Interchange Plus Follow-Up

The Official Merchant Services Blog looks at an interesting opinion article we found on Practical E-Commerce. We recently did a 2-part series on the differences between Tiered Pricing plans and Interchange Plus pricing plans. And in it we heralded Interchange Plus and explained why Host Merchant Services uses what we feel is the superior pricing plan to benefit its merchants.

The article begins by introducing the author: “Contributor Phil Hinke is a credit-card veteran who now consults with merchants on lowering their processing costs. Hinke believes the credit card processing industry is often unfair to merchants. He believes the Durbin Amendment — which lowers debit card interchange rates — is fostering deceptive pricing practices by some merchant account providers. He explains his views in the article below.”

This bring together the topic of Merchant Account pricing plans with the Durbin Amendment, something The Official Merchant Services Blog has also been covering in detail. Deceptive pricing practices are something Host Merchant Services strives to overcome in the industry. And one of the key factors the company chose Interchange Plus pricing is because of the transparency which lets merchants see fees on their statements much better than tiered pricing plans.

But Mr. Hinke’s article is an eye-opener because it details ways in which even Interchange Plus pricing can be manipulated to hide fees from merchants: “I am a strong proponent of interchange-plus pricing and, to date, I have never recommend tiered pricing for merchants. (I addressed the differences between interchange-plus and tiered pricing at“Notable Views: Credit Card Veteran on ‘Onerous’ Processing Rates,” a previous article.) However, merchants on interchange-plus pricing can still be grossly overpaying for their card processing. In fact, of the hundreds of merchant statements I have analyzed, the majority of merchants that were overpaying were already on interchange plus, which gives merchants only the potential for fair prices — nothing more.

I recently showed a merchant who was already on interchange plus pricing that he could save money by changing to a provider with a higher processing rate. How could that be? The processing rate is just one of many costs the merchant pays. In this case, the merchant account provider had given the merchant what seemed to be an enticing rate. However, it also hit the merchant with copious monthly and annual fees. Those fees more than offset the rate savings.”

This is a compelling point. And one of the areas where Host Merchant Services is able to stay competitive. Interchange Plus is a tool that a Merchant Services Provider can use to give its customers fair prices. But it’s only a tool. MSPs can still do their best to mark up fees and manipulate the process for profit maximization. As Mr. Hinke points out Interchange Plus only gives merchants potential for fair pricing. It still needs a motivated, hungry MSP in place looking to save merchants money by taking advantage of the tool.

An MSP like Host Merchant Services utilizes that tool along with its overall philosophy to guarantee its merchants savings, transparency and customer service. In that way, Interchange Plus works for the merchant, because it is part of the overall plan to have merchants stick with the company because they are getting value for the services. As Chief Operations Officer Dan Honick often says to clients, “You stay with us because you’re happy.”

Durbin Backlash: Bank of America

Today The Official Merchant Services Blog will take you through a quick roundup of the backlash over the Durbin Amendment. Host Merchant Services has kept  its finger on the pulse of this legislation as it weaved its way through congress and into reality. The HMS article section gives you a comprehensive analysis of the legislation, which also very accurately predicted its impact on consumers, merchants and banks. The Official Merchant Services Blog also ran a 10-day series leading up to the October 1 start date for the legislation, titled Countdown to Durbin. That series selected relevant articles from around the internet and compared them to HMS’ detailed analysis of the legislation.

Since then, the story has continued to grow. It’s been spurred on by Bank of America, who announced in 2012 it would be charging its customers $5 per month to use debit cards. This move was clearly the bank’s response to the cap on swipe fees, and garnered quick and scathing negative reaction, as noted in this blog during the Durbin series. The bank was blasted for adding this fee after taking federal bailout money in the past. The bank was criticized for being the largest bank in terms of debit card transactions and thus one of the primary targets of the legislation. A Fox News anchor even cut up her debit card on the air to express her outrage over this news.

And then the protesters got involved.

