Tag Archives: visa

Interchange Settlement Nears Preliminary Approval [2023 Update]

Today the Official Merchant Services Blog explains why the controversial Interchange settlement is being considered for preliminary approval, despite the backlash from merchants and large corporations. We began talking about the possibility of ‘The Big Cash Comeback’ when the settlement was first announced, and later we discussed the opposition to the settlement.

Last week Judge John Gleeson said the controversial proposed settlement appears to meet the requirements for preliminary approval, however he also said he would hear merchants’ objections to the settlement as well. Lawyers had struck the settlement between the merchant plaintiffs and the bank defendants back in July.

“It seems clear that there is an expectation among some interested parties that the preliminary approval process should be more involved in this case than in the usual class action,” Gleeson, of U.S. District Court in Brooklyn, N.Y., wrote in an order setting the next hearing for November 9^th.

The involved parties and observers alike agree that this is no ordinary case. The litigation involves merchants and merchant trade groups, some individually and some as a class, which sued Visa Inc., MasterCard Inc., and some large banks to challenge credit and debit card Interchange rates on antitrust grounds in 2005.

The proposed settlement would have the defendant’s pay $6.6 billion in damages and temporarily cut Interchange fees by $1.2 billion, as well as provide merchants with relief from some network rules. In return, the merchants would forgo the right to sue the networks in the future over interchange and rules. The general consensus is that the settlement gives too much to the networks and would bind millions of current and future card-accepting merchants to its terms.

Judge Gleeson acknowledged the controversy, stating that all objections will receive careful consideration by the court. The Judge also noted that the threshold for preliminary approval of a settlement is “meaningfully lower” than the standard for final approval.

Gleeson said, “Preliminary approval is appropriate where the proposal appears to be the product of serious negotiation and further appears to be within the range of possible final approval.” He later added: “I have reviewed the settlement agreement, and at first blush it appears to satisfy the threshold requirements for preliminary approval.”

While we have discussed this settlement from different aspects previously, noting the advantages it would seem to give the Issuing Banks over merchants, the settlement seems to be proceeding along without much further adjustment or negotiation. Although it is not finalized yet, the dissenter’s cries seem to be going unheard, as they believe that the settlement protects the status quo more than anything, and will not change the way the networks set interchange. Host Merchant Services will keep you informed of all the latest news involving this legal battle between the merchants and the card-issuing giants.

Barnes & Noble Data Breach [2023 Update]

Today’s edition of the Official Merchant Services Blog will take a look into the newest data breach, involving NY-based Barnes & Noble Inc.

Barnes & Noble revealed last week a “sophisticated criminal effort” had taken place at 63 stores, resulting in hacked PIN pad devices putting some of its customers at risk. The company discovered the hacking in September, but did not disclose it until recently on the advice of federal authorities. Security experts at the FBI have admitted that immediate disclosure in data breaches can make it harder for investigators to find the perpetrators.

In response, the chain has ceased using all PIN pads in its stores, and it has identified the affected locations in California, Connecticut, Florida, New Jersey, New York, Illinois, Massachusetts, Pennsylvania and Rhode Island.

“The tampering, which affected fewer than 1% of PIN pads in Barnes & Noble stores,” the company said in a news release, “was a sophisticated criminal effort to steal credit card information, debit card information, and debit card PIN numbers from customers who swiped their cards through PIN pads when they made purchases. This situation involved only purchases in which a customer swiped a credit or debit card in a store using one of the compromised PIN pads.”

Barnes & Noble said its customer database was unaffected, and that none of the compromised PIN pads were at its college bookstores. The company also said the breach did not affect e-commerce sales, customers who bought online or through company’s Nook e-reader and Nook mobile app remain safe.

The bookseller is also working with the payment card networks, banks, and card issuers to identify accounts that may have been compromised. The company expects to have to go through a re-validation process before it again is deemed to be Payment Card Industry (PCI) compliant.

Although unfortunate, this data breach could have been prevented by discontinuing the use of unnecessary equipment. PIN pads for terminal are no longer a cost benefit to a company, since the Durbin Amendment. Durbin makes PIN Debit rates the same as Swipe Debit rates (as long as the bank is large enough to qualify), essentially eliminating the need to a PIN pad altogether. Check out our blog post on the differences between PIN and Swipe Debit here. Fewer PIN pads would reduce tampering of terminals and theft of cardholders PIN numbers.

