FREE! POS System Offered [Powered by HarborTouch]

REVOLUTIONIZE YOUR BUSINESS FOR FREE!  THE POINT OF SALE SYSTEM THAT WILL

Greg Blackman /FREE!  POS System Offered [Powered by HarborTouch]

It has never been easier to take advantage of the benefits of a point of sale (POS) system. Harbortouch offers a full-featured POS system without all the hassle or the high cost. We have simplified the process so you can easily transition from your current transaction terminal to a state of the art touchscreen POS system that will streamline your business operations and automate your daily management activities. Harbortouch offers countless time and money saving features that will allow you to focus on what’s important: keeping your customers satisfied and spending!

STREAMLINE YOUR BUSINESS
Combine multiple operations into one easy-to-use application Accept cash, checks, credit and debit directly through your POS system.
*Track inventory and monitor stock depletion
*Manage employee schedules and productivity
*Track employee hours with a built-in time clock
*Comprehensive reports provide a top-level picture of your business

SAVE TIME AND MONEY
Increase checkout efficiency
Inventory tracking minimizes shrinkage
Reduce checkout and pricing errors
Robust reporting saves time and reduces accounting/bookkeeping expenses

THE COMPLETE PACKAGE
The Harbortouch POS system is easy to use, easy to maintain and features an extremely durable, high clarity 15″ touch screen display, lightning fast processor and abundant memory. This POS system has a small footprint, allowing you to place it just about anywhere in your business and its rugged design is liquid and tamper resistant. Unmatched in durability and reliability, a Harbortouch POS system will provide a point of sale solution for years to come. Not only that, but every Harbortouch POS system comes with a lifetime warranty! **If the equipment ever breaks or malfunctions, we’ll replace it for free!

TURNKEY SETUP AND EXCEPTIONAL SUPPORT
Each POS system is custom programmed to your specifications
Experienced and certified installation professionals make sure your system is set up correctly the first time
24 hour in-house customer service and technical support, complete with remote support

RETAIL FEATURES
*Monthly service fee and merchant account agreement are required.
**Merchant must maintain merchant account and service agreement for free replacements. Shipping and handling charges apply.

HARBORTOUCH RETAIL
Advanced reporting
Customer database
Inventory tracking
Employee management
Vendor database
Color/size/style matrix
Gift registry and gift receipts
Rentals and consignment
Layaway
Purchase order creation
Employee commissions
Flexible pricing
Integrated payments

CONTACT YOUR HARBORTOUCH SALES REPRESENTATIVE TODAY!
SALES REPRESENTATIVE: Greg Blackman / Joseph Ulmer
TELEPHONE NUMBER: 877-671-2511 [Greg-x 203 /Joseph-x202]
E-MAIL ADDRESS: gblackman@securityfirstms.com /julmer@securityfirstms.com

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

Name(required)

Email(required)

Website

Comment(required)

Submit

Δ

Related articles

• Harbortouch and Tabbedout Join Forces to Integrate Mobile Payments with Free Point-of-Sale System Program (virtual-strategy.com)
• TabbedOut Scores Deal With Point-Of-Sale Maker, Will Allow Customers To Pay Their Restaurant Or Bar Tab Via Their Phone At 10,000 Locations (techcrunch.com)

eWallet’s Impact

Greg Blackman / eWallet’s Impact

By the time consumers are bombarded with Black Friday shopping deals, we must acknowledge that the leg work began in June and a question from retailers [Cash, Credit or Debit?] that is now customary at the checkout counter may include another option this Xmas shopping season. Big retailers, including 7-Eleven, Best Buy, and Wal Mart, stated just last week that they were forming a company that would offer a way for customers to pay for purchases with their smartphones [or an eWallet, Point of Sale Solution] , joining a wide array of businesses seeking a piece of this market.

Black Friday shoppers at Walmart (Photo credit: Wikipedia)

Other than announcing the formation of the payment network, to be called SFMS [for example], the companies gave few details about how their mobile system would work or when it would be released. They said that their payment application would be available for virtually any smartphone, and that it would use a secure technology to process transactions.

Wal-Mart checkout (Photo credit: Wikipedia)

So far they are a few companies that have expressed interest in forming an alliance that will assist in the development of an eWallet system and by the time this post is broadcast there will be a substantial number of company who will b joining these retailers as well.