Bank of America Gives Wall Street Protesters a Target

While initially the protesters on Wall Street were criticized for not having as much organization or specific goals as movements from decades prior, the Durbin Amendment and the Bank of America fees polarized enough people to fix that hole in the campaign right up. A Los Angeles Times article had this to say on it: “The announcement by Bank of America Corp. last week that it would charge customers $5 a month to use their debit cards has rung up animosity from coast to coast.

Coming amid growing anti-Wall Street protests, BofA’s new fee has become a focal point for anger and frustration about the flailing economy and Washington’s attempts to help the nation recover from the financial crisis.

Some banks are testing similar, though lower, debit card fees. But BofA was the first major player to take the plunge. And since it is the nation’s largest bank — as well as the beneficiary of one of the biggest taxpayer bailouts — the move has put a target on its red-white-and-blue logo.”

In our Countdown to Durbin blog series, The Official Merchant Services Blog cited reports that the first banks to put forth Debit card fees would indeed become a target and get negative reactions over their move. But the timing of the Wall Street protests that sorely needed something to latch onto, combined with Bank of America’s history with federal bailout money, and their foreclosure practices amplified the backlash. People began getting rowdy about it. And visiting Bank of America lobbies to be rowdy about it.

  • This Boston Herald article describes arrests made in protest of Bank of America: “Two dozen trespassing protesters were happily hauled off from Bank of America’s downtown offices last night in a gesture of civil disobedience against what they say are the leading lender’s unfair foreclosure practices.”
  • This Chicago Sun-Times article reports arrests were made at a Hyatt Regency and Bank of America in Chicago as part of the growing big bank/big business protest.
  • This Huffington Post article has images from a Los Angeles protest where 500 people stormed the downtown, including 10 protesters that were arrested in a Bank of America lobby.
  • And this Shore News Today article reports the protests spread to a Bank of America branch in Somers Point, New Jersey.

So What’s Next?

With all of the backlash and the protesting, one has to ask what the next step is? This ABC News 10 article suggests Online Banking: “According to financial website “Daily Finance”, many Americans are closing out their accounts and opting for online banks due to frustration over new debit card fees.”

E-commerce is booming and consequently this has created a much more viable niche for online banking. The article goes on to quote financial consultant Katrina Semmes: “Online banks are certainly worth looking into, but you need to do your homework to make sure they are reputable.” Semmes advised people to seek out the more recognized online banks.

“Semmes pointed out that some of the benefits of online banking include higher money market rates, 24/7 access to your account, and a reduction in one’s carbon footprint, meaning you don’t have to drive to the bank. She said some of the cons include a lack of ATMs with some online banks, no personal touch, and longer processing times for deposits and documents requiring signatures.”

But Online Banking isn’t the only reaction being touted. This Los Angeles Times article details how smaller banks and credit unions are primed to swoop in and grab disgruntled customers: “Regional and community banks such as L.A.’s City National Corp. and Chula Vista’s PacTrust Bank are lining up to take the anti-Bank of America pledge: no debit-card fees. For now, at least.

It’s an appealing come-on following BofA’s decision to charge customers $5 a month to swipe the cards — even for bankers who say new Federal Reserve regulations have unfairly capped what they can charge merchants for accepting the cards.”

Coming Full Circle

Although the most fascinating reaction to the Durbin Amendment can be found in this Huffington Post articlewhich details a call for a Justice Department Investigation: “House Democrats responding to the recent announcement of a new Bank of America debit card fee are calling for a Department of Justice investigation into Wall Street banks, charging that the timing of that announcement and the announcement of similar fees at other banks suggests possible collusion among the major players.

Bank of America, SunTrust, JPMorgan Chase and Wells Fargo have all recently announced new debit card fees. The banks cite a need to raise revenue to make up for diminished profits coming from merchant swipe fees as a result of recently passed reform legislation.”

