Industry Terms: Capture

This is the latest installment in The Official Merchant Services Blog’s Knowledge Base effort. Well we want to make the payment processing industry’s terms and buzzwords clear. We want to remove any and all confusion merchants might have about how the industry works. Host Merchant Services promises: the company delivers personal service and clarity. So we’re going to take some time to explain how everything works. This ongoing series is where we define industry related terms and slowly build up a knowledge base and as we get more and more of these completed, we’ll collect them in our resource archive for quick and easy access. Today’s term is:

Capture

Capture is a specific action during the payment process. It refers to receiving and storing transaction data at the processor’s host computer, to be submitted later for processing and payment. A typical capture process supports the asynchronous nature of payments by performing the capture of the payment for an order in a background process.

The definition of what happens during payment capture varies by payment type and by the implementation of that payment. Some examples are as follows:

A credit card using batch processing for deposits: In this case, no financial transaction takes place at the time of capture; but rather, the captured amount is placed in a batch that will be settled at a later time. The purpose of using batches is to reduce transaction fees.
A credit card not using batch processing: In this case, a settlement would occur as the result of the capture.
A check: The implementation supporting BankServ ACH protocol supplied with WebSphere Commerce Payments deposits the check at authorization time. Other implementations may deposit the check at this point.
Line of credit: The accounts receivable record would be added and the amount remaining on the line of credit would be updated accordingly.
Offline payment method: The capture would be recorded and potentially placed in batch for later settlement if batches are supported.

Mobile Commerce Concerns [2023 Update]

Today The Official Merchant Services Blog turns its tech-obsessed eyes once again to the Mobile Payment Solution sector. Recently, Host Merchant Services became fully mobile and able to offer a mobile payment solution for Android and iPhone devices. This expansion continues, and HMS now also provides a payment processing solution for iPads as well. You can read about the expanded HMS Services in our April 9, 2012 Blog Entry.

Mobile devices are ingrained in the lives of consumers these days. Like the recurring ad sarcastically states, the smartphone beta test is over. And people are wandering around everywhere with their phone bringing their social media, camera, and buying power with them.

Suri, the voice of the iPhone, is holding the hands of stars from Samuel L. Jackson to Zooey Deschanel, helping them manage such difficult life tasks as making gazpacho to putting off cleaning till the next day on one’s calendar.

Coming with this ingratiation into our daily lives are two key elements.

We’re really just one artificial intelligence glitch/accident/sabotage away from launching the type of dystopian sci-fi worldview found in Terminator, The Matrix or Magnus Robot Fighter.
We’re flying full force into a world where we’ll also start to wave our phones around like a Hogwarts Magic Wand, paying as we go from place to place, store to store.

Mobile Payments are brisk and bustling because people are buzzing to take advantage of the convenience they offer. Here’s a graphic based on data compiled by the AITE Group showing the trend in spending via smartphone in a 5-year stretch:

But it’s not all phones-n-roses. As one might expect, the state that’s home to Cyberdyne Systems and our eventual AI-overlords Skynet, has a university — the University of California — that did a study titled “Mobile Payments: Consumer Benefits and New Privacy Concerns.”

The bottom line of this study is that American consumers are still wary of what this convenient technology will bring. The study found some interesting answers to questions about consumer thoughts on their privacy.

The study found that respondents overwhelmingly oppose the revelation of contact information to merchants when making purchases with mobile payment systems and an even higher level of opposition exists to systems that track consumers’ movements through their mobile phones.

This article by Kit Eaton at Fastcompany.com dissects the numbers in the study. Eaton states that: “The numbers are stark. When asked if they thought their phones should “share information with stores when they visit and browse without making a purchase,” 96% objected to the tracking, 79% said they definitely would forbid it, and 17% said they “probably” wouldn’t allow it–meaning just 4% were indifferent or positive about the idea. When the question was instead about information sharing (phone number, address, and so on) at the actual point of sale, 81% objected to phone-number sharing–a mere 15% said they’d probably allow it and 3% definitely so. Similar figures emerged when the information shared was respondents’ home address. “

This is all well and good and you can download the study here at this link. But what the study seems to overlook is exactly how many people, many of the people most likely polled in that very study, are already well past the point of no return in terms of their privacy concerns.