In the meantime, Host Merchant Services continues to offer the lowest PCI Compliance rates in the industry, as well as a vigorous PCI Compliance Initiative that seeks to inform and educate everyone interested as to the details of the process, step-by-step.

Industry Terms: Large Ticket Programs

This is the latest installment in The Official Merchant Services Blog’s Knowledge Base effort. 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: we deliver 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, Large Ticket Program, is a specially designed program for merchants who accept high dollar transactions on credit or debit cards. Visa, MasterCard and Discover all have their own Large Ticket Programs with different Interchange rates and requirements for merchants.

Visa’s Large Ticket rate is 1.45% and $35 for transactions above $5,000. This lower interchange rate accompanied with a higher per-item fee amounts to a lower overall effective rate for the merchant.

MasterCard qualifies Large Tickets as anything above $7,255, and the accompanying Interchange rate is 1.25% and $40 per transaction.

Discover, the most recent company to implement a Large Ticket Program has the lowest rate for this category, at 0.90% and $20 per transaction. Discover also sets the amount for ‘Large Tickets’ at transactions above $5,000.

Host Merchant Services offers this program to our larger merchants that may find it useful. While some processing companies hide added percentage points in the difference that exists between small ticket and large ticket processing, Host Merchant Services gives the savings directly to you. The Large Ticket Program gives you a rate that saves you more money in processing fees for all purchases $5,000 or more. If you qualify for the Large Ticket Program, contact us immediately for your large ticket savings.

HMS Small Ticket Program

Today’s edition of the Official Merchant Services Blog will discuss the best way for merchants to save money on fees when accepting credit or debit cards for smaller transactions. Host Merchant Services is committed to bringing its clients the lowest fees in the industry. Our Small Ticket Program is a feature that helps us do just that for those merchants who process transactions at $15 or less.

Many merchants have seen debit savings thanks to the Durbin Amendment, which caps the Interchange Fees that Visa and MasterCard charge for debit cards at $0.24 and 5 basis points. Smaller merchants do not see the savings when running transactions under $15, since the 24-cent per item fee and the 5 basis points amount to 2.1% of the total ticket, before any additional fees are incorporated.

The Small Ticket Program however, allows qualifying merchants to pay a per item fee of only 5 cents, while paying an interchange rate of 1.6% for Visa. MasterCard has set its small ticket rate at 4 cents and 1.55%. This program saves merchants money on lower transaction amounts, since the per item fee is less of a burden on them in terms of overall effective rate.

The Interchange category for small tickets is available for merchants who are on Interchange Plus pricing, and who qualify under the Visa business types listed below. Merchants enrolled in flat rate pricing or any type of three-tiered pricing will not be able to utilize these savings, which is just another way Interchange Plus pricing is truly the best out there.

While some processing companies hide added percentage points in the difference that exists between small ticket and large ticket processing, Host Merchant Services gives the savings directly to you. Our Small Ticket Program offers a better Interchange category and a lower per item fee, saving you more money in processing fees for all purchases $15 or less.

Visa opened up the types of businesses that qualify for Small Ticket Processing in November, 2010. Now each of these industries qualify:

Local Commuter Transport
Limos & Taxis
Bus Lines
Bridge & Road Fees/Tolls
Grocery Stores/Supermarkets
Convenience Stores
Service Stations
Fast Food Restaurant
Drug Stores
Book Stores
News Dealers, Newsstands
Dry Cleaners
Quick Copy, Reproduction & Blueprint
Parking Lots & Garages
Car Washes
Motion Picture Theater
Video Tape Rental Stores
Post Stamps/Government Only

If you qualify under any one of these categories, contact Host Merchant Services for your small ticket savings right away. Host Merchant Services promises: we deliver personal service and clarity and as always, we want to keep merchants informed of any potential savings.

