Agenda DAY THREE Pricing Workshop Working Lunch

Agenda DAY THREE Pricing Workshop Working Lunch
101 – The Transaction Process 102 – Introduction to Interchange 103 – Understanding Assessments 201 – Building a Buy Rate 202 – Basic Pricing Programs 203 – Advanced Pricing Programs Working Lunch Sales Development MSPConnect & Comp Reporting Pricing Workshop (continued) 301 – Card Scheme Programs 302 – Statement Analysis 303 – MSP Pricing Model Wrap Up Agenda DAY THREE

Pricing 101: The Transaction Process
Presenter: Cale Hanie

How credit transactions are processed
Part 1: Authorization Auth Response Auth Response INTERCHANGE Transaction Data Transaction Data Approve or Decline Merchant Acquirer Issuer Let's take a closer look at the first step in the transaction process: Authorization. The merchant swipes the card through the terminal or point-of-sale device, which transmits the transaction data to the Acquirer. The Acquirer passes that information through Interchange to the Issuer. The Issuer approves or declines the transaction, and the Auth response is sent back through the Acquirer to the merchant at the point of sale. The whole process takes only a few seconds. The merchant swipes the card at the point of sale The terminal sends the transaction data to Elavon, who forwards the transaction via Interchange to the Issuer for approval The Issuer approves or declines the transaction and sends the response to Elavon, who forwards it to the merchant

How credit transactions are processed
Part 2: Settlement Settlement Data Presentment Debit Merchant Acquirer Card Scheme Issuer The second step in the process is Settlement. The merchant batches out their terminal or point-of-sale device, which transmits the settlement data to the Acquirer. Elavon funds the merchant for the settled transaction and then presents the transaction to the Card Scheme for funding. The Issuer, in turn, funds the Card Scheme. The merchant settles the batch, sending the data to Elavon Elavon funds the merchant for the settled transactions Elavon presents the settled transaction to the Card Scheme for funding The Card Scheme debits the Issuer and then funds Elavon

How processing fees are paid
Interchange Fee INTERCHANGE Discount Rate Assessment Fees Merchant Acquirer Issuer So who bears the cost for processing credit cards? With each transaction, the Acquirer pays fees to both the Issuer and to the Card Scheme. The Issuing bank charges an Interchange fee while the Card Schemes charge Assessment fees. These fees are comprised of a percentage of the transaction and a small per item fee. To cover these costs, Elavon includes them as part of the processing fees to the merchant. INTERCHANGE: Charged by the Issuer to the Acquirer ASSESSMENTS: Charged by the Associations to the Acquirer DISCOUNT RATE: Charged by the Acquirer to the Merchant

Pricing 102: Introduction to Interchange

What’s in a Merchant’s transaction cost?
A merchant’s transaction cost includes separate fees for Authorizations and Settlements. Settlement Fee These costs are comprised of the following elements: MSP Revenue MSP revenue 0.03% + $0.03 Elavon buy rate Authorization Fee Settlement Fee 0.11% + $0.03 Assessment Fees CPS Retail 1.51% + $0.10 Authorization Fee Let’s look at the components that make up transaction pricing. A merchant’s transaction pricing typically includes separate fees for Authorizations and Settlements. These fee types are comprised of the following elements: the Interchange fee, which applies only to settled transactions, Assessment fees, Elavon’s buy rate, and the MSP’s revenue, which is the residual of the merchant’s fees after these other costs have been accounted for. Let’s now take a closer look at the Interchange fee. Interchange Fee (Settled transactions only) MSP Revenue 0% + $0.05 0% + $0.02

What are Interchange fees?
The Interchange fee is paid by the Acquirer to the Issuing bank for a settled transaction. The fee is typically comprised of a percentage rate and a per item fee. The Interchange category and fee can vary with each transaction, depending on different qualification factors. Interchange Fee Visa CPS Retail 1.51% + $0.10 $50 $ $0.10 = $0.86 Higher rates may be due to additional cost or risk to the card Issuer, while lower rates can be the result of lower risk, cost or even an incentive to merchant types who do not traditionally accept payments by credit cards. What are Interchange fees? The Interchange fee is paid by the Acquirer to the Issuing bank with every settled transaction. The fee is typically comprised of a percentage rate and a per item fee. For example, Visa’s CPS Retail Interchange category has a fee of 1.51 percent and 10 cents. If a 50 dollar transaction falls into that category, the fee would be 76 cent plus 10 cents, totaling 86 cents. The Interchange category and fee can vary with each transaction, depending on different qualification factors. Higher rates may be due to additional cost or risk to the card Issuer, while lower rates can be the result of lower risk, cost or even an incentive to merchant types who do not traditionally accept payments by credit cards. The Interchange categories and rates are established by the Card Schemes and updated every April and October. The Interchange categories and rates are established by the Card Schemes and updated every April and October.

The Billing Element Table
Based on the cost and risk factors, each Card Scheme classifies every transaction according to an Interchange category. Elavon’s Billing Element table, partly shown here, lists every Interchange category and the corresponding rate. This table is updated twice annually, highlighting the changes with each new release. Based on the cost and risk factors which may affect a transaction, each of the Card Schemes classifies every transaction according to a particular Interchange category. Elavon’s Billing Element Table lists every Interchange category and the corresponding rate. Only part of the table is shown here – there are literally hundreds of Interchange categories, encompassing all the different Interchange qualification factors. This table is updated twice annually, highlighting the changes implemented by the Card Schemes with each new release.

Understanding the Factors that Affect Interchange
Card Type Consumer credit Signature debit Commercial GSA Card Brand CARD TRANSACTION We now turn to the factors that affect the Interchange qualification of any given card transaction. First, we have the Card Brand. Visa, MasterCard and Discover each define the Interchange categories and rates for their own cards. While there are many similarities between the card brands, particularly in how they define risk, there are also many differences. One of the key differences is the variety of card types that each brand issues to its cardholders. There are four general categories of card types – Consumer credit, Consumer debit (which refers to check cards processed as signature debit), Commercial cards issued to businesses and corporations, and GSA cards issued to government entities.

Card Types – Detail Regulated banks: More than $10 billion in assets
Consumer Rewards Signature Consumer Enhanced World World Elite High Value Consumer Core Rewards Premium Regulated banks: More than $10 billion in assets IC fee cap: 0.05% + $0.21/$0.22 Unregulated banks: Less than $10 billion in assets No IC fee cap Debit (Check Card) Regulated Unregulated Prepaid Debit (Check Card) Regulated Unregulated Debit (Check Card) Regulated Unregulated Prepaid Commercial Card Corporate Business Purchasing Commercial Let’s take a brief detour and look at card types more closely. At the consumer level, Visa issues ordinary consumer credit cards but also Rewards cards and Signature cards, which incur a higher cost because of the additional cardholder benefits and perks associated with them. Visa also issues consumer debit cards, or check cards, typically through a bank customer’s checking account. Because of the Durban Amendment in 2010, debit cards are classified according to the issuing bank. Regulated Debit cards are those issued by banks with over 10 billion in assets, while Unregulated Debit cards are issued by banks with less than 10 billion in assets. There are also prepaid Visa debit cards, commonly sold or distributed as gift cards. Visa issues three types of Commercial cards - Corporate, Business and Purchasing – each with different levels of benefits. Finally, Visa issues GSA cards, which are purchasing cards commonly held by government entities. MasterCard also issues ordinary consumer credit cards but also Enhanced, World, World Elite and High Value cards. MasterCard also has Regulated and Unregulated debit cards, but no Prepaid debit cards. At the corporate level, MasterCard issues the Corporate World, World Elite, and International cards. Discover issues three consumer level cards: Core, Rewards, and Premium cards. Discover also issues the Commercial card to businesses and corporations. Card type is the single greatest factor in producing all the different Interchange categories. Because each card type represents a difference in cost, the Issuer establishes a different qualifying Interchange category for them. With any transaction, once we know the card type involved the range of possible Interchange categories becomes much narrower. Corporate Card World World Elite International GSA

Understanding the Factors that Affect Interchange
Acceptance Method Card Present - swiped Card Present - keyed Card Present - unmanned/AFD Card Not Present (MOTO, Internet) Card Type Industry Type /MCC Non-T&E (Non-Travel & Entertainment) T&E (Restaurant & Hotel) Consumer credit Signature debit Commercial GSA “Best” Rate Card Brand Ticket Size Ticket size can qualify or disqualify a transaction for specific Interchange categories CARD TRANSACTION In addition to card brand and card type, there are three other key factors in determining a transaction’s Interchange qualification. Acceptance method refers to how the card information is captured at the point of sale. There is card-present swiped, where the card is swiped through a magnetic strip reader; card-present keyed, where the card is physically present but the account information is manually keyed into the point of sale device; card-present unmanned, which refers to swiped transactions processed at an unmanned point of sale (such as an automated fuel dispenser); and Card Not Present, which encompasses all transactions where the card and cardholder are not physically present at the point of sale. This includes mail order, telephone order, and Internet. The merchant’s Industry Type or Merchant Category Code is another factor. Merchants fall into one of two industry types: Travel and Entertainment (or T&E) which typically includes restaurants and hotels, and Non-T&E, which encompasses everything else. Beyond industry type, and merchant’s specific MCC may enable them to qualify for a special Interchange category and rate, such as charities or utilities. Finally, the amount of the transaction, or ticket size, can qualify or disqualify a transaction for specific Interchange categories such a Visa’s Small Ticket or Large Ticket. What all these factors have in common is that they are, for the most part, outside the merchant’s control. Acceptance method and Industry type are largely predetermined, while card brand, card type, and ticket size are largely determined by the customer. As we will see in a moment, there are other factors which are largely controlled by the merchant. The card schemes designed Interchange with the expectation that, if a merchant manages their card acceptance according to industry-recommended guidelines, every transaction should qualify at the best possible rate given the factors seen here. Now let’s see what happens when they don’t.

Merchant-Manageable Risk Factors
CARD TRANSACTION Card Brand Type Acceptance Method Industry Type / MCC Ticket Size Merchant-Manageable Risk Factors “Best” Rate Timeframe Requirements Card Present: 1 day q 2 days 3+ days 2+ days Card Acceptance All card-present transactions should be swiped Authorization Integrity A valid Auth code for the settled amount To ensure that any given transaction qualifies at the best possible rate, there are certain practices prescribed by the card schemes which the merchant must follow. If the merchants fails at one or more of these, the transaction will downgrade to a different category and a costlier rate. Chief among these factors is the settlement timeframe. To qualify at the best rate, Visa requires merchants to settle card-present transactions within 24 hours after authorization. For card-not-present transactions, settlement must occur within 7 days. The settlement timeframes vary slightly between the card schemes and industry types, but the best practice for all merchants is to settle their transactions within 24 hours. Card acceptance at the point of sale is also an important factor. All card-present transactions should be swiped through a mag stripe reader. The transaction can be keyed if necessary, but other requirements come into play and the transaction increases in risk. The merchant must complete all prompts requested by the terminal or POS device. That includes the address verification service prompt, which is required for all keyed transactions, whether the card is present or not. Transactions involving corporate cards may prompt for Level II or Level III data. If the merchant skips over those prompts, the transaction will downgrade. For Authorization Integrity, a valid authorization code must be included in the transaction record, and the authorized amount must match the settled amount. (There are some exceptions to this requirement, such as restaurants, salons and spas where tips are commonly accepted.) If the merchant fails at one of these requirements, the transaction will typically downgrade to an intermediate rate. Failure at two or more will likely result in a further downgrade to the worst possible rate. “Intermediate Rate” Card Not Present: 7 days q 8+ days 2 days 3+ days 1 day 2+ days Settlement Timeframe Complete All POS Prompts Consumer cards – AVS Corporate cards – Level II & III data To obtain best rate, all merchants should settle within 24 hours “Worst Rate”

Example – Dale’s New & Rare Books
“Best” Rate Acceptance Method Card Type Industry Type / MCC Non-T&E MCC 5942 80% Retail (card present) 20% MOTO (card not present) Card Brand Consumer Credit Card Consumer Rewards Card Signature Preferred Card Consumer Credit Card Consumer Rewards Card Signature Preferred Card Ticket Size Let’s look at a scenario to see how these Interchange qualification factors play out for a merchant in real life. Dale’s New & Rare Books is a retail bookstore that also handles telephone orders for new and rare editions. For this example will look at just one card brand – Visa. We will look specifically at three types of Visa cards which customers commonly present at Dale’s store: Consumer Credit, Rewards, and Signature. For the acceptance method, Dale’s business does 80 percent retail, which is card-present, and 20 percent telephone order, which is card-not-present. For Industry Type, Dale’s business is non-T&E, MCC 5942. For now, we will set aside ticket size as a factor since we are only looking at downgrades and revisit it later. Since Dale does both retail and MOTO, we will consider the same card types in both environments.

