Merchant Services 101
and
Electronic Payments
__________________________
Wells Fargo Bank
Wholesale Merchant Solutions
Rich Toomey
VP, Wholesale Merchant Solutions
Office: 336-378-4165
Richard.Toomey@wellsfargo.com
© 2009 Wells Fargo Bank, N.A. All rights reserved. Internal use only.
Topics
I.
Merchant Services Basics
II. Understanding & Managing Costs
III. PCI Compliance
IV. Payment Trends & Payment Gateways
© 2009 Wells Fargo Bank, N.A. All rights reserved. Internal use only.
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Processing Flow
Card Issuing
Cardholder
Issuing Bank
 Maintains relationship with cardholder including risk oversight
 Provides transaction authorization
An online, over-thephone and in person
purchase results in a
payment need
Merchant
Acquiring
Acquiring Bank
Acquirer/Processor
 Maintains relationship with merchant including risk oversight
 Secures payment authorization and settles the transaction
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Merchant
Swipes the card or
collects credit card
information to
create the
transaction. Sends
authorization
requests to the
Acquiring Bank
2
Payment Flow
Buyer
Payment Gateway
Merchant
 

Web Store


Call Center
Encrypted
Transmission (SSL)
FDMS/
Processor
Associations
Payment Gateway
Issuing
Bank

 API
 Hosted Order Pay
Page
 Virtual Terminal
POS System
 Payments
 Compliance and

Risk Management
WF/ODFI
ACH
Network
 Subscription Services
 Machine Readable
Files
 Reconciliation
 Web-based
Reports
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RDFI

The Players & Their Roles
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4
Gateway/Middleware
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What Do Merchants Pay?
Pricing Components
 Discount rate
- Interchange – the largest portion of the discount rate,
paid to the card Issuing banks
- Assessments – fees paid to the Card Associations
(Visa/MC)
- Access Fees – fees paid to the Card Associations
( Visa/MC)
- Processing fees – paid to the merchant Acquiring bank







