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

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:

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.

Industry Terms: PCI DSS

PCI DSS

The acronym PCI DSS stands for Payment Card Industry Data Security Standards. PCI Compliance is essentially the process of adhering to the standards set forth by the Payment Card Industry Data Security Standards Council (PCI DSS). You can review those standards in greater detail here. Essentially the standards are a set of requirements designed to ensure that all companies that process, store or transmit credit card information maintain a secure environment.

Host Merchant Services offers its very own PCI Compliance Initiative. Take advantage of this offer and let your PCI worries disappear:

Host Merchant Services PCI Compliance Initiative

To learn more about PCI Compliance, Host Merchant Services offers these resources:

PCI Compliance FAQ

PCI Compliance Guide

And as an Aside … For Technorati’s verification purposes, this code needs to be here in this post: D66VEXFAC3H8

Trending … Social Gifting [2023 Update]

The Official Merchant Services Blog keeps its finger on the pulse of e-commerce, and today we’re giving you the scoop on the latest hot trend … Social Gifting.

What is Social Gifting?

Social Gifting is the activity where consumers on social media channels like Facebook can individually, or in groups, purchase gifts for their friends. Virtual Gifting, or the act of giving someone a gift through an app or a website, was covered right here on November 2, 2011. In our Virtual Gifting Blog we had these prophetic words to say about the activity: “As smartphones ingrain themselves more and more into our society, virtual gifting is going to become a much more commonplace activity. Driving the strength of e-commerce higher and higher. “

The Virtual Gifting Blog was a follow up to the November 1, 2011 blog entry on Mobile Gift Cards. We explained how the process of mobile gift cards works: “The standard way Mobile Gift Cards are designed to work is: The card is sent via email, Facebook or text. The recipient is notified that he or she has a Gift Card, and can take their smartphone into the store and use it immediately. The store clerk simply scans a bar code from the recipient’s phone, and the card is applied to the balance.”

The two key points to take from The Official Merchant Services Blog’s 2011 coverage are:

We recognized this trend as being on the cutting edge last year and have been staying ahead of the technology curve effectively.
Social Gifting is just the latest mutation in the process, adding in the social media and group aspect to virtual gift technology.

Wrapp That Gavel Up, B!

What prompted Social Gifting to get kicked up a notch in media coverage is that Swedish start-up Wrapp launched a U.S. version of its application with 15 high-profile merchants including H&M, Gap and Sephora. Wrapp takes the form of a mobile application for iOS or Android that you download and then connect to your Facebook account. Once you download the app, you can send gifts or promotional gift cards to people within your network. There is also a Web version of the application.

Since Wrapp launched its first app in November 2011, nearly 180,000 people have used it to give their Facebook friends more than 1.5 million free promotional gift cards for nearly 60 major retailers, according to the company’s background information.

The Pros and Cons

Wrapp cites its biggest strength is that the practice of social gifting often results in sales much larger than the original gift — each sale averages 4 times to 6 times the value. That’s an alluring idea that many retailers will find an attractive marketing tool. But there are some serious concerns about the trend as retailers still feel burned by the rise of the spammy empire that is “the daily deal.”

Groupon and its legion of imitators have helped undermine prices for some businesses (especially small ones) and downright burned others, when the businesses couldn’t keep up with the opportunistic one-time customers they acquired through the big one-time deals that trended in 2011. That has many people gun-shy in terms of social gifting, since the daily deal empire was also built through social media outlets like Facebook and Twitter.

This blog titled “Social Gifting: Helping or Hurting Business?” from techzone360 delves into the negative impact Social Gifting could have. The key criticism is made here: “As it turns out, the overwhelming majority of recipients make sure not to go a penny over the budget of the gift cards – which also isn’t very out of line or unreasonable either. The major flaw in this system is with the mom and pop stores. Sure, everyone wants a lot of business – how else would they make money? But when 500 people come swarming into a business that’s only prepared to deal with 10 or 15 customers at a time, things can get messy.”

But Wrapp CEO Hjalmar Winbladh told smartplanet.com in this blog: “You and I get to give our friends free gifts and promotional cards from great retailers, the gifts we give are stored in our friends’ phones so they’re always with them when they want to buy something they really want, and the merchants get a proven customer acquisition and retention platform built on Wrapp’s friend-to-friend marketing for conducting performance-based campaigns.”