In my humble opinion the above mentioned merchants [7-Eleven, Best Buy and Wal Mart] are in the best positions to deliver an eWallet payment solution to billions of shoppers, which collectively have reported $1 trillion in annual sales, know their patron’s shopping habits and payment preferences, so it would make sense for them to work together.

Point Four Touch Point of Sale Till (Photo credit: Cyberslayer)

This announcement came shortly after Starbucks stated that they are teaming up with Square, a company that lets people make purchases with their smartphones.

In addition to Square many types of businesses are hoping to make an impact with the eWallet platform, including phone carriers, credit card companies and big tech companies like Google and Microsoft.

As with every innovation there will be nay sayers expressing their opinion however, we must remember that there’s generation that has no concept of the impact that an 8 track tape player had on my generation.

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.

The Cost of Credit Card Data Theft

Greg Blackman / The Cost of Credit Card Data Theft

Primarily using Web based forums and chat rooms, potential buyers and sellers of stolen data negotiate deals, contract for the services and share information. Yet even though it is “underground,” the fraud-based economy is subject to the same supply and demand pressures of any other economy.

According to Report on the Underground Economy, which followed a year in the life of the underground economy, between July 2007 and June 2008, the value of the advertised goods on underground economy Web servers was in excess of $276 million. Among the most popular goods that cybercriminals routinely buy and sell are credit card data and bank account credentials.

At the top of the list of most popular items for sale, as well as the most requested for purchase, is credit card data, the study found. That’s because credit cards are inexpensive to buy and have the potential for high profit. With a wide variety of ways to steal credit card information, such as phishing schemes, skimming magnetic stripes and breaking into databases, credit card data is plentiful and relatively easy to convert to cash.

For example, stolen cards are easy to use for online shopping and may go undetected by merchants long enough for fraudsters to complete transactions and receive goods that can be resold for cash.
The potential worth of all credit cards observed for sale during study yearlong reporting period was estimated to be $5.3 billion.

Stolen financial account information comes in second place on the list of most popular items for sales in the underground economy, selling for $10 to $1,000 per account (with an average account balance of nearly $40,000). Financial accounts include bank account credentials, online stock trading accounts and data from magnetic-stripe skimming devices.

Financial accounts are attractive targets because the process of cashing out can be easier than retrieving cash from credit or debit cards via ATMs. Withdrawals from a bank account also have the advantage of an immediate payout, while stolen credit cards are often used for purchasing goods that must be sold later. The potential value of all bank accounts advertised on underground economy servers during the reporting period was $1.7 billion.

In Closing
Whether it comes from a notorious cybercriminal or an anonymous virtual criminal infiltrating the online world of Second Life, fraud is an insidious crime that continues to gain momentum only through the growth of the underground economy and the increasing sophistication and organization of cybercriminals.
With attacks coming in many different forms and from many different channels, consumers, merchants and financial institutions must gain a better understanding of how criminals operate, especially in newer venues like Facebook. Then, they have a better chance of mitigating the risks and recognizing attacks before they do serious damage. Understanding the nature of both data theft and the conversion of stolen data into cash can help organizations of all types better anticipate where criminals may exploit the system, so they can put appropriate preventive measures in place.

A reminder: “The Cost of Credit Card Data Breach part 2”

The Largest Credit Card Data Breach in Payment Processing History!!

TJX, the parent company of T.J. Maxx, Marshall’s, and other retailers, disclosed in a Securities and Exchange Commission filing last week that more than 45 million credit and debit card numbers may have been stolen from its IT systems over an 18-month period, making it the largest customer data breach on record. TJX revealed the cybertheft in January but had declined to provide details. The SEC filing indicates a company with haphazard data security practices, at best.

TJX doesn’t know “whether there was one continuing intrusion or multiple, separate intrusions,” according to the filing. TJX discovered the break-in on Dec. 18, and it most likely dates back to July 2005. The cyberthieves may have stolen card data from TJX’s Framingham, Mass., computer system during the approval process, in which payment data is transmitted to card issuers without being encrypted.

While the majority of American media is glued to the quadrennial spectacle that is the Presidential inauguration, Heartland Payment Systems has uncovered a piece of malware hidden in their payment processing system. This has apparently lead to what may be the largest data breach ever.

