Presented by: John Flynn, First Data Heather Fletcher, First Data Illinois Municipal League 2017 Annual Conference Credit Card Payments 101 Presented by: John Flynn, First Data Heather Fletcher, First Data

Objectives Understand basics of merchant processing Understanding Interchange Government payment systems architecture Understand Convenience Fees Illinois Municipal League 2017 Annual Meeting

What is Merchant Services (Acquiring) The process by which credit/debit transactions are completed Two sides to a credit card transaction Issuing: A bank issues a card to their customer per card association rules. Issuing bank assumes unsecured risk of the credit card. Will customer pay the credit loaned? Acquiring: A bank working for the merchant acquires the transaction and pays the merchant per card association rules. Illinois Municipal League 2017 Annual Meeting

Credit Card Transaction Flow The Merchant Acquirer Enables the Transaction Flow Illinois Municipal League 2017 Annual Meeting

Interchange Interchange is the fee paid by the merchant to the Card Brands (Visa, MasterCard, AMEX, Discover) and the Issuing Bank for each transaction. Interchange fees are set by the Card Brands Example: $0.10 + 2% Interchange is a fee for service and also reimburses the Issuing Bank for any credit losses from card holders that don’t pay. Illinois Municipal League 2017 Annual Meeting

Interchange The issuing bank pays the merchant’s acquiring bank for their cardholder’s purchase less the interchange fee for the transaction. The acquiring bank credits their merchant’s account from the remaining balance minus a small fee for processing the transaction. Total Interchange for a $100 purchase (Example): Visa/MC/Amex/Discover Fee: $0.10 Issuing Bank Fee (1.8% x $100): $2.00 Gateway Fee (maybe) ? Merchant Acquiring Fee $0.03 Total Fee: $2.13 Interchange Illinois Municipal League 2017 Annual Meeting

Interchange Merchants ultimately receive the gross amount of the sale minus interchange, dues, assessments, and the providers markup. Interchange fees may change annually in April and October. Interchange fees can be found on Visa and MasterCard website. Illinois Municipal League 2017 Annual Meeting

Typical Government Payment Systems Architecture Payment Gateway Provider Merchant Acquirer Cashiering System Historically, government have procured these three (3) components separately - causing: Integration challenges, random contract expiration dates, complexity Today we are seeing all three (3) components procured together: Cashiering systems provider is responsible for all integration, single contract expiration dates. Illinois Municipal League 2017 Annual Meeting

Convenience Fees A charge assessed by a customer when paying with a credit card or debit card rather than by cash or mailed check. Convenience fees can be a fixed dollar amount or a percentage of the transaction amount (usually 2.5% to 4%) and must be disclosed to the consumer in advance. Illinois Municipal League 2017 Annual Meeting

Convenience Fees Convenience fee can be a fixed amount or percentage. One or the other. Convenience fee must be applied equally to all card types. Convenience fee cannot exceed 4%. Convenience fee must be listed as a separate transaction on customer statement. Illinois Municipal League 2017 Annual Meeting

Why Use Convenience Fees Passing the convenience fee onto the customer eliminates the cost of interchange paid by your department. The customer is now responsible for this expense due to the “convenience” of paying online or by phone via credit card. NOTE: The customer is still able to mail a check or pay by cash at the counter without incurring a convenience fee. What is a typical interchange fee and what is a typical convenience fee? A typical interchange fee for online or by phone could be 2.20% to 2.75%. A typical convenience fees could be 2.50% to 4%. This will all depend on what type of cards your department is currently processing. Example: If your department takes in a lot of business cards, you will most likely be at a higher convenience fee rate than a department who see’s fewer business cards. Why? Interchange is less costly on non- business cards. Illinois Municipal League 2017 Annual Meeting

Where to use Convenience Fee Models Top MCC Codes : 8244, 8249, 8220, 9211, 9399, 9311, 9222, 8211, 4900 Illinois Municipal League 2017 Annual Meeting

Managed Convenience Fees verses Non-Managed Convenience Fee Model Managed Model The only funds the department will see are the transaction payments The department will not have to deal with the convenience fee funds The convenience fee for the transaction will go into an account the merchant processing company owns All expenses will be withdrawn from the account that the merchant processing company owns Interchange Per transaction Fees that the merchant processor charges for the service Non-Managed Model All funds will be deposited and withdrawn from one account (i.e., Convenience Fees & Payment Amount) The department will need to rely on reporting from the merchant processing company or their department’s software, if integration of some form has taken place. All of convenience fees will be withdrawn from the account that the department owns daily or monthly in order to cover Interchange cost Illinois Municipal League 2017 Annual Meeting © 2017 First Data Corporation. All Rights Reserved. 13

Merchant Services Questions??? Illinois Municipal League 2017 Annual Meeting