Host Merchant Services and Certified Hosting Announce Partnership

Certified Hosting, a leading web hosting services company, announced today a new partnership with Host Merchant Services that will enable webmasters to use merchant services with their web hosting plans. All Certified Hosting customers, including those on shared web hosting, virtual private servers (VPS hosting), and dedicated server hosting plans, are now able to apply for Payment Card Industry (PCI) compliant payment processing that is delivered to Certified Hosting’s high standards of customer service.

“Certified Hosting offers a range of ecommerce hosting services,” says Kacy Carlsen, co-founder and CEO of Certified Hosting. “We have made it easy for our customers to get up and running with an online store using the latest scripts and rock-solid hosting services. Quality merchant services are an essential part of a good ecommerce strategy for any business, and we are proud to announce Host Merchant Services as our chosen payment services partner. We are confident that Host Merchant Services will deliver the quality of service our customers have come to expect, at an affordable price.”

As a leading web hosting provider, Certified Hosting balances cost against quality of service. The company’s reliable web hosting services come with a 99.999% uptime, at a price that is affordable to new and growing businesses. Similarly, Host Merchant Services offers professional payment processing with fees that are clear, fair, and incredibly low. Typically, each type of credit or debit card transaction incurs a different fee, depending on the risk associated with it. Some merchant service providers charge merchants predetermined fees, meaning that merchants always pay the highest rate, regardless of which card has been used. Host Merchant Services charges merchants using a system known as Interchange Plus. Interchange Plus ensures that merchants only pay the fees that have actually been incurred, plus a small surcharge for administration. As a result, merchants using Host Merchant Services can reduce their payment processing expenses and more accurately project the cost of future transactions.

“There are no other industries where customers pay unnecessarily high charges,” says Carlsen. “Yet merchants routinely pay fixed fees for payment processing that do not reflect the actual transaction cost. At Certified Hosting, we provide fairly priced services thanks to Host Merchant Services. And now we can offer credit card processing to match. Even better, Host Merchant Services is – like Certified Hosting – an honest, upfront company that does not surprise merchants with hidden fees and charges.”

Another factor in Certified Hosting’s success is the company’s unlimited web hosting services, with no charges for customers who use a lot of disk space or bandwidth. The payment processing industry is full of complex terms and conditions, including additional charges buried deep in endless documentation. Host Merchant Services removes several common surcharges in the industry, with free applications, free setup, a free virtual terminal and an affordable payment gateway. Merchants are simply charged for the transactions they carry out, making accepting credit cards online more affordable and, crucially, more predictable.

“The most important thing about Host Merchant Services is that payment processing is made simple,” says Carlsen. “Host Merchant Services has no hidden charges, no expensive setup fees, and no unpredictable fees. With Host Merchant Services, our ecommerce hosting customers can quickly apply online, be approved in minutes, and begin taking payments in as little as 24 hours. We hope customers will take advantage of this new partnership so they can spend less on payment processing and maximize their profits.”

Certified Hosting has a proven record of excellent customer service, going the extra mile to help customers grow their online businesses. With this new partnership, Certified Hosting allows customers to get started right away with an affordable and efficient solution for payment processing.

Customers interested in merchant services from Certified Hosting and Host Merchant Services are encouraged to visit certifiedhosting.hostmerchantservices.com.

Industry Terms: Monthly Minimum Fee

Today’s term is the Monthly Minimum Fee. This fee is one of the more confusing credit card processing fees because it’s not really a fee at all. A monthly minimum is more accurately described as a benchmark, or limit that may result in a fee, rather than as a fee itself. It indicates the minimum amount in fees that a processor will collect in any given month. If actual fees resulting from processing activity don’t meet or exceed the minimum amount, the processor will charge the difference in order to meet that minimum. For example, if a merchant has $50 in fees in a given month, and the account has a $75 monthly minimum on it, they will be charged an additional $25 in order to meet the monthly minimum.

Perhaps the most dangerous caveat with monthly minimums is that processors determine which fees count toward the minimum and which don’t. One processor, for example, may count all discount and credit card transaction fees toward the minimum while another may only count its discount rate.

Host Merchant Services differs from the competition in that it does not charge any type of monthly minimum fee for our merchant accounts. We do not discriminate against small business merchants that may still be growing, by charging them for not doing enough business. This is just another way that HMS differs from the competition, and excels in understanding customer needs.