Heartland Payment Systems, a credit card payment processor, apparently chose the completely innocuous day of January 20th, 2009 to inform the world that a data breach occured, and that it did not affect any “merchant data or cardholder Social Security numbers, unencrypted PINs, addresses or telephone numbers”. What possibly was affected, however, was every credit card number that traversed their payment processing system.

Anyone who used a Visa or Mastercard at one of a quarter of a million businesses may have been affected. For the small number of you who fall into this category, I recommend going through your old credit card statements just in case you were one of the victims. In all honesty, the probability of any one person being victimized by this is pretty slim, but vigilance is never a bad thing.

Heartland has apologized for the incident, and has put up a website at 2008breach.com to communicate with the public about the issue.

The above Data Breach would never and will never occur with any Security First Merchant Services, LLC Merchants or Clients hence, our name and obvious mission statement Security First Merchant Services, LLC founded by Greg Blackman; contact us today and begin to process your hard earned credit card transactions securely, fairly and timely.

Free Equipment?

Greg Blackman / Free Equipment?

Free Equipment – An Investment For The Provider?
Of course, the merchant account provider will only provide the free equipment if you sign up with them for a merchant account. So if you wondering why the providers would actually give up the profits on the equipment? the answer is simply that the free equipment is viewed upon as an investment; truth be told, if you believed that answer, then there’s bridge here in the Bay Area that is GOLDEN and I would very much like to offer that bridge to you for free as well however, I would not sleep very well if that were the actual situation. All who live in the Bay Area is aware of the fact that you must pay a toll of $6.00 to cross the Golden Gate Bridge.
Here it is folks, providers are aware of the fact that our industry is very competitive and that merchants are always shopping rate; the cost of the so called free equipment is incorporated or factored in the discount rate and other processing fees, add a term contract of three to five years and the free equipment will ultimately cost the merchant 4 to 6 times the retail value of the equipment (all providers pay wholesale for the equipment) through the three to five year term of the contract; at the end of the term, if the merchant wishes to change provider the previous provider in most cases will demand the return of the so called free equipment which in reality has been paid for many times. That’s precisely why you will not see an ad from Security First Merchant Services offering free equipment.

Low Processing Rates
Qualifying for the best credit card processing rates is very complex. For most merchants, doing this in-house is next to impossible because of the difficulty of finding, understanding and verifying all of the relevant information. It’s important to understand this because the majority of providers only advertise and disclose the lowest fees and hide all of the higher rates that are charged when a merchant isn’t meeting processing requirements (see the example of a trusted brand advertising lower rates and hiding the higher fees). We’ve always been and continue to be outspoken critics of this practice.

Costco advertises unbeatable credit card processing rates of 1.48% and 1.99% in their November 2009 magazine. The problem? It’s like a national long distance provider advertising a flat $.05 per minute that actually only includes calls within your zip code.

And the first benefit Costco touts regarding their services? “No Hidden Fees”

Any business that accepts credit cards will tell you that this advertisement is misleading. If a merchant were to actually sign up, expecting to pay these rates, they would be unpleasantly surprised to find out that the rates are:

* 1.48% and $.20 for swiped transactions
* 1.99% and $.27 for non swiped transactions
* 2.96% $.32 for rewards, business, corporate, non-AVS, authorizations not settled within 24 hours, and a host of other conditions.
* 3.80% $.32 for government or international cards

I don’t know about you, but that’s a minor * that I would want to know about before buying and these were their actual advertised rates in 2009.
With Security First Merchant Services, YOU the Merchant are our Number 1 PRIORITY and it is indeed our true privilege to be of service to YOU.

PCI / POS

Greg Blackman / PCI~POS

Cardholders security is our first priority. We continually partner with top tier companies that invest in tools and technology to protect our clients’ data and their customers. We assist you in becoming industry compliant by providing the education and tools required to minimize fraud and avoid penalties.

The Security First Merchant Services Advantages
To ensure security and compliance, every global Security First Merchant Services business unit that deals with cardholder information is independently validated for compliance with the PCI Data Standards by a certified PCI assessor on an ongoing basis. Every two years, the Federal Financial Institutions Examination Council (FFIEC) conducts a full examination of Security First Merchant Services partner to validate proper controls and security measures are in place to ensure data is secure and properly handled. In addition, we use Fraud Risk Identification Services to assist in identifying potential fraudulent transaction activity throughout the transaction process.

