A Discussion on
the Costs
Associated With
Accepting Credit Cards
At the Point of Sale
For
Taxis and Limo Industry
Our Approach Today :
With more knowledge of the
industry and its costs we can
better understand how to create
the perfect balance with all
parties involved.
Rules for Today:
Simplistic Approach to the Industry
Less Jargon and more Understanding
A clear understanding of Credit Card acceptance
Bringing Solutions That Make Sense
No points for Big Words!
Get Points for Results if we have an effective
Debate and a Clear understanding of all the parts
and parties involved.
Agenda for Today:
History of Merchant Services and Visa MC
Statistics on Merchant Services
Merchant Services in other Industries
Your Industry in Merchant Services
A View at the Fraud and Risk
A Study of the Costs Involved
The Parties Involved
How to Balance it All and Work Together
Who Am I?
Good News – It Doesn’t Really Matter Today.
I will be a fill in for Ira Goldstein in his absence
I have been asked to step in as a Neutral Party Today
Share my experience and knowledge of the industry
Started in Sales in Merchant Services well over a decade ago
Sold and advised well over 20,000 business owners
Created a portfolio well into the high billions
Learned the pains and successes of business owners
Introduced Merchants Services and educated well run
programs to multiple state associations and national groups
Became an expert & studied Interchange with my findings
passed onto business owners with Full Disclosure
Executive Mgmt position at EVO Platinum Services Group
Interchange
What it is. How it works.
And why it is fundamental to the
Visa payments system
It wasn’t so long ago that consumers were
limited to making purchases with cash and
checks.
But the search for a more convenient, secure
and rewarding way to pay gave rise to the
technology of electronic payments and Visa.
History of Merchant Services and
its Costs:
Visa is one of the world’s best ways to pay
and be paid, with acceptance in more than
17o countries around the world. And while
paying with your card in a store or in a cab is
easy and fast, there is a lot more happening
behind the scenes.
What is Interchange?
Interchange —
“the transfer rate exchanged between the merchant’s
and cardholder’s financial institutions each time a
Visa® payment product is used”
— plays a critical role in motivating all participants to keep electronic
payments secure, reliable and convenient.
Interchange provides a fair mechanism for fuelling business growth
and sharing system costs and benefits, and has been successful in
spreading the benefits of electronic payments in the marketplace.
Simply put, without interchange, much of the effectiveness of the card
system would be lost.
Doing Business in a Two-Sided Market
The Visa payments system is what economists call a “two-sided”
market because it consists of two distinct groups — cardholders and
retailers — that provide each other with benefits.
Cardholders want a payment card that they can use at as many
retailers as possible.
Retailers want to accept a payment card that is carried by as many
customers as possible.
Like other two-sided economic models, the Visa payments system
must balance the needs and desires of all of those involved.
The Players Involved:
A typical Visa transaction actually involves four distinct players:
•A retailer is the store, restaurant, hotel, or other entity that accepts
Visa as payment.
•An acquirer is a financial institution that signs up retailers to accept
Visa payments and makes sure those retailers get paid for those
transactions as a result.
•An issuer is a financial institution that provides consumers with
Visa-branded cards or other Visa-branded products. When a Visa
credit card is used, the issuer actually "lends" the consumer the
funds to make the transaction.
•A cardholder is the consumer who chooses to use their Visa card
or other Visa-branded payment product to make purchases
Who Pays Interchange?
• Retailers and consumers do not pay interchange.
• Interchange is the transfer rate exchanged between the
retailer’s and cardholder’s financial institutions each time a
Visa payment product is used. The retailer’s financial
institution, or acquirer, generally pays interchange.
• Retailers make a payment to their financial institution for
Visa card transactions, frequently referred to as a Merchant
Discount Rate (MDR). This is a market-based fee set by
each acquiring financial institution operating in a
competitive marketplace — retailers can choose their
financial institution in the same way cardholders can
choose the financial institution that issues their Visa card.
Interchange
The Economics of Participating in the
Visa/MC System
Retailers/Cabs:
Retailers negotiate the Merchant Discount Rate (MDR) or
Merchant Service fee they pay to their financial institution.