Any of those who object to tracking are likely already being tracked by Google and Facebook, social media they use with ease and frequency from their smartphones.

All those who object to sharing contact information may have already shared this information easily and readily when making an online purchase in the past few years. And statistics indicate that e-commerce is booming and replacing brick and mortar in the retail sales tug-of-war.

Eaton catches on to this flaw in the study, and states in her article: “And that’s the key to unraveling this problem right there: When you do use a current-tech store loyalty card you are effectively voluntarily giving the store your personal information, and “tracking” yourself. It’s why the cards exist, of course–they’re partly there as a sales incentive, to get customers back in the door via money-off offers, but mainly so the store can collate information about customers and work out what kind of products to stock, what offers to run, and what future products to plan for.”

And Eaton even points out that in a Pew Research Survey, 71% of Americans use the internet for shopping — meaning that they’ve already typed in their personal contact information.

So essentially, Mobile Payments seem primed to take advantage of the marketplace. The worry over security is still genuine to some extent — identity theft and phasing scams and data breaches abound as we get more and more tech ingrained. But in the end, the American consumers already dove headfirst into this when they fell in love with social media. The tweets, the +1’s and the Likes have already been tracking you. So when Facebook transforms itself into Skynet, or simply when Facebook and Google go toe-to-toe with Visa in the titanic tussle for your smartphone swipes … your dollars will be as easy to find as your latest status update or check-in.

HMS News: For Our Merchants [2023 Update]

Today The Official Merchant Services Blog is just going to offer a quick update on some services Host Merchant Services provides directly for its current customers. Today our site launched a page for our current merchants to go to in order to access online assistance services. There are currently two:

TRUPCI

We’ve pushed our PCI Compliance Initiative for quite some time now. Host Merchant Services goal is to make it easy for our customers to stay PCI Compliant. The details of the PCI Compliance Initiative are:

A Free PCI Compliance Analysis of your business by HMS.
A Free PCI Compliance Scan.
A report compiled for your business regarding its PCI Compliance issues and what it needs to do to become PCI Compliant.
All totaled, this is a suite of services with a $100 value that you get at no extra cost.

And finally we’ve gotten great results from the program. For our current merchants who wish to roll up their sleeves and get into the process with us step-by-step, they can go to their TRUPCI assistant.

LOGIN HERE

Additional Resources

If you choose to process with HMS, we will also walk you through the entire procedure step by step, making PCI Compliance an easy and hassle free operation for you.

You can also access our PCI Compliance FAQ here.
And read our step by step guide to becoming PCI Compliant as a level 4 Merchant (the most common level used for PCI Compliance).

Host Merchant Services knows that your business needs secure transactions to function. And we’re here to make the process of PCI Compliance easy, understandable and consistent for you each year.

In House Gateway

We’ve also been pushing our custom designed E-Commerce packages. And part of that offer includes the in-house payment gateway that lets you run your transactions completely online.

To access the Host Merchant Services in-house Payment Gateway:

LOGIN HERE

Industry Terms: Partial Authorization

Partial Authorization

Partial Payment Authorization is a specific type of transaction process based on new rules implemented by the card associations MasterCard and Discover in 2011.

MasterCard and Discover have implemented these rule changes that require merchants in the U.S. to support Partial Payment Authorization. Host Merchant Services is here to guide you through this change with a comprehensive explanation of what this means for you as a merchant. A Partial Authorization occurs when an authorization is attempted for the full amount of the transaction and there are not enough funds available to cover the full amount, so an authorization for the amount available in the account is returned. This allows the cardholder to use the card presented for the amount available and for the merchant to obtain an additional form of payment for the difference.

A brief summary of the process is that when a card is swiped and has insufficient funds, transaction processing terminals will now prompt the merchant to accept a partial authorization. As a merchant you need to pay attention to this, and note the terminal’s prompt. You then need to confirm with the customer if they are capable of paying the remaining balance. If they can, you complete the partial transaction and then finish with a transaction for the remaining balance. If they can not, you need to reverse or void the charge. If that seems a bit complicated, don’t worry, here’s the entire process in detail, followed by further resources, including step by step guides to use this with specific terminals, that you can download and print out for your convenience.

