Greg Blackman / Black Friday 2011

For many merchants, Thanksgiving Thursday and Black Friday meant more this year (2011) than the start of the holiday shopping season.
Across the board consumers were more willing to spend on gifts that are wants rather than gifts that are basic needs. Total retail categories gained 7 % in dollar volume on a same store basis as spending on clothing, personal care and electronic/appliances stores did well.

Non retail discretionary merchants also had strong  volume growth as consumers connected with family and friends over the holiday period. Frugality finally lost out to family fun as consumers spent more on holiday travel, leisure and restaurant visits. All of these discretionary categories posted double digit increases over Black Friday 2010 when leisure and hotels in particular struggled to maintain sales with budget conscious consumers.

Security First Merchant Services,LLC

The 2011 holiday shopping season has shaped up to be a memorable one as strong volume growth of retail sales trends in September and October have carried into the early weeks of the season. The lower average tickets earned by retailers due to wide-spread discounting deals by consumers requires merchants to compete for foot traffic and mouse clicks in order to sustain their dollar growth levels.

Security First Merchant Services, LLC

Security First Merchant Services is a business-focused payment solutions company that strives to provide payment processing, small business loans, and credit repair services with a high level of detail and flexibility

Related articles

• Holiday season gives birth to new shoppers (seattlepi.com)
• Holiday season marked by different shopper types (seattlepi.com)

Greg Blackman / Durbin Amendment Compliance Time Frames

Effective Date: October 1, 2011 for networks and April 1, 2012 for issuers.
Final Regulations: Debit card issuers must participate in two unaffiliated networks without regard to the authorization method (one signature network and one unaffiliated PIN network, two unaffiliated PIN or signature debit networks).
Applies to: All debit card issuers and general purpose re-loadable prepaid issuers, regardless of asset size.

Actions for Debit Issuers:
Institutions that currently work with a single debit network provider (Visa/Interlink or MasterCard/Maestro) need to add a second unaffiliated debit network to their existing arrangement.
Selecting a new PIN debit network is an important strategic decision that should take into account many considerations, including merchant acceptance, operational capacity and performance, fraud mitigation, and innovation capabilities and overall strategic value.
“Take action now”

While issuers don’t have to comply with the multiple network requirement until April 1, 2012, networks will not be able to enforce existing exclusive arrangements or enter into new exclusive arrangements as of October 1. The network contracting and implementation time frames require ample  time to ensure timely compliance and management of customer and business risk.

Take advantage of the extra time to fully research other networks’ product offerings and become a member this year to ensure everything is in place before the April 1, 2012 deadline.
Merchant Routing
Effective Date: October 1, 2011
Final Regulations: Merchants allowed to control the routing of debit card transactions (limited to the payment card
networks enabled on the debit card). Applies to: Merchants

Actions for Debit Issuers:
Issuers should seek out network partners that have strong relationships with merchants and that offer nationwide acceptance. Merchant relationships and acceptance will become increasingly important in the post-Durbin marketplace, so issuers should seek partners that have experience working with all industry stakeholders and a history of expanding PIN debit acceptance and utility.
Debit Interchange Rates
Effective Date: October 1, 2011
Final Regulations: Debit interchange composed of a base component capped at $0.21 per transaction, plus an ad
valorem component of 5 basis points on the total transaction value (to offset a portion of each issuer’s fraud losses).
Applies to: Only financial institutions with assets greater than $10 billion.
Fraud Standards
Effective Date: October 1, 2011
Interim Final Regulations: Proposes a fraud prevention adjustment to the debit interchange cap of $.01 per
transaction if an issuer meets general fraud prevention standards. Applies to: Only financial institutions with assets greater than $10 billion

Security First Merchant Services is a business-focused payment solutions company that strives to provide payment processing, small business loans, and credit repair services with a high level of detail and flexibility.

Related articles

• Durbin Amendment Debit Card Regulations (sfms29.wordpress.com)
• Another Debit Network? (sfms29.wordpress.com)

Greg Blackman / Durbin Amendment Debit Card Regulations

The new regulations only apply to certain debit cards that have been issued by banks with $10 billion or more in assets, which is roughly 60% of all debit cards, but a much smaller percentage of overall transactions. Less than 10% of our merchant’s transactions occur on debit cards that will be affected by the new regulations.

Visa / MasterCard Financial Institution Reaction
As expected, Visa and MasterCard and their issuing financial institutions have been quickly making adjustments to make up for the lost revenue. Here is what we’ve seen so far:

1. They’re increasing interchange fees on non-regulated debit cards
2. They’re increasing fees on credit cards in October 2011 and have announced additional increases that will go into effect in April 2012.
3. Financial institutions affected by the legislation are working to shift customer usage away from the regulated debit cards to the unregulated and higher margin debit/credit cards. For example, many banks have announced that they’ve started charging customers a monthly fee for using a debit card.

