WYCCPDWYTK Tip #10: Rates sometimes go DOWN

How many of you have seen something like this on your statement:

“Due to changes in Visa & MasterCard rates, we must increase your rate by .XX%”? 

Have you ever wondered, “What changes?”  Maybe not, but you should.  Often changes are very small and for a few card categories.  Most consumer credit/debit doesn’t change very often.  What’s even more interesting is that sometimes these changes are decreases.  In October of 2010, about 1/3 of the changes in Interchange were decreases.  In April of this year, changes were so minor that they would have almost no impact on most of our clients. 

The bottom line is this:  Don’t take your processor’s word for it.  Often these “changes in Visa/MasterCard rates” are merely an excuse to raise pricing.  They count on the fact that most businesses won’t research the matter, and even if they did, would have difficulty finding clear answers.

How do you avoid the whole issue?  Interchange Plus pricing.  This is the only transparent pricing model for card processing which is why the Wal-Marts, Home Depots, and Olive Gardens of the world all receive Interchange Plus pricing.  This is also the only pricing model offered by Heartland, and we are the only processor that offers it carte-blanche to every client no matter how large or small. 

Ouch… Small Ticket May Suffer at the Hand of Durbin

Well, the Durbin Amendment is set to go into effect October 1st… and for most merchants this should be a really good thing.  Unfortunately, as I’ve already mentioned, it’s very unlikely that you will see full Durbin Dollars from your processor (unless you’re with Heartland of course).  Nevertheless, the Interchange caps of 0.05% and 22 cents per transaction will begin for your processor next month. 

There has been a big “question mark” surrounding the issue of Small Ticket.  Currently, Small Ticket Interchange (for transactions under $15) has a little higher percentage than a standard debit card run as a credit, but a much lower transaction fee (4 cents instead of 10 or 20).  This is great for the merchants in the Small Ticket arena because it is the transaction fee (not the percentage) that hurts so much on a small ticket purchase.  However, with Durbin, both MasterCard and now Visa have stated that their interchange for regulated debit cards will change to the maximum allowed by Durbin.  So now merchants will be looking at 22 cent transaction fees for a $10, $5, or even a $1 transaction… and that’s before the processor has added any markup!  Ouch!!!

Merchants with an average ticket higher than $12 will still see benefits from the Durbin Amendment… and the bigger the transaction, the bigger the benefits. 

But coffee shops, quick serve restaurants, carwashes, etc… watch out!  You are likely going to pay more post-Durbin. 

VOIP Revisited

More and more I run into merchants who are using a dial-only terminal through an internet-based “phone line”.  These lines are called VOIP (Voice-over-internet-protocol).  The problem in doing so is that you are immediately putting yourself in a non-compliant status with PCI DSS (aka PCI Compliance).  And here’s why you should care…

• Fines start at $10,000 and up.
• Your processor can be fined and this will be passed on to you.
• You could be breached.  In this scenario the fines, fees, lawsuits, & bad press are often so great that the small/medium-sized business cannot survive.

Some Internet Service Providers claim their VOIP network is secure.  This is absolutely irrelevant.  Until the merchant can PROVE that the data is secured via security protocols, the merchant is still non-compliant.  The rules are what they are.  And just in case you don’t believe me…

Payment Application Data Security Standard 11.1 reads:

If the payment application sends, or facilitates sending, cardholder data over public networks, the payment application must support use of strong cryptography and security protocols (for example, SSL/TLS, Internet protocol security (IPSEC), SSH, etc.) to safeguard sensitive cardholder data during transmission over open,
public networks. Examples of open, public networks that are in scope of the PCI DSS are:
The Internet
Wireless technologies
Global System for Mobile Communications (GSM)
General Packet Radio Service (GPRS)

Translation: 

If your terminal/POS is sending credit card data over the internet, the terminal/POS must encrypt and/or secure that information.

The problem is that a terminal/POS using a phone/dial connection DOES NOT DO THIS (unless it’s Heartland’s E3 terminal). And you cannot rely on your ISP’s promise of security… that’s just not good enough.

Another issue with this setup is communication problems. Sometimes dial terminals work fine over a VOIP connection. Other times downloads fail, batches fail, and/or transactions fail. This can lead to duplicate transactions (which usually angers customers), frequent calls to customer service to delete batches (which takes up your time), and a host of other problems. These terminals were designed to work over an analog phone line (landline). Digital lines like VOIP operate in a different fashion, and often a terminal will have difficulty with this. Communication issues could be sporadic, frequent, or non-existent one day and unbearable the next.

The solution?  Upgrade to an IP capable terminal… these terminals are designed to operate via the internet using SSL technology (Secure Socket Layer… the same security used for online banking).  Better yet, contact me for Heartland’s E3 terminal… not only is this terminal IP capable, but it includes the industry’s only End-to-End Encryption solution for an added layer of security at no additional cost.  And it’s very reasonably priced.

Guest Speaker at the Utility Payments Conference

Personal plug here… I was honored to speak about PCI Compliance last Thursday at the Utility Payments Conference in New Orleans.  It was a great event, and I thoroughly enjoyed the experience.  While I’m not a PCI Compliance expert, I do have hands-on experience in the application of PCI Compliance for merchants.  If you were at the conference and are trying to find Eric Beschinski, just contact me here.