“Best” Rate Non-T&E MCC 5942 80% Retail (card present) 20% MOTO (card not present) Consumer Credit Card Consumer Rewards Card Signature Preferred Card Consumer Credit Card Consumer Rewards Card Signature Preferred Card Settled within 24 hrs after Auth AVS & Settled within 7 days after Auth CPS Retail 1.51% + $0.10 CPS Rewards 1 1.65% + $0.10 Signature Preferred Rtl 2.10% + $0.10 CPS Card Not Present 1.80% + $0.10 CPS Rewards 2 1.95% + $0.10 Signature Preferred CNP 2.40% + $0.10 Settled 24-48 hours after Auth No AVS Let’s see what happens with Interchange when all three card types hit the best rate. Remember, Dale has to settle the transactions within 24 hours to get the best rate. When he does so, the Visa consumer credit card hits the CPS Retail Interchange category, which has a fee of 1.51 percent and 10 cents. The consumer rewards card hits a different category and fee: CPS Rewards 1, at 1.65 percent and 10 cents. The Visa Signature card hits yet another category and fee: Signature Preferred Retail, at 2.1 percent and 10 cents. Let’s see what happens to each of these card types if Dale settles the transactions between 24 and 48 hours after authorization. The Consumer and Rewards cards downgrade to the Electronic Interchange Reimbursement Fee, or EIRF, at 2.3 percent and 10 cents. If Dale settles the transactions three or more days after authorization, these same card types downgrade even further: to Standard, at 2.7 percent and 10 cents. For the Signature card, if Dale settles even a day late the transaction falls all the way to Signature Preferred Standard, at 2.95 percent and 10 cents. Turning to the MOTO side of Dale’s business, let’s look at the same card types in a card-not-present environment. For card-not-present transactions, the requirements for hitting the best possible rate are a little different. Dale must answer the AVS prompt AND settle the transaction within 7 days of authorization. When he does so, the Visa consumer credit card hits the CPS Card Not Present category, which has a fee of 1.51 percent and 10 cents. The Rewards card hits CPS Rewards 2, at 1.95 percent and 10 cents, While the Signature card hits Signature Preferred Card-Not-Present, at 2.4 percent and 10 cents. Let’s see what happens if Dale skips over the AVS prompt. The consumer credit and rewards cards downgrade to EIRF - the same intermediate downgrade level as card-present transactions. If Dale also neglects to settle those transactions until 8 or more days after authorization, those same card types downgrade to Standard. The Signature card, meanwhile, downgrades to Signature Preferred Standard if Dale skips the AVS prompt OR settles after the required timeframe. EIRF 2.30% + $0.10 EIRF 2.30% + $0.10 EIRF 2.30% + $0.10 EIRF 2.30% + $0.10 Settled 3+ days after Auth Settled 8+ days after Auth Standard 2.70% + $0.10 Standard 2.70% + $0.10 Sig Preferred Standard 2.95% + $0.10 Standard 2.70% + $0.10 Standard 2.70% + $0.10 Sig Preferred Standard 2.95% + $0.10

“Best” Rate Non-T&E MCC 5942 Retail (Swiped) Retail (Keyed) Consumer Credit Card Consumer Rewards Card Signature Preferred Card Consumer Credit Card Consumer Rewards Card Signature Preferred Card Settled within 24 hrs after Auth AVS & Settled within 7 days after Auth CPS Retail 1.51% + $0.10 CPS Rewards 1 1.65% + $0.10 Signature Preferred Rtl 2.10% + $0.10 CPS Retail Key Entered 1.80% + $0.10 CPS Rewards 2 1.95% + $0.10 Signature Preferred Rtl 2.10% + $0.10 Settled 24-48 hours after Auth No AVS Let’s apply the same card types to another common scenario – the card is present but the POS device fails to read the magnetic stripe on the card, forcing Dale to key in the transaction. Keeping in mind that the same requirements for card-not-present transactions apply to card-present-keyed transactions, let’s see what happens if Dale does everything right and the cards qualify at the best possible rates. Consumer credit cards qualify at CPS Key Entered, with a rate of 1.8 percent and 10 cents. Rewards card hit CPS Rewards 2, at 1.95 percent and 10 cents, While Signature cards hit Signature Preferred Card-Not-Present, at 2.4 percent and 10 cents. Note that while the Interchange categories are different from those in the MOTO example, the rates are the same. If Dale skips over the AVS prompt, you can probably guess by now what happens. That’s right – the consumer credit and rewards cards fall to EIRF. If Dale also fails to settle those same transactions until 8 days after authorization, Those same cards fall to Standard. If Dale make either of those errors with the Signature card, the transaction falls all the way to Signature Preferred Standard. Keep in mind that we are only looking at Visa cards in these examples. The requirements for MasterCard and Discover cards, while similar in principle, are very different in detail. EIRF 2.30% + $0.10 EIRF 2.30% + $0.10 EIRF 2.30% + $0.10 EIRF 2.30% + $0.10 Settled 3+ days after Auth Settled 8+ days after Auth Standard 2.70% + $0.10 Standard 2.70% + $0.10 Sig Preferred Standard 2.95% + $0.10 Standard 2.70% + $0.10 Standard 2.70% + $0.10 Sig Preferred Standard 2.95% + $0.10

“Best” Rate Ticket Size Ticket size can qualify or disqualify a transaction for specific Interchange categories Non-T&E MCC 5942 Consumer Credit Card Consumer Rewards Card Consumer Signature Card Consumer Credit Card Consumer Rewards Card Consumer Signature Card CPS Retail 1.51% + $0.10 CPS Rewards 1 1.65% + $0.10 Signature Preferred Rtl 2.10% + $0.10 CPS Card Not Present 1.80% + $0.10 CPS Rewards 2 1.95% + $0.10 Signature Preferred CNP 2.40% + $0.10 80% Retail (card present) 20% MOTO (card not present) Let’s now consider the factor of ticket size. In many cases, the amount of a transaction can qualify or disqualify it for specific Interchange categories. Dale’s average ticket is around 30 dollars but many of his sales are less than 15.

Non-T&E MCC 5942 $10.00 “Best” Rate CPS Small Ticket 1.65% + $0.04 CPS Small Ticket 1.65% + $0.04 CPS Small Ticket 1.65% + $0.04 n/a n/a n/a Consumer Credit Card Consumer Rewards Card Consumer Signature Card Consumer Credit Card Consumer Rewards Card Consumer Signature Card Settled within 24 hrs after Auth CPS Retail 1.51% + $0.10 CPS Rewards 1 1.65% + $0.10 Signature Preferred Rtl 2.10% + $0.10 CPS Card Not Present 1.80% + $0.10 CPS Rewards 2 1.95% + $0.10 Signature Preferred CNP 2.40% + $0.10 Let’s take a look at what happens to Interchange if the same Visa cards are used in a 10 dollar transaction. Visa has a Interchange program called Small Ticket which enables most merchant types to qualify at a cheaper rate with transactions under 15 dollars. Remember – to hit the best possible rate, Dale has to follow the required card acceptance practices, including settling within 24 hours. If he does so, the low transaction amount enables all three card types to upgrade to CPS Small Ticket with a rate of 1.65 percent and 4 cents. Turning to the MOTO side of his business, what happens in the same situation when the card is not present? There is no change. Visa Small Ticket is only available with card-present swiped transactions. 80% Retail (card present) 20% MOTO (card not present)

The Nationals Quick Guide
Includes the rates and general requirements of most Interchange categories listed on the Billing Element Table This table is updated twice annually, highlighting the changes with each new release Available on the Elavon Think Centre In addition to the Billing Element Table, Elavon also publishes the Nationals Quick Guide which includes the general Interchange qualification requirements for most of the categories within each Card Scheme. Available on the Elavon Think Centre, this guide is updated with each Interchange release, highlighting any changes from the previous release.

Questions?

Pricing 103: Understanding Assessments

What’s in a Merchant’s pricing?
A merchant’s transaction cost includes separate fees for Authorizations and Settlements. These costs are comprised of the following elements: Settlement Fee MSP Revenue MSP revenue 0.03% + $0.03 Elavon buy rate Authorization Fee Settlement Fee 0.11% + $0.03 Assessment Fees CPS Retail 1.51% + $0.10 Authorization Fee As we learned in the previous course, a merchant's transaction pricing includes separate fees for Authorizations and Settlements. These fee types are comprised of the Interchange Fee, Assessments, Elavon's buy rate, and the MSP's revenue. Let's take a closer look at Assessment fees and how they are determined. Interchange Fee (Settled transactions only) MSP Revenue 0% + $0.05 0% + $0.02

What are Assessment fees?
Assessment fees are paid to the Card Schemes (excluding AMEX) by the Acquirer Interchange Fee Covers the cost for maintaining Interchange, regulating card processing and dispute arbitration Typically represent the smallest portion of the merchant’s total processing fee Separate Assessment fees apply to Authorizations and Settlements Assessment Fees What are Assessment fees? Assessment fees are paid to the Card Schemes by the Acquirer on every Visa, MasterCard and Discover transaction. American Express, which processes its own cards, does not charge Assessment fees. These fees cover the Card Schemes' cost for maintaining Interchange, regulating card processing, and the Arbitration of disputes between merchants and cardholders. Much smaller than Interchange fees, Assessments typically represent the smallest portion of the total fee charged to the merchant. Separate Assessment fees apply to Authorizations and to Settlements, and additional per-occurrence Assessments may be added to some transactions, such as Misuse of Auth fees or Cross-Border fees for foreign-issued cards. As of April 1, 2012, all Assessments will be passed through to the merchant, regardless of pricing method. For merchants set up with Tiered, Surcharge, or Differential pricing, the cost of Assessments will be excluded from the rate and billed separately. Per-occurrence Assessments may be added (misuse of auth or cross-border fees) As of April 1, 2012, all Assessments will be passed through to the merchant, regardless of pricing method

How Assessment Fees Are Determined
Assessments on all Authorizations Assessments on all Settlements NAPF Credit Fee NAPF Debit Fee 0.00% + $0.0195 0.00% + $0.0155 Assessments % 0.11% + $0.0000 Clearing Fee 0.00% + $0.0025 NABU Fee 0.00% + $0.0185 (Effective January 1, 2012) Assessments % 0.11% + $0.0000 Acquirer License Fee 0.0045% + $0.0000 While each transaction is charged only one Interchange fee, several different Assessment fees can apply to the same transaction, though most are relatively small. To begin, there are Assessment fees which apply every time a card is authorized. Visa charges the Network Access Processing Fee, or NAPF fee, of 1.95 cents. MasterCard charges the North American Brand Usage Fee, or NABU fee, of 1.85 cents. Discover charges the Data Usage Fee of 1.85 cents. There are also Assessment fees which apply to all Settled transactions. Visa charges an Assessments fee of 11 basis points and a Clearing fee of 0.25 cents. MasterCard also charges an 11 basis point Assessments fee, along with the Acquirer License Fee of 0.45 basis points. Discover's Assessment fee is 10 basis points, along with a Data Transmission fee of 0.25 cents. Data Usage Fee 0.00% + $0.0185 Assessments % 0.10% + $0.0000 Data Transmission Fee 0.00% + $0.0025