Key Components
Industry compliance standards include: Cardholder Information Security Program (CISP), Payment Card Industry (PCI) Data Security Standard (DSS)
Compliance with all industry encryption standards for the transmission of data
Work with third parties to provide the tools necessary to ensure merchant compliance

Consumer Payment Preferences

Greg Blackman / Consumer Payment Preferences

The 2008 Study of Consumer Payment Preferences conducted by Hitachi Consulting. An online survey was completed by 3,308 U.S. consumers in June 2008, which was administered by the Harris Poll Online. The survey was designed to collect primary consumer data profiling the current payments environment and future outlook. The survey instrument included five parts: 1) In-Store Payment Preferences; 2) Internet Payment Preferences; 3) Bill Payment Preferences; 4) Cards (including credit, debit and prepaid); 5) Emerging Payments. This Market brief provides key findings for in-Store Payment Preferences.

KEY INSIGHTS

1. Electronic Payments Growing and Account for Majority of In-Store Payments
Electronic payments account for 63% of all in-store payments. Debit now has the highest share of in-store payments at 37% compared to 22% of payments made by credit card.

2. Card-Based Payments are Replacing Checks and Cash in Stores
Debit’s share of payments at the point of sale exceeds both cash as well as credit cards.

3. Debit Reigns as Consumers Favorite Payment Method for In-Store Purchases
37% of consumers prefer using debit cards to make purchases in stores followed closely by cash at 32%.

4. Payment Type Varies by Retail Location
Payment use varies depending on where a consumer is and what he/she is purchasing. For example, debit remains most popular in its traditional venues of grocery stores, drug stores and discount stores.

5.Debit Usage Expected to Increase While Checks Decrease
Over the next two years, consumers expect to increase their use of debit and decrease their use of checks.

Loans

Greg Blackman / Loans

Secured
A secured loan is a loan in which the borrower pledges some asset (a car, property or Business) as collateral for the loan.
A mortgage loan is a very common type of debt instrument, used by many individuals to purchase housing. In this arrangement, the money is used to purchase the property. The financial institution, however, is given security — a lien on the title to the house — until the mortgage is paid off in full. If the borrower defaults on the loan, the bank would have the legal right to repossess the house and sell it, to recover sums owing to it.

A stock hedge loan is a special type of securities lending whereby the stock of a borrower is hedged by the lender against loss, using options or other hedging strategies to reduce lender risk.

Unsecured
Unsecured loans are monetary loans that are not secured against the borrower’s assets. These may be available from financial institutions under many different guises or marketing packages:
credit card debt
personal loans
bank overdrafts
credit facilities or lines of credit
corporate bonds

The interest rates applicable to these different forms may vary depending on the lender and the borrower. These may or may not be regulated by law.

Demand
Demand loans are short term loans that are atypical in that they do not have fixed dates for repayment and carry a floating interest rate which varies according to the prime rate. They can be “called” for repayment by the lending institution at any time. Demand loans may be unsecured or secured.

Loan payment
The most typical loan payment type is the fully amortizing payment in which each monthly rate has the same value overtime.
The fixed monthly payment P for a loan of L for n months and a monthly interest rate c is:

P= L . c (1+c)n
(1+c)n-1

Security First Merchant Services, LLC has access to full range of loan sources and we are totally dedicated in attaining and pairing you with the right loan, best rates, terms and cost to meet your unique needs. In addition Security First Merchant Services identifies the precise strategy for growth by offering working capital loans, operating capital loans, acquisition loans, commercial real estate loans and refinancing of existing loans as well.

The Evolution of Debit Cards.

Greg Blackman / The evolution of Debit, Credit Cards

Half of Americans with credit cards said they don’t plan to change the way they use them in 2009, 32 percent plan to charge less and 15 percent say they won’t use credit cards at all.
Even as credit cards take a less prominent place in our collective wallets, new technologies could be on their way that will make credit cards easier and more convenient to use than ever.

I think magnetic stripes will be replaced with other digital mediums that are much more secure. In places like Japan, people can already buy stuff utilizing their cell phones.
The widespread use of debit cards at a point of sale has eroded some of the business that might have gone to credit cards, and I think that the notion of a debit card with a line of credit in back of the account is a very good substitute for credit cards and something that will be used more in the future as Banks and Credit Unions might even be able to relate it to some collateral, like a home equity line or a business equity line. They are doing this already in Asia, but it tends not to be widely used at this point in the United States.