For more information on Partial Authorization, visit our FAQ on the topic:

Partial Authorization FAQ

Industry Terms: Level I, II and III Data

This ongoing series is where we define industry related terms and slowly build up a knowledge base and as we get more and more of these completed, we’ll collect them in our resource archive for quick and easy access.

Today’s terms are Level I, Level II and Level III Data.These terms are all related to Purchasing Card Data. There are different levels of data in the merchant account business. This three level system decides whether or not a transaction is qualified. When changes are implemented in the credit card processing industry, there are also changes in the regulations on how this data is processed, and it’s a good idea to know the difference between the various levels when thinking about data security and PCI Compliance.

Level I Data

Level I card data is typically associated with consumer transactions and limited purchase data returned to the cardholder. Level I purchasing card data includes the same information captured during a traditional credit card purchase transaction. This includes: total purchase amount, date, merchant category code and supplier/retailer name.

Level II Data

Level II purchasing card data includes the same information captured at Level I, plus the following: sales tax amount, customer’s accounting code, merchant’s tax ID number, applicable minority – and women-owned business status and sales outlet ZIP code. Level-2 data elements benefit the corporate/government/industrial buyer and can often be transmitted via a standard credit card point of sale terminal due to their restricted capabilities.

Level III Data

Level III purchasing card data includes the same information captured at Levels I and II, plus the following: quantities, product codes, product descriptions, ship to ZIP, freight amount, duty amount, order/ticket number, unit of measure, extended item amount, discount indicator, discount amount, net/gross indicator, tax rate applied, tax type applied, debit or credit indicator and alternate tax identifier. Level III is comprehensive line item detail. This data is equivalent to the information found on an itemized invoice, requires greater system capability which is provided through 3Delta Systems’ payment applications.

Industry Terms: Interchange

Interchange

Interchange is a term used in the payment card industry to describe a fee paid between banks for the acceptance of card based transactions. Usually it is a fee that a merchant’s bank (the “acquiring bank”) pays a customer’s bank (the “issuing bank”).

In a credit card or debit card transaction, the card-issuing bank in a payment transaction deducts the interchange fee from the amount it pays the acquiring bank that handles a credit or debit card transaction for a merchant. The acquiring bank then pays the merchant the amount of the transaction minus both the interchange fee and an additional, usually smaller fee for the acquiring bank or ISO, which is often referred to as a discount rate, an add-on rate, or passthru.

For cash withdrawal transactions at ATMs, however, the fees are paid by the card-issuing bank to the acquiring bank (for the maintenance of the machine).

These fees are set by the credit card networks, and are the largest component of the various fees that most merchants pay for the privilege of accepting credit cards. Visa, Mastercard, and Discover are each known as card associations. And each card association has their own rate sheets known as Interchange Reimbursement Fees. These fees make up the majority of what you pay to your processor and they vary greatly depending on the card type accepted.

Download Visa’s Interchange Fees Here

Download MasterCard’s Interchange Fees Here

Interchange Plus Pricing

Interchange Plus pricing means that the acquirer charges you a variable MSC consisting of the cost price plus a fixed markup. Interchange Plus Pricing is exclusively how we quote at Host Merchant Services. Interchange Plus, also known as Cost Plus, pricing gives the customer a fixed rate over published Interchange Fees. This pricing format is normally quoted as a discount rate (percentage fee) along with a per item or authorization fee. The great thing about Interchange Plus pricing is that you always know exactly what you are paying to your processor to services your account. Think of Interchange, and all the associated fees, as an unavoidable cost. No matter who you process with, you have to pay these fees. They may be labeled differently, or wrapped up in a confusing pricing tier, but one way or the other, you are paying Interchange fees. By understanding the markup you pay over Interchange, you know exactly what you pay to your processor and exactly what is going to the card associations. That allows you to make a decision on whether or not the markup seems reasonable for the service you get and choose your processing partner accordingly.

Here’s a small graphic explaining the basics of how Interchange Plus works:

Industry Terms: MO/TO

MO/TO

MO/TO is an acronym that stands for Mail Order, Telephone Order, specifically referring to a merchant or a sales environment in which mail or telephone sales are the primary or a major source of revenues. This classification of merchant account has a specific set of rules that is more restrictive than the rules for retail merchants but the classification enables a merchant to accept a credit card payment without a cardholder’s signature. The merchant and the cardholder do not need to be in the same physical location and because of this, these types of transactions are considered to be higher risk by the card associations.

