Credit Card Processing: October 2013 Rate Changes, EMV Terminals
Now is a good time for merchants to start noting how their provider is handling card company fee changes as well as any future rate and fee changes, especially if your contract will expire in 2014.
October 2013 Rate and Fee Increase Notices
Credit card companies like Visa, MasterCard, and Discover generally make rate and fee changes in the April and October time frame, although they have also made changes at other times of the year. Inevitably, some banks and merchant account providers seem to take advantage of the card company changes by increasing or adding their own mark-ups and by pointing too much of the blame at the card companies for the increases. This time around isn’t much different than others and merchants have sent me some rate and fee increase notices that go well beyond any card company changes.
To understand how your provider is handling the latest card company changes, keep in mind that there are two important changes for October 2013:
- MasterCard introduced a .25 cent increase to certain transactions;
- Discover introduced a .25 cent increase to all transactions.
Below are two examples of recent notices on the October changes. Understanding the above .25 cent changes, how would you rate these providers?
Notice 1: 0.02 Percent + $0.02 increase
“Visa, MasterCard and Discover typically evaluate the Interchange rates and fees twice per year most often in April and October. Based on recent changes as well as analysis from other network providers and vendors, the following changes to your merchant account are being implemented and will be reflected in your merchant statements for transactions processed beginning in October:
- Tiered Pricing Merchants: Qualified Rate for Visa, MasterCard and Discover will increase 2/100th of a percent;
- Interchange Plus Merchants: Percentage charged in excess of Interchange will increase by 2/100ths of a percent; and
- Transactions Fees for all authorized transactions will increase by $0.02/transaction.”
Notice 2: 0.40 Percent Increase
“Effective October 1, 2013, the discount rates charged for your Visa, MasterCard, and Discover (as applicable) credit card and non-PIN (signature) debit card transactions will increase by 0.400%. We have increased these charges based on a variety of factors, including recent Card Organization changes and our own pricing considerations. This change will appear beginning with your October month-end statement you will receive in November.”
Now go back to the statements you received in August and September or any notices you received via mail and read the notice your provider posted for these changes. Did the provider announce the actual change or did it state something quite differently? If it’s the latter, make sure it adjusts pricing accordingly. Also, make sure you monitor your rates, fees, and notices going forward to determine the best long-term course of action. If the provider needs you to extend your contract to correct its overcharges, then there are probably bigger pricing issues and more assertive action required by you to investigate your overall processing cost.
EMV Capable Terminals
To reduce fraud in the U.S., the card companies are introducing cards that have a chip as well as the current magnetic strip. Chip cards are prevalent outside the U.S. and EMV — Europay, MasterCard, and Visa — established the technical standards for processing them.
Unfortunately, many brick-and-mortar merchants are being misled into believing they need to replace their existing terminals today with “EMV capable” terminals. Even worse, some merchants are being convinced to lease EMV terminals. I’ve heard of 4-year leases as high as $119 per month. If you have been following my articles, you know that merchants should never lease any equipment from a credit card salesperson. The reasons go well beyond the cost of the lease.
However, here is what brick-and-mortar merchants should understand about EMV when approached by a salesperson. EMV in the U.S. is still somewhat fluid. I’ll keep Practical Ecommerce readers advised on the progress of EMV throughout 2014.
- Brick-and-mortar merchants should have equipment capable of processing EMV chip card transactions by October 2015 as certain fraud liability will shift from the bank that issued the card to the merchant. The equipment may be a terminal or a chip card reader attached to the terminal or POS system.
- Certain credit card transactions will require a PIN number instead of a signature similar to PIN debit transactions today. Also, like the current PIN debit devices, each chip reader will need to be encrypted and the encryption code is processor specific. Therefore, if a merchant has an encrypted device, changing processors may be more costly as the encryption cannot simply be downloaded over the phone or Internet as is done with terminal reprogramming now. Instead, the encrypted device will need to go back to the provider for encryption or swapped with an encrypted device or a new encrypted device may be needed.
- “EMV capable” can mean very little. In fact, if you have purchased or leased an “EMV capable” terminal it may simply mean that it has the slot or contactless connection to place the chip card and the terminal may have the capability to eventually be encrypted to actually process chip cards. However, the cost and time required to do so could be prohibited.
- Merchants do not need EMV terminals today and very few providers actually have terminals that can process an EMV chip card transaction right now.
- However, merchants should be planning to have equipment capable of processing chip card by October 2015. In fact, they should be planning to have the equipment capable of processing chip cards well ahead of the October 2015 — perhaps as early as late 2014, to ensure receiving it in time.
- If a merchant’s existing terminal fails or is no longer supported, the merchant should inquire about EMV terminals as a replacement. However, ask if it comes fully encrypted and capable of actually processing an EMV transaction or if it will need the encryption later. Right now, the answer is likely that the terminal will need encryption later. If so, the merchant should obtain the time frame, process, and cost for enabling the terminal to actually process chip cards. This should be in writing. Remember, new terminals cost the provider around $150 to $250 and the encryption may be an extra $25 to $50.
- Finally, make sure you are comfortable with your provider and have negotiated the best processing cost before changing to encrypted EMV equipment.
- Stay on top of any rate or fee changes made by your provider.
- Brick-and-mortar merchants should be able to process EMV transactions by October 2015 to avoid potential fraud cost.
- “EMV capable” means very little, so know what it will take to actually process an EMV transaction before buying an EMV terminal.
- Terminals are relatively inexpensive.
Make sure you are comfortable with your provider and have the best pricing before buy any EMV equipment.