However, as the use of credit evolves, the cards themselves likely will be more useful.

Credit cards are going to become increasingly a mechanism for information transfer. As American credit cards catch up with their use in other parts of the world, the smart card technology will be used in many different ways. So I believe that credit, debit cards will become far more multifaceted and multi-functional.
Smart card technology has been around since the 1970s, but the current form has been used in Europe and Asia for about a decade. They are just beginning to gain acceptance in the United States. The core reason for slow acceptance here in the United States is due to most individuals here believe that a smart card will impugn their identity however, these same individuals drive vehicles with personalized license plates.
Instead of using a magnetic strip to store information, smart cards contain a microprocessor that stores loads of information. They can be used for security, as bank or credit cards, ID cards and to store health insurance information. They don’t even have to be cards. As mentioned above, the Japanese are finding that phones make an ideal medium.

The near-term outlook for credit cards may be somewhat grim, but the long term holds promise for the industry, and for consumers who are in the know about how they use them

Internet/Telephone Payment

Greg Blackman / Internet/ Telephone Payment

With each transaction, digital commerce is transforming the marketplace. Every day, merchants encounter opportunities and competition on an increasingly global scale. Although your customers may be down the street or on the other side of the globe, the demand for fast, safe and flexible payment options is universal. We bring more experience in payment processing and one of the industry’s broadest portfolios of eCommerce/Card Not Present (CNP) products to help you optimize existing processes, grow into new payment channels, and better integrate payment across multiple channels.
“PayWare Mobile”

Whether you are looking to establish, optimize, integrate or expand your Internet- and telephone-based payment capabilities, the Security First Merchant Services payment approach and process expertise enables you to derive additional value in the form of reduced transaction expense and risk, increased revenue and greater customer satisfaction.

Security First Merchant Services provide a variety of the most innovative point of sale equipment including the most popular point and click processing system interface. Our equipment can be purchased, rented or leased with features based on your point of sale needs and budget.

To learn about any special offers and for up-to-the-minute details about available equipment, please contact us.

Electronic Check Acceptance or ECA

Greg Blackman / ECA

Electronic checks (eChecks) capture new sales from buyers that do not have credit cards or simply prefer to pay by check. Electronic checks are a payment method which electronically transfers money from a buyer’s bank account to the merchant’s business checking account via ACH same route as their bankcard transaction deposits.

Over 75 million Americans do not have credit cards. Electronic checks give these customers a convenient, familiar and easy method to make purchases online.
Decrease Shopping Cart Abandonment: If a credit card is rejected, offer electronic check as a payment option. eChecks rescue sales that otherwise would be lost. Electronic check transaction fees are a lot lower these days than they were back in the good old days when I was rep working for a very large processor.

Increase Cash Flow: Electronic check processing ensures that payments are fulfilled. Automatic debits to the customer’s account eliminate the wait for a check to arrive by mail; as a rule of thumb, all approved eChecks transactions are funded to the merchant’s business checking account within 72-96 hours. Consumers expect to have multiple forms of payments offered at check out stand or shopping cart. If a consumer wants to pay by electronic check, a smart merchant will accommodate the buyer and close the sale. Electronic checks processing virtually eliminates preparing and mailing customer invoices. eChecks reduces administrative expenses and it is friendly to our environment.

Product Summary
Online Retailer Selling jewellery, purses, and gifts for women. Average ticket per sale of $400. There was a steady rise in the number of cards that were denied authorization at checkout. Upon closer examination, the merchant realized that consumers were paying for purchases with their debit cards, rather than credit cards. The debit cards had authorization limits imposed by the issuing bank, with an average transaction limit per card of $300. If the purchase price exceeded the limit, the card was denied or declined. Once the transaction was denied/declined, most customers left the site rather than call their issuing bank and request to have their card limit increased. Online merchants selling electronics are often victims of fraud. Cybercriminals use stolen credit cards to make purchases which are shipped out of the country before the fraud is discovered.

In short, all merchants are in business to engender wealth, why not avail your business to accept every form of payment that will certainly increase your revenue in a safe and secure platform? With Security First Merchant Services, LLC each payment processing program can be tailored to fit your specific point of sale needs, regardless of the type of business albeit, Restaurant, Retail, Internet or Mail Order/Telephone Order business; contact us today for a free cost analysis.

