1. Joe SimonettiT-FLEx Workshop T-FLEx October Workshop The Future of Fare Collection Bank Card Transactions & Merchant Processing Joseph Simonetti October 29, 2007 Slide: 1

2. Joe SimonettiT-FLEx Workshop Slide: 13  Bank Card Transaction Pricing Model  Bank Card Transaction Processing  Transaction Flow  Interchange Rates Discussion  Transaction Costs Presentation Overview

3. Joe SimonettiT-FLEx Workshop Slide: 3 Accept all forms of electronic payments Magnetic and contactless “open” & “closed” system cards Magnetic & contactless bankcards Open and closed cell phone payments “Our goal should be to make the fare payment experience as easy and as convenient as possible across the region.” CONVENIENCE IS THE KEY

4. Joe SimonettiT-FLEx Workshop Bankcard Transaction Pricing Model Slide: 8 Fixed Costs: One Time Up Front Fixed Costs: Monthly Recurring Variable Costs: Monthly Recurring Variable Costs: Miscellaneous Total cost for merchant processing = one time, monthly fixed, monthly variable & per transaction fees Monthly Variable = Visa/MasterCard Interchange Fees Per Transaction = Gateway & Processor “Discount” Fees

5. Joe SimonettiT-FLEx Workshop Slide: 8 Network Interface Line Considerations & Installation Security Devices Merchant Account Set-up POS Terminals Internet Payment Service Set-up Fixed Costs: One Time Up Front Fixed Costs: Monthly Recurring Leased Line Usage Merchant Support Fee Internet Payment Service Fee Web Based Reporting Customer Service support Velocity Checking Automated Hot Listing Fare Table Management

6. Joe SimonettiT-FLEx Workshop Slide: 8 Variable Costs : Monthly Recurring Transaction Processing Interchange Pass Through Gateway Processing Address Verification Aggregation Variable Costs: Miscellaneous Charge-back Fee Additional Merchant Account Setup POS Terminals & supplies Security Devices

7. Joe SimonettiT-FLEx Workshop Slide: 9 Issuer Acquirer Merchant (Transit Agency) Issuer Processor Credit Network Association Merchant in effect “sells” the transaction to the acquirer and is reimbursed the amount of the sale less a “Discount fee”. The acquirer then submits the transaction to the issuing bank for payment via the interchange and settlement system. Issuing bank pays the merchant acquirer, less an interchange fee which partially reimburses the issuer for its expense. Card holder pays issuer.

8. Joe SimonettiT-FLEx Workshop Bankcard Transaction Processing Slide: 8 Transaction and Revenue Flow Customer selects ticket type then payment type If Credit/debit, TVM connects to gateway or processor for authorization Transaction authorization sent to TVM Card is issued, transaction completed Within 48 hours total value of transaction deposited into agency bank account Once each month fees for all transactions are removed from agency bank account by acquirers bank. Reports Reports from server available Reports from internet are available

9. Joe SimonettiT-FLEx Workshop Slide: 8 TerminalAgency Server Processor- Acquirer Issuer Bank Transaction Flow Association Transactions move through agency owned network to Processor.  Agency responsible for purchase of equipment and software, operations, and maintenance of server.  Agency responsible for PCI Certification of network and server in addition to ongoing compliance.

10. Joe SimonettiT-FLEx Workshop Slide: 8 TerminalGateway Processor- Acquirer Issuer Bank Transaction Flow Association Transactions flow through Gateway to Processor  Gateway acts as server. Gateway is responsible for purchase of equipment and software, operations, and maintenance of server.  Minimal PCI certification requirements. Transactions sent securely via internet and Gateway is responsible for full PCI compliance of server in addition to ongoing compliance.

11. Joe SimonettiT-FLEx Workshop Slide: 13 1.55% + $0.10 1.65% + $0.10 1.73% + $0.10 2.39% + $0.10 2.65% + $0.10 Corporate 2.70% + $0.10 1.05% + $0.15 1.8425 + $0.20.8925% + $0.25 Visa Commercial 2.20% + $0.10 International Electronic 1.37% New (10/1/07) Small Ticket 1.65 +.04 Interchange Rates

12. Joe SimonettiT-FLEx Workshop Estimated Transaction Cost Slide: 12 $45 monthly pass purchased at a TVM with a credit card Transaction Fee = (Interchange x Purchase Value) + Processing Fee Interchange = (Interchange Rate + Assessment Rate + Sponsorship Fee) Interchange Rate = 1.55% + $0.10 Assessment Rate =.0925% (Visa).095% (MC) Sponsorship Fee =.2% Interchange = (1.8425% + $0.10) x $45.00 = $0.9291 Processing Fee = Range $0.18 to $0.28 Transaction Fee = $0.9291 + $0.28 ± $1.21 Approximately 2.7% of purchase amount

13. Joe SimonettiT-FLEx Workshop Estimated Transaction Costs Slide: 13 $2.00 One-Ride ticket purchased at a TVM with a credit card Transaction Fee = (Interchange x Purchase Value) + Processing Fee Interchange = (1.8425% + $0.10) Purchase Value = $2.00 Processing Fee = Range $0.18 to $0.28 Transaction Fee = $0.417 Approximately 20.8%

14. Joe SimonettiT-FLEx Workshop Slide: 13 $1.25 fare at Small Ticket rate of 1.65% + $0.04 Interchange = $0.064 Processing Fee = $0.28 Transaction Fee = $0.34 3-Day, 6 ride Aggregation Transaction value = $7.50 Interchange = $0.186 Processing Fee = $0.34 Transaction Fee = $0.53 Equivalent per use Fee = $0.08 Interchange fees change with the transaction value Processing fees tend to stay the same per transaction Aggregation is a way to reduce fees further but can increase risk Aggregation is not compliant with Visa Operating Rules….. why? Will Aggregation Help?