With these changes, we expect overall regulated debit card usage to decline and non-regulated debit cards and credit card usage to increase. That, coupled with the increased rates on credit cards, we believe will most likely lead to a wash in overall fees. If that’s the case, we’ll be back to where we started.

Key Components

• The majority of small business sales under $50 are made on debit cards.
• With the Durbin Amendment, savings are available to small business owners on most debit card purchases.
• Security First Merchant Services is updating our pricing in order to help small businesses take advantage of these savings. The average savings on purchases between $15 and $50 made with a debit card can be upwards of 50% over current processing costs.
• The higher the cost of the transaction, the more the business can save.
• If you are looking to maximize the savings over your current processing costs, call Security First Merchant Services today.

Security First Merchant Services is a business-focused payment solutions company that strives to provide payment processing, small business loans, and credit repair services with a high level of detail and flexibility.

Greg Blackman / SFMS-Guide to New POS Systems

Point of sale (POS) systems can help your business increase efficiency and reduce theft and fraud. These systems automate the sales process, tracking all transactions in a computer database. POS systems decrease your record of inventory as products are sold. This enables you to keep a more accurate accounting of your inventory and identify discrepancies between the computer record and the inventory on the shelves. The reporting feature included in POS systems also allows you to generate cumulative and comparative reports that can help you identify problems before they impact your bottom line. Recent technological advances have enabled mobile POS systems that use hand-held devices to complete sales transactions where the customer is shopping, rather than requiring customers to wait in line at the registers.

Benefits

Point of sale systems keep your sales information organized and let you complete transactions with ease. These systems also record all of the information about your sales so that you can analyze the data and use it to make wise business decisions.

Accurate sales information

Your point of sale system tracks all sales and inventory, so you know exactly how much money your customers have spent at your store and exactly what they bought. This accurate data allows you to keep popular products stocked. Your customers will also appreciate the higher accuracy in transactions, especially since it speeds up checkout and allows them to leave the store more quickly.

Prevent fraud and theft

Because a POS system logs all transactions, you can keep an eye on employees to help prevent theft. A point of sale system might also help you identify return fraud by showing you when store returns increase rapidly. In addition, the existence of digital receipts created by your POS system lets you verify that an item being returned was actually purchased on the day the customer claims.

Simplifies bookkeeping

You can use your point of sale system to help you prepare payroll statements and profit and loss statements. It can also keep track of sales tax. Because of its ability to track all of your company’s financial data, the use of a POS system saves you money when it comes to bookkeeping.

Mobile POS advantages

One of the newest advances in POS technology is the invention of mobile POS systems. These devices, which take the form of rugged mobile devices, tablet computers or consumer style hand-held devices, allow you to carry out sales without bringing the customer back to a centralized register or checkout lane. They are gradually replacing fixed terminals as the transaction system of choice. Between 2010 and 2015, the market for rugged hand-held POS systems is expected to rise by nearly 30 percent and sales of non-rugged POS devices are expected to rise about 400 percent, according to the IHL Group.

Pitfalls

Point of sale systems provides numerous benefits to businesses. However, there are just as many disadvantages to using POS systems, which should be considered prior to investing time and money.

Expensive

POS systems are integrated packages of software and hardware. Although they are designed to provide years of service, it can be prohibitively expensive to purchase and install a point of sale system. Additionally, upgrading the system may require purchasing new software or hardware depending on how the system was designed.

Subject to computer malfunctions

A point of sale system is a computer program. It has the same weaknesses as other computer programs. The POS system can malfunction and corrupt the data stored on it. If you do not have a backup copy of your files, you could lose all of that information. Additionally, computer hackers could breach your security system and steal money or cause other problems for your business.

Internet connection required

Some POS systems require an Internet connection so information can be transmitted between the computers connected to the system. Any interruption in the Internet connection could cause the system to malfunction and disrupt the flow of your business.

Pricing

According to FirstResearch.com, the retail sector has approximately 1 million outlets in the United States, which accounts for over 4 trillion dollars in revenue each year. Many of these stores use point-of-sale terminals to make transactions smooth and quick, maximizing profits.

Conclusion

Installing a POS system can significantly change your company’s sales process. These systems automate the sales process by tracking inventory, creating electronic sales records, processing payments, and generating printed receipts. The databases that point of sale systems use make it easier to do your bookkeeping and print reports that present sales data for analysis. The reporting feature can help you identify trending products so you can increase inventory and issues of concern so you can fix the situation before they impact profitability. POS systems can be expensive, however, and implementation typically requires the purchase of a proprietary software and hardware package. You may also need an Internet connection to use a POS system. If your Internet service goes down, it can bring your sales operation to a halt.