A Short Opinion Break

So this is how things went with Durbin … It was introduced as an amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act. It’s goal was finance reform, specifically targeted at easing the burden of the consumer by putting a cap on debit card swipe fees. It was lobbied against in Congress by banks and credit card companies. Its debit card swipe fee cap was changed from the extreme 12 cent cap to a 21 cent cap with provisions that raise it to 24 cents. And then it was pushed back to October 1st, giving everyone time to prepare, and speculate what would happen. Most every report, story and analysis that came out about what would happen suggested that because the general scope of the reform legislation left all these other avenues there for banks to respond, that banks would do exactly what they did: Shift the fees to the consumer instead of the merchant.

All of that happens, like clockwork. And the government’s response? To push for the Department of Justice to investigate the banks for doing what many people, including the banks, said they would do.

Tiered vs. Interchange Plus Part 2

The Official Merchant Services Blog continues it’s two-part series on Tiered Pricing vs. Interchange Plus. After yesterday’s blog defined what Three-Tier pricing looks like, we now take a closer look at how it falls apart and does not save merchants money. Then we’ll outline Interchange Plus pricing and highlight why Host Merchant Services uses this plan to save its merchants money.

Where the Problems Occur

The three tiers of a typical Tiered Pricing plan are commonly referred to as rate buckets or buckets. And Merchant Service Providers who use tiered pricing structures for their customers utilize a “qualification matrix” that dictates which rate bucket the various interchange categories will qualify to. That means that the fees can shift from month to month as a merchant consistently fails to meet the “standard” transaction of the Qualified bucket. Thus each month they consistently have to pay surcharges from the other two buckets which aren’t adequately displayed or described on their statement.

And because these fees and surcharges from the other two bucket rate tiers are often hidden, that makes it difficult to accurately compare rates and fees from competing providers unless a merchant knows how each provider will be qualifying those categories. Because the categories aren’t directly comparable and because the qualification matrix can shift fees on a merchant from month to month, a common occurrence is a merchant can look at two separate tiered pricing offers from different Merchant Services Providers that look nearly identical because they use the same language for each tier, and yet could be different by hundreds of dollars each month.

Merchants Have to do the Hard Part

This puts the responsibility squarely on the shoulders of the merchant. They need to read the fine print of their statement and understand the subtle differences between the tiers to note when they get shifted to a different tier. This is the most common way Merchant Services Providers make money. The sales pitch when signing the merchant focuses on the low end bucket that saves the customer the most money. But then once the processing starts, buckets shift and the merchant gets a lot more charges than they initially signed up for.

So if your statement shows that you have a lot of mid-qualified or non-qualified surcharges each month, it’s time to consider switching to Interchange Plus, the pricing structure that Merchant Service Providers like Host Merchant Services offers.

The Advantage of Interchange Plus

Interchange Plus pricing is based on the “interchange” tables published by both Visa and MasterCard. At first that may seem like a daunting pricing plan. But it ends up being a lot easier to understand, completely transparent to the merchant, and less expensive than tiered pricing plans. Interchange plus pricing has the merchant pay the exact interchange fee from the tables in addition to a flat markup fee from their Merchant Services Provider. That’s where the name comes from: It’s the Interchange fee Plus the markup fee. This eliminates all of the hidden fees you would find in a tiered pricing plan. And gets rid of surcharges that merchants would incur for transactions that don’t fit the standardized portion of the rate bucket matrix. You pay what you are told you will be paying.

This makes it less popular than tiered pricing plans where Merchant Services Providers can make quite a bit of money off of those surcharges due to the latitude they have in defining their tiered bucket rates. But Interchange Plus makes statements easier to read, customer service easier to provide to merchants, and savings much easier to guarantee. All of those elements are cornerstones of Host Merchant Services. So Interchange Plus is the best fit for the company and for their customers.

Tiered Pricing vs. Interchange Plus

Today The Official Merchant Services Blog is going to delve into the murky world of hidden fees and tiered pricing plans. This is the first in a two-part series and it focuses on Tiered Pricing. Host Merchant Services offers an Interchange Plus pricing plan. The company offers this plan because of its transparency and the savings it can provide when compared to the far more popular tiered pricing plans. To get a better grasp of why Interchange Plus works so good for Host Merchant Services, it helps to understand what is happening with a tiered pricing plan and how that kind of plan works.