Per Occurrence Assessments Account Verification 0.00% + $0.025 Billed on $0.00 account verification transactions Misuse of Auth 0.00% + $0.05 Billed on unsettled authorizations or pre-authorizations Zero Floor Limit 0.00% + $0.10 Billed on settled but unauthorized (forced) transactions Int’l Service Assessment 0.40% + $0.00 Billed on all transactions involving foreign-issued cards Int’l Acquiring Fee 0.45% + $0.00 Some Assessment fees are charged on a per-occurence basis, applying only under certain criteria. For example, Visa charges additional Assessment fees whenever authorizations are misused. An Account Verification fee of 3 cents is charged whenever the merchant authorizes a card for zero dollars, usually to confirm that the card is good. Visa charges 5 cents for Misuse of Auth whenever a merchant runs a pre-auth or authorizes a card and does not settle the transaction within ten days for a non-T&E merchant and twenty days for a T&E merchant. Visa's Zero Floor Limit fee of 10 cents applies whenever a merchant settles a transaction without a valid authorization, which frequently occurs with forced transactions. Visa also charges additional Assessments on all U.S. transactions involving foreign-issued cards - an International Service Assessment of 40 basis points and an International Acquiring Fee of 45 basis points. In April 2012 Visa added two new Assessment fees. A 10-cent Transaction Integrity Fee is billed on all debit and prepaid card transactions that do not meet CPS qualification – for example, if the merchant is late settling the transaction or fails to get AVS with a keyed transaction. The Fixed Acquirer Network Fee is a monthly Assessment billed to all Visa merchants. The fee can vary from month to month and from merchant to merchant. For card-present merchants, the fee is based on the number of locations in the merchant relationship – that is, the number of locations sharing the same Federal Tax ID. For card-not-present merchants, the fee is based on the location’s monthly card volume. Transaction Integrity Fee 0.00% + $0.10 Billed on all debit and prepaid card transactions that do not meet CPS qualification Fixed Acquirer Network Fee variable Monthly Assessment fee billed to all Visa merchants; fee varies by number of locations (retail) or monthly volume (MOTO)

Per Occurrence Assessments Account Status Inquiry – 0.00% + $0.025 Billed on $0.00 account verification transactions Processing Integrity Late – 0.00% + $0.045 Billed on authorizations reversed after 24 hours or more Processing Integrity No Reversal – 0.00% + $0.045 Billed on authorizations not settled or reversed within 120 days In 2011 MasterCard introduced its own Authorization Integrity Assessment fees. The Account Status Inquiry fee, charged on zero-dollar account verification authorizations, is 2.5 cents. MasterCard also expects unsettled authorizations to be reversed within 24 hours. Authorizations reversed after 24 hours are charged the Processing Integrity Late fee of 4.5 cents. Authorizations not settled or reversed after 120 days are charged the Processing Integrity No Reversal fee of 4.5 cents. MasterCard also charges an International Cross Border Fee of 40 basis points on all U.S. transactions involving foreign-issued cards. International Cross Border Fee – 0.40% + $0.00 Billed on all transactions involving foreign-issued cards

Per Occurrence Assessments Int’l Processing Fee – 0.40% + $0.00 Billed on all transactions involving foreign-issued cards Int’l Service Fee – 0.55% + $0.00 Billed on all transactions involving foreign-issued cards Discover does not have Authorization Integrity Assessments, but they do charge additional fees on all U.S. transactions involving foreign-issued cards - the International Processing fee of 40 basis points and the International Service Fee of 55 basis points.

Assessments – Auth Integrity Exercise
Card Brand: Card Type: Acceptance: Industry Type: Ticket Size: Consumer Credit Card Card-Present Swiped Non-T&E MCC 5942 $20.00 Standard Auth and Settlement $0 PreAuth, then Auth and Settlement Auth, then 2nd Auth and Settlement PreAuth, then Force with expired Auth CPS Retail IC 1.51% + $0.1000 1.51% + $0.1000 1.51% + $0.1000 EIRF 2.30% + $0.10 Authorization Settlement MSP $0.1000 0.20% + $0.1000 $0.1000 0.20% + $0.1000 $0.20 $0.1000 0.20% + $0.1000 $0.20 $0.1000 0.20% + $0.1000 Authorization Settlement AMT $0.0195 0.11% + $0.0025 $0.0195 0.11% + $0.0025 $0.0195 0.11% + $0.0025 $0.0390 $0.0195 0.11% + $0.0025 Acct Verification Misuse of Auth Zero Floor Limit AIF $0.0250 $0.05 $0.05 $0.10 Rate Fee Spread 1.82% + $0.322 $0.686 3.43% 1.82% + $0.467 $0.831 4.16% 1.82% + $0.492 $0.856 4.28% 2.61% + $0.472 $0.994 4.97% Merchant’s Total Cost:

Questions?

Pricing 201: Building a Buy Rate
Presenter: Justin Corum

What’s in a Merchant’s pricing?
A merchant’s transaction cost includes separate fees for Authorizations and Settlements. These costs are comprised of the following elements: Settlement Fee MSP Revenue MSP revenue 0.03% + $0.03 Elavon buy rate Authorization Fee Settlement Fee 0.11% + $0.03 Assessment Fees CPS Retail 1.51% + $0.10 Authorization Fee As we learned in the previous course, a merchant's transaction pricing includes separate fees for Authorizations and Settlements. These fee types are comprised of the Interchange Fee, Assessments, Elavon's buy rate, and the MSP's revenue. Before we proceed with building the merchant's buy rate, let's take a closer look at Elavon's cost. Interchange Fee (Settled transactions only) MSP Revenue 0% + $0.05 0% + $0.02

Understanding Elavon’s Cost
Elavon deducts a flat percentage and per item fee to cover its cost: MSP Authorizations Checks validity and availability of funds with every inquiry Settlement processing Network Infrastructure costs Funding the merchant Foreign Network & Gateway fees TSYS, Envoy, Paymentech, Buypass, etc Shift4, MerchantLink, etc To cover Elavon's cost, a buy rate consisting of a flat percentage and per item fee is deducted from the residual for each transaction. Elavon's cost includes Authorizations, in which Elavon checks the validity and availability of cardholder funds with every inquiry, and Settlement processing, where the Settlement data is dispersed to the Issuing banks. Other costs include maintaining our processing network infrastructure, and the monetary transfer cost when funding the merchant. With merchants using third-party processing solutions, or VARs, there may be foreign network fees or gateway fees involved, depending on the merchant's setup.

Merchant Processing Fee Components
A merchant’s transaction cost includes separate fees for Authorizations and Settlements. These costs are comprised of the following elements: Settlement Fee MSP Revenue MSP revenue 0.03% + $0.03 Elavon buy rate Authorization Fee Settlement Fee 0.11% + $0.03 Assessment Fees CPS Retail 1.51% + $0.10 Authorization Fee Interchange Fee (Settled transactions only) We are now familiar with the first three cost elements in transaction pricing: the Interchange Fee, the Assessment Fees, and Elavon's Buy Rate. Depending on the merchant’s pricing, whatever remains after these costs are covered is the MSP’s revenue. All four elements, therefore, are costs that will be borne by the merchant, whatever form their pricing may take. If the merchant’s pricing takes the form of one or more rates, however, the MSP only has to factor in the cost of Interchange and Elavon’s buy rate – whatever remains is revenue to the MSP. It is important to remember that while Elavon’s buy rate to the MSP is fixed, the Interchange fee can vary with each transaction. Therefore, when determining the merchant's rate, you must ensure that your bottom-line cost is covered. You can do this by building the merchant's buy rate. MSP Revenue 0% + $0.05 Cost to the merchant Cost to the MSP 0% + $0.02

Knowing Your Cost Begins With Knowing Your Merchant:
Knowing the Merchant Knowing Your Cost Begins With Knowing Your Merchant: Industry Type? Card-Present or Card-Not-Present? Transactions Swiped or Keyed? High or Low Average Ticket? Corporate or GSA cards? Foreign Network or Gateway? Knowing your cost begins with knowing your merchant. In building the buy rate, it is essential that we answer some important questions about the merchant's processing environment. While some questions may be obvious, such as their Industry type or whether they are retail or MOTO, knowing their average ticket and whether they accept many corporate cards can significantly impact your cost as well. If the merchant’s processing solution requires a supported foreign network or gateway, additional per item fees may have to be factored into the rate as well.

The remainder of the merchant fee is the MSP’s revenue
Building a Buy Rate For settled transactions, most merchants are set up with one or more Rates (i.e., Tiered Pricing) Qualified 1.80% + $0.20 The remainder of the merchant fee is the MSP’s revenue MSP revenue Elavon buy rate The MSP’s bottom-line cost (or “Buy Rate”) is comprised of the Interchange fee and Elavon’s buy rate. Interchange For settled transactions, most merchants are set up with one or more Rates, as with Tiered pricing. The rate bundles together the cost of Interchange, which is variable, and Elavon’s buy rate, which is fixed. These two element comprise the MSP’s bottom-line cost. The remainder of the fee generated by the rate is the MSP’s revenue. If the rate is for a bucket which includes several interchange categories, any changes in the cost of Interchange will increase or decrease the MSP’s margin. Assessment fees, meanwhile, are charged directly to the merchant and will appear as a separate line item on their statement. Therefore, they are not factored into the MSP’s cost or included in the quoted rate. Assessments should be included, however, when you calculate the merchant’s Effective Rate. Assessment fees pass through and are not factored into the MSP’s cost or included in the quoted rate Assessments

Building a Buy Rate Retail Qualified 1.54% + $0.13 1.61% + $0.13
1.59% + $0.13 CPS Retail 1.51% + $0.10 Merit III 1.58% + $0.10 Retail AIP Core 1.56% + $0.10 Let’s look at some examples of how a buy rate is built. To build a qualified rate for a retail merchant, we begin by identifying the key Interchange category from each card scheme. We can define the key Interchange category as the one the merchant will hit most frequently within that bucket, but it is safer to select the most expensive category within that bucket and make it the key category. In the retail qualified bucket, the key category for Visa is CPS Retail; for MasterCard it is Merit III and for Discover it is Retail AIP core. The rates for all these categories are fairly close to each other, but since MasterCard’s rate is highest, we will begin building the buy rate based on a fee of 1.58 percent and 10 cents. To this, we must add Elavon’s buy rate to the MSP. In this example we will assume a rate of 3 and 3; check your schedule C for your buy rate. When we add Elavon’s buy rate to Interchange, the result is our bottom-line cost. As long as the rate for the retail qualified bucket is set above this amount, the fee will produce a remainder which is the MSP’s revenue. 0.03% + $0.03

Building a Buy Rate Retail Mid-Qualified Qualified 1.83% + $0.13
2.08% + $0.13 1.92% + $0.13 1.90% + $0.13 2.00% + $0.13 CPS Retail Key Entered 1.80% + $0.10 Business Card Level II Data Rate 2.05% + $0.10 1.89% + $0.10 AIP Core 1.87% + $0.10 AIP Rewards 1.97% + $0.10 CPS Retail 1.51% + $0.10 Merit III 1.58% + $0.10 Retail AIP Core 1.56% + $0.10 For mid-qualified (or partial-qualified) transactions in a retail environment, the card schemes have several potential candidates for the key Interchange category. With Visa, the most commonly-hit category in this bucket is CPS Retail Key-Entered, with a rate of 1.8 percent and 10 cents. If the merchant accepts many business cards, however, it would be better to base your rate on the Business Card Level II Data Rate of 2.05 percent and 10 cents. > That way, you can rest assured that you won’t lose money with this bucket. 0.03% + $0.03 0.03% + $0.03

Building a Buy Rate Retail Non-Qualified Mid-Qualified 2.33% + $0.13
2.73% + $0.13 2.98% + $0.13 3.10% + $0.13 2.43% + $0.13 2.98% + $0.13 EIRF 2.30% + $0.10 Standard 2.70% + $0.10 2.95% + $0.10 Mid Submission Level AIP Core 2.40% + $0.10 Base Enhanced Business 3.07% + $0.10 CPS Retail Key Entered 1.80% + $0.10 Business Card Level II Data Rate 2.05% + $0.10 1.89% + $0.10 AIP Core 1.87% + $0.10 AIP Rewards 1.97% + $0.10 The same principle applies with the retail non-qualified bucket. The merchant may accept more Visa cards but it is wiser to base the non-qualified rate on the more expensive MasterCard categories. > That way, you can be sure of your profit potential. 0.03% + $0.03 0.03% + $0.03