Security First Merchant Services is a business-focused payment solutions company that strives to provide payment processing, small business loans, and credit repair services with a high level of detail and flexibility.

Greg Blackman/Gift Loyalty Programs for Small Businesses

Many small businesses think loyalty programs that don’t involve a punch card are out of their reach. The truth is that electronic loyalty programs are within the reach of many small businesses.

There are significant benefits to be gained for merchants who move from “paper” to “plastic,” including targeted marketing abilities and a better understanding of customer preferences.
Loyalty cards have come to be something customers expect however, not all gift and loyalty card programs are equal.

Security First Merchant Services loyalty solutions for small Business offers everything  needed to get a program up and running quickly, affordably and effectively. Our solution includes loyalty cards that work with the existing POS terminals, access to a Security First Merchant Services Web site for collecting and tracking customer information, and automated management of the program’s rewards, customer messaging and database, including customized reports.

Security First Merchant Services best in class solution automatically tracks customer spending and generates online reports to analyze customer behavior and plan future promotions or other business decisions.

In short, Plastic Gift & Loyalty Card Program Provides Small Businesses with the following:

Rewarding loyal customers and creating new customers with gift and loyalty card programs
Increase traffic and drive profits
Easy-to-use program
Ability to replace paper gift certificates and punch cards
Provides customer tracking capabilities
Compete with larger retailers
Customize the card’s design based on your brand
Increases cash flow
Improves professional image

Security First Merchant Services is a business-focused payment solutions company that strives to provide payment processing, small business loans, and credit repair services with a high level of detail and flexibility.

eCommerce Strategies

For Internet retailers to participate successfully in this highly competitive marketplace, they know they must implement programs that drive site traffic, provide a pleasing shopping experience, offer desirable merchandise at competitive prices, and accurately fulfill customer orders.

Many successful online retailers have focused renewed attention on the payment process, a frequently overlooked component of eCommerce. This post attempts to explores
four payment-related strategies that can enhance a merchant’s online services, open new markets and increase profits:

1. Expand Into International Markets: A global payment processor can help you to start tapping the vast potential markets for your products beyond U.S. borders.
2. Offer Consumers More Ways to Pay: Greater choice in payment types increases sales and reduces incidence of abandoned shopping carts.
3. Protect Your eCommerce Bottom Line: Fraud prevention is a prime opportunity for improving profitability and building customer loyalty.
4. Leverage Your Business Intelligence: The payment process generates valuable data you can use to make smart business decisions.

Strategy #1: Expand Into International Markets
Over the past decade, the world has increasingly become a global marketplace. With the proliferation of
inexpensive computers and Internet connectivity, consumers around the globe have access to products that in
the past would have been available only locally or regionally. It is now taken for granted that a teenager in St.
Louis can effortlessly find and buy a T-shirt from a designer in Tokyo, and a music lover in Kiev can order 12-inch
vinyl records from an independent record label in Seattle.

Strategy # 2: Offer More Consumers More Ways to Pay
Payment options can be a key factor in where a consumer decides to shop online. How do online shoppers pay
at checkout? What changes are occurring in their payment preferences? Answers to these questions offer new
opportunities for expanded services that improve the consumer’s shopping experience, prompt more frequent
visits, increase average order value and boost sales. By offering more payment options at checkout, online
merchants can expect to see fewer cart abandonments and more sale.

Strategy # 3: Protect Your eCommerce Bottom Line
Online fraud collectively costs merchants billions of dollars each year. Fortunately, fraud losses declined in
2009 for the first time in six years, indicating that improved fraud detection and prevention efforts are having
a measurable effect. However, the back-office and personnel costs associated with managing online fraud
continue to grow. High fraud rates on international online transactions have not declined, either. And the
face-off between fraud perpetrators and merchants continues to escalate in intensity and complexity. When
merchants bolster protection in one area, criminals soon find new weak spots, triggering another round of
costly fraud detection and prevention measure.

Strategy # 4: Leverage Your Business Intelligence
One important advantage that online businesses have over traditional brick-and-mortar stores is the ability to
collect detailed information about what customers do when they visit the Web site. Online merchants can not
only see which products individual customers purchase, but they can also gain visibility into the pages they
visit, how long they spend on the Web site, how often they abandon shopping carts, and many other types of
information.

Closing thoughts
As the eCommerce channel continues to grow across geographies and vertical markets, it will soon represent
more than 10 percent of total retail sales. It is no longer a novelty, and merchants are finding innovative new
ways to make their online business an important driver of future growth.
Security First Merchant Services is a business-focused payment solutions company that strives to provide payment processing, small business loans, and credit repair services with a high level of detail and flexibility.

