed by virtue of his office, charge the following fees:27. For the acceptance of credit cards in lieu of money to collect and secure all fees, including filing fees, fines, restitution, forfeiture, penalties and costs, the clerk shall collect from the person presenting such credit card a reasonable convenience fee not to exceed four percent of the amount paid.
56 Durbin ProvisionsMinimum Purchase Amounts – Merchant may now apply a minimum fee not to exceed $10.Maximum Purchase Amount – Government Agencies and Higher Education Institutions are now permitted to set a Maximum amountSurcharge – Merchants are not permitted to add a surcharge to a transaction amount however, merchants are permitted to give a discount or offer an in‐kind incentive for payment by any method of payment (cash, credit, debit etc). Merchants may not offer discounts that favor one issuer or network over another.Debit Interchange Regulations – Require that Debit Interchange fees be “reasonable and proportional” to the incremental cost to the issuer processing the transactions. The Federal Reserve will establish standards for assessing whether Debit Interchange Fees (general use reloadable prepaid cards are exempt) are “reasonable and proportional.” Final Debit Interchange Rules will be issued by April 21, 2011 and will be in effect July 21, 2011