Who are the “players” in the credit card industry?

THE PLAYERS IN THE INDUSTRY

Cardholder (Consumer)

Holds MasterCard or Visa credit card issued by a bank with a line of credit

Card Issuer

(Financial Institution and/or Bank) Licensed member of MasterCard and/or Visa; in which, they issue bank credit cards to consumers and applicants. They receive interchange from every transaction (see interchange chart)

Merchant Acquirer

Solicits screens, accepts and sets up merchants with its bankcard program. It uses front-end networks to authorize credit card transactions and back back-end networks to settle the funds

Merchant

Any business entity that is approved to accept credit cards as a form of payment. If a merchant is approved to accept credit cards they must accept all credit cards, they can’t refuse to take a particular card. A merchant can’t “surcharge” a cardholder paying with a credit card. Also, a merchant can’t require a minimum purchase for accepting credit cards

Member Service Provider

Third party organizations approved and registered with Visa and MasterCard to offer processing Services; also known as Independent Sales Organizations (ISO’s). My POS Depot is a Member Service Provider.

MasterCard & Visa International

Worldwide payment service organization made up of Financial Institutions (banks). They manage the industry, monitor fraud, and set the rules and regulations. They also market their brand to the public

Merchant Level Sales Representative (MLSR)

They market the products and services from a Member Service Provider to merchants allowing the merchants to accept credit cards, debit cards, checks, EBT, gift & Loyalty cards, Cash advance, and ATM services.

http://www.myposdepot.com

 

grant @ myposdepot

growlands@myposdepot.com

http://www.myposdepot.com

THE TRANSACTION PROCESS

THE TRANSACTION PROCESS

STEP #1 – (Payment)

A cardholder buys goods and/or services from a merchant and presents a card as a form of payment

 

STEP #2 – (Authorization)

Merchant swipes card through terminal, enters amount of transaction and sends information to Merchant Acquirer for approval via the front-end network. The transaction is authorized or declined in seconds. If the transaction is approved, the terminal responds with an “authorization code”, which is 6 digits, that is printed on the sales receipt. All transactions and its associated authorization codes are stored in a “batch”.

 

STEP #3 – (Batch out)

At the end of the day, the merchant performs a function on their terminal for closing called “batching out”. The batches are electronically sent to the Merchant Acquirer for settlement through the back-end network. This can be performed manually or by the terminal being set to “auto batch”. A settlement report is printed when the terminal “batches out” showing the totals by all card types (Visa, MC, Amex, Discover, etc.)

 

STEP #4 – (Settling funds)

The Merchant Acquirer will credit the merchant’s deposit account for the net amount of sales (total sales minus fees) in 48 to 72 hours. The Merchant Acquirer’s settlement vendor, in our case Global Payments, sends transaction information to MasterCard and Visa on a daily basis, which will reconcile the incoming information and route them to the appropriate card issuers (bank) overnight.

STEP #5 – Billing cardholder

The card issuer (bank) will post the transaction to the cardholder’s account for payment

 

Grant @ myposdepot.com

http://www.myposdepot.com

sales@myposdepot.com

 

Find this article interesting?

THE PLAYERS IN THE INDUSTRY

Become familiar with the players involved in the credit card processing industry and funding of merchant services transactions.

Can I have an iPad with that order?

Grant @ myposdepot     –      http://www.myposdepot.com

I don’t know about you, but I long for the day when I won’t have to leaf through filthy restaurant menus, caked by spaghetti sauce and other assorted “unknowns”.  Printed menus have long been a thorn in the side of restaurant owners and general managers, due to ever increasing print production costs and the inflexibility of revising pricing and menu items as needed.  Often you’ll see hastily prepared and unprofessional looking special sheets added to the menu as an afterthought.  Or what about those multi-colored chalk boards announcing the daily specials as you enter the restaurant?  If you’re a diner like me, you want the selection and ordering process to be as enjoyable as the food.

There may be an answer to these issues.  Within the past year or so, particularly with the advent of the tablet computer, there have a number of restaurants transitioning their printed menu to a digital version, through the use of an iPad.

Basically digital menu technology works something like this example.  A group of 4 diners enter a restaurant and approach the maître d’ station.  Instead of pulling out 4 menus, a wine list and a specials menu, the maître d’ undocks an iPad, and assigns it to a table number via the POS system.  The diners are seated then take turns ordering from the iPad…drinks from the bar, appetizers, salads, main courses and eventually desserts. By the way, items can be ordered as desired; not all at the same time with traditional menus.  The menu selection experience is much more interactive than ever before.  Crisp appetite-appealing images of the menu item entice the diners, along with accurate portion sizes, complete nutritional and food allergy information, even a comments field.