Greg Blackman/ Increasing Card Usage at the Point of Sale

One major incentive for merchants to migrate transactions from cash to cards is to reduce their cost. It is surprising how few merchants recognize the costs, time, security risk and logistics efforts of doing business in cash.

For example, transporting cash between their place of business and bank is both time consuming and a potential security risk to merchants; high levels of cash transactions also increase the risk of pilfering by the merchant’s own employees.

Counterfeit bank notes are often used at high traffic merchants where detection is considerably less than for instance at a Bank. Traditionally retailers must invest considerable time and effort in training cashiers to spot counterfeit notes however, due to high staff turnover this effort trully adds to the HIDDEN COST OF MANAGING CASH to all Merchants.

BENEFITS OF ACCEPTING CARDS

Merchants that enable cardholders to pay by card are likely to see increased transaction volumes. Accepting card payments translate that the merchant will not lose the business of customers who want to make high value purchase however, does not have the correct amount of cash on them. At the same time, EQUATED MONTHLY INSTALLMENTS [EMI] payment plan are being developed to enable cardholders to pay for high value goods on their card instead of the old fashion LAY AWAY option.

INCREASING CARD USAGE AT THE POINT OF SALE

Today’s merchant can offer and do many things to increase their electronic transactions at the point of sale.

[1] Increasing payment options for consumers- Accepting transactions on a wider range of payment channels such as WIRELESS: Is a great advantage to both Urban and Rural consumer who traditionally make cash payments.

[2] Equated Monthly Installments (EMI)- Merchants who can espand the number of cardholders to use EMI payment option are well poised to gain from an increase in large ticket purchase.

[3] Segmentation- Has had inmense success in several markets. The Youth segment, which is already comfortable using a vast range of technology stemming from mobile phones to internet, has proven to be strong preference to cards over cash when campaigns targeting debit cards use were developed.

[4] Phones- Enabling voice based payment platforms for goods ordered on the phone with a local merchant or internet with cash on delivery option are of special value for retailers who provide home delivery service {Your Favorite local Pizzeria}. Phone based payment system can enable collection of the cardholder’s details with a simple phone call instead of limiting their purchasing power to the cash available on hand to pay for the delivered goods or services. This system will also resolve cash management issues for the transportation industry as well.

Security First Merchant Services is a business-focused payment solutions company that strives to provide payment processing, small business loans, and credit repair services with a high level of detail and flexibility.

Greg Blackman / Google Wallet is Coming!

Google Wallet is coming. Get ready!!.
The mobile revolution is affecting every part of life, from music, to computing, to photography. And very soon, the millions of Americans who own mobile phones will no longer need their old leather wallets either. All of the credit cards, offers, loyalty and gift cards those wallets hold will migrate to their devices.

How it works
Google Wallet couldn’t be easier to accept. Your team member rings up a purchase, asks “Cash, credit or Google Wallet?”, and may have to push the terminal’s credit button. The customer enters a PIN on the phone, taps the terminal’s reader with their phone…and that’s it. Done. No change, no hassles.

WIRELESS CONNECTIONS

A Google Wallet enabled phone includes a secure chip and a radio frequency antenna (aka NFC or Near Field Communications). When the phone is tapped against a contactless reader, the phone transmits payment details wirelessly, the consumer receives verification, and no card ever gets swiped.

SECURE TRANSACTIONS

Credit cards are stored on a secure chip inside the phone, which is protected by both a PIN and screen lock. The secure encryption technology of MasterCard® PayPass® protects your credit card credentials as they are transferred from the phone to the contactless reader. Together, these security features go beyond what’s possible with traditional cards.

Security First Merchant Services is a business-focused payment solutions company that strives to provide payment processing, small business loans, and credit repair services with a high level of detail and flexibility.

Greg Blackman / Transaction Alerts via Email and Cell Phone

The system will allow users to set transaction amount notification thresholds. If a transaction is suspicious users can immediately call a 800 number to report it. Today it takes about 90 days on average to detect identify theft and about 75 days for bank card fraud.

This type of notification service has the potential to dramatically reduce that. So in short, Visa/MasterCard is shifting fraud screening and prevention costs to cardholders.

Security First Merchant Services is a business-focused payment solutions company that strives to provide payment processing, small business loans, and credit repair services with a high level of detail and flexibility.

Greg Blackman / Wireless Alternative Payment

Starbucks said last week it has seen plenty of customers interested in using smartphones to pay for their coffee.

The coffee giant is now using barcode reading technology in payment apps on iPhone, BlackBerry, and now Android smartphones rather than waiting for up to three years for Near Field Communication (NFC) chips to be widely available on smartphones in the U.S., Starbucks executive Chuck Davidson said.