Hidden Fees From Tiered Pricing Plans Unfair to Merchants

Tiered credit card pricing can be unfair to small business owners. Many credit card payment processors calculate merchant costs using a tiered pricing structure. These tiered pricing levels increase the costs for merchants by suggesting they are paying one rate, but hiding other fees into the statements and in the end the merchant is paying a higher percentage. The answer to this problem is Interchange plus pricing.

Host Merchant Services uses Interchange Plus. And this pricing structure is the most transparent and easiest to read system in terms of the statement and the way fees are charged. The merchant sees everything they are being charged for in their statement. Nothing is hidden, and there are no shenanigans employed in getting merchants to think they are saving with a low rate that ends up being made up for in a series of other fees snuck into each statement.

Three tier pricing is currently one of the most popular pricing structures used in the payment processing industry. Here’s a table that defines the three tiers:

It’s all About The Surcharges

Tiered pricing plans start with the qualified rate. This is the standard fee a merchant is charged when they accept and process a credit card or debit card transaction. This is also the lowest rate the merchant can incur. Transactions that don’t qualify for the standard set forth at that rate get hit with various surcharges. And its these surcharges where the processor starts to make a lot of profit. And its these surcharges which are usually the hidden fees that don’t show up on a merchant’s statement.

There are over 500 different interchange categories between the major credit card companies and each category has its own charge that is comprised of a percentage and often a per transaction fee. The three tier pricing structure merges all of these charges into three buckets. And a Merchant Services Provider has its own discretion, to an extent, as to which bucket or tier they place these categories.

These underlying interchange categories are not disclosed on a tiered pricing plan so there’s no way of knowing into which bucket each category is being charged. This is where hidden fees crop up.

 

Merchants are Slacking on Security

According to a study by Verizon, 79% of organizations were not fully compliant with the Payment Card Industry Data Security Standard (PCI DSS) in their initial audit in 2010. That’s about the same level as the previous year, the first year the study was done. This is distressing news since PCI Compliance is extremely important for merchants and non-compliance carries heavy penalties.

Host Merchant Services offers its customers and potential customers a PCI Compliance Initiative, which includes a free scan, analysis and report.

HMS works with its customers to ensure they are PCI Compliant, offering resources, information and assistance every step of the way.

 

Secure transactions are important for merchants and a key element of the customer service HMS provides. Which is what makes the following statistics from the Verizon study somewhat disconcerting, considering how easy PCI Compliance is to maintain through Host Merchant Services:

This article by Information Week delves into the statistics from the Verizon report, and offers five reasons why merchants are letting their PCI Compliance slip each year.

“1. Businesses See PCI As A Burden. PCI isn’t exactly a new standard, or complying with it a new requirement. Why aren’t more businesses taking it to heart? “Well, it’s hard to say, but one common reason is that they have not internalized the fact that PCI DSS is to help them (as well as card brands and banks) with security. It is not to punish them for failing an audit. PCI is seen by many as an ‘externality,’ not something they ‘adopted for themselves,'” said Gartner analyst Anton Chuvakin in an interview.”

Host Merchant Services understands that PCI Compliance, especially being an annual requirement, can be an added burden on its customers. That’s why HMS created its PCI Compliance Initiative. The company seeks to shoulder that burden for its customers, making PCI Compliance as hassle-free as possible.

“2. Merchants Don’t Maintain Continuous Compliance. Many businesses don’t pursue PCI as a way to improve security, but rather treat it as a compliance obligation. “PCI is still often seen as a ‘one time per year’ thing, and such an attitude is pretty harmful–but mostly to the merchants themselves, by the way. Organizations keep ‘doing it over,’ not maintaining it,” said Chuvakin.”

Host Merchant Services, due to CEO Lou Honick‘s prior experience with the web  hosting industry, has a keen insight into how essential the security that PCI Compliance is attempting to standardize can be for its merchants. Which is another key reason why HMS is so involved in seeing that its merchants maintain their PCI Compliance.