The orders are then transmitted to a head server equipped with a similar device or smartphone, who is responsible for verifying each diner’s request, and then subsequently pushing that order into the kitchen or bar for preparation.  In the kitchen, the order would print to a kitchen printer or display on a flat screen monitor.  Additionally the functionality of the digital menu system is integrated seamlessly into the restaurant’s POS system to ensure a turnkey solution.

While the order is being prepared, the iPad would re-charge at a tableside docking station, or back at the maître d’ station.  Newer versions of digital menu software have built-in social media links to Facebook and Twitter, enabling guests to Like or Tweet their overall experience at the restaurant, or just review a menu item they enjoyed.  Additionally some iPads are loaded with interactive games that allow diners to pass the time as they are waiting for their order to arrive.  Other add-on technologies could be an integrated digital signage system that prominently displays kitchen or bar items, restaurant events and promotions to patrons.

Once the meal is finished the restaurant POS system reconciles the check, and the head server could attach a mobile processing card swiper to the iPad so diners can easily pay their bill, sign the screen and leave.

For the restaurant, this appears to be a win-win scenario. While there is an investment of hardware (iPads) and software (digital menu customer facing application and backend technology) to launch the system, the bonuses far outweigh the drawbacks.

• No more printed menus.  It is extremely easy for the restaurateur to create or modify his menu items.  This is a major reduction of costs for the restaurant.
• Pricing can be revised at any time, not just at the menu print date.
• Do they really need all those servers now: memorizing orders and shuttling back and forth from the kitchen to the table?  Perhaps just a head server “captain” and some glorified “bus people”…
• Reduction of errors.  No more memorization of orders, particularly with those finicky diners.
• Restaurant would be creating a new kind of ambiance…iPads or tablets at the table.  New concepts like this create a buzz in the restaurant industry.
• Integration with POS.  This fully digital system for the restaurant owner enables him to easily focus on the business side and ensure that items are priced correctly, inventory is sufficient and profit margins are acceptable.

Digital menus are not for every restaurant.  However for a restaurant that is on the cutting edge of technology and wants to reach out and engage customers, this may be the right solution.  Digital menu vendors are offering options of complete purchase and leasing options to restaurants.  Essentially the technology is really the proprietary software created for the menu application and the backend module that integrates with various POS systems.  In theory, restaurants could provide their own tablet computers and contract with a vendor for the software application and continuing support package.  Look to Alpha Card Services offering this digital menu solution as part of our POS system…

As a diner who is always looking for the next big thing, digital menus are something that I would like to see more of in the near future.  I’ve attached link of a video of a restaurant in Atlanta that has this same thinking and what they are doing.

http://www.cnn.com/video/?/video/tech/2011/08/06/pkg.ipad.restaurant.cnn

Grant @ myposdepot

growlands@myposdepot.com

http://www.myposdepot.com

Why do credit card processing rates and fees change / differ?

Grant @ myposdepot

growlands@myposdepot.com

Credit card processing fees charged to each individual merchant depend on a few basic variables. To best explain how these rates and fees are determined you must first understand the concept of interchange. Interchange is the rates that each card issuer (Visa, MasterCard & Discover) charge the credit card processor to run each individual sale. Each type of credit card is given an interchange percentage rate and transaction fee and this is always determined by the card issuer. The rates vary because some card types offer incentives, rewards, or some type of promotion to their customer. To make up for this added cost the card issuers charge higher rates to accept these incentive cards.

The card issuer also charges higher rates depending on the risk involved in processing the transaction. For example a merchant who does not physically swipe the card is considered to be processing a less secure transaction because the magnetic strip on the card is not being verified. This is called a CNP or “Card No Present” transaction. These two factors are how the credit card issuing bank determine the interchange rate for each card type. On top of the interchange rate the company who processes your transaction is also going to mark up the rate so they can profit from the transaction.

The markup charged by the card processor can be come in three basic forms or pricing structures.  A flat rate pricing structure is best described as a type of pricing where a single rate and transaction fee are charged no matter what type of transaction the merchant runs. This is the least effective pricing structure because unless the merchant is always processing the same card type, they are being charged rates to cover the cost of the most expensive card types. The flat rate is going to be higher than all interchange rates to assure that the credit card processor covers their cost to process each transaction. This type of pricing is not very popular because the credit card processing industry has so many competitors and it is easy for any individual company to beat.

The interchange markup can also be in the form of tiered pricing. This pricing structure is very common for most retail merchants in the United States. Tiered pricing is based on a set of rates that will be charged to a specific card type. For example four tier pricing has four sets of rates that depending on the type of card the merchant runs will be charged to that specific card type-

TIER 1 – Standard Check / Debit Cards (Cards issued by a bank normally linked to a checking or savings account

TIER 2- Standard Credit Cards – Cards swiped at the point of sale that offering no major incentives to its customers

Tier 3- Manually entered credit cards or cards that offer basic rewards or incentives to its customers

Tier 4- Key entered rewards cards and/or business cards, signature cards, world cards, purchasing cards,  basically this is the majority of your rewards or incentive cards

Each tier has a flat transaction rate and fee that is charged depending on the card type to assure that the card is being charged a higher rate that the interchange rate that the card issuer is charging.