Only 2 Ways to Grow Your Business…

There are only 2 ways to grow your business… 1) Get your existing customers to come back more often or spend more when they come or 2) Attract new customers.  Heartland can help with both.  Check out this video…

It’s the principle of the matter (and it’s your money)…

If your CPA found an extra tax break for you, then proceeded to keep the money owed to you without saying a word  about any of it, would you continue doing business with him?  What if he only kept half of it?  20%?  The point is: that money is yours.  He has no right to it whatsoever.  The same is true for the Durbin Amendment Interchange Reform… that money is yours.  The law was intended to benefit small business owners.  If your processor is pocketing any of the Durbin dollars coming next month, my question to you is, “Why would you continue doing business with them???”  I thought we all outgrew the “finders, keepers” mentality decades ago… Evidently not.

For more info:

• http://durbin.WhatWasThatWebsite.com – All of my blog posts pertaining to the Durbin Amendment
• http://nra-durbin.WhatWasThatWebsite.com – (redirect) The National Restaurant Association’s position on debit reform and the Durbin Amendment
• http://overview-durbin.WhatWasThatWebsite.com – (redirect) A thorough overview of the Durbin Amendment and some of the impact
• http://video-durbin.WhatWasThatWebsite.com – (redirect) A brief video interview about the Durbin Amendment from the National Restaurant Association Show this year

Marching On to July 21st!!!

The Tester Bill failed to pass the Senate vote today!  Great news for Durbin Amendment supporters!  The Tester Bill, an attempt to delay the July 21st effective date of the Durbin Amendment is no longer a roadblock.  There may still be another attempt to delay Durbin, but this was a major victory for Heartland’s clients. 

Durbin Update & Advice

In a nice, short article from the National Restaurant Association, 2 recommendations were given to restaurants…

• Ask for written confirmation from your processor that your Durbin rate decrease will be passed on 100 percent to your checking account beginning on the day it is implemented.
• Check your contract to find out the terms and conditions of how you can terminate your agreement with your processor if it isn’t willing to give you written confirmation regarding the decrease.

My added comments… 1) this doesn’t just apply to restaurants and 2) contact me when you are ready to work with the processor that is giving 100% of the Durbin difference to the merchants… the intended recipient of this reform.  While we are all still waiting to see the final verdict on when the Durbin Amendment will go into effect, there is still a very good chance that the July 21 date will hold.

Read the entire article here.

April Interchange adjustments…

I mentioned a few of the changes in Interchange in my post entitled, “WYCCPDWYTK Tip #9: What rate increases!?!?”.  Below are the changes for April (just in case you are a glutton for punishment or need some reading material to cure your insomnia). 

These took effect on Friday, April 15^th…

Visa

Added Small Ticket Interchange rates for their Commercial products.

MasterCard

Lodging & Auto Rental (previously listed as "Travel Industries Premier Service") had adjustments as follows:

Enhanced Rate DECREASED from 1.90% to 1.80%

Debit Rate DECREASED from 1.36% to 1.15%

World Merit III INCREASED from 1.73% to 1.77%

World Merchant UCAF INCREASED from 1.73% to 1.77% (eCommerce)

World Full UCAF INCREASED from 1.83% to 1.87% (eCommerce with the cardholder registered with MC for a Secure Code that is verified at the time of the online purchase. This is different from the CVV code on the back of the card.)

Supermarket Core  DPI INCREASED from 5¢ to 10¢

Supermarket Enhanced  DPI INCREASED from 5¢ to 10¢

Supermarket World  DPI INCREASED from 5¢ to 10¢

Supermarket World Elite DPI INCREASED from 5¢ to 10¢

Supermarket World High Value DPI INCREASED from 5¢ to 10¢

MasterCard also is assessing 12 Basis Points or 0.12% (instead of their standard 11 BP) on credit card transactions of $1,000 and over.

American Express

Education Rate (previously listed as "Tuition") INCREASED from 2.40% to 2.50%

That’s it.  A dozen or so changes out of approximately 300 different interchange rates.  Thought there would be more changes?  Nope… just these few, and most of them have almost no impact for the typical restaurant or retail merchant. 

More on the Durbin Amendment (from Senator Richard Durbin)

In this lengthy letter from Senator Durbin, he reminds the banks (one in particular) to keep their perspective.  Check out this excerpt:

“In conclusion, I recognize that Chase will likely see decreased revenue from interchange reform, but I urge you to keep some perspective. Last year Chase had $17.4 billion in profits – up 48 percent from the previous year – and a 15 percent profit margin. Your own [referring to Jamie Dimon, CEO of JPMorgan Chase] personal compensation “jumped nearly 1,500 percent to $20.8 million in 2010” according to Reuters. In contrast, middle-class American families are struggling to get by in a tough economy – an economy that went south because of the banking industry’s unregulated excesses.

There is no need for you to threaten your customers with higher fees when you and your bank are already making money hand-over-fist. And there is no need to make such threats in response to reform that simply tries to spare consumers from bearing the cost of interchange fees that are anticompetitive and unreasonably high.”

The entire letter can be found here.  It is an extremely informative and poignant articulation of the issues at hand, and I highly recommend that you read every bit of it.

Hear, Hear, Senator Durbin!  Well said!