Choosing your Merchant Service Provider

Greg Blackman / Choosing your Merchant Service Provider

A common approach for merchants new to the industry is to choose a provider solely based upon price. I am not suggesting that getting competitive rates is not important. I am suggesting that price is one of many factors that should be considered. However, since other salient variables are unknown at the time, price usually ends up being the primary driver which can lead to some larger and more costly challenges. Even those that have years of experience with credit card processing fees struggle to truly understand enough to successfuly negotiate good pricing.

First, don’t allow PRICE to be your primary decision making factor
It’s understandable that watching your costs is the one of the most important parts of your business, but don’t let it be the primary driver when choosing a merchant service provider. Providers know this and so to appeal to your needs they advertise rates and fees that are not all inclusive. This industry is so competitive and the margins that merchant processors make are so small, get a competitive rate, but focus your energy on larger and more important issues. If you’re not convinced and still want to pursue price as your sole decision making factor, just know that the ‘creative’ selling strategies being used by some are really just part of a larger, and accepted culture in the industry. Here is an example.

Not all providers are made equal
Not all merchant service providers are made equal. Some only focus on specific business types while others are generalists. Some are upfront and straightforward while others are not. Some have best in class solutions while others have standard services. It will be helpful to ask the sales person your dealing with about their current customer portfolio to get an idea of the types of specializations they’ve developed.

Try not to Mix and Match solutions together
Find one provider that can meet all your business needs for example; if your business is selling goods and services online you may need credit card storage, a payment gateway, virtual terminal, risk and fraud management and echeck solution. What services you need depend on your acceptance channels such as website, phone, fax, mail and in-store point of sale solution. Make sure your provider can not only do all that you need however, exceed your business needs and do them well. Ask to look at their solutions before committing.

Do enough research about prospective providers to gain a level of trust
This industry is fundamentally very complex. As a business owner, you won’t have time to learn or keep up to date on everything going on in the payment processing industry. You will need to work with a company that won’t take advantage of your limited understanding. One of the best indicators is to evaluate whether or not they are upfront with their prices and capabilities. For example; if they list their fees on their website, do they disclose all subsequent fees that your business type will incur or is it the classic bait and switch?. Remember, not two business will be similar even if they are selling and offering the same merchandise and service, their business needs will be quite different hence, there isn’t pricing that is of the ilk of “One Size Fits all’.

Other Suggestions
Ask good and thorough questions in the beginning of a relationship to find out what your provider’s capabilities are. Ask them to thoroughly explain all fees, rates, and conditions. Ask them if they have experience with different products and services and then ask for examples of when and where they previously implemented it. Try to avoid getting into a relationship where your vendor runs out of steam right after the most basic service is in place. Also remember that the things I generally discuss in these blog posts are just the most basic topics in merchant processing. There are additional layers of value added services that your business can benefit in partnering with a provider that is capable of implementing the solution that is precise for your point of sale needs

The Interchange Fee Schedule

Greg Blackman /The Interchange Fee Schedule

It is known by some, but not all, that businesses pay fees in order to accept credit cards as a form of payment. In fact, over 7 million merchants in the U.S. accept credit cards. During 2006 they collectively paid over 30 billion in credit card acceptance fees.

Despite the size of the industry, its a mystery to most who is pocketing all this money and how prices are determined and reported. I had a CPA tell me the other day,

“I’m a smart guy. I understand numbers, pricing and reconciliation, but for whatever reason I just cannot get my head around credit card processing fees and the unbelievably complicated way companies report them.”

He’s not alone. Hopefully this Blog will clear up some of that confusion as I provide some context about where credit card fees come from, who’s making the money, and how fees and rates are determined.

Issuing Financial Institutions make roughly 85% of all credit and debit card processing fees
The financial institutions that issue credit and debit cards are the biggest benefactors. Some financial institutions such as banks co-issue debit and credit cards with Visa and or MasterCard while others such as American Express and Discover issue them directly (though now after years of litigation, some banks are now issuing American Express to cardholders). Visa and MasterCard are now public membership associations owned by the issuing banks, and collectively own roughly 75% of the credit cards in the market. For example, Visa is a membership association of over 13,000 banks nationwide (this figure was accurate before August, 2008).