 

The last pricing structure is called interchange plus pricing. As simple as the name is this type of pricing charges the merchant the specific interchange rate that each card is given by the card issuer and a flat markup above the interchange rate which will be profit for the card processor. For example if a Visa Signature card has a rate of 1.6% plus a transaction fee of .10 cents and the merchant is on interchange plus pricing with a markup of .10 percentage or basis points plus a transaction fee of .10 cents the total cost will be 1.7%  plus a transaction fee of .20 cents. This type of pricing is the most cost-effective for the merchant because no matter how many cards they process or what type of cards they are the markup above cost will always be the same. In this case the markup is .10% (basis points) plus .10 cents per transaction. This type of pricing is usually only offered to high volume merchants who have a low average ticket and run a lot of sales for example a restaurant.

Now that you are familiar with the types of pricing and what credit card processing rates and fees consist of here is an overview of the many types of cards that are available to qualified customers:
MasterCard and Visa
Also know as “Bankcards” because a bank issues them. If you look at your credit card, there will be an issue bank on the front or the back of the card (Bank of America, Wells Fargo, Chase, etc.) They are a genuine credit card; the owner is given a credit line and a minimum payment is due every month. This is the most popular forms of borrowing in the US.

Charge Cards
American Express, Discover, JCB and Diners are charge cards; although, in 2007 Amex and Discover are beta testing a “Bankcard”-issuing their cards through a bank. Charge Cards are not issued through a bank but by a financial institution. JCB (Japanese Credit Bureau card) Issued to Japanese businessmen in the US and Japan. The Japanese Central Banking System, in the 1980’s, created this card so all funds will be processed through the Japanese Central Banking System rather than American Banks.

Private Label Cards
A private label card is issued by a retail outlet and contains the name and logo of the retailer (Macy’s, Gap, Shell, Sears, etc.) It is only accepted by the retailer who issued the card. It is usually financed by a bank or card issuing Management Company.

Secured Credit Card
MasterCard or Visa with a set spending limit secured by an equal amount of funds deposited into an account at the issuing bank. This is popular for people with bad credit trying to increase their credit standing.

Pre-Paid Cards
Similar to phone cards where an owner will purchase the card in increments, $5-$100. When the funds are used up the card can be thrown away or “re-loaded”.

Co-Branded Cards
Also know as Rewards Cards where a large corporation partners with a bank. These cards provide an incentive back to the card holder when used. These cards are more expensive for merchants to accept, higher interchange rates, which is how they can offer incentives to use their card.

Debit/Check Card
This is an ATM card with a Visa or MasterCard logo issued by a bank to its clients. It can be used as an ATM Card or otherwise known as “on-line debit” where a PIN number is entered into a pin pad by the card holder. This transaction passes through the debit networks (NYCE, Pulse, STAR, Interlink, etc.) it does not pass through interchange. The merchant is charged a flat fee with “on-line debit”. When the card is used as a credit card with a signature, the transaction goes through interchange and is called an “off-line debit”. NOTE: A pin pad is needed to accept debit transactions. If a customer has a pin pad they are using from another Merchant Acquirer, it will need to be “swapped out” for a pin pad with an Alpha Card encryption

EBT (Electronic Benefits Transfer)
This is a government issued card which was originally designed to replace food stamps. All federal benefits are now being paid by EBT. If a merchant is set up to accept EBT, they are issued a Financial Credit Services number (FCS ID). This number must be entered into the “Terminal Account Set up Form” in order for the merchant to process via EBT. A pin pad with a Buypass encryption must be used by merchant to accept EBT.

Contactless Cards
New technology that used Radio Frequency Identification (RFID) and allows consumers to pay for purchases by “waving” their card in front of the POS device equipped with the contactless reader.

If you have any questions or would like more information about myposdepot products or services please contact

Grant Rowlands

(866) 480-2433

growlands@myposdepot.com

 

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Tags: American Express, bundled merchant account, commercial cards, competitive edge, credit, credit card acceptance, Credit Card Processing, Credit Cards, Discover, EBT, EBT state and government cards. Customers happier, gift cards, Increase check-out speed, interchange pricing, MasterCard, merchant account services, merchant processing, merchant services, myposdepot, pci compliance, rates and fees, tiered pricing, Visa

Grant Rowlands
National Account Executive
P: (866) 480-2433
C: (215) 421-3333
F: (215) 494-0368

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