The Full List

The company is comprised of executives that are big players in the retail and social media sectors. The folks who founded Wrapp are: COO Carl Fritjofsson who was a strategy advisor to Groupon.se; CTO Andreas Ehn was Spotify’s first chief technology officer. The aforementioned Winbladh previously co-founded a mobile software company in Sweden called Sendit, which was acquired by Microsoft in 1999. Wrapp’s chairman, Fabian Månsson, is the former CEO of H&M and Eddie Bauer. In January, the company raised $10.5 million in Series A funding from Greylock Partners and Atomico. And LinkedIn founder Reid Hoffman is on the board of directors, along with Skype founder Niklas Zennström.

The full list of 15 retailers included in Wrapp’s U.S. service are:

Björn Borg – designer underwear
Brooklyn Industries – innovative designer clothes for men and women
Fab – daily design inspirations and sales
GANT – American sportswear with a European touch
Gap – casual, optimistic, American style
H&M – family fashion and quality at the best price
Happy Socks – designer socks online
Rovio Entertainment – creator of the globally successful Angry Birds franchise
Sephora – unparalleled beauty paradise of makeup, skincare, fragrances, hair care and more
SpaFinder Wellness – feel-good possibilities from massage to yoga, Pilates and fitness classes
The Wall Street Journal – the country’s largest newspaper and leading business publication
Threadless – amazing graphic tees from a global community of designers
Warby Parker – eyewear with a purpose
Wayfair – furniture, lighting, cookware, and more for the home
WeSC – street style clothing and accessories

Debit, Merchants and Durbin

Today The Official Merchant Services Blog jumps feet first into an update on everyone’s favorite payment processing industry-focused legislation, the Durbin Amendment. We’ve covered the topic extensively since the blog began. You can read the Host Merchant Services in-depth and official analysis of the legislations itself by CLICKING HERE.

The legislation took effect October 1, 2011. With May beginning its seventh month of officially being on the books, some studies on its impact are starting to come to light.

CardHub’s Interchange Fee Study

According to a study released by Card Hub, the Durbin amendment will cost big banks $8.06 billion and smaller banks $329.4 million on an annual basis. The study, FOUND HERE, also notes in its 2012 impact assessment that the interchange fees charged by large banks (those with more than $10 billion in total assets) have decreased significantly since the Federal Reserve’s interchange fee cap took effect – falling 59.3% for signature transactions and 32.4% for PIN transactions.

The CardHub study is a work in progress and has been updated multiple times with new information as the Durbin Amendment made its way through Congress and ultimately took effect on October 1, 2011. On May 1, 2012 the Federal Reserve for the first time announced hard data on the law’s practical effect, and Card Hub’s 2012 Impact Study concluded that the law has ended up costing banks almost $8.4 billion on an annual basis.

Speaking of the Fed …

The Federal Reserve released statistics on May 1 summarizing the Durbin Amendment’s actual affect on the banking industry through the first six month’s of the law’s existence. The central bank found that in those six months of Durbin’s controversial cap on debit swipe fees being in place, banks subject to the cap saw their average fees drop by 45 percent. This makes some very simple mathematical sense when you consider that prior to Durbin the average fee was 43 cents per transaction, and Durbin itself set a hard cap of 21 cents and 5 basis points — essentially coming out to a 24 cents per transaction upper limit. The only wiggle room on the entire process is found in small banks, who are not subject to the hard cap, but those banks, according to the CardHub study only account for 15 percent of the total market share, so their variance will only have a small impact on the data. And as noted in the Federal Reserve’s data, small banks have held steady with their interchange fees on swipe debit, keeping them at the pre-Durbin height of 43 cents per transaction average.

S&P Releases a Study As Well

Standard and Poor’s released its Durbin Amendment Impact study as well, titling it “U.S. Banks are Changing Their Strategies to Mitigate The Financial Impact Of The Durbin Amendment.”

You can read the study at THIS LINK HERE. The basics of the study echo much of what Host Merchant Services‘ analysis predicted last year.

Essentially banks are going to make up the loss incurred by the hard cap in other areas. They are already well on their way to cutting out special programs and offers such as free checking and subsequently raising fees and instituting new fees into their services throughout their bank’s offerings. In short, banks simply moved the fees to other things consumers have to pay for.

The study concludes: “The Durbin Amendment has affected the financial industry in a number of ways, but perhaps not in the ways legislators intended. The benefits to consumers seem largely negligible as banks have sought other ways to generate revenue or cut services.”