Building a Buy Rate MO/TO Retail Non-Qualified Qualified 1.83% + $0.13
2.08% + $0.13 1.92% + $0.13 1.90% + $0.13 2.00% + $0.13 EIRF 2.30% + $0.10 Standard 2.70% + $0.10 2.95% + $0.10 Mid Submission Level AIP Core 2.40% + $0.10 Base Enhanced Business 3.07% + $0.10 CPS Card Not Present 1.80% + $0.10 Corporate Card Level II Data Rate 2.05% + $0.10 Merit I 1.89% + $0.10 Card Not Present AIP Core 1.87% + $0.10 AIP Rewards 1.97% + $0.10 The qualified bucket for MOTO merchants is very similar in cost to the mid-qualified bucket for retail. > Again, the safest plan is to build your buy rate based on the most expensive Interchange category, which is Visa’s Corporate Card Level II Data Rate of 2.05 percent and 10 cents. 0.03% + $0.03 0.03% + $0.03

Building a Buy Rate MO/TO Non-Qualified Qualified 2.73% + $0.13
2.98% + $0.13 2.98% + $0.13 3.10% + $0.13 2.43% + $0.13 2.98% + $0.13 Standard 2.70% + $0.10 Signature Preferred 2.95% + $0.10 Mid Submission Level AIP Core 2.40% + $0.10 Base Business Enhanced 3.07% + $0.10 CPS Card Not Present 1.80% + $0.10 Corporate Card Level II Data Rate 2.05% + $0.10 Merit I 1.89% + $0.10 Card Not Present AIP Core 1.87% + $0.10 AIP Rewards 1.97% + $0.10 MOTO has no mid-qualified bucket, so all downgrades would go to non-qualified. > Here, we see that Mastercard’s downgrade rates are highest once again. 0.03% + $0.03 0.03% + $0.03

Building a Buy Rate Restaurant MO/TO Non-Qualified Qualified
1.57% + $0.13 1.61% + $0.13 1.59% + $0.13 Standard 2.70% + $0.10 Signature Preferred 2.95% + $0.10 Mid Submission Level AIP Core 2.40% + $0.10 Base Business Enhanced 3.07% + $0.10 CPS Restaurant 1.54% + $0.10 Merit III 1.58% + $0.10 Restaurants AIP Core 1.56% + $0.10 Let’s consider a different market – Restaurant. > As with retail, the Interchange rates for a qualified transaction are very similar between the different card schemes. > This enables you to create a very competitive lead rate for all three card types that will still make money. 0.03% + $0.03 0.03% + $0.03

Building a Buy Rate Restaurant Lodging Qualified Qualified
1.57% + $0.13 1.57% + $0.13 1.61% + $0.13 CPS Hotel CP or CNP 1.54% + $0.10 Travel Industries Premier Service Hotel & Car Rentals 1.58% + $0.10 CPS Restaurant 1.54% + $0.10 Merit III 1.58% + $0.10 Restaurants AIP Core 1.56% + $0.10 The same is true for the lodging qualified bucket. The key rates for Visa and Mastercard are exactly the same, while Discover’s rate is slightly higher. 0.03% + $0.03 0.03% + $0.03

Along with the Credit and Offline Debit rates for each Interchange category, the Billing Element Table (BET) Reference Guide provides the qualifying bucket for each industry type. The qualifying buckets for each industry are defined by Elavon. Using the Billing Element Table, you can see to which bucket each Interchange category is assigned for each industry type. Interchange categories are grouped into each bucket primarily because of the similarity of their rates. The least expensive categories are grouped into the qualifying buckets while the most expensive categories are non-qualifying. Therefore, a merchant can do everything right from a card-acceptance point of view and the transaction can still downgrade, simply because of the card type. Many corporate cards will automatically go to non-qualified, simply because of the high cost of the cards to the Issuer.

Comparing the Buy Rates
Retail Qualified 1.54% + $0.13 1.61% + $0.13 1.59% + $0.13 Retail Mid-Qualified 2.08% + $0.13 1.92% + $0.13 2.00% + $0.13 Retail Non-Qualified 2.73% + $0.13 3.10% + $0.13 2.98% + $0.13 MOTO Qualified This table shows the buy rates calculated from the retail and MOTO examples seen earlier for Visa, Mastercard, and Discover. As we have seen, the cost in the same tier can vary significantly between the different Card Schemes. While the safest option is to base the merchant’s rate on the most expensive buy rate, there are other options. You can set up the merchant with a different rate for each card scheme across each tier. Most merchants, however, prefer a single rate for each bucket. 2.08% + $0.13 1.92% + $0.13 2.00% + $0.13 MOTO Non-Qualified 2.98% + $0.13 3.10% + $0.13 2.98% + $0.13

Averaging the Buy Rates
Card Distribution Buy Rate (Retail Qualified) Relative Rate Retail Qualified 70% x 1.54% + $0.13 = 1.0780% + $0.0910 25% x 1.61% + $0.13 = 0.4025% + $0.0325 5% x 1.59% + $0.13 = 0.0795% + $0.0065 Combined Buy Rate: 1.56% + $0.13 Another option is to average the buy rates, based on the distribution of card acceptance. If the merchant has already been accepting cards, you can calculate the card distribution from their past processing statements. If the merchant is new to card acceptance, you can use the industry average of 70 percent Visa, 25 percent MasterCard, and 5 percent for Discover. Multiply those percentages by the Buy Rates for each card scheme, both the discount rate and the per item fee. The result will be the Relative Rate for that card scheme. Add those relative rates together and you get the average buy rate for all cards in that qualifying tier.

Can you average these Buy Rates?
Card Distribution Buy Rate (Retail Non-Qualified) Relative Rate Retail Qualified 67% x 2.73% + $0.13 = 1.8291% + $0.0871 31% x 3.10% + $0.13 = 0.9610% + $0.0403 2% x 2.98% + $0.13 = 0.0795% + $0.0065 Combined Buy Rate: 2.87% + $0.13 Let’s try an exercise. This time, we’ll find the combined buy rate for retail non-qualified. Assuming the merchant’s card distribution is 67 percent Visa, 31 percent MasterCard, and 2 percent Discover, calculate the average buy rate. > When you add the relative rates together, the result is 2.87 percent and 13 cents. Now that you know your cost, you can quote a rate!

Questions?

Pricing 202: Basic Pricing Methods

1.89% $0.25 Pricing Fundamentals
Two Elements of Settled Transaction Pricing Discount Rate Per Item Fee A percentage of the settled transaction amount A fixed dollar amount for each settled transaction 1.89% $0.25 When setting a rate, be sure to do the following: 1. Cover your cost: 2. Consider the Average Ticket: In Introduction to Interchange, we learned that the Interchange fee for settled transactions is made up of two components: the Discount Rate, which is a percentage of the transaction amount, and the Per Item Fee, which is a fixed dollar amount. In most cases, the transaction pricing you will set up for the merchant will include these same components. When setting a rate for the merchant be sure to do the following: First, cover your cost. Build the merchant’s buy rate by adding together the expected cost of Interchange and Elavon’s buy rate. Any pricing above that total will produce your revenue. Second, consider the merchant’s average ticket when determining the discount rate versus the per item fee. If we apply a 1.89 rate and 25 cent per item fee to a $10 and $100 transaction, we get total fees of $0.44 and $2.14. When determine the effective rate for these totals, we can see that this pricing is considerably higher for the $10 ticket than for the $100 ticket. That’s because the $0.25 per item fee is a much bigger factor for the smaller transaction than for the larger one, while the opposite is true for the discount rate. Interchange Elavon Buy Rate $10.00 $100.00 1.89% Rate: $0.19 $1.89 $0.25 P/I: $0.25 $0.25 Total Fee: $0.44 $2.14 Effective Rate: 4.4% 2.1%

+ + + 1.89% + $0.25 $0.10 Pricing Fundamentals 1.89% + $0.35 $0.25
Per Authorization Fees Discount Rate + Per Item Fee Authorization Fee + These fees are charged only on Settled Transactions Fixed amount charged with every Authorization 1.89% + $0.25 $0.10 Some merchants won’t have an Auth fee in their existing pricing: Option 1: Bundle the Auth Fee into the Settlement Per Item Fee + 1.89% + $0.35 $0.25 $0.10 In addition to the Discount Rate and Per Item Fee, which are charged only on Settled transactions, there is also an Authorization Fee, a fixed dollar amount charged with every Authorization response. Whether the response is approval, decline, pick up card, or call for auth, the authorization fee applies, even if the transaction is voided or not settled. Occasionally you may find a merchant who is not being charged an authorization fee by their current processor. One option is to continue to waive this fee to the merchant but it is important to account for this cost elsewhere in the merchant’s pricing – by bundling the Auth fee into the Settlement per item fee, for example. The better solution would be to remove the settlement per item fee and bundle it into the auth fee – that way, you can be sure that your cost is covered for unsettled authorizations. Option 2: Bundle the Settlement Per Item Fee into the Auth Fee + 1.89% + $0.25 $0.10 $0.35

Pricing Fundamentals Merchant Preferences Keep pricing simple
Interchange can be complex and difficult for merchants to understand Work with what they know Merchants accustomed to a pricing method tend to stay with that method Tiered vs Pass-Thru Tiered pricing is commonly found with smaller merchants while Pass-Thru pricing is more common with Large Merchants, businesses with narrow margins, and merchants eligible for special Interchange rates Understanding a merchant's preferences is an essential part of determining their pricing. First, do your best to keep pricing simple. Interchange can be complex and difficult for many merchants to understand, and using simple apples-to-apples comparisons can make a big difference in their comprehension. Second, work with what they know. Merchants accustomed to a particular pricing method tend to stay with that method. Finally, become familiar with the two most common pricing methods, Tiered and Pass-Thru, and the types of merchants to which they are most commonly applied. Tiered pricing is commonly found with smaller merchants while Pass-Thru pricing is more common with Large Merchants, businesses with narrow margins, and merchants eligible for special Interchange rates.

Total processing fees:
Pricing Fundamentals The Effective Rate The Effective Rate is the merchant’s total processing fees divided by their total card volume: Total processing fees: $820.47 Total sales volume: $22,455.12 Effective Rate: 3.65% Determining the Effective Rate, both for your pricing and your competitor’s, provides a simple, bottom-line cost and comparison that any merchant can understand. One of the best ways to keep pricing simple is to calculate the merchant's overall Effective Rate. Find the merchant's total monthly processing fees, excluding any annual or large one-time fees, and divide it by their total monthly sales volume. The result is their effective rate - their processing cost as a percentage of their volume. Determining the Effective Rate, both for your pricing and your competitor’s, provides a simple, bottom-line cost and comparison that any merchant can understand.