“3. Poor Awareness Means Lackluster Effort. Compliance officers–or perhaps senior managers–are failing to educate themselves about PCI, and according to Verizon’s research, the greater awareness of PCI found in a business, the greater the actual compliance. “The more aware your organization is of the standard, the more prepared you are for the type of approach you take,” said Verizon’s Mack.”

Host Merchant Services also understands the trouble it can be keeping informed on PCI details and information. Which is why the company’s PCI Compliance Initiative includes easily available online resources to answer as many questions about PCI as possible, an online guide for the most common merchant classification to become PCI Compliant, as well as offering all of this information directly to the merchants face-to-face or on the phone. The goals of the program are to keep the merchant informed, make PCI Compliance easy to understand and easier to maintain.

“4. Compliance Checklists Trump Security Posture. To help businesses better comply with PCI, the council in 2009 released the PCI DSS Prioritized Approach to help businesses know which aspects of PCI to address first to most mitigate the risks to cardholder data. But Verizon saw a 10% drop in use of the prioritized approach, and little use of it overall. “

This issue is handled by HMS’ PCI Initiative as well. The company is there working directly with merchants step-by-step on PCI Compliance. So the checklists are handled, but there is also the HMS agent’s expertise on hand with each item on the checklist. So the merchant’s overall security posture is still taken into account. PCI Compliance is an important part of a merchant’s security and Host Merchant Services keeps that in mind through each part of the compliance process.

“5. Businesses Not Prepping For PCI 2.0? Businesses that skimp on continuous compliance may soon find themselves called to account as they move to PCI DSS 2.0, with which businesses could have begun demonstrating compliance as of October 2010.”

Host Merchant Services stays up to date on PCI Compliance standards and takes all of the burden onto the company’s shoulders. HMS keeps its merchants well informed about changes, but also does all of the hard work to explain the details and make sure its customers are continuously compliant.

If you take some time to review the PCI Compliance information we have on our site you’ll see that the process is straightforward and it is easy for us to maintain compliance for our customers. This is a path we walk down with our customers. Security is essential in payment processing. And we are here to ensure our merchants are secure and do not backslide into a position where they could get heavy penalties for non-compliance.

The statistics from the Verizon study are somewhat dismaying to read. But our analysis of them seems to indicate that it’s simply an example of where HMS’ focus on customer service steps things up. PCI Compliance can be easy to slack on when the onus is completely on the merchant’s shoulders. And a lot of Merchant Services Providers haven’t taken HMS’ unique approach so the burden remains on the merchant. At Host Merchant Services we take the burden, and help keep you informed, up to date and secure. PCI Compliance is too important to let slide.

Steve Jobs passes away 2011

Steve Jobs 1955-2011

Steve Jobs, Apple co-founder and former CEO of the company, passed away Wednesday October 5, 2011. Apple’s website posted this as a remembrance:

“Apple has lost a visionary and creative genius, and the world has lost an amazing human being. Those of us who have been fortunate enough to know and work with Steve have lost a dear friend and an inspiring mentor. Steve leaves behind a company that only he could have built, and his spirit will forever be the foundation of Apple.”

The impact Jobs had on the payment processing industry is still being defined even now after his passing. Mobile Payments are a booming sector in payment processing, and technology is still being developed and tweaked and polished to harness the revenue potential that some predict will blossom by billions of dollars in the next four to five years.

And the iPhone that Jobs helped Apple launch is a key element in mobile payments. Host Merchant Services‘ own mobile payment solution, HMSPay uses an iPhone application to function. The iPhone, the iPad, the iPod are three of Jobs’ greatest legacies and innovations. These items that Jobs brought forth into the world are still only at the beginning of their use in terms of payment processing and its evolution.

You can find out more about Steve Jobs and his life from these links:

Google plus

What Does Google+ Mean For Small Businesses? [2023 Update]

With the launch of Google+ this year, most of the media buzz about the topic has been the confrontational aspects of Google+ vs. Facebook. But now that Google+ has started to settle in, there’s deeper issues at play for it and the impact it can have on e-commerce. The Official Merchant Services Blog takes a look at where things stand with Google+ and what impact it can have with small businesses.