If a fraudulent transaction is reported, the bank that hosted the merchant account that received the money from the fraudulent transaction must make restitution. Whereas in a swiped transaction the bank that issued the credit card is liable for restitution.

What to Do with $17 Million Every Day

The parent company of American Airlines announced this month that the company had lost $1.7 billion in the previous quarter. A quarter is three months and somewhere around 90 days. I asked myself, if anyone else had that kind of money – what would they do with it? To keep it simple I just divided the $1.7 billion by 100 days and that comes out to $17 million per day. Here is what you could do with $17 million a day for 100 days.

Day 1 – Buy the 10 most expensive cars in the world. Total cost = $14,076,721. Obviously you would also spend $2,923,279 on gas, maintenance, insurance, tune ups and speeding tickets. Mostly speeding tickets.

Day 2 – Spend 479 nights in one of the world’s most expensive hotel rooms – the Hugh Hefner Sky Villa at the Palms in Las Vegas. The suite costs $35,487 per night and comes complete with 9,000 square feet of living space, a gym, sauna and full bar. It can hold 250 people and has its own private elevator.

Day 3 – Buy the world’s most expensive watch for yourself and 3 of your closest friends. At $3.5 million Piaget’s Emperador Temple watch is encrusted with 1,200 diamonds. If you buy 4 you’ll still have $3 million left over. I would suggest spending that on insuring them.

Day 4 – Have a meal with 17,000 friends at the world’s most expensive restaurant – The French Laundry. The per-person average is just about $1,000. Couldn’t figure out if that includes wine. You would think that it does.

Day 5 – Buy 4 bottles of the most expensive tequila ever made – Tequila Ley .925. It’s not so much the tequila that costs you, it’s the bottle. Basically the bottle is a glass sculpture encrusted with diamonds. With the $3 million left over you can pay cab fare home for everyone so they don’t have to drive after those tequila shots – as long as the trips don’t exceed 1,200,000 miles.

Days 6 and 7 – Go to outer space with the Russian Soyuz space program. Since you waited until now to go to outer space it will set you back around $34 million. Hence the 2 days required to pay for it. The very first space tourist, Dennis Tito, paid a mere $20 million in 2001.

Day 8 – Feed 265,625 people in the country of Chad for a year. It costs $1.23 for a week’s worth of food in Chad. That compares to $149 for a weekly food bill in China, $342 in the United States, and $507 in Germany. If you look closely at the picture – you can see that beer probably makes up a large percentage of that German family’s weekly bill.

Day 9 – Buy clothes for a year for 27,243 children in the U.S. It costs the average family in the U.S. $624 to buy clothes for one child for a year.

Day 10 – Plant 314,815 trees to offset global warming. According to Plant a Tree USA – you will get a 300,400% return on that investment. Be sure to plant some trees in Iceland and on Easter Island – because my friend said they don’t have any trees there.

Days 11 through 55 – If you want to make more substantive changes to our planet, you figure you need to become President of the United States. According to the New York Times President Obama spent $750 million on his successful run in 2008. That’s going to cost you $17 million per day for about 44 days.

Day 56 – You’ll want to create an epic website to document all your Presidential exploits. You could go with a VPS or dedicated server from website hosting provider 34SP.com. Of course that won’t chew up nearly enough cash to get to $17 million. Instead you could simply build you own massive data center for about $1,000 per square foot. That would give you around 17,000 square feet of data center space.

Day 57 – To celebrate winning the Presidency you’ll need to party in style. If you hire the world’s most expensive band – The Rolling Stones – it will set you back $7.5 million per day. You can throw in Katy Perry and Lady GaGa for another $200,000 per day. So between the booze, elaborate backstage amenities, and limo rides to ferry them around – you’re looking at around $17 million for a 2 day party.

Day 58 – To meet with all those dignitaries, heads of state, royalty, and Congressional leaders you’ll be needing a first rate new wardrobe. You could buy 155 of one of the world’s most expensive suits from the luxury designer Alexander Amosu. Each suit retails for $110,000 and includes 9 diamond buttons set in 18-carat gold. The suit is put together with 5,000 stitches of platinum and gold threads.