The MSP’s revenue varies with changes in Interchange within each tier
Tiered Pricing Hierarchy of fixed rates that typically increase as transactions downgrade Non-Qual 3.50% + $0.20 Non-Qual 3.50% + $0.20 MSP Revenue MSP Revenue The MSP’s revenue varies with changes in Interchange within each tier Mid-Qual 2.40% + $0.20 Mid-Qual 2.40% + $0.20 MSP Revenue MSP Revenue Qualified 1.80% + $0.20 Qualified 1.80% + $0.20 0.03% + $0.03 Standard 2.70%+$0.10 0.03% + $0.03 0.03% + $0.03 EIRF 2.30%+$0.10 MSP MSP Revenue MSP Revenue 0.03% + $0.03 Business Card Level II Data Rate 2.05%+$0.10 Elavon With Tiered pricing, the merchant is set up with a hierarchy of fixed rates which increase as the transaction downgrades from Qualified to Mid-Qualified to Non-Qualified. This is how Tiered pricing has traditionally been structured. Note how the MSP’s revenue can vary within each tier as the Interchange rate changes with each category. Remember – Assessments pass through and are charged directly to the merchant. They are not factored into the rate. Now let’s take a closer look at how the bucketing system works. CPS Retail Key Entered 1.80%+$0.10 0.03% + $0.03 CPS Retail 1.51%+$0.10 0.03% + $0.03 Interchange CPS Retail Debit (non-reg) 0.80%+$0.15 Assessments 0.11% + $0.03 0.11% + $0.03 0.11% + $0.03 0.11% + $0.03 0.11% + $0.03 0.11% + $0.03

Tiered Pricing – Standard Buckets
Interchange Categories Tiered Pricing Buckets - Retail Qualified 1.80% + $0.20 Mid-Qualified 2.40% + $0.20 In Introduction to Interchange we were introduced to the Billing Element Table, which shows all the different Interchange categories that a transaction can hit according to card Scheme, acceptance method, settlement timeframe, and many other factors. With Tiered pricing, Elavon groups these Interchange categories into pricing tiers, or buckets. When a transaction hits a particular Interchange category, the transaction rate for the corresponding tier will be charged to the merchant. To illustrate, let's take a look at the standard pricing buckets for a typical retail merchant. In this example we are looking only at a portion of the Visa Interchange categories, but the same structure applies to MasterCard and Discover. First, we have the Qualified Tier, which typically includes transactions that are swiped and settled within 1 day of authorization. Because the merchant is using Industry-recommended card acceptance procedures, Qualifying transactions receive the best rate - in this example, 1.8 percent and 20 cents. Next, we have the Mid-Qualified Tier, which typically includes transactions that are keyed instead of swiped, settled within two days instead of one, or run on a business card rather than a consumer card. These categories represent only a modest downgrade so they would be charged the Mid-Qualifying rate - in this example, 2.2 percent and 20 cents. Finally, we have the Non-Qualified Tier, which typically includes transactions that are keyed, settled more than two days after authorization, or missing required transaction data. Because these categories are for transactions that involve the greatest risk or cost, they would be charged the Non-Qualifying rate - in this example, 3.2 percent and 20 cents. Keep in mind that these examples cover not only the cost of Interchange but of Assessments and Elavon's buy rate as well. Non-Qualified 3.50% + $0.20

Tiered Pricing – Optional Buckets
Interchange Categories Tiered Pricing Buckets - Retail Sig Debit Qual 1.20% + $0.20 Qualified 1.80% + $0.20 Rewards Qual 2.10% + $0.20 Mid-Qualified 2.40% + $0.20 Comm Non-Qual 2.90% + $0.20 In addition to the standard buckets, there are optional tiers that may be implemented with tiered pricing. As you may have noticed, the Interchange fees vary within the standard tiers, so optional tiers are available which can provide additional savings to the merchant. As these tiers are implemented, certain Interchange categories will move to the new bucket. Between the Qualified and Mid-Qualifed tiers we have the Rewards Qualified tier, which is for transactions which meet all the qualifying criteria except that a rewards card was used instead of a regular consumer card. The rate for Rewards Qualifed is slightly better than Mid-Qualified; in this example, 2 percent and 20 cents. Between the Mid-Qualified and Non-Qualified Tiers we have the Commercial Non-Qualified Tier, which is for transactions on corporate or business cards which meet all the qualifying criteria except that the required level II date was not provided. The rate for Commercial Non-Qual is better than the regular Non-Qualified tier; in this example, 2.8 percent and 20 cents. Finally, a special tier is available for Qualifying transactions run on a Signature Debit card - that is, a debit or check card where the customer provided their signature instead of their PIN number. Because Debit cards pose considerably lower risk, the Interchange rate is much lower than even the regular qualifying rate. To take advantage of these savings, we may implement the Signature Debit Qualified tier, which in this example is 1.2 percent and 20 cents. Non-Qualified 3.50% + $0.20

Along with the Credit and Offline Debit rates for each Interchange category, the Billing Element Table (BET) Reference Guide provides the qualifying bucket for each industry type. On Elavon’s Billing Element Table, the Tiered pricing bucket for every Interchange category is listed for Retail, MOTO, Lodging, and Restaurant merchants. Note that for some categories the qualifying bucket differ with each industry type. When setting up a merchant with Tiered pricing you can use this table to determine the maximum expected Interchange rate for each tier.

Tiered Pricing Technique – Blended Rates
The flexibility in Tiered pricing enables creative pricing offerings. There are some merchant service providers, such as Sam's Club through First Data, who advertise what appears to be a very low qualifying rate. On their website, Sam's Club offers a rate of 1.49 percent and 20 cents. We also know that Visa's retail qualifying rate is 1.51 percent and 10 cents. Add assessment fees to that and it appears that Sam's Club is pricing themselves under water. So how can they offer such a low rate? How do they do it?

How to Create a Blended Rate
Qualified Credit By providing a single low Qualified rate for Credit and Debit cards, the MSP loses money on Credit transactions but gains it back (and then some) on Debit transactions. 0.03% + $0.03 Qualified Debit CPS Retail 1.51%+$0.10 Qualified 1.48% + $0.20 MSP Revenue To calculate a blended Credit/Debit rate: MSP Create separate Qualifying rates for each category Multiply the rates by the card distribution Add the results together Credit 1.70% + $0.20 Debit 1.15% + $0.20 Elavon 0.03% + $0.03 CPS Retail Debit (non-reg) 0.80%+$0.15 x 60% x 40% Interchange The answer is to use a blended rate. Remember that with tiered pricing, the retail qualified bucket is based upon the Interchange category and rate for credit cards - but that bucket also includes the Interchange category for signature debit transactions, which is much lower. Tiered pricing allows us to set up a special reduced rate for those cards, but if we do not, they will hit the Qualifying rate and our profit margin will be higher. By offering a blended rate, it possible to set a rate that is below cost for credit card transactions but still significantly above cost for Signature debit transactions. The MSP loses money on qualifying credit card transactions but gains it back - and then some - on the Signature Debit transactions. Here's how to calculate a blended rate. The first step is to create separate rates for Qualifying credit and Signature debit transactions, as you were going to offer the optional tier. The second and most crucial step is to correctly determine the ratio of Qualifying credit transactions versus Signature debit transactions. For this step it is best that you refer to the merchant's past processing statements, to be sure you have an accurate distribution. When you multiply the rates by the distribution percentage and then add those two rates together you will have the appropriate blended rate. = = 1.02% + $0.12 + 0.46% + $0.08 = 1.48% + $0.20

Blended Rate Exercise 1.586% + $0.144 Finian’s Rainbow Thrift Store
Distribution: 56% credit / 44% debit Qualifying Credit Rate: 1.85% + $0.10 Signature Debit Rate: 1.25% + $0.20 The Verdict: A Blended Rate can be a great selling tool, but… An unexpected change in the merchant’s processing behavior - accepting more credit cards or running PIN-debit instead of signature debit - can result in a sudden loss of revenue for the MSP. Let's do an exercise for Blended rates. Finnian's Rainbow Thrift Store agrees to be set up with tiered pricing but they want a really low qualifying rate. From looking at their past processing statements, you see that their card acceptance distribution is 56 percent credit and 44 percent signature debit. You were planning to set them up with separate rates percent and 10 cents for Qualified credit and 1.25 percent and 20 cents for Signature debit - but maybe a low blended rate will close the deal. Using the same formula as before, try blending these two rates together. The blended rate for this merchant would be percent and 14.4 cents. While a blended rate can be a great selling tool, it is not without risk. An unexpected change in the merchant’s processing behavior - accepting more credit cards or running PIN-debit instead of signature debit - can result in a sudden loss of revenue for the MSP. To remain profitable, the merchant's card acceptance must remain very consistent. That is why, with blended rates, it is common for the merchant's mid and non-qualified rates to be somewhat higher. 1.586% + $0.144

The Merchant Application – Tiered Pricing
In the pricing section on page 2 of the new merchant application, utilize this section to set up a merchant with Tiered pricing. Check the box that says Tiered and enter the rates for each applicable tier - Qualified, Rewards, Mid and Non-Qualified. Remember the optional tier for Commercial Non-Qualified, and if you are going to include the optional tier for the reduced Qualified rate, be sure to enter the rates and check the box for the appropriate program - Check Card for Signature Debit, Supermarket for eligible grocery stores, or QPS/Small Ticket for merchants eligible for small ticket pricing. Finally, be sure to indicate the merchant's Authorization Fees, if applicable. Authorization Fees

Tiered Pricing – Pros and Cons
Sig Debit Qual Pros: Easy for the merchant to understand Greatest profit potential Most flexibility Qualified Rewards Qual Cons: Easiest method for a competitor to beat Increases in cost (Interchange) means decreased revenue Mid-Qualified Comm Non-Qual So what are the pros and cons of Tiered Pricing? On the up side, Tiered Pricing is relatively easy for the merchant to understand. It also presents the greatest profit potential for the MSP, as well as providing the greatest flexibility. On the down side, the multiple tiers also make this pricing method the easiest for a competitor to beat. Also, increases in cost within a tier - that is, increases in Interchange, Assessments, or both - mean decreased revenue for the MSP. Tiered Pricing is Elavon's most commonly used pricing method; over 90 percent of our merchants are set up with Tiered pricing. Non-Qualified This is Elavon’s most commonly used Pricing Method; the majority of our merchants use this pricing.

Tiered vs. Pass-Thru Pricing
Non-Qual 3.50% + $0.20 Non-Qual 3.50% + $0.20 With Tiered pricing, the merchant is set up with a hierarchy of rates MSP Revenue MSP Revenue Mid-Qual 2.40% + $0.20 Mid-Qual 2.40% + $0.20 MSP Revenue MSP Revenue Qualified 1.80% + $0.20 Qualified 1.80% + $0.20 0.03% + $0.03 Standard 2.70%+$0.10 0.03% + $0.03 0.03% + $0.03 EIRF 2.30%+$0.10 MSP MSP Revenue MSP Revenue 0.03% + $0.03 Business Card Level II Data Rate 2.05%+$0.10 Elavon With Tiered pricing, the merchant is set up with a heirarchy of fixed rates which increase as the transaction downgrades from Qualifed to Mid-Qualified to Non-Qualified. This is how Tiered pricing has traditionally been structured. Remember – Assessments pass through and are charged directly to the merchant. They are not factored into the rate. CPS Retail Key Entered 1.80%+$0.10 0.03% + $0.03 CPS Retail 1.51%+$0.10 0.03% + $0.03 Interchange CPS Retail Debit (non-reg) 0.80%+$0.15 Assessments 0.11% + $0.03 0.11% + $0.03 0.11% + $0.03 0.11% + $0.03 0.11% + $0.03 0.11% + $0.03

Tiered vs. Pass-Thru Pricing
With Tiered pricing, the merchant is set up with a hierarchy of rates With Pass-Thru pricing, the merchant is set up with a single markup for every transaction, regardless of which Interchange category it hits. 0.25% + $0.25 0.25% + $0.25 0.03%+$0.03 0.25% + $0.25 Standard 2.70%+$0.10 0.03%+$0.03 0.25% + $0.25 0.03%+$0.03 EIRF 2.30%+$0.10 MSP 0.25% + $0.25 0.03%+$0.03 Business Card Level II Data Rate 2.05%+$0.10 Elavon With Pass-Thru pricing, the merchant is set up with a single markup which applies consistently to every transaction, regardless of which Interchange category it hits. > While the mark-up is simply added to the cost of Interchange and Assessments, it does incorporate Elavon’s buy rate. For example, if the quoted mark-up is 25 basis points and 25 cents and Elavon’s buy rate is 3 and 3, then the MSP’s effective mark-up is 22 and 22. 0.03%+$0.03 CPS Retail Key Entered 1.80%+$0.10 0.25% + $0.25 CPS Retail 1.51%+$0.10 Important Note! 0.03%+$0.03 Elavon’s buy rate is deducted from the MSP’s mark-up. Interchange CPS Retail Debit (non-reg) 0.95%+$0.20 Assessments 0.11% + $0.03 0.11% + $0.03 0.11% + $0.03 0.11% + $0.03 0.11% + $0.03 0.11% + $0.03