Since its start in 1998, Google has been building an entire array of web tools. E-mail, calendars, the vaunted Google Docs, advertising, site analytics, mobile applications and third party apps for everything else, the “Google Universe” now offers a complete lifestyle hub for its users. The only thing it had been missing was social media … until now. Google+ is that last addition, and has the capacity to bring all of the rest of the tools Google offers together seamlessly into a rapidly growing social network.

What does Google+ mean for the small businesses?

Google Apps Marketplace and Google’s Chrome Web Store are extensive marketplaces for web apps that host everything from accounting to project management to Customer Relationship Management (CRM) applications to Enterprise Resource Planning applications. A full suite of management tools come together through Google and then Google+ Circles provide the interactive connection for co-workers using these apps.

Google+ is poised to become the conversation manager, overseeing all of the apps that are generating activity inside of a business. Google+ offers an expansive, easy to manage unifying force for business communications within Google’s universe. As a result, small businesses are migrating (over 3 million so far) away from expansive on premise software solutions to Google Apps for their IT infrastructure in a cloud computing environment. And this gives Google+ the opening it needs to target small businesses.

Single Platform or Best-of-Breed?

This Google-branded “universe” held together by Google+ also brings up a key issue for businesses regarding their tools: Do they go for a series of best-of-breed tools, the top of the line features available from a mix of companies and options, or do they go for a single source for all their business interactions?

With the former choice the business has the top-of-the-line tools and functionality available. But the usage can be fragmented between different pieces of software and programming. Purchasing managers, IT, and end-users are left juggling a medley of vendors and individual tools that on their own can be the best of what they do, but overall may not play well together. It could be something like Microsoft for IT, Oracle for backend infrastructure, Facebook for marketing and social media, LinkedIn for business to business connections. A series of integrations across a landscape of tools that ends up being complicated and expensive.

With choosing Google, and using Google+ to hold it all together, the business now has a single set of tools from the same source. This unifying force is very appealing to small business owners. As they look to replace desktop software and move toward a web-only environment, Google+ gives them that much more convenience on this path. Online tools offer an ease of use, accessibility and low cost that a series of different software packages can’t match. And even mixing together various web-based apps can be more cumbersome than the single Google toolbox can potentially offer. This extends beyond the document sharing of Google Docs and gives a viable web-based alternative for all that’s needed to keep a small business running day-to-day.

Unlike Facebook, which still focuses on the social aspect and presents itself as a place to hang out, Google+ is placing itself in a unique position to be the catalyst for a small business toolbox that manages all the different things a small business needs to thrive.

Now that the benefits of Google+ are thoroughly defined and out of the way, it’s time to focus on the one glaring negative. Businesses still can’t properly utilize the system yet. The only problem with Google+, and it’s a big one, is that businesses can’t register for the time being. Google says that won’t change until winter 2011.

What that means is you have to take advantage of Google+ currently in other ways. So the potential boon Google+ can bring as a unifying force for small businesses is still waiting for Goggle to finish integrating the features and let businesses in on it all. For now, Google+ remains an incomplete tool that still only works as a social tool like Facebook. That will change. And when it does, businesses will have an entire universe of functionality stitched together and ready made for them to take to the clouds and run things through just the web. Host Merchant Services will continue to monitor the development of Google+ and keep our readers up to date.

In the meantime, here’s a blog that gives some advice on how to use Google+ right now.

And here’s a blog from Forbes that cites 5 Things Small Businesses Should Know About Google+.h

the durbin amendment

Why the Durbin Amendment Got it Right [2023 Update]

The people in Washington aren’t exactly popular these days, and mostly for good reason.  Unemployment is high, the so-called economic recovery is weak, and small businesses are hurting.  However, another round of stimulus is on its way, and this time it might just work.  Even better, this stimulus comes at the expense of banks that got us into this mess to begin with. To be fair, there is plenty of blame to spread around but that is a topic for another day.  The Durbin Amendment went into effect October 1st, and many businesses will see a significant reduction in their monthly debit card processing fees.  This isn’t just for pin-based transactions, but applies to all Visa and Mastercard logo signature debit cards, as well as card-not-present debit card transactions via Internet and phone order.  On average, fees will be reduced by over 1% per transaction, resulting in a windfall for small business.