Day 59 – You’ll get worn out from being President so you’ll need to get away. How about a vacation house in one of the most exclusive real estate markets in the U.S.? For a mere $12,450,000 you could buy this ”French Embassy” in Naples, Florida. It comes complete with a 2,000 bottle wine cellar and an elaborate wood paneled office for your Presidential business calls. To keep all that wood and millwork top shape you can use the extra $4,550,000 to hire Grand Woodworking a firm reknowned for their Naples custom cabinets. Their website says they have invested heavily in the finest CNC equipment to quickly and seamlessly match any and all types of complex molding or millwork. With over 1,700 sets of knives, the permutations of cuts and finishes runs into the millions.

Day 60 – Put on one hell of a 4th of July fireworks show. Since you are now the President, you show have a first class fireworks display for Independence Day. An elaborate one hour professional firework show costs around $100,000. With your $17 million you could continuously fire off amazing fireworks mortars for an entire week. You should let your neighbors in Naples know first – otherwise they will think they are in the middle of Armageddon.

Day 61 – Pay all of the Washington, D.C. parking tickets for one month. You need to stay popular to get re-elected President. What better way than by paying the parking tickets for everyone in the nation’s capital for one month? The highest average parking ticket in D.C. is $100. They are written out at the rate of 350 per hour or 5,300 per month. With $17 million you can cover all those parking ticket costs for one month.

Day 62 – Get some really cool shades. To protect your eyes and just plain look cool you’ll be needing some sunglasses. How about a few pairs of the world’s most expensive sunglasses? Dolce & Gabanna makes a model DG2027B pair that will set you back a cool $383,609 per pair. That’s about 100 times more expensive than the next most expensive pair of sunglasses. Why so much? These sunglasses are framed in pure gold and have the D&G logo written on the arms in diamonds. You could buy 44 pairs. That way you could outfit all your Secret Service guys in them too. They are always wearing sunglasses anyways – right?

Days 63 through 82 – Take the world’s most expensive airline flight. The most expensive airline tickets ever sold were for the maiden commercial voyage of the Airbus A380. An Australian national paid over $100,000 per ticket for 2 tickets. With your $17 million you could afford tickets for 170 passengers. That doesn’t make any sense though – because for about $318 million you could just buy your own A380. You’d have to save up for 19 days to get one, but think of the great parties you could have with over 700 passengers and a cruising range of 9,600 miles plus optional amenities like onboard relaxation areas such as bars, beauty salons, duty-free shops, and restaurants.

Days 83 through 87 – For about $69 million and change you can buy this 230 foot Italian yacht. Currently under construction, it is slated to have a swimming pool on the top deck. Of course the entire interior will be customized just for you. It also includes a heli-pad to get you to and fro.

Days 84 through 91 – You need a helicopter for your helipad on your Italian yacht. So you could just get some plain old jet helicopter or something. But hey – you are the President now – remember? So you can get ultra-cool military stuff like the V22 Osprey. It takes off like a helicopter and then flies freakin’ fast like a plane as the rotors tilt in mid flight. They cost about $118 million brand new – that will take you about 7 days at $17 million per day. Cool way to touch down on the yacht. Don’t forget your D&C sunglasses either.

Day 92 – Buy a herd of ASIMO robots, seventeen to be exact. Although you technically can’t buy one yet – various sources estimate the cost of Honda’s amazing humanoid robot named ASIMOV at around $1 million. How cool would that be to walk into a club – or glide out of your Osprey onto the yacht – with 17 of your ASIMOV posse at your side. Side benefit? They could walk around serving drinks on the yacht.

Day 93 – Make a ridiculously awesome youtube video. According to the notes on this video – it cost $6.2 million for 2 minutes of footage. So for your $17 million today you could create over 5 minutes of the same Rube Goldberg stuff without any graphics or CGI involved. I bet you’d get lots of views.

Day 94 – Dig a really big hole and bury today’s $17 million. With all the uncertainty in the world economy you can’t be too careful. According to SmartMoney when times get tough and banks start to fail (like many have in the past few years) then ordinary people turn to burying money. It’s just in case of an emergency when the whole economy collapses and the other stuff you bought above gets lost or stolen or you give it away and you need some walking around money.

Day 95 – Give today’s $17 million to a worthy charity. You can find one with this great charity evaluation website: www.charitynavigator.org.