Fuel is the Fire

Added to the 6-month impact studies, the Durbin Amendment also popped up into the news at the end of April due to a bold claim made by the Electronic Payments Coalition: Gas retailers were pocketing $1 billion in windfall from the Durbin Amendment and not passing any savings on to consumers. The math behind this claim is not nearly as direct as the headlines made it out to be. So follow along on this. According to the EPC:

The Durbin amendment to Dodd-Frank legislation has seen interchange rates slashed by about 70% for debit card payments for fuel.
With high gas prices likely to play a major role in this year’s presidential elections, the EPC commissioned research from Phoenix Marketing International on the prevalence of debit card use at the pump.
A poll of 5166 consumers shows that 36% of all payments for fuel are made with a debit card – half of all non-cash transactions. The debit card share of both transactions and dollars is higher than any other payment method.
With US Energy Information Administration figures showing that nearly 134 billion gallons of gas were sold in 2011, this means that approximately 48 billion gallons were purchased using debit, claims the EPC.
Yet, despite the $1 billion a year this gives merchants “there continues to be no evidence that retailers are passing along savings,” according to the EPC.

That’s a bit of a leap. Using data from about 5,200 people in a poll and then tying it into the full figures from the US Energy Information Administration on fuel consumption ties two pieces of data together in a relationship that is not a direct connection.

CLICK HERE to view the full Phoenix Marketing Report.

Not so Fast

The National Association of Convenience Stores (NACS) and the Petroleum Marketers Association of America (PMAA) strongly condemned the findings of the EPC report. Both organizations claim the data is seriously flawed.

The NACS replied to the EPC report in multiple media outlets, stating the EPC the study is based on simple arithmetic that shows a lack of understanding about what causes high fuel prices and whether retailers even profit from them. NACS spokesman Jeff Lenard said: “When prices rise, retailers usually cut margins because they want to remain price competitive even if their wholesale costs increased. Data from OPIS shows that the average national markup (gross margin) for gas was 13.0 cents per gallon over the first quarter of the year. We estimate that expenses to sell gas are around 15 cents per gallon, so average retailers experienced an entire quarter where they lost money selling gas.”

Lenard also cited the NACS Fuels Report for 2012 as showing consumer price sensitivity with gas purchases, saying that consumers are aware of discounts and have used them. You can read that Fuels Report at THIS LINK HERE.

In Conclusion

Six months into the Durbin Amendment things are shaping up much like Host Merchant Services predicted. The legislation remains controversial, but that is largely due to the way the legislation was written with large enough loopholes for the banks to easily adjust to the restrictions of the reform. The gas price gouging story seems more sensational sizzle than quantitative substance. Proving that gas prices remain a hot button political talking point in election years, but the whole issue, to us here at Host Merchant Services, seems to be blown out of proportion when you consider that credit cards get used at the pump and they are not subject to any reform legislation currently.

Visa’s Ups and Downs

The Official Merchant Services Blog takes a look at Visa’s wild ride between May 2 and May 3. In the midst of a very active first quarter of 2012, Visa’s earnings report came in. The San Francisco based credit card giant then took a ride on a roller coaster in the span of two days after the report was released.

The Up Vote

The company had good news to report on May 2: Visa said Wednesday that its profit for the first three months of the year was up 30 percent from the year before, primarily because credit card use rose in the United States and overseas. Bloomberg broke down some key statistics from the report in their story here: “The company said Americans rang up 12 percent more on their charge cards for the quarter. Debit card use grew by only 4 percent to $284 million, however, the slowest growth in a year.”

So the boost in Visa profits is tied to an increase in the use of credit cards in the first three months of the year. But it appears the Durbin Amendment, financial reform legislation designed to address problems with swipe debit fees, has slowed down debit card use. As the Bloomberg article reports, the Durbin Amendment appears to be having an impact on profits: “Banks have eliminated some debit card rewards programs since October, when the government limited the fees banks can charge stores for card transactions.”

The profit breakdown for the quarter paints a very rosy picture. Visa’s net income was $1.3 billion, or $1.60 per share. Wall Street was expecting $1.51. Revenue rose 15 percent to $2.6 billion. Wall Street was expecting $2.48 billion.