Pass-Thru Pricing – Two Reporting Options
Interchange Plus Interchange Differential The fees for Interchange, Assessments, and the Mark-up are reported separately on the Merchant’s statement. The fees for Interchange and the Mark-up are bundled together, while the Assessments are reported separately. Interchange Interchange + Mark-up Assessments Pass-Thru Pricing comes with two reporting options: Interchange Plus and Interchange Differential. These two programs utilize the same pricing method but the transaction fees are reported differently on the merchant's monthly statement. With Interchange Plus, the fees for Interchange, Assessments, and the MSP's mark-up are disclosed separately on the statement. With Interchange Differential, the fees for Interchange and the mark-up are bundled together, while the Assessment Fees are reported separately. Because of the bundled reporting, Interchange Differential is harder to analyze on the merchant statement than Interchange Plus. Important Note! Mark-up Interchange Differential is much harder to analyze on the merchant statement than Interchange Plus

The Merchant Application – Pass-Thru Pricing
Interchange Plus or Interchange Differential In the pricing section on page 2 of the new merchant application, utilize this section to set up a merchant with Pass-Thru pricing. Select the reporting option, either Interchange Plus or Interchange Differential, and then enter only the markup to be added with each Card Scheme. Interchange and Assessment fees will be calculated automatically with each transaction, so only the MSPs markup is required here. Be sure to indicate the merchant's Authorization Fees, if applicable. Authorization Fees

Pass-Thru Pricing – Pros and Cons
MSP margin is consistent & guaranteed Merchant enjoys the advantages of special Interchange programs Merchant gets lowest cost, regardless of where the transaction qualifies Harder for competitors to beat 0.25% + $0.25 0.25% + $0.25 0.03%+$0.03 Standard 2.70%+$0.10 0.03%+$0.03 EIRF 2.30%+$0.10 0.25% + $0.25 0.03%+$0.03 Cons: Least profitable pricing method CPS Retail 1.51%+$0.10 So what are the pros and cons of Pass-Thru Pricing? On the up side, the MSP's margin is consistent and guaranteed with every transaction. The merchant, if eligible, enjoys the advantages of special Interchange programs. They also get the lowest cost, regardless of where the transaction qualifies. Pass-Thru pricing is also harder for competitors to beat. On the down side, Pass-Thru tends to be the least profitable pricing method for MSPs. Pass-Thru is commonly found with large businesses and merchants who need to take advantage of special Interchange categories, such as Utilities. Pass-Thru pricing is commonly found with large businesses and merchants who need to take advantage of special Interchange categories (i.e., Utilities).

Flat Pricing With Flat pricing the merchant is set up with one rate for all transactions, regardless of qualification. But what if the Interchange rate exceeds the merchant’s pricing? The MSP loses the difference. One Rate 2.50% + $0.20 0.03% + $0.03 Signature Preferred Standard 2.95%+$0.10 MSP Revenue MSP Revenue MSP Revenue MSP Revenue 0.03% + $0.03 MSP EIRF 2.30%+$0.10 0.03% + $0.03 Elavon CPS Retail Key Entered 1.80%+$0.10 0.03% + $0.03 CPS Retail 1.51%+$0.10 Flat Pricing, also called Surcharge pricing, is the simplest pricing method. With Flat Pricing, the merchant is set up with one rate for all transactions, regardless of Interchange qualification or increases in Assessment fees. As you can see, the MSP's margin is largest when transactions qualify and smallest when they downgrade. So what happens if the cost, including Interchange and Elavon's buy rate, exceeds the merchant's pricing? The MSP loses the difference. Therefore, it is very important with Flat Pricing that we set a high enough rate to cover all likely downgrades. Remember – Assessments pass through and are charged directly to the merchant. They are not factored into the rate. Interchange 0.03% + $0.03 CPS Retail Debit (non-reg) 0.80%+$0.15 Assessments 0.11% + $0.03 0.11% + $0.03 0.11% + $0.03 0.11% + $0.03 0.11% + $0.03

The Merchant Application – Flat Pricing
To indicate Flat Pricing on the merchant application, utilize the Tiered pricing section, entering the same rate for every tier. Don't forget to include the Authorization Fees, if applicable. Authorization Fees

Flat Pricing – Pros and Cons
One Rate 3.50% + $0.20 One Rate 3.50% + $0.20 One Rate 3.50% + $0.20 Pros: Simplest pricing to understand Maximum revenue on Qualifying transactions MSP Revenue MSP Revenue MSP Revenue 0.03% + $0.03 Signature Preferred Standard 2.95%+$0.10 Cons: Merchants have less incentive to prevent downgrades Revenue decreases with downgrades Significant potential for revenue loss and ending up “under water” 0.03% + $0.03 EIRF 2.30%+$0.10 0.03% + $0.03 CPS Retail 1.51%+$0.10 So what are the pros and cons of flat pricing? On the up side, Flat Pricing is the simplest method to understand and it provides the highest revenue on Qualified transactions. On the down side, the revenue decreases as the transaction downgrades, leaving significant potential for revenue loss and ending up under water. This pricing method while not frequently used, is appealing to small merchants or those who run very few transactions. With the recent increase in micro merchants, interest in concise and transparent solutions such as this is on the rise. Flat pricing is commonly found with merchants who accept very few credit cards.

The Clear & Simple Program
Featured Processing Solutions: VirtualMerchant Mobile VirtualMerchant Featured Pricing: 2.75% + $0.29 (swiped transactions) 3.50% + $0.29 (keyed transactions) $10 monthly account fee No application fee No reporting fees No PCI Compliance fees No monthly minimums No cancellation fees Introducing Clear & Simple; Elavon's newest product offering. Combining a robust mobile processing solution with a streamlined pricing structure, Clear & Simple is designed for the burgeoning micro merchant industry. Small, mobile and adaptable, these merchants are looking for a flexible solution that provides an easy introduction to merchant services but will also grow along with their business. For the processing solution, Clear & Simple features Virtual Merchant Mobile, Elavon's mobile processing solution for smart phones such as the iPhone, Blackberry, and Droid. In addition, the merchant has access to Virtual Merchant, Elavon's internet-accessed processing gateway for PC's. The transaction pricing for this program is simple: 2.75 percent and 29 cents for card-swiped transactions and 3.5 percent and 29 cents for key-entered transactions. Between now and June 30, 2012, Elavon has an introductory offer of 2.75 percent and 29 cents for all transactions under this program. With Clear & Simple, the merchant is also charged a low 10 dollar monthly account fee. There are no separate application fees, reporting fees, PCI compliance fees, monthly minimums or cancellation fees - all are included in the 10 dollar monthly account fee.

Questions?

Pricing 203: Advanced Pricing Methods

Differential Pricing Merchant cost 2.29% + $0.38 “Best” Rate
The Merchant is set up with a Qualified Rate based on their industry type (i.e., Retail, MOTO, etc). This is the best rate they can get. They are also set up with a surcharge for all downgrading transactions. Merchant cost 2.29% + $0.38 ….PLUS the downgrade surcharge is added, enhancing the MSP’s margin. MSP Surcharge 0.25% MSP Surcharge 0.25% “Best” Rate 1.75% + $0.38 MSP Revenue MSP Revenue MSP 0.03% + $0.03 Important Note! Elavon Differential CPS Retail Key Entered 1.80%+$0.10 The Downgrade Surcharge may only be a percentage, not a per-item fee. 0.03% + $0.03 CPS Retail 1.51%+$0.10 If the transaction downgrades, the difference between the Qualifying Interchange rate and the downgrade rate is passed through to the merchant, preserving the MSP’s margin….. With Differential Pricing, also known as Differential Plus, the merchant is set up with a Qualified rate based on their industry type. This rate is for qualifying transactions and is the best rate the merchant can get. They are also set up with a basis-point surcharge for ALL downgrading transactions. If a transaction downgrades, the difference between the “qualifying” Interchange rate and the downgrade rate is passed through to the merchant, preserving the MSP’s margin..... PLUS the downgrade surcharge is added, enhancing the MSP’s margin. Note that the downgrade surcharge may only be a percentage, not a per-item fee. Remember – Assessments pass through and are charged directly to the merchant. They are not factored into the best rate. Interchange Assessments 0.11% + $0.03 0.11% + $0.03

what if a transaction Upgrades (i.e. due to a debit card)?
Differential Pricing Differential Pricing combines the simplicity of Pass-Thru pricing with the revenue enhancement of Tiered pricing Merchant cost 2.79% + $0.38 MSP Surcharge 0.25% Merchant cost 2.44% + $0.38 MSP Revenue MSP Surcharge 0.25% “Best” Rate 1.75% + $0.38 “Best” Rate 1.75% + $0.38 0.03% + $0.03 BUT… what if a transaction Upgrades (i.e. due to a debit card)? MSP Revenue EIRF 2.30%+$0.10 MSP Revenue MSP Revenue MSP 0.03% + $0.03 Elavon 0.03% + $0.03 CPS Rewards 2 1.95%+$0.10 Because the Qualifying Rate is the “Best” rate the merchant can get, the decreased Interchange cost increases the MSP’s margin! CPS Retail 1.51%+$0.10 Differential Pricing combines the simplicity of Pass-Thru with the revenue enhancement of Tiered pricing. The MSP's margin, incorporated into the Qualified rate, is preserved with every downgrade. The surcharge, which may only include a discount rate and not a per item fee, applies to every transaction that doesn't qualify, no matter how little or how much it downgrades. Now, what if a transaction upgrades - for example, due to signature debit? Because the Qualifying rate is the best rate the merchant can get, the decreased Interchange cost increases the MSP's margin. 0.03% + $0.03 Interchange CPS Retail Debit (non-reg) 0.80%+$0.15 Assessments 0.11% + $0.03 0.11% + $0.03 0.11% + $0.03 0.11% + $0.03

Differential Pricing – Calculating the Merchant’s Cost
Example Exercise 1 Exercise 2 ? Downgrade IC Rate CPS Rewards 2 1.95% + $0.10 Standard 2.70% + $0.10 MC F2F Corp 2.15% + $0.10 MSP Surcharge 0.30% “Best” Rate 1.75% + $0.38 Qualified IC Rate CPS Retail 1.51% + $0.10 CPS Retail 1.51% + $0.10 Merit III 1.58% + $0.10 – MSP Revenue MSP Revenue = Differential 0.44% + $0.00 1.19% + $0.00 0.57% + $0.00 0.03% + $0.03 0.03% + $0.03 CPS Rewards 2 1.95%+$0.10 “Best” Rate CPS Retail 1.51%+$0.10 1.75% + $0.38 1.75% + $0.38 1.75% + $0.38 Here's how to calculate the changes in the merchant's cost as a transaction downgrades. Let's use the example of a regular retail merchant set up with a Qualified Rate of 1.87 percent and 38 cents, and a downgrade surcharge of 30 basis points. Now, let's look at a Visa transaction which downgrades to CPS Rewards 2. How do we determine the merchant's cost for that downgrade? First, identify the Interchange category and rate for the downgrade percent and 10 cents. Next, identify the Interchange category and rate for Qualifying transactions within the same Card Scheme - that would be Visa's CPS Retail rate of 1.51 percent and 10 cents. We use the category for retail since this is a retail merchant. When we subtract the Qualified Interchange rate from the downgrade rate, we get the Interchange differential, which is 44 basis points. Add the differential to the merchant's Qualified or Best rate and then add the surcharge for the downgrade. The total cost to the merchant is 2.61 percent and 38 cents. Let's do an exercise using the same process to determine the merchant cost for a Visa transaction that downgrades to Standard. The Interchange fee for Standard is 2.7 percent and 10 cents. Using the same best rate and surcharge, calculate the differential and the merchant's cost. The differential is 1.19 percent; add to that the best rate and surcharge, and the merchant's cost becomes 3.36 percent and 38 cents. Let's try another exercise - this time with MasterCard. The same merchant runs a MasterCard transaction which downgrades to Face-To-Face Corporate, which has a rate of 2.15 percent and 10 cents. The Qualified retail Interchange category for Mastercard is Merit III, with a rate of 1.58 percent and 10 cents. Using the same best rate and surcharge, calculate the differential and the merchant's cost. The differential is 57 basis points; add to that the best rate and surcharge, and the merchant's cost becomes 2.74 percent and 38 cents. Surcharge + 0.30% 0.30% 0.30% = Merchant Cost 2.49% + $0.38 3.24% + $0.38 2.62% + $0.38

