Tag Archives: payment processing

The Millennial Generation is the Debit Card Generation

Cash or plastic? When members of Generation Y are asked this point-of-sale (POS) question, they are more likely to choose plastic, but not necessarily a credit card. According to research by PSCU, a payment processing provider for American credit unions, older members of the Millennial Generation, those who are between the ages of 31 and 38, tend to prefer debit card payments over lines of credit by a margin of 40% versus 36%.

Credit vs. Debit

The PSCU survey shows that paying with credit is more popular among members of Generation X, but things get interesting with younger members of the Millennial Generation, those who are between the ages of 23 and 30, who happen to prefer credit at an even higher rate than their Generation X counterparts. The youngest in the Millennial Generation cohort are evenly split in their credit over debit cards preferences at 29%; they actually prefer to make payments with cash, but instead of bills and coins they really like digital platforms such as Venmo, Google Wallet, Snapcash, PayPal, Facebook Messenger, and others. These young consumers, who are between the ages of 18 and 22, really like the idea of doing away with plastic and using their smartphones, which suggests that they are the perfect segment for digital currencies.

Young adults who are part of the Millennial Generation may not always realize that the payment processing structure of their beloved digital wallets are actually debit cards, but this is not something they worry about; they do not like carrying plastic cards and only keep a small amount of cash on hand just in case. They understand the concept of credit over debit, and this is probably why they prefer the latter; when they learn about the struggles many of their parents went through when revolving consumer credit was widely available, they prefer not to bother with this aspect of personal finance.

What Should Credit Card Companies Do?

Other personal finance research studies on the payment patterns of the Millennial Generation shed light on another aspect of credit and debit cards that young adults dislike, specifically data breaches. Such security issues are being considered by younger consumers, but there is also a certain aversion to the traditional banking system. It should be noted that a little over 25 percent of younger Americans have never used a credit or debit card, they think that checks are antiquated, and they dislike the idea of having to stand in line at the bank. They don’t mind using prepaid cards, which are another form of debit cards, as long as they are tied to mobile apps and have a disposable feel to them.

What should banks and issuers of payment cards do to entice the Millennial Generation? Mobile apps and innovation are clearly the answer, and they should start looking into digital currencies, perhaps beginning with safer options such as the USDC managed by investment banking giant Goldman Sachs. Something else to keep in mind is that younger consumers like rewards, social media features, and the ability to instantly transfer small amounts of cash.

How to Avoid Common Mistakes When Getting a Merchant Account

Choosing a merchant account can be overwhelming. With innumerable fee structures, not to mention growing varieties of payment options, a business can spend full-time hours simply keeping up with the fast pace of credit card processing trends. If you follow the advice from the steps listed below, you’ll be ahead in the merchant account game:

Look for Reviews

When you begin the discovery process with a merchant account provider, seek references and research reviews. Rather than read testimonials on their website or blog, find forums that objectively discuss merchant accounts. Then, follow up by checking online reviews and by contacting one of their customers whose business is similar to yours to determine their satisfaction with services.

Once you have your short list, ask your potential merchant account providers for details and processes regarding your potential Account Manager and the overall customer service staff. When and how is the customer support team available to merchants? You will need a contact name and direct number for assistance at any time.

Avoid Hidden Fees

Due to the complexity of merchant services pricing, it’s easy for payment processors to hide fees in their statements. Terms such as “qualified” and “non-qualified” rates are red flags indicating tiered pricing, which allows the payment processor to determine which transactions don’t qualify for the lower rates.

In order to ensure there are no hidden merchant fees on a sample statement, ask them to explain rates and fees, including ancillary fees. They must be open and honest about their merchant account fees. Check the MasterCard and Visa websites to compare their rates to the rate quoted by the merchant account provider to ensure they’re not quoting a low rate to obtain business. Explicitly request the following: application fee, set up fee, batch fee, statement fee, monthly minimums, PCI compliance fee, IRS fee, and annual fee.

Ask if they bill for additional services. Ask if they auto enroll merchants in free trials that require the merchant to opt out if not interested. Ask if they back-bill for fees versus bill fees in the same month they occur. And ask how often they raise rates.