These issuing financial institutions make money every time a card they issued is used to purchase something. For example, let’s assume that a business is paying an effective rate of 3.5% to accept credit cards (that 3.5% is usually comprised of a discount rate and a per transaction fee but I just used a flat rate for simplification purposes). Roughly 85% of that 3.5% is going to the issuing bank. The remaining 15% is divided among Visa or MasterCard, the credit card processor, and if there is one, the Independent Sales Organization (Security First Merchant Services, LLC).

How do financial institutions justify their fees?
Credit card usage has seen explosive growth in the past 20 years for a number of reasons. Benefits of using plastic include 15 to 45 days to pay original purchases, rewards, a line of credit for extra spending power, fraud protection, a monthly accounting of all purchases and general convenience. The use of Purchase Cards by Corporations or the government (GSA) has also been growing rapidly to lower the cost and to streamline Accounts Receivable and Payables (Remember the good old days when the department of defense would pay $750.00 for a carpenter’s hammer valued $25.00 retail? Well, the use of Purchase Cards has reduced substantially the cost of those type of purchases).

An example of some of the costs these financial institutions incur providing and maintaining card holders include fraud, bad debt, customer support, rewards and other perks, and float (they pay for your purchases before you pay them). Usage rewards alone account for roughly 40% of the fees they generate and end up back in the pockets of cardholders. They fiercely compete for new cardholders primarily on their rewards programs.

Continuing our example from above, if you buy movie tickets for $20 and the movie theater is paying 3.5%, the financial institution that issued that credit card would make $0.60 ($20 × 3.5% = $0.70, x 85% equals $0.60). Visa and MasterCard add their respective fees of .0925% and .0950% on top of what the banks charge (Note: that’s 9.25 and 9.50 basis points. 100 basis points equals 1%). Adding the fees from the bank and Visa or MasterCard together form what is called ‘interchange’.

You now understand why you find a credit card offer in your mailbox everyday. Outside of the 18% interest rates, annual fees, and late fees, being a card issuer is a lucrative business! The issuing institutions (typically YOUR Bank) are making money on both the front and back end.

The Interchange Matrix

Greg Blackman / The Interchange Matrix

Seems simple enough, why does everyone say it’s so complex?
From a high level, the rate structure seems pretty simple, but it gets messy fast once we get into the details. There are over 100 different interchange ‘rates’ or ‘categories’. The particular rate that is charged on any given transaction depends on a number of variables, including:

1) The type of card that is used in the transaction i.e. debit, credit, rewards, or business card, international, etc.
2) Where the card is used i.e. restaurant, retail, gas, business to business, ecommerce, etc.
3) The method of usage i.e. swiped, over the phone, or via ecommerce.
4) What information the business captures during the transaction i.e. name, address, tax ID, tax amount, unit description, etc. (the information required is a whole other layer of complexity).
5) When the transaction is submitted to the processor for settlement and funds transfer after the initial authorization.

As you can see, it’s a very complicated matrix. Very few people, including those who’ve been in the industry for years, really understand interchange.

Qualifying for different rate categories and getting hit with downgrades
Merchants can often do more than they think to better manage the credit card fees they pay. For example, transactions can be ‘downgraded’ (penalized) when they don’t meet interchange requirements. Example reasons for downgrades include not capturing the correct information when processing (such as billing zip), settling the transaction after a certain period of time, not swiping the transaction and many more. Learning how to recognize these penalties and then making the appropriate adjustments can help you lower the fees that are paid.

One downgrade example is if a restaurant employee hand keys a credit card number into the point of sale system because the magnetic strip can’t be read, the transaction falls into a different and higher rate category . The transaction is penalized because ‘non swiped’ transactions carry more risk and therefore higher interchange fees. The increase in rate can be significant ranging from 30 basis points to 2%, or more depending on how the service provider has the account priced.

Different rate categories and downgrades are the dirty little secret for merchant service providers. It’s where they make most of their margin because they offer artificially low rates and don’t disclose higher market ups on transactions that don’t fall into a specific rate category. Too many merchants fall for this and think their paying the single, highly competitive rate that was advertised. A quick search of merchant service providers will demonstrate that non disclosure of fees is a standard practice.

The undecipherable monthly credit card statement
As icing on the cake, the unreadable format most merchant service providers use to present this information to you on a monthly basis doesn’t help. Of course, the format used is not because they have no other option, it’s because that’s what makes them the most amount of money.