Industry Terms: Downgrade Fee [2023 Update]

What is Downgrade Fee?

Today we will define the term Downgrade Fee. This fee is a surcharge added to the Discount Rate of the total processing fees for a transaction. There is no standard on what a Downgrade Fee must be called so the terminology can vary by processor. A Downgrade Fee may be assessed for a variety of reasons including a customer’s card type, issuing bank, how the transaction is entered and other merchant actions.

Under a Tiered Pricing model more than 50% of a merchant’s credit card transactions experience Downgrade Fees, on average. Downgrade Fees generally cost merchants an additional 1%-3% per transaction on top of the Qualified processing rate. Host Merchant Services saves merchants money on these fees by using the Interchange Plus pricing system. For an in depth analyses of Tiered Vs. Interchange Plus Pricing, see here and here.

The main cause of these Downgrade fees, are card-not-present transactions. These transactions occur frequently with MO/TO or E-Commerce processing, however the downgrade itself can be avoided. As a security measure, processors who charge Tiered pricing tend to raise rates on transactions where risk may be involved. In these cases since the merchant has not physically handled the card, there is a downgrade fee applied. This can be avoided however, by requiring additional information from the customer. When a merchant requests a cardholder’s CVV code, the 3-digit code on the back of a Visa or MasterCard, another layer of security is applied thus avoiding the potential downgrade, and saving the merchant money on fees. Additional information helpful in avoiding Downgrade Fees, are cardholders’ billing ZIP code and numerical street address, this is known as an Address Verification System, or AVS.

Downgrade Fees are often the fees that merchants report as “hidden fees” because they are rarely disclosed before the merchant account activation. Host Merchant Services advises merchants to request as much information as possible when keying in sales, as to avoid downgrades, as well as charge backs. This added knowledge, and our Interchange Plus system of pricing creates a culture of savings for all of our merchants.

Stripe, Transparency, and User Rights

Online payment processor Stripe announced on Friday, that the company is committing to transparency and user rights for its customers, following the lead of Google, Twitter, and Host Merchant Services. For today’s edition of the Official Merchant Services Blog, we will introduce Stripe, as well as discuss what these recent steps mean for the company, and the industry.

Stripe’s recent move is part of an effort to increase awareness of the effects of the legal process on their users. The company is an online payment processor geared toward developers. They offer to handle everything, including storing cards, subscriptions, and direct payouts to your bank account. Although some merchants may find that helpful, it may make refunds, voids, retrievals and chargebacks more difficult, since you do not have direct access to your customers’ payment information. The company also charges unusually high fees for acceptance, in an effort to simplify the process with rates starting at 2.9% and 30 cents for any card type.

Stripe charges such a high rate, in an effort to simplify things for merchants. I would like to point out, however that a standard Debit card, using Durbin Debit rates would qualify for a rate of 0.05% and 22 cents under Interchange Plus pricing, the type of pricing offered here at Host Merchant Services. Since this rate of 5 basis points is so much lower, Stripe’s customers are overpaying by as much as 2.85%. For a transaction of $500, Stripe would charge a merchant $14.5 (2.9%) and an additional 30 cents on a transaction that actually costs them 25 cents (0.05%) and an additional 22 cents, or $0.47 total. In this case, the flat rate of 2.9% charged, is much greater than the Durbin Debit rate that could be applied, if the merchant was using Interchange Plus.

Stripe is moving towards more transparency, because they sometimes receive legal requests from third parties to stop doing business with certain users. Stripe is enlisting help from Chilling Effects, a joint project run by the Electronic Frontier Foundation, Harvard, Stanford, Berkeley, and other law schools that publish copyright takedown notices sent to web companies, and its most prominent contributors are Google, Twitter and GitHub.

It’s not clear how often the payment processor is asked to stop working with a site or on what grounds, however the best example of the lack of transparency by the net’s dominant payment intermediaries was demonstrated in the fall of 2010. Visa, MasterCard and PayPal all cut off WikiLeaks on the grounds it was engaged in illegal activities, after publishing a trove of U.S. diplomatic cables.