They May Not Support Your Equipment

Confirm their services are compatible with all terminals, gateways, point of sale (POS), mobile devices, chip & signature, Apple Pay, and eCommerce, among others.

Avoid Long-Term Equipment Leases

If you need credit card machines or payment processing devices, ask if they are new or refurbished. Determine if you are buying or leasing the equipment – and what is the cost? Relative to buying, equipment leases are more expensive in the long run. While a credit card terminal can cost a few hundred dollars to buy, a lease can end up costing thousands of dollars over the course of a few years at $30 per month at minimum.

Don’t Be Just Another Residual

Because your merchant services company should view you as a valuable customer, they should increase your payment-processing efficiency, improve your customer service experience, and save your business money. Ask for the payment processing options available. Note whether or not they discuss building long-term relationships with merchants.

Before Signing the Contract

Before signing the contract, learn the termination process. Ask if there is a cancellation fee or early termination fee. Also, determine if the contract automatically renews. Host Merchant Services does everything month to month, no long-term contracts, allowing you to cancel at any point with no fees.

Host Merchant Services

Host Merchant Services can guarantee the lowest rates while providing the best customer service. With no term commitment, no cancellation fees, no hidden fees, and no obligation, HMS provides the highest level of customer service, earning respect from our peers, as well as from our clients. Host Merchant Services will gift you a $50 gift card if we can’t match or beat another price on the market.

Small Fees Add Up Considerably for Square

Merchants who use the services of credit card processing giant Square, which was founded by a former PayPal executive, can no longer count on flat rates for payment transactions. According to a news report recently published by Bloomberg, Square has rolled out a new fee structure that no longer sticks to the 2.75% in-store transaction charges that the company had in place for years. The fee has been reduced to 2.6%;‌ however, there is now an additional charge of $0.10 per transaction, when the payment amount is $65 and under.

When Will the Change Take Place?

New Square users will be subject to the new pricing structure right away while existing merchants can expect to see the change in early November. In a blog post published by Square in October, the company explained that the new fee schedule corresponds to an effort to align with competitors in terms of transaction costs.

Industry analysts believe that Square is starting to feel the impact of operating costs related to acquiring new merchants, particularly those that have a higher volume of micro transactions. Square is doing business in a sector that sees retailers spending $108 billion every year to accept electronic payments, and the methods the company has widely utilized to sign up new clients include innovative card readers, terminals, mobile apps, and simplified point-of-sale systems;‌ these value-added services, which are heavily geared towards micro companies such as hot dog carts, translate into high operating costs. The $0.10 fee is intended to offset some of these costs, which can hurt a small businesses’ overhead.

Why the Increase?

When compared to other merchant processing companies, the new fee schedule posted by Square is typical; nonetheless, this is a company that has a disproportionate number of users for whom low-ticket transactions are their bread and butter, and they are the ones who are more likely to complain about being charged an extra $0.10. To a certain extent, Square risks losing clients such as the aforementioned hot dog cart operators, coffee shops, and convenience stores, but average retail transactions are estimated to be between $30 and $35. If anything, Square is attempting to gain more new clients, which could be at the expense of their current ones.

According to WCYB, an NBC‌ News affiliate based in Tennessee, small business owners in the region are not happy with the higher fees being charged by Square. The operators of a bakery, a cafe, and a catering provider explained that they will be passing on costs to customers, and they are strongly considering shopping around for a new merchant processor that specializes in small businesses.

Global Payments, TSYS Complete Merger

In a $21.5 billion all-stock deal, Global Payments Inc., a global provider of payment processing technology and software solutions, merged with TSYS (Total System Services) to form a pure-play payments company using the name Global Payments, the largest merger of payment technology companies to date. Working with 1,300 financial institutions and 3.5 million merchant locations in more than 100 countries, facilitating credit card processing for more than 600 million cardholders, the merger positions the company to be a leader in owned software, integrated payments, and omnichannel solutions.

TSYS can leverage Global Payments 32-country global reach to access the global markets during a time when e-commerce transnational transactions are on the rise. By focusing on merchant services and payments-related business, the merged company hopes to differentiate itself from the other fintech mergers, according to TSYS CEO Troy Woods. For example, the TSYS Netspend business offers reloadable payment products while the merged company will also engage in consumer solutions and merchant acquiring.