Interchange has come under increased pressure lately
A few years ago, Wal-Mart won a class action lawsuit against Visa and MasterCard. They claimed that debit card interchange was being improperly priced because it had the same interchange rate as credit cards. Among other things, they argued that debit cards should be have a lower interchange rate because money comes directly out of the cardholders account versus a credit card where there is 15 to 45 days between purchase and payment. The courts agreed and awarded Wal-Mart and other retailers billions of dollars in compensatory damages. There are currently a number of other legal battles against the Card Associations surrounding interchange.

Security First Merchant Services is focused on supporting the livelihood of small businesses, and therefore offers fair pricing and benefits that allows our customers to compete effectively and grow.

Contactless Payment [the battle]

Greg Blackman / Contactless Point of Sale Solution II

Financial institutions face a powerful new foe for the nascent mobile-payments market: telecoms.

AT&T (T), Sprint Nextel (S), T-Mobile and Verizon (VZ) are in talks to launch mobile-payment projects using Near Field Communications phones and other “contactless” technologies as early as this year, according to industry publication NFC Times. This technology, increasingly common in Europe and Asia and known as “m-payment,” lets consumers make purchases using a cellphone or other handheld device right at the checkout counter.

Reports NFC Times:

The telcos might work with payments partners, such as third-party payment service providers or financial institutions and perhaps a major payment brand. But word is the m-payment plans of the operators do not include major U.S. banks.

That bodes ill for big U.S. banks such as Bank of America (BAC) and Citigroup (C), along with credit card giants Mastercard (MA) and Visa (V), all of which are testing contactless m-payment. Telecoms once viewed such companies as potential partners in deploying these services, but they’re now considering whether to go their own way. If their pilots succeed, it could allow mobile operators to bypass banks and credit card issuers altogether in providing the vital financial link between shoppers and merchants.

Many people already use mobile networks to buy ringtones and other products. But facilitating mobile payments at the point-of-sale is potentially big business, NFC Times editor Dan Balaban told me. “It could be the mobile operators see an opportunity here to break into the payments business. They have tens of millions of subscribers carrying mobile phones that could one day become payment devices.”

Contactless payment involves NFC technology, which is used to transmit data between devices over short distances. In essence, it turns a cell phone into a mobile wallet, enabling payments and storage of personal information. For example, people can use their NFC phone to buy movie tickets, purchase transit passes and check in at the airport simply by tapping their handset on a special reader.

But full-blown contactless m-payment would represent a dramatic advance. For instance, the technology could turn cell phones into credit cards. It could also allow merchants to send mobile coupons or other promotions, which consumers would redeem with a tap.

In the U.S., progress has been fitful. Banks and the credit card companies have been testing contactless cards for years, with limited success. An additional major hurdle for m-payment is getting disparate constituencies to work together. Depending on their uses, a mobile payment system requires the involvement of mobile network operators, hardware makers, card issuers, government agencies, transit authorities and numerous other players.

And at the retail level, the quandary is a classic chicken-and-egg scenario: Enough consumers must use contactless m-payment to persuade merchants to invest in (and install) the required infrastructure. Meanwhile, enough merchants must use the technology to encourage consumers to invest in a souped up phone.

M-payment business models also remain in development. Under one scheme, banks could collect a fee from merchants or tack on charges for mobile wallet transactions involving a credit card. Meanwhile, telecoms could build proprietary payment networks in order to shut banks out of the fee. But nothing is certain on this front.

Still, the potential is huge. In Japan, the world leader in use of the technology, some five to 10 million people use their cell phones to make contactless m-payment purchases, while nearly three-quarters of mobile phones have digital wallet capabilities, according to industry estimates.

A key question for the American market: Would growing competition between telcos and banks speed the emergence of contactless m-payment or bog it down? If they’re smart, financial firms and mobile operators will opt against trying to steal a march on the other and instead join forces in the hope of breathing life into a promising new business line.

Contactless Point of Sale Solution

Greg Blackman / Contactless Point of Sale Solution

“Contactless payments are measurably faster than other forms of payment transactions,” which translates into improved operational efficiency and better customer service for merchants. For consumers, this means faster checkouts and greater convenience at retailers that accept contactless payments.
Millions of Americans are discovering that their credit and debit cards are now contactless-enabled, allowing them to make purchases without swiping their cards, signing their names or entering their PINs. Are you prepared for the contactless revolution?

I believe you are.