The Merchant Application – Differential Pricing
In the pricing section on page 2 of the new merchant application, utilize this section to set up a merchant with Differential pricing. Check the Differential box and enter the rate for Qualified transactions. Then enter the basis point surcharge for all downgrading transactions. For Differential Pricing, the pricing program number for the surcharge must also be provided. You can refer to the Differential Surcharge Table located on the Elavon Think Centre, or contact your Relationship Manager or Partner Sales Support for assistance. Finally, remember to indicate the merchant's Authorization Fees, if applicable. Authorization Fees

Surcharge Pricing Program Table
CLG Pricing Program Description Gross/Net 8 and 17 00800 RETAIL DIFF PLUS .00% NET 00818 RETAIL DIFF PLUS .40% GROSS 00801 00819 MOTO DIFF PLUS .40% 00802 MOTO DIFF PLUS .00% 00820 RETAIL DIFF PLUS .10% 00803 00821 RETAIL DIFF PLUS .45% 00804 RETAIL DIFF PLUS .20% 00822 MOTO DIFF PLUS .17% 00805 MOTO DIFF PLUS .20% 00823 RETAIL DIFF PLUS .17% 00806 00824 MOTO DIFF PLUS .45% 00807 RETAIL DIFF PLUS .35% 00825 RETAIL DIFF PLUS .30% & $0.10 00808 MOTO DIFF PLUS .35% 00826 RETAIL DIFF PLUS .10% & $0.10 00809 00827 MOTO DIFF PLUS .10% & $0.10 00810 MOTO DIFF PLUS .10% 00828 RETAIL DIFF PLUS .50% 00811 RETAIL DIFF PLUS .15% 00829 MOTO DIFF PLUS .50% 00812 00830 RETAIL DIFF PLUS .05% 00813 MOTO DIFF PLUS .15% 00831 MOTO DIFF PLUS .05% 00814 RETAIL DIFF PLUS .30% 00832 RETAIL DIFF PLUS 1.00% 00815 MOTO DIFF PLUS .30% 00833 MOTO DIFF PLUS 1.00% 00816 RETAIL DIFF PLUS .25% 00834 RETAIL DIFF PLUS 1.50% 00817 MOTO DIFF PLUS .25% 00835 MOTO DIFF PLUS 1.50% 00836 RETAIL DIFF PLUS 1.20% 00839 00843 RETAIL DIFF PLUS .85% On the Surcharge Pricing Program table, locate the amount of the surcharge for the merchant’s industry type and enter the pricing program code on the application. Pricing Programs have already been built for the above amounts

Differential Pricing – Pros and Cons
Merchant cost 2.44% + $0.38 Pros: Increased revenue on downgrades Increased revenue on check card rates Difficult for competitors to identify the pricing on the merchant’s statement MSP Surcharge 0.25% “Best” Rate 1.75% + $0.38 “Best” Rate 1.75% + $0.38 MSP Revenue MSP Revenue MSP Revenue 0.03% + $0.03 0.03% + $0.03 CPS Rewards 2 1.95%+$0.10 Cons: Difficult to explain Merchants may have a hard time understanding their statement CPS Retail 1.51%+$0.10 0.03% + $0.03 So what are the pros and cons of Differential Pricing? On the up side, it provides increased revenue with downgrades AND with upgrades such as check card rates. It is also more difficult for competitors to identify and analyze the pricing on the merchant's statement. On the down side, Differential can be difficult to explain to merchants who are accustomed to more traditional pricing methods. Also, merchants may have a hard time understanding the processing fees on their statement. CPS Retail Debit (non-reg) 0.80%+$0.15

No matter how much a transaction downgrades, the markup is the same.
The Down Side of Differential Pricing Merchant Cost 3.36% + $0.38 No matter how much a transaction downgrades, the markup is the same. Merchant Cost 2.96% + $0.38 MSP Surcharge 0.30% Merchant Cost 2.71% + $0.38 Merchant Cost 2.61% + $0.38 MSP Surcharge 0.30% Merchant Cost 2.46% + $0.38 MSP Revenue MSP Surcharge 0.30% MSP Surcharge 0.30% MSP Surcharge 0.30% MSP Revenue 0.03% + $0.03 “Best” Rate 1.87% + $0.38 MSP Revenue Standard 2.70%+$0.10 MSP Revenue MSP Revenue 0.03% + $0.03 MSP Revenue EIRF 2.30%+$0.10 MSP 0.03% + $0.03 0.03% + $0.03 Business Card Level II Data Rate 2.05%+$0.10 Elavon 0.03% + $0.03 CPS Rewards 2 1.95%+$0.10 0.03% + $0.03 CPS Retail Key Entered 1.80%+$0.10 CPS Retail 1.51%+$0.10 Interchange The down side of Differential pricing is that it still lacks flexibility; no matter how much a transaction downgrades, the markup is the same. We need a pricing method with the flexibility of the traditional Tiered program, but also leaves us in full control of our margin and free to be as aggressive with our pricing as we choose.

With Tiered pricing a Rate is established for each qualifying bucket.
Enhanced Interchange Plus Non-Qual 3.30% + $0.20 With Tiered pricing a Rate is established for each qualifying bucket. MSP Revenue Mid-Qual 2.20% + $0.20 The Residual is what remains after the fees for Interchange and Elavon’s buy rate have been paid. Qualified MSP Revenue 1.80% + $0.20 0.03% + $0.03 EIRF 2.30%+$0.10 MSP Revenue 0.03% + $0.03 0.03% + $0.03 CPS Retail Key Entered 1.80%+$0.10 CPS Retail 1.51%+$0.10 The solution is Enhanced Interchange Plus, which utilizes the same Interchange buckets as with Tiered pricing. With the Tiered pricing method, a rate is established for each bucket and the MSP's residual is what remains after the fees for Interchange and Elavon's buy rate have been paid. Assessment fees pass through directly to the merchant and are not factored into the rate. MSP Elavon Interchange Assessments 0.11% + $0.03 0.11% + $0.03 0.11% + $0.03

Enhanced Interchange Plus
With Enhanced IC Plus pricing a Markup is established for each qualifying bucket. This markup can vary with each bucket. Non-Qual 3.30% + $0.20 1.00% + $0.10 Mid-Qual As with Pass-Thru pricing, Elavon’s buy rate is deducted from the MSP’s residual and does not directly affect the cost to the merchant. 2.20% + $0.20 Qualified 0.40% + $0.10 1.80% + $0.20 0.03%+$0.03 EIRF 2.30%+$0.10 0.26% + $0.10 0.03%+$0.03 0.03%+$0.03 CPS Retail Key Entered 1.80%+$0.10 CPS Retail 1.51%+$0.10 Because the fees for Interchange and Assessments are passed through to the merchant, the residual remains consistent within each tier. With Enhanced Interchange Plus, a markup is established for each qualifying bucket. This markup can vary with each tier. As with Pass-Thru pricing, Elavon’s buy rate is deducted from the MSP’s residual and does not directly affect the cost to the merchant. Because the fees for Interchange and Assessments are passed through to the merchant, the residual remains consistent within each tier. Enhanced Interchange Plus combines the consistent revenue generation of Pass-Thru pricing with the maximum flexibility of Tiered pricing. MSP Elavon Interchange Assessments 0.11% + $0.03 0.11% + $0.03 0.11% + $0.03

Enhanced Interchange Plus – Optional Buckets
Merchant’s Total Cost = Interchange + Assessments + Markup Non-Qual 0.80% + $0.10 CommNQ Mid-Qual Rewards 0.40% + $0.10 Qualified 0.25% + $0.10 0.20% + $0.10 0.03%+$0.03 0.15% + $0.10 0.03%+$0.03 0.11% + $0.03 0.03%+$0.03 0.11% + $0.03 EIRF 2.30%+$0.10 0.03%+$0.03 Sig Debit 0.03%+$0.03 0.11% + $0.03 Commercial Card Retail -Corporate 2.10%+$0.10 0.11% + $0.03 0.11% + $0.03 CPS Retail Key Entered 1.51%+$0.10 CPS Rewards 1 1.51%+$0.10 0.10% + $0.10 CPS Retail 1.51%+$0.10 MSP In addition to the standard buckets, the full range of optional tiers can be implemented as well, enabling targeted markups for Signature Debit, Rewards Qualified, and Commercial Non-Qualified, depending on the merchant's industry type. Determining the total cost to the merchant for each transaction is simple: Interchange plus Assessments plus the Tier markup. 0.03%+$0.03 0.11% + $0.03 Elavon CPS Retail Debit (non-reg) 0.80%+$0.15 Assessments Interchange

No volume, markup, or item count
Enhanced Interchange Plus – Reporting Interchange Fees Assessment Fees On the merchant's statement, the processing fees for Enhanced Interchange Plus are disclosed in a similar manner to Interchange Plus: the fees for Interchange, Assessments, and the markup are reported separately. In the markup section, however, the remaining processing fees are broken out by qualification bucket, similar to tiered pricing. Because this section does not indicate volume, markups or item counts within the qualification buckets, it is very difficult for a competitor to determine a markup or rate from this statement, making this pricing that much tougher to beat. MSP Markup No volume, markup, or item count

The Merchant Application – Enhanced IC Plus
Enhanced Interchange Plus Pricing In the pricing section on page 2 of the new merchant application, utilize this section to set up a merchant with Enhanced Interchange Plus pricing. Check the appropriate box and enter only the markup for each applicable tier. Remember, not all tiers are available for all industry types. Interchange and Assessment fees will be calculated automatically with each transaction, so only the MSPs markups are required here. And don't forget to indicate the merchant's Authorization Fees, if applicable. Authorization Fees

Enhanced Interchange Plus – Pros and Cons
Non-Qual Pros: Margins that are guaranteed and flexible Markups on full range of transaction tiers, including check card Increased revenue enhancement on downgrades Statements not easily deciphered by competitors 0.80% + $0.10 Mid-Qual Qualified 0.25% + $0.10 0.03%+$0.03 0.15% + $0.10 0.11% + $0.03 0.03%+$0.03 EIRF 2.30%+$0.10 0.03%+$0.03 0.11% + $0.03 0.11% + $0.03 CPS Retail Key Entered 1.80%+$0.10 CPS Retail 1.51%+$0.10 Cons: Small merchants tend to prefer rates over markups So what are the pros and cons of Enhanced Interchange Plus Pricing? On the up side, it provides margins that ar both guaranteed and flexible. You can apply markups to the full range of available tiers, including check card, depending on the merchant's industry type. Enhanced Interchange Plus provides increasing revenue enhancement as the transaction downgrades, and the processing fees on the merchant statement are not easily deciphered by competitors. On the down side, Enhanced Interchange Plus can be a tough sell to smaller merchants, who tend to prefer processing rates over markups. This pricing alternative is most effective with medium-to-large businesses, when competing against a differential pricing program or when selling to a business-to-business merchant who accepts a lot of commercial cards.

Questions?

Presenter: Howard Haffner
Sales Development Presenter: Howard Haffner

MSPConnect and Compensation Reporting
Presenter: Mark Killefer

Pricing 301: Card Scheme Programs

Introduction This is what Interchange usually feels like…
Why offer special programs? To encourage more card acceptance by certain industries and merchant types How do merchants benefit? Most feature lower Interchange rates or special chargeback protection Which merchants can participate? Most are driven by MCC type and/or ticket size; some require registration As we have seen from looking at the Billing Element Table there are hundreds of Interchange categories for which a transaction can qualify, just on the basis of card type, acceptance method, settlement timeframe, and authorization integrity. So why do Visa, MasterCard, and Discover offer special programs? They do this to encourage more card acceptance by industries and merchant types that might not otherwise. How do merchants benefit from these programs? Most of these programs feature lower Interchange rates, while others offer additional chargeback protection. Which merchants can participate in these programs? With most of these programs, qualification is based only on the merchant’s MCC type and, occasionally, on the ticket size. A few programs require registration but most do not. Is certain pricing required for these programs? With most of these programs, Pass Thru pricing is needed to ensure the merchant takes advantage of the lower rates. With Small Ticket however, the merchant can be set up with a separate bucket within Tiered pricing to catch those transactions. Is certain pricing required? In most cases, Pass Thru pricing is needed to take advantage of special IC rates.