A pure-play payments technology firm, Global Payments’ headquarters is located in Atlanta, Georgia with more than 24,000 employees around the globe, serving countries in North America, Europe, Asia Pacific, and Latin America. Offering global solutions and advanced software, Global Payments offers a technology-enabled strategy to merchant services.

Following the $35 billion FIS acquisition of Worldpay and Fiserv’s $22 billion acquisition of First Data, Global Payments’ acquisition of TSYS is another big fintech merger for 2019. TSYS shareholders will receive 0.8101 of Global Payments shares for each of their own. Global Payments investors will own 52 percent of the new company, leaving the remaining 48% percent to TSYS shareholders. Traded on the New York Stock Exchange (NYSE: GPN), Global Payments is a member of the S&P 500. Global Payments gained 1.0% in premarket trading.

TSYS holds a presence with smaller retail merchants, and Global Payments has a strong hold with restaurants with each providing point of sale (POS) solutions tailored to those industries. Combining TSYS’s strength as a U.S. payment provider with Global Payments’ strength as an international payment provider makes for a stronger whole.

Jeff Sloan will serve as CEO of the merged Global Payments company, Cameron Bready as president and chief operating officer, Paul Todd as senior executive vice president and chief financial officer, and David Green will serve as the senior executive vice president, general counsel, and corporate secretary. Josh Whipple will serve as chief strategy and risk officer while Gaylon Jowers oversees issuer solutions, and Kelly Knutson oversees NetSpend.

“We share a common value of putting people first and will leverage the best of our cultures to preserve and enhance our commitment to all of our stakeholders,” said Jeff Sloan in the press release announcing the merger.

B2B Payment Processing Solutions and Interchange Rates

B2B, or business to business, describes a transaction in which the customer is another business rather than of an individual. Whether it’s goods, services, or both, B2B payments include transactions such as purchasing supplies to do business, buying lunch for employees, or paying for travel expenses. Though the payment methods for B2B transactions are often the same as for B2C (business to consumer), credit card and checks – there are differences that need to be taken into consideration. Often times businesses use “business credit cards” which have a high interchange fee compared to consumer credit cards. In this article, you will learn about “Level 1, 2, and 3 data” – a way to lower interchange fees substantially for B2B transactions.

Transition to B2B Credit Card Purchases

Businesses are increasingly moving away from invoices and checks to pay for business to business goods and services and moving toward using a business credit card to separate business expenses from personal expenses.

When setting up business to business credit card purchases, merchants can qualify for lower B2B interchange rates when processing business credit cards. By leveraging lower interchange rates for B2B credit card processing, businesses can save potentially hundreds if not thousands of dollars.

The Cost of Doing Business – Without Data

Without taking advantage of lower interchange rates, B2B credit card processing is expensive to process. The worst rate is 3.26% + $0.10 (the MasterCard rate with no AVS data). The lower rates require a business to jump through some hoops, also known as levels, in order to qualify for these lower rates. These hoops are data. The more data a business provides via a transaction, the smaller the interchange fee for that transaction.

Level 1, 2, and 3 Data – The Higher the Level, the Lower the Fees

Level 1 Data

The basic level, Level 1, is a transaction providing the least amount of data to the credit card brands. All transactions are required to reach Level 1 whether they are B2B or B2C. Merchants must provide the merchant name, purchase amount, date, and billing zip code. This level offers only a small reduction in interchange rates.

Level 2 Data

In order to reach Level 2 interchange rates, a business must provide Level 1 data, as well as other data including sales tax amount, tax indicator, and other details of the transaction. While Visa and Mastercard have different requirements for this level, Discover doesn’t offer lower rates for Level 2 or Level 3. And American Express supports Level 1 and Level 2 while it does not support Level 3.

Level 3 Data

Level 3 requires all of the data from Levels 1 and 2 plus other data such as item commodity code, SKU description, product code, and even more data points involving the transaction. Not only do the credit card brands vary in their interchange rates depending on the Level, but they also can change these rates. Thus, a merchant must be vigilant in checking the requirements.