There are a lot of arguments against the Durbin Amendement.  I’ll outline and debunk the major ones here:

The savings will not get passed along to the merchants.

True, your merchant services company is not required to pass the savings along to you.  If you are on tiered pricing instead of Interchange plus, you aren’t going to receive the benefits.  But this is also creating a huge opportunity for merchant services companies like us to introduce customers to the benefits of our pricing model and to save them a very significant amount of money.  In short, if you’re merchant services company isn’t passing the savings along to you, it’s time to find a new merchant services company.

Merchants will not pass the savings along to their consumers.  

Again, true, but not necessarily the point.  In a free market, any time you create margin, you create opportunity.  Businesses all over the country are getting a little relief in their margins.  Some will choose to use that margin to compete on price.  Some will pocket the profits.  Many will use that extra profit to reinvest and grow their businesses through hiring and infrastructure enhancements.  No matter how you slice it, this is money directly to small business and that is great for the economy.

Banks will charge fees to offset the lost revenue.  

Sure, this is happening at some high profile institutions like Bank of America.  But other banks are also using it as an opportunity to lure you away.  Banks are limited by competition in terms of how much of the fee they can pass along to you before you bolt to a competitor.  That is the free market working the way it should.  When you take monopolistic fees like Interchange that are unavoidable to merchants and move them to the front of the transaction, consumers and small businesses ultimately win.  You now have the ability to shop for the best deal, where transaction costs were previously hidden and passed along in other ways.

Overall, the Durbin Amendment should provide a multi-billion dollar boost to small businesses everywhere, and the government didn’t have to shell out taxpayer dollars to make it happen.  Sure, it may be somewhat arbitrary, and too much regulation is never a good thing, but the card associations that impose Interchange fees operate as a cartel with monopolistic powers, so the government has a valuable role to play in the process.  We should all celebrate the Durbin Amendment and the tremendous benefits to small business.  If you’re not setup to take advantage of the savings, what are you waiting for?  Apply now!

Net Promoter Score

Net Promoter Score (NPS) was developed by Fred Reichheld in 2003 (http://en.wikipedia.org/wiki/Net_Promoter for the history of NPS).  NPS measures customer loyalty, but the power and data that can be derived from NPS goes much deeper and can have an impact at every level of your company.  It tells you what in your company is working and what is not.  It will focus you on “good profits” and help you move away from the temptation of “bad profits”.

Here is the NPS question, “On a scale of 0-10 how likely are you to recommend <insert company name or product> to a friend or colleague?”

Respondents are then bucketed into three groups.  Promoters are those that give a score from 9-10, neutral is 8-7, detractors 0-6.  The score is then calculated by taking the percentage of promoters minus the percentage of detractors.  For example.  If 10 people responded to an NPS survey and the scores came back as follows:

Promoters – 5

Neutral – 3

Detractors – 2

The NPS score would be 50% (Promoters) – 20% (Detractors) for a score of 30.

The follow-up question that provides the data that can be converted into action is “If you did not give us a 10, please tell us what we can do to allow you to give us a 10 in the future”

To have an effective NPS strategy, it is important that you collect data on a regular basis.  Doing periodic Relational Surveys where you poll your entire customer base, as well as Transactional Surveys (each time there is a customer touch point) will provide you a good percentage of customer response.

The high effectiveness and response rate is built into the simplicity of the question.  It is two questions that your customers can answer in less than 30 seconds, which promotes a high response rate.  A 50% response rate is not uncommon for companies that have an effective NPS strategy.  If you do implement an NPS Survey program, avoid the temptation to layer on additional questions.  The more questions you ask, and the more time you are asking of your customers to complete the survey, the lower your response rate will be.  In addition, to promote a high response rate, you need to make sure you are informing your customer that they will be getting a survey.  Have Sales people, Support people, anyone that touches a customer, remind them that they will be getting a survey, and also make sure to explain that the survey is THE key way in which the company makes changes, you are reinforcing to the customer that their opinion matters and that action will be taken based on their feedback.