Day 96 – Get some new shoes. Some really expensive new shoes. Plenty of really expensive new shoes. In fact, the most expensive men’s shoes in the world: Diamond Studded Nike Boots. Sweet. These Nikes were designed by Luisa Di Marco and feature black diamonds fitted in white gold along with sapphires. Each pair costs $218,000. You could afford 78 pairs.

Day 97 – Cure AIDS. This article points out a treatment that cured a patient of AIDS. Estimated cost per treatment is $1 million. Today you could cure 17 people of AIDS.

Day 98 – Fund entrepreneurs worldwide with sustainable microloans. Small sums can yield huge dividends in the right hands. Micro loans are a form of micro credit. According to Wikipedia – microcredit is the extension of very small loans (microloans) to poor borrowers who typically lack collateral, steady employment and a verifiable credit history. It is designed to spur entrepreneurship, increase incomes, alleviate poverty and often also to empower women. You can find worthy loan recipients through www.kiva.org. At an amount of $1,000 per loan – you could fund 17,000 microloans. Of course you would get repaid for the loans – so you could repeat this cycle indefinitely.

Day 99 – Buy up rare and expensive books for your Presidential library. First you could buy a copy of the world’s most expensive printed book (not a unique or hand printed book). That book is John James Audubon’s Birds of America, a book of illustrations. The tome was was sold by Christie’s in the year 2000 for $8.8 million. You could also pick up a copy of Comedies, Histories & Tragedies (aka First Folio) written by William Shakespeare and printed in London in 1623. That will set you back another $5 million.Why not add a copy of Cosmography (Cosmographia)
by Ptolemy. This is the first printed atlas and was printed in Bologna in 1477. You can buy your copy for $4 million. That will bring your total to a shade over $17 million.

Day 100 – Take an around the world vacation. You deserve it after all the spending you’ve been doing. According to David Lee the cost to travel around the world is around $35,000 per person. That will let you take quite an entourage with you. That’s 485 of your best friends.

Visa Investigation Update

On May 2 it was revealed by Visa CEO Joe Saunders that the credit card giant was being investigated by the Department of Justice for violation of antitrust laws. One of the key elements of the DoJ’s interest in Visa for antitrust violations is its new fee, the Fixed Acquirer Network Fee (FANF) which went into effect on April 1, 2012. Saunders stated that the investigation began on March 13, prior to the fees taking effect.

Saunders revealed that Visa was being investigated during Visa Inc.’s Fiscal Q2 2012 Earnings Conference Call, which prompted The Official Merchant Services Blog to take its readers through the strange roller coaster ride that was Visa’s beginning of May in THIS BLOG HERE.

The strength of Visa’s earnings in the last quarter was framed immediately by Saunders in the conference call: Credit. As Saunders says, “In the U.S., payment volumes increased 6% for all products. Our star performer for fiscal second quarter was credit. Building on that, we continue to invest in new and expanded long-term credit relationships with our largest U.S. clients to drive growth in our core business.”

The other side of that statement, however, is debit. Where MasterCard took great strides — notably adding the nation’s largest debit card institution Bank of America, which switched from Visa.

Visa claims it was hampered by the Durbin Amendment in terms of making earnings from debit in the last quarter. As Saunders said in the conference call, “So far, the situation is playing out as we expected, and in line with our updated guidance for fiscal 2012 as well as our guidance for fiscal 2013. During the March quarter, U.S. aggregate debit payment volumes slowed to 2% growth and, as expected, has continued to decline in April. Interlink is bearing the brunt of the regulatory impact.”

Saunders then took a moment to emphasize the individual differences between Visa Debit — the well known Visa check cards that get swiped through terminals around the country — and Interlink, Visa’s PIN-debit product. Saunders noted that Visa’s swipe debit grew, but grew very slowly. And then went into detail about how Interlink was the company’s worst performer in the quarter, “We posted negative payment volume growth in each month of the March quarter. More recently, between the compliance deadline of April 1 and April 28, Interlink payment volume has experienced notable deterioration. Keep in mind, though, that in the March quarter, Interlink contributed less than 10% of U.S. debit revenue and about 2% of Visa Inc.’s overall revenue and was our lowest yielding product in the U.S. market. “

At this point in the call Saunders shifted into a very general discussion of Visa’s “strategies to compete” — essentially their new fees, including FANF, the Transaction Integrity Fee and a revised Network Acquirer Processing Fee. That led Saunders to discuss the Department of Justice investigation: “On March 13, prior to the April 1 implementation date, the U.S. Department of Justice Antitrust Division issued a civil investigative demand requesting additional information about PIN-authenticated Visa Debit and elements of our new debit strategies, including the fixed acquirer fee. In March, we met with the department twice and provided materials in response to the CID. We are confident our actions are appropriate and that our response to the DOJ supports that.”