The Merchant Discount may include a number of costs,
including interchange; the cost of transaction processing,
terminal rental and customer service; Digital Media
Services, integrated TPEP solutions, Airtime, and their
financial institution's or processor's margin. Merchants
may change financial institutions in search of a better
Merchant Discount rate or broader services.
Interchange
The Economics of Participating in the
Visa/MC System
Financial Institutions:
Retailers' and cardholders' financial institutions pay certain
fees to Visa to participate in the system. Visa uses these
revenues to maintain Visa's global payments network,
strengthen the Visa brand through a range of marketing
and promotional activities, support the development of
new Visa products and processing services, and make
other investments in expanding Visa's business.
How Does Visa Set Interchange
Interchange is set in response to dynamic and
highly competitive market forces and strikes the
right economic balance between participants in the
payment network. Among other things, it may
vary by the type of retailer, cost of the sale,
payment product type, processing technology the
merchant uses and region or country.
How Much is Interchange?
Interchange is not a single amount. There are a number of
interchange rates and they may vary by the type of retailer,
cost of the sale, payment product type, processing
technology the retailer uses and region or country.
Similarly, the type of payment product used and how that
product is used affect the interchange rate and processing
requirements. The different rates are used to encourage
product and market development; data quality; and risk
management programs and tools.
Can Merchants Negotiate
Interchange?
Retailers do not pay interchange directly. They pay a
Merchant Discount Rate that they can actively negotiate
directly with their acquiring financial institution.
Interchange is a mechanism that helps manage a
worldwide system made up of thousands of financial
institutions, millions of retailers and millions of
consumers.
Interchange Rates In Different
Industries and Yours:
Retail Stores – 1.54% and .10 cents per item
Restaurants – 1.54% and .10 cents per item
Hotels – 1.54% and .10 cents per item
Supermarkets – 1.25% and .05 cents per item
Service Stations – 1.15% and .25 cents per item
Ecommerce Sites – 1.80% and .10 cents per item
Taxi/Transport Industry – 1.54% and .10 cents
However, There is More to Consider…
Interchange Rates Differ Per
Card Type as Well:
Card Acceptance at the POS is not limited to the type of card issued
and used be the consumer and could very from
Debit and check cards, Reward Cards, Corporate cards, Signature
Cards, Travel and Entertainment Cards, Standard Cards, International
Cards, and Small Ticket Transactions – purchases made under $15.
Rates for Taxis for These Can Range as Follows:
Swiped Check Cards - .95% and .20 cents
Corporate Cards – 2.25% to 2.95% and .10 cents
Reward Cards – 1.95% and .10 cents
Small Ticket Cards – 1.65% and .04 cents ** ( a lot in this
category)
A Study of the Costs Involved
The Great 5% Debate:
With interchange rates, different cards types, and
various average tickets, it might be impossible to
pinpoint to a tee for true costs for merchant services.
But , in studying the Nilson Report , and the average
tickets for this industry, and the new changes to
legislation by Senator Durbin, it is safe to assume your
costs for interchange will be approximately
2.35% to 2.50%
A Study of the Parties Involved in
The 5% Fee:
Interchange Rates as explained in this presentation
Credit Card Processor Company’s Profit above interchange
TPEP Vendor
Integrated Solutions
Media and GPS
POS Companies and Digital Dispatch Services
TLC Requirements
End of Shift
Time Float of money for Tips paid at end of day to drivers
Taxi Base Station Cost
Monthly Fees for Airtime, Media, Equipment, Statement Fees
Fleet Owners
Other Options and Thanks
As in any Business Scenario
There are always other options
Or solutions to drive costs lower
But that is for another day…
Thanks to NYC and Matt Daus
For all their hard work, commitment to the industry
and reaching out to experts to bring the paradigm shift
to this industry. Modernizing taxis with your guidance
and bringing card payments to the passenger.
Question, Comments or Smart
Remarks
Email:
Pcompton@EvoPlatinumServices.com