The Down Turn

And then the roller coaster ride took a dip. Bloomberg reported the next day, May 3, that Visa stock took a decline based on the details of a U.S. Antitrust Probe into Visa’s Debit Strategy. The article states: “Visa Inc., the payments network that has lost market share amid new debit-card rules, slid as much as 4.5 percent in extended trading after disclosing a U.S. antitrust probe into the firm’s pricing and strategy.”

Visa adjusted the network’s fee structure to defend its leading market share after the Durbin Amendment took effect in October. On March 13, the U.S. Justice Department’s antitrust division issued a civil investigative demand asking for information about Visa’s debit strategy. Bloomberg quotes Visa Chief Executive Officer Joseph W. Saunders as saying in a conference call: “We are confident our actions are appropriate and that our response to the DOJ supports that.”

According to Saunders Visa has received four other requests for information from the Justice Department since 2007, and all have been resolved with Visa’s full cooperation.

The Durbin Factor

The Visa news comes after recent announcement from MasterCard, which stated that their own first-quarter profit increased 21 percent to $682 million. Like Visa, MasterCard’s profits also beat Wall Street estimates.

Speculation suggests that the hard cap on Debit Card Swipe fees imposed by the Durbin Amendment from October 2011 may have helped MasterCard take some market share away from Visa. MasterCard has been winning deals to handle processing of debit transactions according to the company’s Chief Financial Officer Martina Hund-Mejean.

Bloomberg quotes Hund Mejean as saying in a conference call to analysts: “In every quarter we’re going after business very surgically and opportunistically. You can see those results in our numbers.”

And according to Tien-tsin Huang, a JP Morgan Chase & Co. analyst in a May 1 research note, Bank of America Corp. — the biggest debit-card issuer and catalyst of post-Durbin media frenzy — switched to MasterCard.

Visa’s Fees Bite Back

Visa changed its debit-card fees in April, creating new fees like the Fixed Acquirer Network Fee (FANF) in an attempt to create incentives for merchants to route more transactions on the company’s network. The fees, which had been variable were broken into various components. To read more about those fees, you can CLICK HERE to see Host Merchant Services‘ own coverage of the April fees. The Bloomberg article suggests that Bank of America switched to MasterCard in reaction to the new Visa fees and MasterCard’s own surgical strike against Visa’s market share.

Data Breach News: [2023 Update]

Today The Official Merchant Services Blog is updating its coverage of the Global Payments Data Breach. The news of this breach hit on Friday, March 30. At first there reports of a mere 50,000 cards were compromised. Then at the height of the frenzy it was reported that the number might be closer to 10 million cards. Quashing the frenzy, Global itself released a statement that the number was closer to 1.5 million cards. And now it seems the dispute over the timeline as well as the number of cards continues.

Back to the Future

Christopher Brook writes on ThreatPost that the data breach that hit payment processor Global Payments earlier this year could have dated back to June 2011, launching speculation over whether more credit card numbers were stolen than initially reported.

Brook’s source is the initial source of the news about the Breach, Brian Krebs and his blog krebsonsecurity.com. Krebs writes: “A hacker break-in at credit and debit card processor Global Payments Inc. dates back to at least early June 2011, Visa and MasterCard warned in updated alerts sent to card-issuing banks in the past week.”

Krebs explains that Visa and MasterCard send periodic alerts to the banks about cards that may need to be re-issued following a security breach at a processor or merchant. He states that it was these alerts that got him on the story to begin with, and ultimately report the breach. He then says, “Since those initial alerts, Visa and MasterCard have issued at least seven updates, warning of additional compromised cards and pushing the window of vulnerability at Global Payments back further each time.”

The timeline has been the trickiest part of the story as Global’s statements have been very succinct. The processor has stated that it reported the breach to the proper authorities when it found out about the breach. The company maintains that the breach is contained, and only affected 1.5 million cards or less and occurred in February 2012.

Krebs has been reporting that the timeline was larger and that suggests that more than 1.5 million cards could have been compromised. Krebs gives his own take on the timeline: “Initially, MasterCard and Visa warned that hackers may have had access to card numbers handled by the processor between Jan. 21, 2012 and Feb. 25, 2012. Subsequent alerts sent to banks have pushed that exposure window back to January, December, and then August. In an alert sent in the last few days, the card associations warned issuers of even more compromised cards, saying the breach extended back at least eight months, to June 2011.”

Krebs notes that the expanding timeline is most likely a result of the forensic audit and investigation that is being done on the data breach.