More Commentary from Visa

During the question and answer period of the conference call, Saunders stepped up to defend Visa’s new fees. Saunders says that the fees are part of “the total structure we’ve put to deal with the Durbin regulation. We are not making money per se off of that fee. The combination of discounts and incentives that we have put together, I think, actually relate in a modest loss in the amount of $100 million a year. So we aren’t doing this with the intent of raising prices.”

Then another question comes up in the call asking about the outlook the company has for recovering from the losses in Debit due to Durbin. Saunders very vocally defends the company’s fees and strategies: “Let me just follow up on that and make perfectly clear one thing, and that is that we are never going to regain all of the market share that we had in the debit card business. Nothing that we say or none of our strategies suggest that that will happen or could happen. And nothing that we have done or thought about or said anticipates that it will happen. The environment has changed by regulation. We are operating in a different world, and we are going to live forever with less share than we once had.”

The TLDR Version from Visa

So essentially Visa’s CEO has revealed the company is being investigated by the DoJ for antitrust violations because its new fees could circumvent the point of the Durbin Amendment’s reform. But Saunders states the company is cooperating with the government probe, and stoutly defends the fees as not circumventing Durbin. Saunders says the fees don’t recoup the losses that the company will incur from the hard cap, and that the company is still taking a downturn in the debit sector even with the fees in effect. He admits that these fees are part of their strategy to deal with the legislation but feels that the company isn’t violating antitrust laws.

The transcript of the entire conference call can be read HERE at Seeking Alpha. Many thanks to them for providing it for use to bloggers and media outlets.

Industry Terms: FANF

Fixed Acquirer Network Fee (FANF)

The Fixed Acquirer Network Fee is a new fee instituted by Visa. It began on April 1, 2012 and is a response from Visa to deal with the losses incurred by the Durbin Amendment’s hard cap on debit swipe fees.

FANF applies to the acceptance of all Visa-branded products and is based on both the size and the number of merchant locations. The FANF fee will be based on volume reported in July 2012. Visa requires U.S. acquirers to provide new merchant location reporting for the tracking of this fee. The new reporting requirements include a monthly breakdown of acquired merchants, number of merchant locations, and merchant sales volume by merchant Taxpayer ID.

For Card Present merchants, with the exception of Fast Food Restaurants, a merchant Taxpayer ID with physical locations is assessed FANF on a per-location rate basis. For example, Card Present Merchants with one to three locations will see a pass through per location per month fee of $2. Price per location per month increases according to the number of locations – upwards of $65 month for merchants exceeding 4000 locations. Card Present High Volume MCC Merchants with one to three locations see a pass through per location per month fee of $2.90. Price per location per month will increase according to location — upwards of $85 month for merchants exceeding 4000 locations.

Customer Not Present, merchant aggregators and merchants primarily operating as Fast Food Restaurants (MCC 5814) are assessed based on gross merchant sales volume originating from any Visa-branded card. Merchants that fall into this category with monthly gross sales volume ranging from less than $50 a month on the low end will see a $2 a month fee- to merchants with gross sales exceeding $400 million at a $40,000 a month fee. There are some 18 tiers, with a merchant falling into a volume tier of $8,000 to $39,999 a month seeing a new $15 per month FANF fee.

Visa also waives the FANF for eligible Charitable and Social Service Organizations (MCC 8398). The FANF waiver for Charitable and Social Service Organizations is provided through a quarterly rebate process that Visa has indicated will be defined at a later date.

The United States Department of Justice antitrust division opened an investigation March 13 into Visa Inc.’s PIN-debit strategies. FANF is a key element in the investigation.

To find out more about the new fees from Visa, MasterCard and Discover in 2012, click THIS LINK and read our Blog post about it.