1. North Carolina Office of the State Controller May 2015

2. 2 Merchant Cards 101 Types of Cards Credit Cards (pay later) –Bank Cards - e.g., Visa and MasterCard –T&E Cards – e.g., Discover, Amex, and Diner’s Club Debit Cards (pay now against checking account) Smart Cards (Prepay) Stored Value-Embedded Chip EBT Card - (Electronic Benefits Transfer) (Gov-Issued debit card) –Food Stamps (Funded directly by USDA) –Cash Benefits (not utilized in NC)

3. 3 Merchant Cards 101 3 & 6 Acquiring Processor 9 Interchange Network  Visa USA  MasterCard Int’l  Discover Card Associations 4 & 5 8 Card Issuing Bank 2 1 Merchant (Agency) Citizen (Taxpayer / Cardholder 11&12 10 State’s Depository Bank Locals’ Depository Banks Proprietary Card Company  American Express etc. Merchant Card Processor not involved with Proprietary Card settlements. Only involved with Authorizations Authorization and Transmission – Day 1 Funds Settlement – Day 2 or later 7

4. 4 Merchant Cards 101 Card Capture Card Present –Cards Accepted Credit Cards Debit with Pin –Capture Method Point of Sale (POS) Card with swiped, card inserted to end of pos terminal (chip based cards), or keyed Card Not Present –Cards Accepted Credit Cards Debit with Visa/MasterCard Logo –Capture Method Mail or Telephone Order (MOTO) Internet (Online)

5. 5 Merchant Cards 101 Statewide Master Service Agreement (MSA) – SunTrust Merchant Services Participants can be state agencies (agencies and universities) or non-state agencies (local governments) –State Agencies (state agencies and universities) Required to use the MSA unless an exemption is approved from State Controller Must provide written business case for approval –Non State Agencies - Local units of government, community colleges, Local Education Agencies (LEA’s), and Clerk of Courts Participate on a voluntary basis No approval required –Volume for 2013-14 15.8 million transactions, totaling 1.2 billion dollars in sales 100 plus participants and 1000 plus merchant locations

6. 6 Merchant Cards 101 Merchant Card Volume

7. 7 Merchant Cards 101 Merchant Card Fees Types of Fees –Vendor Levied Fees Per transaction processing fee Address Verification (if used) Chargeback (per occurrence) –Pass –Thru Fees (collected by vendor and passed on to card associations) Interchange Fees –Schedules produced twice a year (October and April) that include a set fee and percentage fee –Rates set by Card Brands (not negotiated) –Based on Merchant Card Code (MCC) and type of card presented (e.g. rewards) Access Fees (includes VISA FAN Fee) Assessment Fees (per transaction fee) Switch Fees (pin based debit cards)

8. 8 Merchant Cards 101 Other Fees Point of Sale Equipment (if used) –Option to purchase, rent or lease –Can be obtained from MSA vendor or another vendor Third Party Capture Solutions – MSA certified Negotiated between participant and vendor Examples are TouchNet, PayPal, Cybersource Third Party Capture Solutions – MSA negotiated Negotiated and included in MSA Examples are PayPoint, Global Gateway, and Integrated Payments

9. 9 Merchant Cards 101 Third Party Gateway – MSA certified Third Party Gateway - MSA Negotiated (e.g. PayPoint) Agency POS Terminals Agency 3 rd Party Capture Agency Web Applications Agency 3 rd Party Capture STMS Acquiring Processor State’s Depository Bank Locals’ Depository Banks Authorization and Transmission – Day Funds Settlement Day 2 Next-day funding provided by Wells and SunTrust

10. 10 Merchant Cards 101 Transaction Fees  HB 1854 2000 session (G.S. 66-58.12) – Allows for recouping of fees initiated electronically (Via Internet) – Must be pre-approved by OITS CIO and Office of State Budget & Mgt. – Flat or percentage – per transaction (See Rules caution on page 11) – Fee collected must be credited to a non-reverting agency reserve budget code, only for use for e-commerce initiative and projects – Accounts Receivable Law (G.S. 147-86.22) also applies  Examples – DMV Tag Registration – No fee charged – Wildlife Hunting and Vessel Licenses – No fee charged – DOT Insurance penalties – Fixed - $1.50 – Child Support Payments – Fixed - $5 – Secretary of State – Fixed - $2.00 – Universities using TouchNet – Percentage of 2.75%

11. 11 Merchant Cards 101 Rules Caution – While G.S. 66.58-12 indicates fee “may” be percentage-based, Visa Rules only allows a “fixed” fee unless enrolled in one of two special programs. MasterCard, Discover, and American Express may be fixed or percentage – Visa rules require the fee to be levied against all alternative payment channels (e.g., ACH debits) – MSA requires all participants to adhere to all card associations rules – Violations could result in fines and/or termination of services

12. 12 Merchant Cards 101 Bank Depository Account  For State agency participants, Wells Fargo Bank has been designated by State Treasurer for settlement of funds  Funds provided by STMS one banking day after card transaction  Sub-Zero Balance Account (ZBA) opened for each State agency participant  Funds are swept from Sub-ZBA to State Treasurer’s Statewide ZBA at Wells Fargo account at end of day, which agency certifies on CMCS  Wells Fargo Bank fees paid by agency  Agencies access four systems to report and reconcile transactions – MyClientLine – To view card activity (Provided by STMS) – Wells Fargo CEO– To view ZBA account activity – CMCS – To report deposits (Provided by OSC) – Core Banking System – To view CIT bank deposit and CMCS certification

13. 13 Merchant Cards 101 Taylor Brumbeloe eCommerce Financial Specialist Statewide Accounting North Carolina Office of the State Controller 1410 Mail Service Center Raleigh, NC 27699-1410 Phone: 919-707-0667 Email: taylor.brumbeloe@osc.nc.gov Amber Young Central Compliance Manager Statewide Accounting North Carolina Office of the State Controller 1410 Mail Service Center Raleigh, NC 27699-1410 Phone: 919-707-0619 Email: amber.young@osc.nc.gov Contact Information: