credit card processing overview
DESCRIPTION
TRANSCRIPT
An Introduction to Credit Card Processing and
Advanced Merchant Group
Advanced Merchant Group is a registered ISO / MSP of BancorpSouth Bank, Tupelo, MS.
600 Louis Drive Suite 202-A
Warminster, PA 18974
877.99.SWIPE215.701.4989 fax
Why it’s a great time to be in the processingIndustry
Most rapid time of cost changes since the inception of the industry
more than 30 years ago.
More merchants than ever before entering the marketplace
Niche market programs appeal to a wider audience, especially “developing”
markets
Older Equipment is being phased out in place of newer, faster and
more capable equipment
Recent Technologies opening new opportunities such as TCIP and
huge potentials for wireless services
A younger, more “hip” customer base means electronic transactions
are the preferred method of payment
Companies are recognizing that an “Un-tapped” market exits for business
to business transactions
First Data Corporation
Western Union Conversions Issuing Acquiring
PlatformsPreviously
IndependentProcessors
Retail Wholesale
Why build it?Just buy it.
Perspective75% of Domestic Processing
70 % of Card Issuing
Om
aha
CardS
erviceInternationalE
FS
C
oncord
Nashvill
e
North
Cardnet
Paymentech
Chase Manhattan
• National sales and service company
• Thousands of agents nationwide
• Direct ISO relationship with Visa and MasterCard
• Largest Retail M.S.P. on the FDMS Omaha merchant processing platform.
• Full Service Support Center to agents and merchants
• 24 Hours 7 Days Week 365 Days a year
Advanced Merchant Group
Advanced Merchant Group
Applications
Approvals and MID issues
Welcome Packs
Programming Building
Downloading & Deployment
Customer Statements
On-Line Agent & Customer Access
www.advancedmerchantgroup.com
Lease Company Set-up
Split Funding
Accounting
Residuals
Sales Support
Proposals & Quotes
Continuing Education
Advanced Merchant Group ResponsibilitiesAgent
Signed Paperwork
Why is There Visa and MasterCard?
Customers Need for Cash Alternative.
Convenience of prolonging payments.
Convenient Form of Payment, safer than cash.
Flexible Pay-Back and Extended Spending Options.
Savvy Consumers Prefer Multiple Options.
Distinguishes Company from Competition and Lends
“Credibility” To The Establishments.
Visa and MasterCard
Two Independent Companies
Separate Rules, Rates, Programs and Policies
Fast and thorough responsiveness to consumer market
changes
Competing Brand Names
Visa and MasterCard = Marketing Company
Created, Maintain and Advance the System
Established Set of Industry Base Rates Along With Banks
And Processors referred to as “INTERCHANGE”
Industry History
Convenience from a merchant has always translated into more customers.
More Customers mean more REVENUE!
“In the beginning” A NYC retailer would track customer purchases in what can be referred to as a “house account”. As a courtesy, the merchant would go to their bank and transfer funds for their customers. However, in order for this to work the customer needed to have an account at the bank the merchant used.
A Manner of currency exchange eventually evolved. The currency exchange system that evolved for the credit card industry is called the INTERCHANGE.
The INTERCHANGE is the group of banks, retailers and processors who belong to the Visa and MasterCard governed trade system and who use the Federal Reserve to deposit funds and pay fees via the ACH system.
Visa and MasterCard, although displayed together for marketing purposes only, remain individually operated companies with typically a 60% Visa and 40% MasterCard split in their combined market share. However, recent statistics show that it may be much closer to 50% / 50% and gaining.
Industry History Continued
Basic Business
In a typical business environment a merchant will purchase products / services from different vendors.
The vendor sells the
product to the
merchant.
The merchant
then marks up the
product to sell to the customer.
The customer pays the
retail price marked up
by the merchant.
Bat Ball Glove
Sports Store
Customer
Customer
How Is The Visa & MasterCard Industry Different From “Basic Business”
Only One Producer, Manufacture, Vendor
System is Wholly Owned By The Card Associations.
No Competition to Card Associations.
Vertical Market
Master list of GOOD AND BAD card numbers and merchants
Visa / MasterCard Rules, Rates, Regulations
ISO/MSP- AMG
Record Keeping, Money Moving, Bank Affiliation
BancorpSouth Bank, Tupelo, MS.
Sales
Industry Partner Responsibilit
ies
Agent Office/Sales Rep
Merchant
First Data Merchant Services
AMGPRICING
MAINTAINED THROUGH TO CUSTOMERS
Processing Industry Overview
Visa and MasterCard • Assigns the interchange industry base rates.
• Maintains active account Information and industry wide databases.
• Maintains an industry wide list shared by all processors of merchants who have been “terminated” for not
complying with card association rules. This list is known as the Terminated Merchant File.
Fraud and Factoring
First Data Merchant Services (Processor)• Affiliated with BancorpSouth Bank, Tupelo, MS.
• First Data then marks up the rates to cover for:
•Dues & Assessments
•Authorization
•Settlement of transactions
Agent
• Independent reseller of Advanced Merchant Group services
• Gets sell rates to merchant
• Agent marking compliance guidelines with fines up to $25,000 per occurrence.
Representative
• A reseller for the agent
• Agent is responsible for training and paying the representative
Processing Industry OverviewContinued
Advanced Merchant Group• The 1st link in the sales chain.
• 24 hour LIVE Customer Service.
• Member Service Provider –established direct relationship with Visa and MasterCard.
• Pass buy rates directly to the agent sales force.
TRANSACTION PROCESS OVERVIEW
What exactly are we selling?
We are selling a money moving service to merchants. A service that allows them to accept additional forms of payments from their customers with the peace of mind that they will be PAID.
•A merchant who only accepts cash limits who they can sell to and
therefore also limits the number of potential customers.
•When the merchant starts to accept checks, they add additional
customers.
•When that merchant starts to accept credit cards as well, they can add
25% to 35% more customers over their current cash check business.
THE TRANSACTION PROCESS
Merchant
First Data
First Data
Bank
Customer Card is entered at the merchants location.
1. Verifies funds are available.
2. Puts the money on hold.
The Bank sends a
response back to First
Data
Approval
Denial
First Data sends the information back to the merchants terminal.
Step 1 Authorization
Transaction Time
Dial up is 12 to 15 seconds
Internet is 3 to 6 secondsStep 2
Batch/Settlement
At the end of the day the merchant does a batch or settlement.
This moves the money into the merchants
bank account.
Identifies the issuing bank by reading the first six digits of the card number, referred to as
the BIN
AMERICAN EXPRESSDISCOVER
DINERS CLUBJCBEBT
AUXILLIARY CARD SERVICESAMG IS NOT RESPONSIBLE FOR THESE CARDS
Each is an individual company:
Approve Merchants to accept the cardApprove the transactions Issues a separate Merchant Identification NumberSends separate statementsDeposits funds on their own schedule
MOST COMMON TERMINAL FUNCTIONS
1. SALE- Two parts, Authorization and Settlement.
2. VOID- Corrects an error BEFORE the batch.
3. CREDIT- Corrects an error AFTER the batch.
4. BATCH- Daily finalization of transactions, moves the funds.
5. FORCED SALE- Combines a Pre-Authorization number with sale.
6. AUTHORIZATION ONLY- Puts funds on hold, verifies funds
1.UNDERWRITING
2.LEASING
3.TRANSACTIONAL
3 TYPES OF INDUSTRY RISK
Underwriting Risk “Risk = Rate”
Every decision made by a player on this industry is based on perceived risk to the entity involved. That entity could be Visa and MasterCard, a processor,
an underwriter, a lease company or sales organization.
Underwriting an account means approving a merchant to be able to accept Visa and MasterCard. Much like a bank would look at a merchant in order to
give them a loan. Some things the underwriters look at would be:
• Ownership
• Average ticket
• Monthly Business
Personal Credit:
• Credit score
• Current or former bankruptcy
• Length in business or previous industry experience
Business Credit:
• Type of Industry – Does it conform to “acceptable” business.
• Industry history of CHARGEBACKS – Disputed or incorrect charges, up to 18 months liability.
• Length of time in business.
UNQUALIFIED/UNACCEPTABLE BUSINESS
All sexually oriented or pornographic merchants
Consulting firms or firms operating in the following:
Real estate seminars auction houses investment programs/opportunities
“get rich quick schemes” Credit repair or protection mortgage reduction services
Telemarketing companies involved with the following products:
Personalized gifts Novelty items Custom made items Pseudo-pharmaceuticals
Cosmetics Charities (other than nationally based, well known events) Chain letters
Pyramid or multi-level marketing distribution
Drug paraphernalia
Collection agencies or firms involved in recovering/collecting past due receivables
Travel clubs / Travel agents or tours
Sports forecasting or odds making
Check cashing
Lotteries
Fortune tellers
EXPLANATION OF WHOLESALE –VS- RETAIL
The cost associated with the Risk of accepting potentially
fraudulent merchants can shift from processor on “Retail” or AMG “Wholesale”.
Chargeback – A disputed charge.Initiated by the cardholderProcessor settles the dispute“Experience” of chargebacks is a problem at 1% of sales
Responsibilities: UnderwritingMerchant Processing AgreementFlexible Pricing Programs“Fraudulent Transaction” Risk
Lease- A long term financing option for merchants who do not want to pay for a terminal up front. The leasing company is separate from the processor and leases are approved or declined separately from the Merchant Account.
Business Type and expected business longevity.
Prior Industry Experience
Start-up Business
Personal Credit
Business Financials
Lease Factors and Funding information available by contacting your Agent office.
A Lease Funding Calculator is available to you by logging on at www.merchantaccountsources.com.
LEASING RISK
Equipment
Think of POS Terminals as if they were cars.
• Buy
• Sell
• Lease
• Upgrade
• Downgrade
• Roll cost into new one
• New
• Used – no guarantee
• Refurbished – certified pre-owned
Definition: The mechanism used to submit transactions to Visa/MasterCard
Three types of “Equipment” are:
1. Hardware Terminal – Point of sale terminal with swipe wedge.
2. Software Terminal – Windows based manual entry programs or cash register integrated program.
• Offline
• Real time
• PC Based
• Industry Specific
3. Virtual Terminal – Internet based terminal for “REAL TIME” processing.Common Equipment Manufactures
Verifone
Hypercom
Lipman
Buying Vs. Leasing
+• Ownership
• No Long Term Commitment
• Cover Overall Terminal Cost
-• Up Front Cash
• Owner is responsible for repairs
+• Payment Overtime
No Cash Outlay
• Insurance Option
• Tax Deductable
-• 3-4 Year
Commitment
• 2-4 Times as Costly as Buying
Buying
Leasing
Visa and MasterCard review the WHO, WHAT, WHEN, WHERE and HOW of every transaction.
Typical Risk Factors Include:
Type of Card Accepted
Corporate SIC Code
Batch and Settlement
Information on transaction, example: Name or Expiration date
Additional Information if requested, example: Zip code, PO Number
Special pricing for specific industries.
Address Verification
TRANSACTIONAL RISK
Electronic Processing EvolutionTime line from Paper
INTERCHANGE EXPLANATION
• Visa and MasterCard respond quickly to marketplace conditions,
specific industry exceptions and consumer spending habits.
• As a result of this close scrutiny, the number of interchange
categories that describe possible transaction lost has grown to
over 200.
• Interchange is the industry’s base rate for services. Regardless
of how big or how small a company is everyone’s rate starts at
interchange.
INTERCHANGE “COIN SORTER”
Qualified
Mid-Qualifie
d
Non-Qualifie
d
INTERCHANGE
CATEGORIES
Transaction
Swiped
3 Tier Pricing
Qualified
Mid Qualified
Non Qualified
MOTO
2 Tier Pricing
Qualified
MID Qual MOTO
Non Qualified
What’s a Qualified?
Industry Specific Program Examples
Lodging
Supermarket
Petroleum
Emerging Markets
What’s the deal with Walmart?Why do we care?
Credit Vs Offline DebitAnd Pin Based Debit Explanation
Rewards Cards Update effective 04-01-05
FOR DISCUSSION
Basic Fees
• Discount Rate – Percentage of sale including tax.
• Per Item – Access charges for each inquiry into the Visa and
MasterCard System.
• Statement Fee – Mailing, Accounting and Printing
• Monthly Minimum – Fee charged against
• Rate Bump – Additional Fees for Mid and Non Qualified Discount
Rate.
• Qualified – Best cost for industry type.
• Mid Qualified – Higher fees due to something not qualified.
• Non Qualified – Corporate cards, foreign network cards, untimely
batching of transactions. Highest cost category.
Pricing Basics
• Volume = Transactions multiplied average ticket
• Average ticket = Volume divided by the number of transactions.
• Number of Transactions = Volume divided by average ticket
• Visa and MasterCard volume ONLY no other card types.
• Average ticket is VERY important.
Transactional Cost Analysis
A. AMG/ Agent cost = Average ticket multiplied by discount fee then add the agent cost per item.
B. Merchants Current Cost = Average ticket multiplied by current
discount fee add the per item.
C. Salesman Quoted Cost = Average ticket multiplied by quoted
discount fee add the per item.
Merchant Savings = B – C
Agent Profit = C – A
* Bottom line cost for quoted cost of transactions must be above corresponding schedule A fees.
