Credit / Debit Card Electronic Payments Industry Update on Convenience Fees, Utility Program and More! Presented by: Presented by: Michael Hodge, Regional Manager U.S. Bank Merchant Payment Services Tel: 503/ Fax: 503/ May 09, 2008

Electronic Payment Processing - Methods  Point of Sale Terminals (dial, IP, wireless, conv / service fees)  Point of Sale Software Solutions  Kiosks  IVR (interactive voice response / automated touch-tone)  Web  Recurring Payments  Convenience / Service Fee Solutions  Electronic Check Conversion and Check Verification  Stored Value Card and Gift Card Solutions

Electronic Payment Processing – Methods (cont’d) Point of Sale Software / Payment Gateways  Turns a desktop PC into a point of sale payment processing solution  Provides cost savings by leveraging your existing PC  Eliminates the need for additional phone lines / terminal devices  It may also be possible to process transactions through existing accounting software vendors, assuming they have a card payment module and payment gateway (i.e. Verisign, Authorize.Net, PC Charge, etc.) that is compatible with merchant processor’s processing network. This may allow you to integrate a payment solution with your accounting system(s).  Direct payment gateways (rather than utilizing a third party gateway) can minimize the number of parties involved for a simpler and more cost effective solution.

Payment Trends Government entities accepting credit / debit cards and ACH for payment more than ever before Government entities accepting credit / debit cards and ACH for payment more than ever before “Do More with Less” “Do More with Less” Constituents desire for other, more convenient payment methods Constituents desire for other, more convenient payment methods Web and IVR payment solutions Web and IVR payment solutions Convenience Fees (fees charged to the payer to recoup processing costs) becoming commonplace Convenience Fees (fees charged to the payer to recoup processing costs) becoming commonplace

Merchant Card Processing Fees Pricing Structures (“Interchange Plus” / “Tiered”) Interchange Plus = Offers Acceptors the most fair and equitable way to be assessed processing cost. Interchange = The cost associated with the Issuing component of the credit / debit card. Assessment = The cost, per transaction, the Association members (MasterCard / Visa) charge. MasterCard assessment (.0950%), Visa assessment (.0925%). Plus = The fees charged by the merchant processor Interchange and Assessment are not negotiable; they are the same for all service providers. Tiered = generally means that processing cost are based on 3-5 different levels of pricing, such as traditional consumer card-swiped (qualified), traditional consumer card “hand-keyed” (mid-qualified), Corporate/Purchase/T & E Cards (non-qualified), Debit / Check Cards and Rewards Cards. Tiered pricing takes into account Interchange and Assessment cost components. * Remember that in Public Sector, the Association members offer the same Interchange level for traditional consumer card present and card not present transactions.

Interchange & Assessments Public Sector Private Sector Consumer Credit Card Off-line Debit Card Visa Interchange Category % Rate Per Item % Rate Per Item CPS Retail 2 Card Present (Emerging Market) 1.43%$ %$0.25 CPS Retail 2 Card Not Present (Emerging Market) 1.43%$ %$0.25 Consumer Credit Card Off-line Debit Card Visa Interchange Category % RatePer Item% Rate Per Item CPS Retail 1.54%$ %$0.15 CPS Card Not Present 1.85%$ %$0.15 Fees above do not include Assessments (Visa Assessments = % / MasterCard Assessments = 0.095%) or service provider’s fees. Off-line Debit refers to signature based (non PIN based) debit / check card transactions

Emerging Market / Public Sector, and Utility Interchange Programs Merchants accepting credit and debit card for utility payments would have their choice of the Public Sector / Emerging Market or Utility Interchange programs. Merchants accepting credit and debit card for utility payments would have their choice of the Public Sector / Emerging Market or Utility Interchange programs. One of the primary conditions of the Visa / MasterCard Utility programs is that convenience fees not be charged to the cardholder. However, if the merchant is charging, or were to charge convenience fees to the payer, the merchant could still take advantage of the preferred Public Sector / Emerging Market Interchange programs. One of the primary conditions of the Visa / MasterCard Utility programs is that convenience fees not be charged to the cardholder. However, if the merchant is charging, or were to charge convenience fees to the payer, the merchant could still take advantage of the preferred Public Sector / Emerging Market Interchange programs. For instance, let us consider a transaction for $ Comparing the two pricing programs yields the following processing fees (assuming a $ traditional consumer Visa credit card transaction). Assumption is Interchange plus 25 basis points (0.25%) For instance, let us consider a transaction for $ Comparing the two pricing programs yields the following processing fees (assuming a $ traditional consumer Visa credit card transaction). Assumption is Interchange plus 25 basis points (0.25%) Public Sector / Emerging Market Program (example) Processing Fees: ($ x % = $ $0.05 = $1.8225) Utility Program (example) Processing Fees: ($ x % = $ $0.75 = $0.8425) In this example, the difference in processing fees between these two pricing programs is $0.98 (54% savings) for this $ transaction as a result of the Visa Utility program pricing. * Take note Visa / MasterCard offer special Utility Interchange Level for consumer card, yet only Visa offers a special Utility Interchange Level for business / purchasing card transactions.