The data from NPS will give you a ton of information that will allow you to take action almost immediately.  If you are in an MRR based business, NPS is very powerful because you will be able to quickly identify possible customer churn and take action before you lose the client.  NPS will tell you what you need to change in your product, if it met customer expectations, and if your supporting processes/teams (support, customer care, user guides, etc) are effective and customer friendly.  The data will provide you with an operational roadmap of change that then can easily be re-measured to gauge the changes effectiveness.  Additionally, this is an excellent way to share immediate positive feedback from customers with staff and allow quick action to take place when a negative customer experience occurs.  Providing positive employee feedback is always good and allows you to see the great work your company does along with the impact it has on clients. And when things don’t go smooth, you can take swift action for an upset customer, that can often times more than make up for the negative experience in the customer’s mind and move them from a Detractor to a Promoter rather quickly.

The obvious question is “what is a good NPS score?” and there are publicly available scores for various companies that you can find.  In general, anything above 50 is good and above 70 is world class.  However, what your focus on NPS should be shouldn’t be the score, your focus needs to be on what customers are telling you and then what are you doing based on that information.  Additionally, establishing a baseline score, and then based on the data, using it as the focus of continuous improvement and changes in your business, and then seeing how your NPS score has improved is the real power and value that both you and your customers will get from NPS.  Once you have established a high NPS score based on consistent data collection, you can then start converting customers into an effective grass roots marketing army that will cost you almost nothing, but deliver you new customers and new growth.  Happy customers buy more and tell people about it, and they keep on buying.  NPS allows you to know who is happy and if they are not happy, why.

Two recommended resources for more on NPS.  Satmetrix (http://www.netpromoter.com  and http://www.satmetrix.com ) and the book “The Ultimate Question” by Fred Reichheld (http://www.theultimatequestion.com)

Durbin Amendment Is Here

Today is the day. October 1, 2011 the changes brought on by the Durbin Amendment take effect. The Official Host Merchant Services Blog has been running its Countdown to Durbin series leading up to today. We end our series with one last gallop through the media coverage of the law.

Durbin Amendment Costs People Their Job

The most attention grabbing link we found on the day of Durbin taking effect was this article from Credit Newsline, stating the Durbin Amendment forced a Texas bank to close branches and lay people off. The article stated:

“The Laredo, Texas-based International Bancshares Corp. announced on Friday that it will shutter 55 grocery store branches and lay off approximately 500 people in response to the Durbin Amendment, which will cap what banks can charge merchants for debit card transactions.

“Government many times passes regulations that end up hurting the very people they were intended to help,” International Bancshares Corp. chairman and CEO Dennis Nixon said. “This appears to be one of those cases.

Nixon said that the $11.8 billion International Bancshares will close the grocery store branches so that it can continue offering free checking to its customers following the new interchange legislation, which takes effect on Oct. 1. The company said that it relied on revenue from debit card fees to cover the cost of free products and services for consumers and is shutting the branches to offset the loss of revenue.”

The last bit we’ll leave you with comes from Fox Business Network, and it’s a save the date tidbit on October 1:

“The significance of Oct. 1 is not limited to the world of plastic cards. Thomas Edison opened the first electric lamp factory on this date in 1880. Yellowstone and Yosemite National Park, in 1890, were established by the U.S. Congress. And on October 1, 1992, the Cartoon Network launched. In any case, you and your local store owners may not look at your debit card, or your credit card, in quite the same way again.”

Remember to read Host Merchant Services’ extensive analysis of the Durbin Amendment here. And we’ll be back to regular blog reporting on Monday but will most likely have more information related to the Durbin Amendment going forward as the banking industry is just getting started with its plans to react to this law and the changes it brings.