At the same time, the Starbucks executive didn’t dismiss NFC technology, which is widely viewed as more sophisticated than barcode scanning. However, there are a number of barriers to widespread NFC adoption in the U.S.

NFC technology allows for two-way communication between a device and an NFC terminal at a cash register or pay station. Barcode scanning is a one-way gathering of data that’s contained in a barcode.

The NFC’s two-way communication would allow a merchant, bank or credit card company to send data, such as customer loyalty information, coupons or an actual payment via the NFC terminal in a store to a smartphone. The recently announced Google Wallet concept builds on that capability. The NFC technology has led to multiple marketing scenarios. For example, a user’s GPS location could be paired with a just-completed purchase to recommend a nearby restaurant or movie. Or a savvy retailer at a competing store could offer a 15% discount on a similar product the user just purchased via NFC at a different store.

Starbucks does offer plenty of information to users of its smartphone barcode system by offering a less sophisticated two-way communications via the wireless cellular network.

With a Starbucks card, users can upload funds from a major credit card over the Internet. The balance on the card is accessed from the smartphone via the cellular network (or perhaps Wi-Fi). If the balance exceeds the purchase amount, the smartphone user can authorize the payment and scan the barcode over the reader in the store.

The Starbucks system lets customers detect whether they’ve bought enough of the company’s products to qualify for a free coffee or add money to the card by using a smartphone connected to the Internet. Starbucks also allows users to find nearby Starbucks stores from the app over a cellular network.

The biggest difference in barcode scanning in the Starbucks case and NFC is that the latter can actually route a request to pay for something to a user’s bank and credit card through the store’s NFC terminal. The NFC payment process would be like using a credit card (or debit card) instead of a pre-paid gift card, which is essentially what the Starbucks card is.

NFC also allows smartphones to be used to pay for items or services purchased at any vendor that recognizes the technology. The Starbucks card only works at the company’s stores.

In South Korea, Japan and some European cities where NFC is widely used on smartphones, users can quickly enter a PIN and then swipe the device near an NFC terminal to signify that the amount is correct.

“If  NFC were just a way to replace the magnetic stripe credit card — which is what the barcode system is — with your phone, than an alternative payment solutions such as what Starbucks has implemented may suffice,” noted Mark Hung, an analyst at Gartner. “But it wouldn’t scale very well, as you’d need a separate app for each merchant.”

Beyond making payments, NFC technology allows for transmission of coupon offers, promotions and loyalty information “with a single tap,” Hung added. “This is much more powerful than what can be accomplished with barcode technology.”

Hung said that despite the Starbucks current success with barcode systems, its unlikely to spread to many other retail operations.

“NFC does have traction [in the U.S.] but it just takes time for there to be enough critical mass to make it interesting for merchants,” Hung said. However, he did agree with Starbucks officials that it will take two to three years before NFC is widely used in the U.S.

“The Starbucks [barcode] experiment is actually a very positive development for NFC,” Hung concluded. “It shows that people are willing to pay using their phones.”

Trusted Financial Services for Small Businesses and Individuals.

Security First Merchant Services is a business-focused payment solutions company that strives to provide payment processing, business loans, and credit repair services with a high level of detail and flexibility.

Greg Blackman / The Cost of Alternative Web-Pay Providers

In short, I welcome you all to read this article that focuses on some of the unappealing components that these alternative payment types offer to consumers, this article was written a few years and it is still applicable today unfortunately, the title of the Article is: BEWARE of WEB-PAY Alternatives written by Kelli Grant of the Wall Street Journal.

3 Reasons to think over before using these alternative payments

I Your Credit Score Could Take a HUGE Hit. Trying to get away from accepting plastic? Be cautious about services like PayPal’s Pay Later and Bill Me Later, which function as a line of credit. “Any new account, especially one that immediately carries a balance, is considered a risk on your credit report,” said Gerri Detweiler, a credit adviser at Credit.com. Opening one new account could push a credit score of 707 down to 697 for six months, according to Fair Isaac Corp.’s FICO Score Simulator. Even worse: Your score could drop by as much as 100 points if you come close to maxing out the line of credit, said Ms. Detweiler. For someone planning to shop for a mortgage, home equity line of credit or other loan, the difference could lead to higher interest rates and thousands of dollars more in payments. Even if you aren’t planning to make a big purchase, a drop in your credit score could prompt your creditors to raise the rates on your existing accounts.

II You Will Pay High Interest Rates. If you carry a balance with alternate-payment services, you face exorbitant interest rates. PayPal’s buyer-credit option charges a variable 22.75% annual rate and Bill Me Later has a variable interest rate of 19.99%. Cost Analysis: Standard credit cards carry an average variable rate of 13.89%, according to Bankrate.com; consumers with good credit this rate usually is substantially lower.