Lower Interchange Fees for Businesses

Merchant credit card processing services can help businesses get the lowest rates possible by properly classifying the business’s MCC code, which can reduce interchange rates, by helping a business properly process large sales, over $6,500, which also can reduce interchange rates, and by providing a business software or terminals specifically for B2B sales equipped with the Level 2 and Level 3 information, which reduces interchange rates. While B2C transactions might focus on the markup, merchants want to look at the total cost for B2B transactions.

Visa Introduces APIs for Merchants to Facilitate Installment Payment Plans

Installment payments are currently being used with great success in other countries but it has yet to become prevalent in the U.S. Based on some recent news from Visa, that might soon be changing.

The latest from Visa

In June, Visa revealed its intention to enter the POS installment payment business. By using APIs, this would allow businesses that accept Visa credit card payments through merchant services to offer installment plans to their customers.

An installment plan is set for a certain duration, during which customers make payments in equal amounts on a schedule, until the payment total equals the purchase price. For example, the classic as seen on tv ads used to say “three easy payments of $19.99” – that was an installment payment structure.

These installment options will be offered by Visa Next, a new website that is expected to become a source of innovative and exciting payment solutions. This particular product will be available in January 2020.

What this means for merchants and consumers

Businesses that use merchant services to facilitate credit card payments will be able to take advantage of this new opportunity. But how will this benefit them? Good question.

Giving consumers payment options is always good for business. These installment payment plans are likely to accomplish that because they make it easy and quick to set up the plan. However, this isn’t the case right now. Our standard method, right now, for offering consumers a payment plan involves the consumer getting a loan for the amount of the purchase through a third party lender, and paying it off through them.

Here’s how it normally goes:

Consumers are given installment options.
They must sign up with a certain provider.
Consumers must complete the application process.
They may or may not get accepted.
If accepted, they can apply their funds to the purchase.
This must be repeated for each different merchant.

With Visa using APIs for installment payments, none of that will be necessary. Customers will simply be given the opportunity to choose a payment plan using an account they already have.

This will be more convenient for customers, making it easier for them to set up a payment plan, which could increase sales for businesses that offer these plans.

Interchange Plus vs Tiered Pricing

No one wants to pay more than necessary for credit card processing, which can already eat into profits. When comparing merchant services, it’s important to understand how different pricing systems work. Many merchant account providers advertise very low fees as a teaser, even though most transactions do not qualify for these rates.

There are two common pricing models used for payment processing: tiered pricing and interchange plus pricing. Here’s how they compare.

Tiered Pricing
Tiered pricing is probably the most common pricing model for merchant services. While it’s advertised as an easy pricing method that makes statements simpler, the truth is it merely lumps hundreds of interchange rates into just three tiers or buckets. The processor may advertise the rate of the lowest tier, but most transactions will fall into tiers with a much higher rate. A debit card, which usually has the lowest interchange rate, can be billed using the same high rate as a rewards credit card, for example.

There are no set guidelines that determine which cards go in which category which leads to massive overcharging to merchants. Some payment processors have an incentive to downgrade transactions into a lower tier to boost profits. Transactions can be downgraded for any number of reasons, including using terminal software that isn’t updated, tips and tax that aren’t entered separately, or batches that aren’t settled within 48 hours. Not all of these factors are in your control.

As a merchant, you will have no way to predict which rate you will pay for transactions or how much you are being charged above the set interchange rate. You can’t even effectively compare tiered pricing quotes between payment processors because you don’t know what the mid- or non-qualified rates are — just the lowest available rate — and you won’t know the criteria the processor uses to categorize transactions.

Interchange Plus Pricing
Rather than using tiers, the interchange plus pricing model passes the set interchange rates directly to the merchant “plus” a small markup. Because the interchange rates are not changed or lumped into arbitrary categories, you can predict your payment processing costs and know what you are paying above interchange.

The only downside of interchange plus pricing is it does take time to understand the different rates you will pay for different types of transactions and credit cards. Your statements will be longer, but with greater clarity and transparency.

In the not so distant past, interchange plus pricing was only available to merchants with high credit card volume of $25,000 or more. Today, interchange plus credit card processing can be available to small and even new businesses. Interchange plus pricing is a smart choice with only two rates to consider: the transaction fee and the interchange markup fee. This pricing model is the safe and transparent choice with no arbitrary criteria you must meet.

