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Credit Card Processing: An Industry of Purposeful Obfuscation - Steve Pinado

  

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[ob-fuh-skeyt, ob-fuhs-keyt] – verb (used with object) - to confuse or make obscure or unclear: to obfuscate a problem with extraneous information.

Our Director of Sales, Angela Summa, recently said to me “you seem to think this credit card processing stuff is easy to explain to our clients and prospects. Guess what? You are wrong.” Angela is a very bright, highly successful sales leader who is in constant dialogue with Martial Arts professionals. I am a 20-year veteran of the financial processing industry who runs Member Solutions and expects everyone to understand what I say.

Guess who has more credibility on this issue?

Angela’s insightful comment and fact that every membership business must accept credit cards prompted this effort to provide a clear description. I will describe industry participants and the pricing structures that you are mostly likely to experience.

 Principal participants include:

1. Card Associations and Issuers
2. Processors
3. Re-sellers
4. Merchants (you and others that accept credit and debit card payments)

Card associations include Visa, MasterCard, and American Express and issuers are banks that provide consumers with payment cards branded by the associations. The associations wield tremendous power and set prices known as interchange rates. Interchange is what the processor pays for each transaction type. The price is based on the card brand (Visa vs. Amex), card type (debit vs. credit), the type/size of the accepting merchant, and the transaction type (in-person with card, online/phone, recurring monthly payment, etc.). There are more than 100 different interchange categories upon which processors and re-sellers add fees to determine what you pay. Further, the associations modify these rates twice each year to drive payment card usage, increase profits, decrease their risk, and maybe, to obfuscate.

Processors like Elavon, First Data, and Total Systems operate transaction authorization platforms. A few processors handle the majority of processing volume. They add their fees on top of the interchange rates and sell services either directly to merchants or wholesale their services through re-sellers. You may find that while you purchased your services from one company (a re-seller); the name of the company on your statement is that of another company, often the processor.

Re-sellers are likely who you interact with directly. They can be banks, associations, service providers, gateway providers, software companies, independent sales organizations (ISOs) or agents of ISOs. Member Solutions is a service provider, agent, and gateway provider. Some companies, like Member Solutions, go through rigorous application, certification and auditing requirements to achieve formal status designation from the Card Associations, Processors, and the Payment Card Industry Council (PCI). Read our press release on our PCI Data Security Standards Compliance Certification.

Re-sellers set the price you pay to accept credit cards by adding their fees on top of Processors fees which are on top of Card Association fees (interchange). As card usage and acceptance has increased, the industry has become more competitive. This has resulted in the availability of better pricing for merchants and more tactics from industry players to retain profits in the face of price pressure due to commoditization.

The most important group is merchants like you that accept payment cards. You are granted the ability, for a fee, to accept card payments from your customers. You likely procured services from a re-seller and are paying in one of two ways:

1. Tiered Pricing – If you see transactions grouped on your statement in categories like “qualifying”, “mid-qualifying” and “non-qualifying,” you are on tiered pricing. In this case, some player up the value chain from you has grouped interchange categories into three pricing tiers. ”Qualifying” transactions are often limited to those done in person when a card is swiped.
2. Pass-Through Pricing – If you see a wide variety of transaction types plus common per transaction charges you are likely on an interchange pass-through schedule. Often you will see a certain percentage and/or amount of cents added to each transaction under this structure.

You can have a good or a bad deal under either structure depending on your volume, specific rates, monthly fees, and other charges. Some unscrupulous re-sellers will present attractive qualifying rates and then surprise you with high mid and non-qualifying rates, excessive monthly fees, transaction charges, equipment rental, gateway fees, customer service charges, and anything else they can come up with to squeeze out more profits.

You must understand what you are being charged and why, pay attention to your monthly statements, shop around, and understand how different transactions cost more or less. If you would like a free, no obligation evaluation of your current solution, please feel free to contact Member Solutions at 888-277-4409.

Ask for Angela, she thinks this stuff is easy to explain.

Photo credit - thetruthabout