III You’ll Get Weaker Protections. Security is frequently touted as one of the upsides to alternate-payment programs. After all, there is no credit-card number to steal. Kelli Grant “[Fraud] coverage is extremely limited, and whatever protections the service does give you are voluntary.” When it comes to your credit card, federal law dictates what your liability will be if someone makes an unauthorized purchase. The law also protects a consumer’s right to dispute charges on their account for incorrect billing and defective items, among other problems. Bill Me Later, eBillme and PayPal have zero-liability policies for unauthorized charges (no matter what method you use to pay), but their policies are somewhat weaker when it comes to disputes.

Security First Merchant Services was founded in 2008 in response to a financial environment that made it difficult – if not impossible – for smaller companies and merchants to find affordable, accessible options for payment processing, credit repair and short-term loans.

Greg Blackman / Our Industry...Gone Crazy?

While both Visa and MasterCard have mandated support for $0 verifications, many card issuing banks have not yet built support for these types of transactions. We have noticed that some Visa $0 verifications will fail with a response code indicating that either the amount or type of transaction is not supported by the card issuing bank. To help maximize the success rate of verification attempts, implementing new logic that will automatically retry with a $1 authorization request (the old behaviour) if the initial $0 verification fails due to a lack of support by the issuing bank. With this you can now be completely confident that any unsuccessful verification attempts failed for valid reasons (the account has been closed) rather than a lack of support by the issuing bank for $0 verifications.

Processor response codes that will trigger the $1 authorization retry are:

2019 – Invalid Transaction
2048 – Invalid Amount
2015 – Transaction Not Allowed
2023 – Processor Does Not Support This Feature

Passing CVV With Vault Tokens Via The API
Per popular request, we now allow you to send a transaction request with a CVV code while using a token for a card that is stored in your Vault. PCI DSS regulations strictly prohibit merchants and processors from storing CVV values, so you would need to request that your customers enter the CVV value each time they elect to use a saved credit card from your Vault. You can then pass the CVV with either a customer id or credit card token. The CVV is still not required when creating a transaction using a Vault-stored card, but if it is included with a request, we will run any CVV rules configured in your account on the transaction; if the CVV is not included, we cannot run your CVV rules.

Greg Blackman / The Rise of Credit and Debit

The Rise of Credit and Debit
Credit and debit cards have increasingly become the preferred methods for consumers to pay for goods and services, making these forms of electronic payments an indispensable way for merchants big and small to conduct business. The trend of rising usage is predicted to continue for some time. Credit and debit card transactions surpassed more than 50% of all non-cash transactions by 2006, up from 42% in 2003, according to a tri-annual study by the Federal Reserve.

Thus, as time passes, it’s no surprise cash has lost out to almost every form of electronic payments in stores. Cash transactions, at 10 per month in 2010, represented 26% of a customer’s in-store purchases, down from 39% in 1999, according to a 2008 study by Hitachi Consulting and BAI. Credit cards decreased over the time period, from 22% to 19% transactions per month — while debit cards continued their rise, accounting for 14 transactions per month in 2010, or 42% of all purchases, up from 21% in 1999.

On the Internet, it’s a similar story of dominance. Credit and debit cards made up 74% of all purchases in 2008 (Internet payment services – mainly PayPal – accounted for another 19%). And it’s just the beginning for growth in the category: e-commerce comprised just 3.3% of total retail sales in 2008, up from 2% in 2004.

Credit Cards
The concept of a charge card dates back to the 1920s in the United States, when it was used to sell fuel to the nascent market of automobile owners. In 1938, companies started to accept each other’s cards. Yet it wasn’t until Bank of America Corp. launched “BankAmericard” in 1958 did the modern day concept of the credit card exist. This was the first product of revolving credit that was issued by a third-party bank and accepted by a large number of merchants.
Until then, cards tended to be issued by merchants and were accepted by only a handful of other retailers. Later, a group of banks in 1966 issued Master Charge to compete with BankAmericard, the precursor to the Visa® system. MasterCharge evolved into MasterCard®.

Visa and MasterCard were originally owned by groups of banks; they now have been spun off as separate, publicly-traded companies. Risk, from a cardholder perspective, is borne by the banks that use the brands on the cards they issue. In the credit card world, there are also card brands that act as issuers themselves – American Express® and Discover® – and those companies assume the risk of extending credit to their cardholders. However, since a 2004 Supreme Court ruling in Discover’s favor upheld a lower court’s ruling that Visa and MasterCard could not prevent their issuing banks from also issuing a Discover card, Discover and American Express have moved to create open loop environments where banks can issue their cards.

