1. Pricing Strategies & Statement Analysis
MSP Relationship Management
December 2008

2. Agenda Acquiring Market Overview Industry Pricing Methods
Working With Statements
Competitor Pricing Strategies
10 Steps of Successful Statement Analysis
Heartland Statement Breakdown

3. Acquiring Industry Overview
The acquiring market is consolidated
94% of the merchant acquiring market is concentrated with top 5 players
Thousands of banks, ISOs, and associations represent these acquirers
Payment market will process an estimated 46 billion txns or $1.8 trillion in 2007 in the US

4. Industry Pricing Methods
Tiered
This is the most common: about 80% of all Elavon merchants are boarded with Tiered pricing.
Merchant receives three, four, five, or six tiers (such as Qualified, Mid-Qualified and Non-Qualified)
Each tier contains a collection of interchange categories
Downgrade tiers are the most profitable for banks and processors
Interchange Pass-Through (or “Cost Plus”)
Popular method for pricing large merchants/industry specific (large ticket, Utility, Supermarket etc).
Merchant pays a fixed processing fee over and above the cost of interchange and assessments
Method is usually transparent and easy to see
Least profitable of the three methods
Interchange Differential
Infrequently used at Elavon, but common across the industry
Merchant receives one qualified rate and the downgrades are assessed at the difference between the qualified and non-qualified rates
Can be considerably more complex for the merchant or competitor to understand

5. Working with Statements
There are less than 10 major acquirers in the field today. While there are thousands of Independent Sales Organizations in the industry, they rely on a handful of acquirers. This means there are a limited number of statement types. Statements can be used to identify acquirers and therefore pricing methods. Many acquires purposely make their statements confusing so merchants can not easily compare between providers.

6. Competitor Pricing Strategies
First Data – Employs a variety of pricing methods, including Discount with Billback. Discount with Billback pricing can be explained as the same style of pricing as differential but downgrades and markups are not clearly visible.
Bank of America – Based on Vital platform. Frequently uses interchange differential on old BofA portfolio. Acquired NPC division is largely priced as tiered.
Elavon – Frequently utilizes tiered pricing with lower lead rates, higher mid, commercial and non-qualified rates.
Fifth/Third Bank – Interchange differential is popular.
Global Payments – Popular platform for ISOs, uses a mix of interchange differential and tiered pricing.
Heartland – Interchange pass-through is very popular, although it still often puts merchants on differential with no surcharge.

7. 10 Steps for Statement Analysis
1. Get current complete statements
not reports or partial statements
preferably 2 months
Identify the processor
Look for logo or name
May be masked by MSP name, bank name etc.
Become familiar with formats
Identify the volume mix between credit and debit cards between Visa , MC and Discover, and average ticket
This could be a chart located on the statement or you may need to calculate based on summary information in the statement
Formula to figure percentages is sales by card type divided by total amount of sales
Identify Gross or Net
Net will indicate credits issued for refunds on statement as a negative discount due
Gross will not show any credit for refunds
Consider the merchant’s business: What do they do, what do they sell? Would they qualify for any special interchange programs?
Look for specific Interchange categories on statement for example (supermarket or fuel)
Review interchange Guides to better understand programs that are available to better educate the merchant. You may be able to save them money by adding value rather than negotiating based on rates.

8. 10 Steps for Statement Analysis-continued
What kind of pricing do they have?
Tiered- Should recognize repetitive rates on the statement for Qualified, Mid, etc. Up to 6 rates.
Interchange Differential- One qualified rate, downgrades assessed at the difference between qualified and non qualified. Often seen as one rate with a small basis point and/or per item markup on various categories. Enhanced differential will indicate credit discount on check card transactions.
Interchange Pass-Through-Usually transparent and easy to see as a fixed processing percentage and/or per item over interchange
Identify the distribution of transactions: How many were qualified, hand-keyed, corporate etc…..
Estimate based on Interchange categories presented. The Elavon Interchange grid can be used as a guide to determine qualifications keeping in mind they may differ from other processors.
Identify current pricing (rate, per item, mark up)
Pass-through easily recognized with a set mark up in basis points and/or per item
Tiered pricing contains a rate based on a collection of interchange categories and will typically be shown with the qualification level and the rate assigned for that level.
Differential is more complex and harder to recognize. Look for a lead rate and then markup on individual categories.
Reconcile all fees and bankcard-related charges in the pricing model
Statement fees, monthly minimums, auth fees etc. The pricing model user guide will assist with entering data into that tool.
10. Determine current processors margin and then determine your pricing strategy and proposal
Use pricing model as a tool for completion of the 10 steps.

9. Heartland Statement Breakdown
Statement Type-Heartland
Heartland typically targets the restaurant industry and other low average ticket industries with pass-through, differential, or enhanced differential pricing. These statements are typically easy to analyze. In the Fee Summary section below you will see that this merchants pricing is interchange plus .25% and a .20 transaction fee.

10. Identify current Pricing, rate, per
Step 2
Identify the
Processor
Step 3
Identify the
volume mix
of card type
Step 5
Consider the
merchants
business what
Do they do
or sale
Step 4
Identify net
or gross
Step 7
Identify the
distribution of
transactions
Step 6
What type of
pricing do they
have
Step 9
Reconcile
all fees
Step 8
Identify current Pricing, rate, per
Item, markup

11. Step 3
Identify the
volume mix
of card type
Step 1
Get current
complete
statements
Step 10
Determine current
processors margin and
then determine your
pricing strategy
and proposal.

12. Heartland Statement Breakdown
Steps:
Get current and complete Statements
preferably 2 months
Identify the processor
Heartland identified by logo on statement
Identify the volume mix of card type: Formula is sales by card type divided by total amount of sales
M/C=54%
Visa=46%
Identify gross or net:
Net-per credit issued for refunds on statement
Merchant business type.
Unable to tell because DBA is not available. Per interchange categories this is a MO/TO merchant
Pricing type.
Pass-through-easily visible on statement
Identify the distribution of transactions by adding the different qualification categories and divide by total volume for percentages this will give you an estimate. Note: this is based on Elavon qualifications as disclosed on the Interchange Grid from the MSP Info Center.
Moto Qualified-4, (divided by) 11, = 42%
Non Qualified-6, (divided by) 11,498.96= 58%
Current pricing
Pass-Through .25% and .20 per item
All fees
Service Fee- $8.00 in addition to pricing indicated above.
Margin and pricing Strategies:
Effective rate-2.34% Total Bankcard Discount fees (divided by) Total Bankcard Sales volume-
$ (divided by) $11,498.96

13. Margin and pricing Strategies:
For a closer pricing estimate use pricing model as seen below. The pricing model takes into affect any additional fees such as statement fees, authorization fees etc… The pricing model will provide a more accurate estimate. When doing the effective rate the only factors considered will be volume and discount fees, primarily used if you are unable to determine exact pricing from the competitor statement.