1. The Payment Processing System
A PRESENTATION BY MASTER YOUR CARD
The Payment Processing System
MasterCard isn’t trying to sell you a card – we want to share the value of card technology for your business.
Using card technology and electronic payments can help your start-up or small business compete with bigger operations in your hometown.
Cards offer convenience, control, and security for both your business and your customers, and once you decide to accept cards, it’s important to know what your processing options are.

2. Master Your Card is a community empowerment program from MasterCard that helps consumers, small businesses and governments learn how to get more from their money by using prepaid, debit and credit cards to access a financially empowering electronic payment network.

3. What we’ll cover today
Get started accepting cards and electronic payment technology

4. Step one: Know your processors
You’ll need to choose a partner who will process your card payments and possibly supply the hardware and software you need to accept those payments.

5. Who’s who in card payment processing
Electronic payment networks
Independent sales organizations
Acquiring banks
Internet payment service providers
Third-party processors
Merchant services (via acquiring banks)

6. Electronic Payment Network (EPN)
Proprietary networks, built and maintained by technology companies like MasterCard.
Provide instantaneous and secure connections between consumers’ debit, prepaid and credit cards and the businesses from which they purchase goods or services.
Businesses choose the electronic payment networks they will accept and then hire a payment processor with the network access and customer service that they need. There are four basic groups of payment processors a business can choose from.
Acquiring Bank
• Brand names you and consumers recognize, including local banks.
• Some have in-house payment processing and others may outsource to third-party processors. You can ask about these services and see if they are right for you.
• Existing services and a broad banking relationship can be valuable to small businesses because it might allow you to negotiate for a more favorable contract.
Acquiring banks are local, community, regional or national banks that participate in the electronic payment networks on the merchant side of processing customer’s payments. Just as consumers have checking and savings accounts with these groups, so do businesses.

7. Third Party Processor (TPP)

• Focus primarily on larger merchants

• Directly provide a full range of services to merchants
• Function exclusively in a business-to-business environment between businesses and acquiring banks
Third-Party Processors focus primarily on larger merchants. TPPs can be more cost-effective and flexible for large businesses because the processors have direct access to electronic payment networks through an acquiring bank and provide all the support on large businesses’ accounts. These TPPs don’t have consumer brands the general public would recognize as they function exclusively in a business-to-business environment between businesses and acquiring banks.

8. Independent Sales Organization (ISO)

• Specialize in soliciting smaller business accounts, then contract with TPPs and acquiring banks to provide actual processing services

• Costs may be higher because they have to pay a transaction fee to an acquiring bank or TTP
These organizations specialize in soliciting smaller business accounts and then contracting with acquiring banks or TPPs to provide the actual processing services. One step removed from the electronic payment network, ISOs may specialize in specific business sectors—making it easier to get a merchant account from someone who knows your field. They may offer services and agreements tailored to your size and type of business that you can negotiate. ISO costs can be higher than other options as they have to pay a transaction fee to the acquiring bank or TPP with which they partner to deliver your services.

9. Internet Payment Service Provider (IPSP)

• Solicit and service e-Biz for TPPs and acquiring banks

• Specialize in small to medium internet-based businesses

• Costs are higher due to specialized services, TPP fees and acquiring bank fees
This provider will work with a TPP or acquiring bank to provide payment services to you. They focus on small or medium sized Internet-based businesses—usually providing technical support on proprietary payment platforms. The cost of specialized services, TPP fees and acquiring bank fees add to their overhead and your costs. An example of this kind of service is Square. These companies may offer flat fees, which could be higher than a negotiated rate.

10. Merchant services via the acquiring bank

• The bank you do business with might also offer processing services

• Your existing relationship might entitle you to a more competitive rate than other processors can offer

• Discuss this option with your local banking representative

11. Interchange
Interchange is the uniform fee businesses and their banks pay to the electronic payment network provider for processing the transaction.
This payment funds the maintenance and oversight of the electronic payment networks run by MasterCard, Visa, Discover, American Express, etc.
Interchange is the small price small businesses and their banks pay per transaction to ensure that everyone shares the investment to guarantee access, security, predictability, transparency and value from electronic payments.
A default interchange rate is necessary to make sure that all parties can use electronic payment networks without having to negotiate individual exchange agreements with the over 20,000 financial partners participating worldwide.
Big retailers who handle more transactions are paying the same per transaction rate as small retailers, which protects payment network access for all businesses.
Interchange is flexible according to marketplace forces of supply and demand so that all merchants and consumers have access to the benefits.

12. Most common pricing models
There are also a few common pricing models that you will encounter.

13. Bundled rate
All costs and fees combined into a single base rate for all transactions.
Bundle includes processors’ costs and profit, so rates can vary across partners.
Watch for additional “surcharges” on transactions that are outside the defined parameters.

14. Tiered rates
3 tier is the fundamental price structure of the retail merchant account. These accounts have three tiers, which are qualified, mid-qualified and non-qualified. Rather than the bundled rate, a tiered structure charges a different fee for each transaction based on the risk associated with the transaction. Here we can see a breakdown of those three tiers.
It is important to understand that the qualified rate is the least expensive, mid-qualified is more expensive and, again, non-qualified is even more expensive. This is based on the risk associated with the transaction based on the card type and how it is taken. Pricing is correlated directly with risk.
Risk of card type such as personal, rewards, corporate, world card, international card, etc., method of purchase, what is purchased etc…
These scenarios change as we get involved with corporate cards, rewards cards, world cards, card not present transactions and so on. Each of these additional cards and transaction types escalate the risk of the associated transaction and therefore higher fees are charged. Some cards, for example, are designed for more affluent cardholders. These cards may cost merchants more because the consumers who use these cards tend to spend more and thus are more valuable for businesses.
Any questions about these tiered rates?

15. Interchange plus
All interchange rates and network fees are passed through at cost.
Processor then charges $X per transaction or X basis points per transaction.
Most transparent pricing model.
Generally available to large customers only > $1 million per annum in processing.
Your processor will have a set rate in terms of dollars or basis points per transaction.

16. Get more resources: www.masteryourcardUSA.org
• Download this presentation.
• Access fact sheets and helpful tips.
• Contact a Master Your Card representative.
Now that you know a little bit about the different types of processors and rates that are available to you, you’re ready to start looking for the right processing partner and negotiating fro the best deal for your business.
Choosing the right processor is one of the most important steps in accepting cards.
Learn more about choosing the right processor – and get other resources for your business – at masteryourcard.org

17. Thank you