Credit cards are accepted by most merchant types; historically, they were most frequently used for discretionary and luxury purchases such as travel and entertainment, department stores, and restaurants. They were also commonly used to purchase gasoline. In the 1980s and 1990s, they became a popular option for customers at discount stores, grocery stores and drug stores.
Credit cardholders carry an average of four credit cards in their wallet, but use just 2.2 of them in a given month. Visa represents 43% of all general purpose cards carried, while MasterCard holds 36% of the market share. About 54% of cardholders pay their balances in full, versus 46% who carry a balance (these are also known as “revolvers”).

Rewards have also become a popular feature. About 76% of credit cardholders receive rewards on at least one card, with 51% saying the rewards have a strong impact on usage. All told, 58% of all credit cards
earn rewards.

Debit Cards
Debit now ranks as consumers’ favorite way to pay, with 38% saying they prefer the method for in-store transactions, followed by cash and credit cards at 28%. Debit remains most popular in its traditional venues: grocery stores, drug stores, and discount stores, yet it is also a popular choice at department stores, gas/convenience stores and restaurants.

In fact, debit cards have become so popular they have begun to overtake credit in the United States in terms of dollar volume. For example, Visa debit cards generated $1.09 billion in volume in the fourth quarter 2008, compared with $952 million for the network’s credit cards, according to a Mercator study.
This dovetails with the first year-over-year decline on record of consumer revolving credit, which fell to $931 billion in 2009, down from $963 billion in 2008. Time will tell if this is due to the recent recession or a sign of a more permanent trend.

Signature Debit vs. PIN Debit
Debit cards, which are linked to customers’ checking accounts at banks, come in two forms:
signature-based and PIN-based. Both capabilities typically reside on the same card. Signature-based debit
transactions (also known as “offline debit”) tend to be routed through either MasterCard or Visa, much like a credit card transaction. These transactions are debited from a customer’s account about two days after the purchase – similar to credit transactions. The process uses two separate messages for authorization, clearing and settlement. Consumers typically do not pay a fee for signature-based transactions, and the logo for the association is on the front of the card.

PIN-based debit (also known as “online debit”) requires the consumer to enter a personal identification number – four to 12 digits long – at the point of sale (POS); the transaction is then routed through electronic-funds-transfer (EFT) networks such as STAR®, Pulse®, NYCE®, MAC®, and SHAZAM®. These all require users to enter a PIN for both ATM and POS transactions. PIN transactions also can be run through EFT networks at MasterCard (Maestro®) and Visa (Interlink®). The PIN-based format uses a single message for authorization, clearing and settlement. Unlike signature debit, the customer’s checking account is debited immediately, much like an ATM withdrawal. And also similar to an ATM withdrawal, the issuing bank may charge the customer a fee to make a POS purchase.

Yet for merchants, fees for accepting PIN-based debit transactions have historically been lower than those for the signature-based option – the need for a valid PIN combined with the immediate debiting of funds makes them less risky, thereby translating to a lower cost. Signature-based debit cards, on the other hand, come with higher fees to account for their greater risk, in part due to the chance that the user might be forging a signature.

And that’s why Merchants are accepting Credit and Debit Cards more and more today.

Trusted Financial Services for Small Businesses and Individuals.
Security First Merchant Services is a business-focused payment solutions company that strives to provide payment processing, small business loans, and http://www.securityfirstms.com/credit-repair.html with a high level of detail and flexibility.

Greg Blackman / The Small Business Credit Card Market

The retreat from this market by many lenders during and immediately after the recession creates an enormous
opportunity now that economic conditions are finally improving. Not only does the small business credit card
market represent a huge and lucrative business, it’s up for grabs like never before. What’s more, many of
these small businesses are getting healthier as the economic recovery takes hold and will soon need access to
additional credit to finance their growth. In fact, one-fifth of all small businesses in the U.S. applied for a new
credit card in 2009 (75 percent of these applications were successful), and this number is expected to have
increased in 2010.

Until 2000, small financial institutions were active issuers of small business credit cards. However, last decades technology changes and evolving economies of scale ultimately resulted in a highly consolidated competitive landscape for credit cards. Many small issuers eventually sold their portfolios to larger institutions. By 2008, only 36 percent of U.S. financial institutions were still issuing credit cards.3 And according to the SBA, by 2009, institutions with assets of $10 billion or more controlled 82 percent of micro-business loans (including credit cards).

Given that the U.S. economic recovery is gaining momentum—2010 GDP figures exceeded estimates and
prompted upwardly revised predictions for 20115 —it’s not a stretch to presume that small businesses will be
growing, too and increasingly requiring access to credit. In light of all this, community financial institutions should rethink their decisions to cede control of the small business credit card market to the largest banks.