Equipment/ Software/ Gateway fees
Set up fees
Monthly service and statement fees
Non-Bank (i.e. AMEX) Authorization Fees
Chargeback fees
Compliance fees (i.e. PCI)
Downgrade fees
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Merchant Services Pricing
 Interchange
Non-negotiable, determined by, paid to Card Issuer
 Assessments
Non-negotiable, determined by, paid to the Card Associations
 Access Fee
Non-negotiable, determined by, paid to the Card Associations
 Processing / Discount Fee
Negotiated with and paid to your Merchant Processor
Reality Check – There are multiple pricing methods presented to merchants;
many merchant processors bundle the above components which makes
deciphering the cost basis impossible
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Interchange Schedule
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Pricing Strategies
1.
Interchange Plus
- Acquiring banks pass through Assessments, Access Fees and
Interchange to the merchant and add a per-item fee and/or
percentage.
Formula: Interchange + Assessments + Access Fees + Processing
2. Bundled Pricing
― Bundling of all of the price points into one rate, typically has 2
down grade categories.
Example:
Qualified Rate:
1.90% + $0.15
Mid-Qualified Rate:
2.65% + $0.25
Non-Qualified Rate:
3.45% + $0.25
© 2009 Wells Fargo Bank, N.A. All rights reserved. Internal use only.
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Interchange Plus (Pass-through) Example
Consumer Card Present
Processing
Passthrough
Transaction Amount
Number of Transactions
Retail Interchange %
Retail Interchange $
Visa Assessments %
Visa Access Fees $
$
100.00
1
$
$
1.54%
0.10
1.64
$
$
0.11%
0.0195
0.13
Wells Fargo Acquiring Fee
$
0.15
Total
$
1.92
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Bundled Example
Mid-Qualifed Transaction - Consumer CNP
Transaction Amount
$
100.00
Qualified Rate
1.90% + $0.15
Mid-Qualified Rate
2.65% + $0.25
Non-Qualified Rate
3.45% + $0.25
Qualified Transaction - Consumer Card CP
Transaction Amount
$
100.00
Retail Interchange %
Retail Interchange $
Visa Dues & Assessments
Visa Access Fees
Total
Bundled Qual Price
Effective Rate
$
$
$
1.54%
0.10
0.11%
0.0195
1.77
1.90% + $0.15
2.05%
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Retail Interchange%
Retail Interchange $
Visa Dues & Assessments
Visa Access Fees
Total
$
$
$
1.80%
0.10
0.11%
0.0195
2.03
Bundled Mid-Qual Price
Effective Rate
2.65% + $0.25
2.90%
Mid Qualified Surcharge
0.59%
Non-Qualified Transaction - Commercial
Transaction Amount
$
100.00
Retail Interchange %
Retail Interchange $
Visa Dues & Assessments
Visa Access Fees
Total
$
$
$
2.25%
0.10
0.11%
0.0195
2.47
Bundled Non-Qual Price
Effective Rate
3.45% + $0.25
3.70%
Non Qualified Surcharge
0.95%
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The Cost Pie
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Determining Interchange Rates
1. MCC Codes
2. Transaction Type (Card Present, Card Not Present)
3. Transaction Amount (Large Ticket vs. Small Ticket)
4. Card Type (Consumer, Commercial, Purchasing)
5. Product Type (Utilities, Fuel, Taxes, Government etc.)
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Managing Interchange
Put procedures and solutions in place to qualify for
“optimal” interchange rates
- Must be priced on Interchange Plus (Pass-through)
- Level II and Level III for Commercial/Purchase cards
- Ensure employees are trained on the proper way to enter a
transaction (i.e. Address Verification for telephone payments)
- Register for Card Association programs where appropriate (i.e.
Large Ticket Program)
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Level III Data
Visa
Minimum Level III requirements input by merchant
Item Commodity Code
Item Description
Product Code
Item Quantity
Item Unit of Measure
Item Freight/Shipping Amount
Duty Amount
Unit Cost
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Durbin Amendment
As part of Financial Regulatory Reform, US Congress has approved the
Durbin Amendment.
1.
Cap on Interchange costs associated with Debit Card
transactions (both Signature Based and PinDebit)
2. Last week the Senate approved to NOT delay the implementation
of the debit card cap.
3. Initial cap has been pegged between $0.07 and $0.12
4. Potentially create significant reduction in card
processing costs, for Merchant’s that accept high
percentage of “debit” cards
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PCI Compliance
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PCI Compliance
 Payment Card Industry Data Security Standard (PCIDSS)
- A common set of industry tools and measurements to help
ensure the safe handling of sensitive information.
- Developed and managed by the PCI Security Standards
Council
 Applies to all merchants and third party service providers
that:
- Store/Process/Transmit Card Holder Data
- Develop/ Sell Payment Applications
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Enforcement Structure
VISA
MasterCard
Amex
Discover
JCB
PCI Standards Council
PCI Data Security Standard (PCIDSS)
VISA
CISP
DISCOVER
DISC
MasterCard
SDP
Merchant Payment Solutions (Acquirer)
Merchants
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PCI DSS Validation Requirements
Per Visa and MasterCard
Compliance Classification Level
Annual
submission of
compliant PCI
DSS Report on
Compliance
Annual submission
of PCI DSS Self
Assessment
Questionnaire
(SAQ)
Quarterly
Net work Scan
Level 1
>6 MM annual transactions
(All Transaction Types)
Level 2
1 MM to 6 MM annual
transactions
(All Transaction Types)
For 2010 calendar year
Level 3
20K to 1 MM annual transactions
(ecommerce only)
Level 4 (recommended)
< 20K e-commerce
< 1MM annual transactions
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20
Top Targets
Industries
Non-traditional targets made up
more than 50% of the 2009 cases.
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Investigative Conclusions
Types of Data at Risk
Payment Card Data is a target for
criminals looking to turn data into
cash quickly.
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Investigative Conclusions
Types of Target Assets
While many POS vendors have patched
their systems to support security
controls, many companies are still
running very old software.
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Wholesale Merchant Solutions
Electronic Payment Trends
&
Payment Gateways
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24
Electronic Payment Growth
•Dramatic
increase in EPayments
•Dramatic
decrease in
use of paper
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Card Payment Growth
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Questions to Ask
1. Are we offering multiple payment options?
2. Are we driving payers to our website?
3. Are we PCI Compliant and reducing the possibility of data
theft?
4. How soon are our funds available? Next Business Day?
5. How are we posting card payments to our AR system?
6. Are we using the tools available to reduce Days
Outstanding?
© 2009 Wells Fargo Bank, N.A. All rights reserved. Internal use only.
®
Wells Fargo Payment Gateway service
*Single platform
*Multiple integration and payment options
2009Fargo
Wells Fargo
rightsreserved.
reserved. Member
© 2009 ©
Wells
Bank,Bank,
N.A.N.A.
All All
rights
InternalFDIC.
use only.
28
Payment Options & Funding
Next business day funds availability for card and eCheck
transactions
Visa
MasterCard
eCheck (ACH)
debits and credits
American Express
Discover
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PayPal
PayPal Express
Checkout
Virtual Terminal (VT)
Simple to use Virtual Terminal capabilities allow
transaction processing from any PC with Internet access
 Multi-level User
Access
 Credit Card or
electronic
check/ACH payments
 Create payment
profiles
 Print or email
receipt capabilities
Source: Javelin Research Strategy 2008
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30
Web Payments
Hosted Order Page (HOP)
Simple way to
accept payments
onlineCommercial card usage is

estimated to continue to
 Customize
the
grow by as
much as 25% in
theand
coming
content
theyears.
look of
the Hosted Order Page
 Supports Secure
Storage and recurring
billing
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31
Secure Storage / Tokenization
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32
Automatic Posting / Enhanced Reporting
 Reports available online, CSV export or XML ( for system to
system integration)
 Enhanced “matched reporting”
 Unique Order ID
 Chargebacks & Retrievals
 Interchange
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33
Wholesale Merchant Solutions
Questions?
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