PIN Debit Research indicates that 20% or more of electronically processed transactions are debit card transactions. PIN debit allows for a flat fee to be applied to these transactions, rather than the ‘rate plus a per transaction’ fee structure. A merchant could potentially minimize processing fees significantly by using this service. For instance, let’s say the transaction in question was $ Comparing the two pricing programs (non PIN debit vs. PIN or PIN-less debit) yields the following results (assuming a $ Visa debit / check card transaction). Non PIN (or non PIN-less) Debit Processing Fees: $1.48 ($ x 1.08% = $ $0.40 = $1.48) PIN Debit (PIN entered with the transaction) Processing Fees: $0.70 (1 transaction x $0.70 flat PIN debit network authorization fee) In this example, the difference in processing fees between these two pricing programs is $0.78 (approximately 50% savings) for this $ transaction as a result of utilizing PIN (and / or PIN-less) based debit processing services. Please note that pin pad equipment for point-of-sale and / or software that can accommodate PIN-less debit would be needed to process debit / check card transactions in the above mentioned manner.

Convenience / Service Fees Fees charged to the payer to recoup processing costs Fees charged to the payer to recoup processing costs Card Associations’ have rules governing how and when convenience fees can be charged Card Associations’ have rules governing how and when convenience fees can be charged Rules are subject to change and interpretation Rules are subject to change and interpretation Typically there must be a “convenience” tied to the transaction (i.e. non-in person payments) Typically there must be a “convenience” tied to the transaction (i.e. non-in person payments) Rules differ for tax payments versus non-tax payments Rules differ for tax payments versus non-tax payments MasterCard and Visa rules differ; however if you intend to accept Visa AND MasterCard then Visa rules take precedent MasterCard and Visa rules differ; however if you intend to accept Visa AND MasterCard then Visa rules take precedent Merchant is ultimately responsible for compliance with rules (not a service provider that may have indicated merchant is not required to follow the rules) Merchant is ultimately responsible for compliance with rules (not a service provider that may have indicated merchant is not required to follow the rules) Please note that the information contained within this presentation contains an overview only of convenience fee rules. The rules are subject to change. The Card Associations ultimately establish and interpret the rules, and determine whether a merchant is in or is not in compliance with said rules.

Convenience / Service Fees (cont’d)  Tax Payments - convenience / service fees on Visa / MC transactions in all payment environments, including in-person, are allowed - convenience / service fees can be percentage based or tiered (i.e. 2%) - differentiated convenience / service fees allowed for check (ACH) versus card payments  Non-Tax Payments - convenience fees not allowed in-person (Visa) -convenience fees are allowed in-person (MasterCard) other conditions used to apply (i.e. separate line and clerk for credit / debit card payments; MasterCard payments only since Visa does not allow) -differentiated convenience fees not allowed by Visa, but are allowed by MasterCard; MasterCard payments only since Visa does not allow - convenience fees are to be flat (i.e. $1, $1.50) per Visa - direct payments to non-in person payment environments where possible, if you wish to charge a convenience fee, free up office resources, and maintain compliance with Card Association rules

Convenience / Service Fees (cont’d) Latest Trends: - Kiosk solutions - Over-the-counter (conv fee) terminal applications - Web Payments - IVR Trends further indicate a shift toward low to no cost convenience fee applications. With these applications, the service provider essentially manages the costs (by means of the convenience / service fee charged to the payer) on behalf of the merchant so that the merchant is “revenue neutral” (i.e. not making money on the solution, and incurring little to no costs to provide the service).

PCI Data Security Standards (PCI DSS) Only work with service providers that are dedicated to keeping payment data secure Only work with service providers that are dedicated to keeping payment data secure PCI compliance PCI compliance Data security and assessments Data security and assessments Training opportunities Training opportunities Visa / MasterCard Web sites for listing of compliant service providers ( – search CISP-compliant service providers) Visa / MasterCard Web sites for listing of compliant service providers ( – search CISP-compliant service providers)

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