Protect Your Business from Credit Card Skimmers

Each year, companies sign on to take advantage of merchant services offered for credit card processing. Skimmers are quickly becoming a threat to unsuspecting customers as companies rely more heavily than ever on point of sale services for their businesses. As a merchant, you want to protect your customer from all potential forms of credit card scams.

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Trump to Repeal the Durbin Amendment

President Trump may be gunning to reform the Dodd-Frank Act, in particular one of the most contentious policies of the act: the Durbin Amendment.

The Durbin Amendment—passed as a stipulation of the Dodd-Frank Act—allows the government to set price caps on fees for card transactions. Before 2009, interchange rates were set by banks and merchants involved in the transaction process.

The passing of the Durbin Amendment resulted in the stagnation of free services offered to consumers: before 2009, 76% of banks offered free checking accounts. After Dodd-Frank and Durbin, that number dropped to 45% in 2011, 39% in 2012, and 37% in 2015. This decline has forced some Americans to avoid banking entirely.

The goal of The Durbin Amendment was to pass savings to consumers by giving merchants fee breaks on interchange rates. Instead, 77% of merchants’ prices have stayed the same, while 22% have increased.

What would happen if President Trump and congress overhauled Dodd-Frank and repealed Durbin in its entirety?

A return to the pre-2009 era of interchange rates would result in retailers negotiating the cost of card transactions. This could lead to larger businesses paying less per transaction, while smaller businesses could take a more significant hit.

There is something to be said for retailers’ motivations: the largest proponents of keeping Durbin in the Dodd-Frank Act are massive outlets like Walmart, Walgreen’s, etc.

For the individual consumer, this could mean a change in the price of goods, depending on where they shop. It could also mean an increase in the number of free services that many banking institutions provide to incentivize the clientele that they’ve lost since 2009 to return, now that the burden of card processing fees are no longer shifted onto the consumer.

Either way, these changes are not likely to take place any time soon: Height Securities analyst Edwin Groshans theorizes that these regulation changes may not take place for at least another year. Ultimately, the ability to amend or repeal Dodd-Frank lies with the regulators in charge of these sanctions, not just with the President or congress, and any changes made will be hard-fought, given that the act was initially considered to prevent the irresponsible banking practices that lead to the 2008 market crash.

Mobile Rent Payments May Kick off Soon

For the majority of individuals in the property management sector, a checkbook is a vital device that lets vast sums of money be transferred from one point to another without carrying briefcases full of bills. It is also a perfect way of making payments tenuously (mainly rent payments and even utility bills). With millennials promptly flinging over check books for mobile payments, however, it has made the rental industry rethink if it should start implementing mobile payments. For the majority, that is a tool that is to be applied soon.

In 2000, it was noted that the use of checkbooks dropped by almost half of what was used in previous years. A report from WePay indicated that more than 52% of millennials have never actually used checks; this makes a sound case for seeking an alternative mode of payment.

One famous developer, Jonathan Eppers who is the founder and Chief Executive of RadPad, believes that the perfect solution might be all that is needed, with satisfactorily expedient and robust mode making it as easy to pay your rent as it is to pay cash.

For instance, RadPad has by now been used to make transactions of an accumulative total of 120 million U.S. dollars in rent. However, Eppers points out that the mobile payments technology is new to many individuals.

For property management managers, it wasn’t necessary for them to change before. There was no reason for them to shift since checks worked fine for them. Furthermore, because rental houses were primarily occupied, it wasn’t necessary to make things more convenient to attract more tenants since they would just show up either way.

That might be changing, however, as many firms comprised of huge names such as Square are making an entry into the rental market and providing these services.

The major thing to take into consideration is that the situation on the ground that will make paying rent more convenient for tenants might not be put into place during the coming days. It might require a condition such as the introduction of an enhanced economy or purchasing homes becoming much more popular than renting.

For this reason, it is advisable for a landlord to get ready for such prospects and have a new rent payment method in place.

Mobile rent payments: one piece of collecting rent. The rest of our property management payment guides are in Property Management Payment Resources.