Blunder Reported From Down Under

Spreading our internet net far and wide, The Official Merchant Services Blog was able to find this story from Dan Kaplan reposted at the Australian CRN site. The story, that originally appeared on SC Magazine’s site, reports that Global admitted to being ditched from PCI lists. Kaplan reports: “For the first time, breached processor Global Payments disclosed on Tuesday that a number of card brands have removed the company from their approved list of Payment Card Industry (PCI)-compliant service providers. However, the US-based firm continues to process transactions for all of the major card brands as it seeks rejoin those lists, it said in an update.”

The story then reiterates Global’s continued commentary about how they immediately reported the breach, how it only affected 1.5 million cards or less and how the company continues to decline to elaborate on any further details about the attack while it cooperates with authorities to get the investigation resolved.

Kaplan then cites a Visa spokesman saying Visa has asked Global Payments to re-validate its compliance to PCI by using a qualified security assessor, or QSA. Retailers that use the company’s services will not be liable for penalties during that time.

Still no word on the involvement of Dominican Street Gangs in this breach or the early reports that the breach was caused by Taxi Cabs and a garage in New York using Global’s payment processing technology. The Official Merchant Services Blog will continue to keep its readers updated on the twists and turns taken in this ongoing story.

Internet Security

Security is one of the defining internet issues of this decade. While there is not one distinct body of law that governs a company’s rights and responsibilities, there are methods to prioritize compliance efforts. This issue is relatively unique to the internet space since the laws and regulations that apply come from many different areas. In recent years the Federal Trade Commission (FTC) has taken an increasingly prominent role in responding to these problems. In addition, almost every state has some sort of law that at least requires reporting of unauthorized disclosure of information. Indeed many state laws, particularly Massachusetts and California, go substantially beyond simple breach disclosure and mitigation.

Host Merchant Services is located in Delaware. The Delaware Security Breach Notification Law can be reviewed in its entirety at This Link.

While many agencies, such as the SEC, have regulations that address security issues in the industries they regulate, the FTC is the agency primarily tasked with addressing internet security issues. The FTC has the authority to prosecute companies and individuals who engage in deceptive trade practices. The best way to determine the enforcement priorities of the FTC is to look at recent enforcement actions. These actions have focused on the “locked door” problem: Many companies focus on the number of locks they’ve placed on the door to data, as opposed to making sure these doors do not become unlocked over time.

Sloppy security practices are an issue that the FTC has said is simply screaming for regulatory and enforcement activity.

Time and time again, the FTC has stated that companies must have procedures in place to ensure that their businesses are secure, to detect security vulnerabilities, and inform customers and, if necessary, regulators, when unauthorized disclosures are discovered. To avoid FTC action, internet businesses need to shift some of their security thinking and strategy from high profile areas to basic security and process control schemes. This could involve redeploying resources from traditional security screening measures (such as trying to breach firewalls) to creating change control processes, training staff on quality control and ensuring that vendors actually meet the security standards you need — and that they profess to have.

It is a bit trickier to generalize about state security statutes. That said, most state laws have relatively similar goals to their federal counterparts. As an initial matter you should ensure that your entire “ecosystem” has the same, or similar, breach definitions. Doing so avoids gaps that lead to misinformation and failure to comply with breach definitions set out in your state laws. A second component of general compliance is to create both internal and external notification plans. Your internal plan should create a system where both employees and vendors are alerted to a possible breach. External plans should contain at a minimum a statement of what is known about the breach, mitigation efforts, a contact point, and future steps you are taking regarding the breach. You should identify which information will be excluded from these notification efforts because of confidentiality or other restrictions.

A final component of a state compliance plan is to anticipate how you will fold in state regulators and law enforcement entities. At a minimum, these will be agencies in the state in which you are located, but may, in some instances, include regulatory agencies in other states. It is important not to play hide-the-ball and simply fail to provide the regulatory and law enforcement notifications required by law. In making these notifications, you should involve your attorney to determine how much information you are required to disclose, and methods of protecting your company from litigation.

For More Information

For more legal information you can visit my site:

David Snead’s Home Page

Merchant Services Document Download Graphic

To learn more about PCI Compliance, Host Merchant Services offers these resources:

PCI Compliance FAQ

PCI Compliance Guide

Disclaimer: Legal decisions must be made based on your unique situation. Please consult with an attorney prior to making decisions based on this post.