Pricing Example - Swiped Merchant
Current Rates 1.75% & .25
Proposed Rates 1.78% & .20
Volume = $20,000
Average Ticket = $35.00
Number of Transactions = 571.00
Volume
16,000
3,000
1,000
Number of
Transactions
457
85
28
Percentage of
Business
80%
15%
5%
Pricing Example
Qualified:
Current Rate ($35.00 X 1.75%) + .25 = .86
Quoted Rate ($35.00 X 1.78%) + .20 = .82
AMG/Agent Cost ($35.00 X 1.70%) + .17 = .77
Profit Per Transaction
.82 - .77 = .05
Savings Per Transaction
.86 - .82 = .04
Total Profit of Transactions
.05 X 457 = $22.85
Total Savings of Transactions
.04 X 457 = $18.28
Pricing Example
Mid - Qualified:
Current Rate ($35.00 X 2.52%) + .25 = 1.13
Quoted Rate ($35.00 X 2.35%) + .20 = 1.02
AMG/Agent Cost ($35.00 X 2.28%) + .17 = .97
Profit Per Transaction
1.02 - .97 = .05
Savings Per Transaction
1.13 – 1.02 = .11
Total Profit of Transactions
.05 X 86 = $4.30
Total Savings of Transactions
.11 X 86 = $9.46
Pricing Example
Non - Qualified:
Current Rate ($35.00 X 3.25%) + .25 = 1.39
Quoted Rate ($35.00 X 3.15%) + .20 = 1.30
AMG/Agent Cost ($35.00 X 3.05%) + .17 = 1.24
Profit Per Transaction
1.30 – 1.24 = .06
Savings Per Transaction
1.39 – 1.30 = .09
Total Profit of Transactions
.06 X 28 = $1.68
Total Savings of Transactions
.11 X 86 = $2.52
Pricing Example
Totals Recap
Savings
Qualified $18.28
Mid Qualified $9.46
Non Qualified $2.52
Total $30.26
Profit
Qualified $22.85
Mid Qualified $4.30
Non Qualified $1.68
Total $28.83
SALES TIPS
• Don’t Be A Salesman!
• 1 Minute Mindset
“Who are you talking to?”
• Be a Shopper
• Be a Consultant
• Be an Educator
• Be a Problem Solver
But Know The Problem First
Where Do I Start Checklist
• Corporate Name
• Contact Name
• Contact Title
• Contact Phone
• Contact Fax
• Contact Email
• Best time to contact
• Corporate Location
• Number of Locations
• Other DBA’s or associated entities
• What does the company sell? Products and Service
• How does the company do business?
• Primarily swiped or non-swiped?
• What percent of business is swiped, keyed and corporate?
• What is the current monthly volume, average ticket and number of transactions?
• Per location?
• Company wide
• Who is the current Processor?
• What are the company’s current rates? Arrange for copies of statements.
• What, if any, are the problems the company is having with their current processing?
• What kind of equipment does the company use?
• POS Hardware
• PC Software
• Internet Virtual Terminals
• AMG SECURE PAY
Finding Business & Marketing
• Finding Business Business Organizations
Social Organizations
Field “Referrals” Delivery & Service
Current Client Referrals
Accountants, Printers, etc.
Vertical Markets & Associations
• Marketing Cold Calls
Warm Leads
Mailing
Website
Tele-markets
Getting Statements
• Start with friendly sources.
• Everyone needs to know that statements are needed for “apples to apples” comparison.
• Finding the “Gate Keeper”
• Don’t get fooled into responding to generic rate questions.
What are your best rates?
• The merchant who does not want to provide statements is NOT a prospect.
Statement Help
• Fax statements and agent contact information to:
1.215-701-4989
• Call AMG Agent Support to review website training for online proposals.
• Let us train one of your staff to do proposals in house.
Common Objections
• Too much trouble
• I’m with my bank
• I have great rates
• I just switched
• I have to check with my “partner”
• I have a cancellation fee
Some Notes On Income
• Successful agents sign-up EVERY single merchant they can.
• Career volume merchants may be tight on profit margins.
• Per Item fees are a bigger percentage of income transaction discount rates.
• Profitability is based on portions of a penny.
• More volume does NOT automatically mean bigger earnings!
Application Process And Time Lines
• Submission, Processing & Approval
• 24 hours for swiped
• 48 hours for non swiped
• File building, downloads, deployment
• 1 full midnight cycle after approval
• Training, troubleshooting
• 24 hours after deployment
• Follow Up’s
• 1 day, 3 day, 1 week and 90 days
• Residuals
• Paid on the 30th of the month after first full month of processing.
Agent Website Services
• Track Merchant Status
• View & Enter Merchant Notes
• Equipment Listings
• Residual Reporting & Tracking
• Proposals
• Trainings
• Lease Funding Information & More!
Additional Products
• Check Services
• Gift & Loyalty Cards
• ACH Processing
• Cash Advance
• AMG Payment Gateway
Contact
600 Louis Drive
Suite 202-A
Warminster, PA 18974
Phone: 877.99.SWIPE [79473]
Fax: 215.701.4989