Stripe intends to provide transparency reports regularly about how many requests it gets, a practice that was pioneered by Google. Stripe, in regards to a subpoena notification policy also says it’s instituting the same policy as Twitter, committing to informing a user, when not barred from doing so, that someone is subpoenaing their record. This allows the targeted user to try to quash the subpoena in court. Twitter has spent significant resources fighting to allow its users to resist government subpoenas — including winning the right for WikiLeaks associates to try to quash a grand jury subpoena for their Twitter records.

In conclusion, it is a step in the right direction for large Internet companies to be on the side of transparency as well as advocate for the rights of their users. I hope more web companies step forward in the name of full disclosure in the future. Host Merchant Services has been committed to transparency from the start, and we maintain the promise of personal service and clarity for all customers.

NRF Opposes Interchange Settlement

It’s been a little while since the Official Merchant Services Blog touched on the increasingly sensitive topic of the Credit Card Interchange Settlement. We first talked about the possibility of ‘The Big Cash Comeback’ when the settlement was first announced, and later we discussed the opposition to the settlement.

Seven years after the first lawsuits were actually filed against the bank card networks and some leading banks, a tentative settlement was reached on July 13 of this year. The agreement has had many mixed reviews, and some big name retailers have come out against it, including most recently the National Retailers Foundation, the nations largest retail trade association. The NRF’s members operate 3.6 million stores nationwide, however the organization itself is not involved in the lawsuit, which includes individual and class merchants as well as trade-group plaintiffs.

Under the proposal, the main defendants, Visa and MasterCard will pay $6.6 billion in damages and temporarily reduce interchange rates to save merchants another $1.2 billion. Merchants also will get greater freedom to surcharge card transactions and could form bargaining groups to negotiate interchange with the networks. In return, the networks will be freed from future legal challenges from merchants regarding interchange rates and merchant rules, even from merchants that didn’t participate in the current lawsuit.

I think the key points here are the temporary reduction of interchange rates as well as the fact that all merchants give up their rights to sue Visa and MasterCard upon accepting the settlement. Merchants will most certainly be satisfied by the reduction of interchange rates, but the drop will only be temporary. After a few months Visa and MasterCard will raise them again, and continue to collect outlandish fees for credit card transactions. Also, not every merchant is involved in this suit. I don’t think it’s a good deal for merchants to give up any of their rights, particularly the rights to any future litigation.

The National Association of Truck Stop Operators (NATSO) released a statement on Monday, announcing their dismissal of the settlement, “We joined this lawsuit in search of real reform to a broken system, one that is shielded from normal competitive forces. This proposed settlement does not achieve this goal. It lacks meaningful fixes to a system that allowed Visa and MasterCard to set artificially high swipe fees and provided retailers and consumers with no choice except to pay.”

This statement echo’s the cries of dissenters, who say the settlement protects the status quo more than anything, and will not change the way the networks set interchange.

In conclusion, the settlement still faces harsh criticism, and Visa and MasterCard have not had much to say to those who oppose it. Only time will tell if the plaintiffs decide to accept the deal, or push back for a settlement more in their favor. Host Merchant Services will keep you informed of all the latest news involving this legal battle between the merchants and the card-issuing giants.

Industry Terms: AVS

This is the latest installment in The Official Merchant Services Blog’s Knowledge Base effort. 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 the Address Verification System, or AVS.

The system was designed by card issuers to aid in the detection of suspicious credit card transaction activity, and verify that the cardholder’s address info matches what the banks have on file. The service is provided as part of a credit card authorization for mail order/telephone order transactions (MOTO) or Internet e-commerce transactions. A code is received with an authorization result that determines the level of accuracy of the address match. This verification helps secure the most favorable interchange rates for the merchant.

Visa, MasterCard, Discover, and American Express support this service, and when paired with a CVV confirmation the result is a secure, verified transaction. To verify a customer’s address, a merchant will need the cardholder’s billing ZIP code and the house or apartment number of the billing address. The merchant does not need to enter in the street, city or state of the cardholder. While AVS is not intended for use as absolute protection against suspicious transaction activity, it is an important step in securing non-face-to-face transactions. Host Merchant Services recommends to all merchants that they secure these types of orders with both AVS and CVV.