The technology constraints that helped to force small financial institutions out of the business a decade ago no longer exist. Back then, a card issuer’s choices were few: it could decide to implement and administer its own in-house solution, or it could cobble together a patchwork of external services to handle the multitude of card administration chores. Both of these approaches were costly and inefficient, and many institutions reluctantly sold their portfolios and exited the credit card business. Today, however, full-service credit issuing solutions are robust, flexible, comprehensive and cost-effective. Services are available that can handle everything from origination to remittance and collections.

For example, it is unnecessary for banks to deploy expensive call centers for inbound customer service calls; the leading solution providers offer cost-effective 24/7/365 customer call center support for credit cardholders. Nor do banks have to worry about creating or maintaining Internet banking Web sites to accommodate their online credit card customers. Solution providers offer sophisticated Internet banking applications customized with a financial institution’s desired look and feel. Partners such as Security First Merchant Services, LLC can also support dynamic statement printing, e-delivery and mail services incorporating the messaging and branding of the financial institution.

Additionally, these solution providers allow a bank or credit union to define and adjust its own credit
administration procedures—including underwriting guidelines, credit limits, balance-transfer policies and
other parameters related to individual accounts or the entire portfolio. Even concerns about fraud are better
addressed today than in the recent past. Providers of the more sophisticated credit card management services use neural networks for fraud scoring and decisioning systems to check every transaction for potential fraud, and to verify suspicious activity with cardholders.

Security First Merchant Services is a business-focused payment solutions company that strives to provide payment processing, small business loans, and credit repair services with a high level of detail and flexibility.

Greg Blackman / Another Debit Network?

These dramatic changes will impact the business of every issuer of debit cards.
In December 2010, the FRB announced proposed rules to implement Section 1075 of the DFA and solicited comments from card issuers, networks, merchants, processors, consumer advocates and others. In March 2011, the FRB announced that it plans to issue final regulations on debit interchange fees, network exclusivity and merchant routing by July 21, 2011. Once the final rules are issued, financial institutions (FIs) and others in the payments industry may only have a few months to comply with certain aspects of the regulations.

Over the last few years, the payments industry has not been able to escape the increased government intervention that has affected many sectors of the U.S. economy.

Accordingly, now is the time for banks and credit unions to start planning for how to adapt to the changes—whatever they ultimately may be. By being proactive, executives can position their companies advantageously relative to the inevitable changes.
Specifically, FIs need to plan for the Durbin provision and the pending FRB regulations related to the prohibition on debit network exclusivity and routing restrictions.
Designed to give merchants a choice of networks over which a debit card transaction may be routed, this provision requires issuers to participate in at least two unaffiliated debit access networks.

The FRB is considering two options for this requirement:
(A) requiring all card issuers, regardless of asset size, to participate in two unaffiliated
debit access networks; or (B) requiring all card issuers, regardless of asset size, to
participate in two debit networks per authorization method (e.g. two unaffiliated signature debit networks and two unaffiliated PIN debit networks). Either way, many FIs will need to select at least one additional network to work with.

Financial institutions should be aware that there are important strategic benefits to picking an additional network—irrespective of the pending regulations. Now is the time for issuers of all sizes to form strategic partnerships with organizations that provide a greater breadth of options and deeper value propositions—especially when the future regulatory environment is highly uncertain.

In Closing
The Federal Reserve Board’s final rules are yet to be determined, but one thing is fairly certain: many financial institutions will need to choose a new or additional PIN debit network partner to comply with the forthcoming regulations. While it is not yet known which network non-exclusivity alternative the FRB will choose, or what the final implementation date will be, card issuers should start evaluating their options and determine which additional network or networks they will add to their payment processing capabilities to ensure they are in compliance.

The traditional approach of choosing a debit network solution based solely on interchange revenue potential will no longer be valid. Instead, FIs must choose their network partner(s) based on long-term value, opportunities for growth, and a strategic business advantage.

Important considerations include:
• Acceptance
• Operational Capacity
• Fraud Mitigation and Risk Reduction
• Future Proofing
• Relationships

The proposed regulations are an important reason for FIs to consider expanding their network partnerships; however, savvy FIs understand the strategic benefits of taking action irrespective of regulatory mandates to maximize the diversity of their networks, prepare for the future and better address the needs of the market and their cardholders.

Not only should FIs carefully consider all of the strategic implications of selecting additional debit network partners—they should act quickly in order to mitigate risks and capitalize on potential first-mover advantages in the altered payments landscape.

Trusted Financial Services for Small Businesses and Individuals.
Security First Merchant Services is a business-focused payment solutions company that strives to provide payment processing, business loans, and credit repair services with a high level of detail and flexibility.