Small Ticket Small Ticket Programs Maximum transaction amount: $15.00
Merchant eligibility: All SICs eligible except Wire Transfer Money Orders Automated Fuel Dispensers Direct Marketing Financial Institutions Gambling Transaction requirements: Card-present-swiped only Registration requirements: No registration Program driven by MCC and transaction amount Card eligibility: Credit cards and unregulated debit cards Visa, MasterCard and Discover each have a special Interchange program for small tickets. Let’s look first at what these programs have in common: The transaction maximum is 15 dollars and must be card-present-swiped; MOTO transactions are not eligible. Merchants do not need to register for these programs; qualification is determined by the merchant’s MCC and the amount of the transaction. Now let’s look at the differences between each Card Scheme: With Visa, nearly all merchant types are eligible for their Small Ticket rate, with a few exceptions. Visa credit and unregulated debit cards are eligible and qualify at different rates under this program. While the savings for a 10 dollar transaction may only be a few pennies, the impact on a small-average-ticket merchant’s bottom line is significant. Interchange categories: $10.00 $0.205 $0.195 $0.251 $0.230 CPS Small Ticket (credit) CPS Small Ticket (UR debit) CPS Retail (credit) CPS Retail (UR debit) 1.65% + $0.04 1.55% + $0.04 1.51% + $0.10 0.80% + $0.15

Small Ticket Small Ticket Programs Maximum transaction amount: $15.00
Merchant eligibility: Local Commuter Trans Taxis & Limousines Bus Lines Bridge & Road Tolls Variety Stores Misc/Specialty Foods Restaurants Fast Food Newsstands Laundry Services Dry Cleaners Quick Copy Services Parking Lots Car Washes Movie Theaters Video Rental Stores 9402 – Govt Postal Services Transaction requirements: Card-present-swiped only Registration requirements: No registration Program driven by MCC and transaction amount Card eligibility: Unregulated Debit cards only MasterCard’s Small Ticket program is available only to a few MCCs but which include many businesses where small average tickets are common. Unlike Visa, MasterCard Small Ticket is not available for credit card transactions, only unregulated debit cards. Interchange category: $10.00 $0.195 $0.255 Small Ticket UR Debit Merit III (UR debit) 1.55% + $0.04 1.05% + $0.15

Express Services Small Ticket Programs Maximum transaction amount:
$15.00 Merchant eligibility: Transportation Taxis and Limousines Bus Lines Bridge and Road Tolls Restaurants Fast Food News Dealers Laundry Services Dry Cleaners Quick Copy Services Parking Lots Car Washes Movie Theaters Video Rental Stores Transaction requirements: Card-present-swiped only Registration requirements: No registration Program driven by MCC and transaction amount Card eligibility: Credit cards and unregulated debit cards Like MasterCard, Discover’s Express Services program is limited to a few merchant types where small average tickets are most common. However, like Visa, both credit and unregulated debit card transactions can qualify for lower rates. Interchange categories: $10.00 $0.200 $0.180 $0.256 $0.262 Express Services (credit) Express Services (UR debit) Retail AIP Core (credit) Retail AIP Core (UR debit) 1.70% + $0.03 1.80% + $0.00 1.56% + $0.10 1.02% + $0.16

Large Ticket Programs Purchasing Card Merchant Eligibility:
All non-T&E merchants Card eligibility: Visa Purchasing cards only Registration requirements: No registration Program driven by MCC and transaction amount Transaction restrictions: $6980 minimum transaction Interchange category: Transactions below this amount fall to Purchasing Card Level III Data 1.95% + $0.10 $10,000 $180 $205 Processing requirements: Must include Level III data Merchant’s POS must be capable of capturing and transmitting Level III data Purchasing Card Large Ticket Purchasing Card Level II Data 1.45% + $35.00 2.05% + $0.10 Visa and MasterCard have special Interchange programs for large tickets, available to all non-travel-and-entertainment merchants and without registration. To qualify for these Interchange categories, Level III data must be included in the transaction data. That means that the merchant’s point of sale system must be capable of capturing and transmitting these additional data elements. Visa has two Large Ticket programs; the first is for Visa Purchasing cards only. The minimum transaction amount for this program is 6,980 dollars, which is the threshold above which the merchant saves money with this rate. Any transaction below this amount will qualify at the Purchasing Card Level III Data rate. A large ticket transaction which does not include Level III data hits the Purchasing Card Level II Data rate, which is considerably more expensive. Large tickets without Level III data hit this category

Large Ticket Programs GSA Purchasing Card Merchant Eligibility:
All non-T&E merchants Card eligibility: Visa GSA Purchasing cards only Registration requirements: No registration Program driven by MCC and transaction amount Transaction restrictions: $ minimum transaction Interchange category: Transactions below this amount fall to Purchasing Card Level III Data 1.95% + $0.10 $10,000 $159 $205 Processing requirements: Must include Level III data Merchant’s POS must be capable of capturing and transmitting Level III data GSA Purchasing Card Lg Tct Purchasing Card Level II Data 1.20% + $39.00 2.05% + $0.10 Visa also has a Large Ticket program for GSA, or government Purchasing cards. Here the minimum transaction, or breakeven point, is $ Transactions below this amount will qualify at the Purchasing Card Level III Data rate, while transactions above this amount which do not include Level III data will hit the Purchasing Card Level II Data rate. GSA Large tickets without Level III data hit this category

Large Ticket Large Ticket Programs Merchant Eligibility:
All non-T&E merchants Card eligibility: MasterCard Corporate cards only Registration requirements: No registration Program driven by MCC and transaction amount Transaction restrictions: $7255 minimum transaction Interchange categories: $10,000 $165 $175 $177 $182 $187 $265 Corp Large Ticket – Bus/Fleet Corp Large Ticket – Corp/Prch Enh Business Large Ticket World Business Lg Ticket World Elite Business Lg Ticket Corporate Data Rate I 1.25% + $40.00 1.35% + $40.00 1.37% + $40.00 1.42% + $40.00 1.47% + $40.00 2.05% + $0.10 Processing requirements: Must include Level III data Merchant’s POS must be capable of capturing and transmitting Level III data MasterCard’s Large Ticket program is available for Corporate card transactions. No registration is required, and the minimum transaction is $7555. MasterCard has a separate category and rate for each of their different Corporate cards, each of which offers substantial savings compared to the Corporate Data Rate I rate.

Emerging Market Programs
Select Developing Market Program Merchant eligibility: Cable / Pay TV Services Direct Marketing (Insurance Svcs) Direct Marketing (Subscription) Fuel Dealers (private) Insurance Sales & Underwriting Elementary & Secondary Schools Colleges, Universities Schools and Educational Services Child Care Charities & Social Services Court Cost Fines Government Services Card eligibility: Credit cards and unregulated debit cards Acceptance method: Credit: retail, MOTO and c-commerce UR Debit: MOTO and e-commerce Registration requirements: No registration Program driven by MCC Interchange categories: $250.00 $3.63 $1.78 $3.88 $4.60 $2.15 Each of the Card Schemes has a special Interchange program which targets Emerging Markets – MCCs that are relatively new to card acceptance. Most of these target industries have high volume and high average tickets but low profit margins. Emerging Market programs offer them lower rates as an incentive to accept card payments. Visa’s Select Developing Market Program is primarily directed towards education and government, but also includes cable TV, direct marketing, private fuel dealers and insurance. Visa credit and unregulated debit cards are both eligible for this program, but while credit cards can qualify in retail, MOTO, and e-commerce environments, unregulated debit cards only qualify in MOTO and e-commerce environments. Registration is not required for this program. Credit cards qualify at the same rate whether the card is present or not present. For unregulated debit cards, there is a 2 dollar cap on the Interchange fee under this program. Visa makes a special exception for SIC code 8398 – Charities and Social Services. Consumer credit, Rewards and Signature cards can qualify at CPS Charity – 1.35 percent and 5 cents. Signature debit cards can also qualify at this rate, but at retail locations only. CPS Retail 2 CP (credit) CPS Retail 2 CNP (credit) CPS Retail 2 CNP (UR debit) CPS Retail (credit) CPS Card Not Present CPS Retail (debit) 1.43% + $0.05 0.65% + $0.15 1.51% + $0.10 1.80% + $0.10 0.80% + $0.15 Visa CPS Charity – 1.35% + $0.05 MCC 8398 – Charities and Social Services Consumer credit – retail, MOTO, e-commerce Reward & Signature – retail, MOTO, e-commerce Signature debit – retail only There is a $2.00 cap on Visa’s Interchange fee for signature debit transactions that qualify for this program.

Public Sector Program Merchant eligibility: 4111 – Transportation, Commuter Passenger 4784 – Bridge and Road Fees & Tolls 9211 – Court Costs, incl. Alimony & Child Support 9222 – Fines 9223 – Bail and Bond Payments 9311 – Tax Payments 9399 – Government Services 9402 – Postal Services (Govt only) Card eligibility: Credit cards only Acceptance method: Retail, MOTO and E-commerce Registration requirements: No registration Program driven by MCC Interchange category: MasterCard has separate Emerging Market programs for credit and unregulated debit cards. Their Public Sector program for credit card transactions is limited mainly to government MCCs, including public transportation, court costs and fines, tax payments, and postal services. Card-present and card-not-present transactions are eligible, and there is no registration for this program. While the savings under this program are marginal for retail, they are more substantial for MOTO and e-commerce. $200.00 $3.20 $3.26 $3.88 Public Sector Merit III Merit I 1.55% + $0.10 1.58% + $0.10 1.89% + $0.10

Emerging Markets Program Merchant eligibility: 4111 – Transportation, Commuter Passenger 4784 – Bridge and Road Fees & Tolls 4899 – Cable / Pay TV Services 5960 – Direct Marketing Insurance Services 6300 – Insurance Sales & Underwriting 8211 – Elementary and Secondary Schools 8220 – Colleges, Universities, Professional Schools 8299 – Schools and Educational Services 9211 – Court Costs, incl. Alimony & Child Support 9222 – Fines 9223 – Bail and Bond Payments 9311 – Tax Payments 9399 – Government Services 9402 – Postal Services (Govt only) Card eligibility: Unregulated debit cards only Acceptance method: Retail, MOTO and E-commerce Registration requirements: No registration Program driven by MCC Interchange category: MasterCard’s Emerging Markets Program for unregulated debit cards features wider availability. In addition to government, education, cable TV and insurance MCCs are eligible as well. Card-present and card-not-present transactions can qualify under this program, and no registration is required. The savings in Interchange is substantial, particularly for MOTO and e-commerce merchants. $200.00 $1.85 $2.25 $3.44 Emerging Markets Merit III (debit) Merit I (debit) 0.80% + $0.25 1.05% + $0.15 1.64% + $0.16

Emerging Markets Program Merchant eligibility: 4784 – Toll and Bridge Fees 4899 – Cable / Pay TV Services 5968 – Direct Marketing - Subscription 5983 – Fuel Dealers (private) 8211 – Elementary and Secondary Schools 8220 – Colleges and Universities 8299 – Schools and Educational Services 8351 – Child Care 8398 – Charities & Social Services Card eligibility: Credit cards and unregulated debit cards Acceptance method: Retail, MOTO and E-commerce Registration requirements: No registration Program driven by MCC Interchange category: $200.00 $2.95 $2.00 $3.22 $3.84 $2.20 $3.40 Discover’s Emerging Markets Program is limited to education, charities, cable TV, direct marketing, and private fuel dealers. Credit cards and unregulated debit cards are eligible And can be accepted in retail, MOTO and e-commerce environments. No registration is required, and the savings for the merchant are greatest with card-not-present transactions. Emerging Markets Core (credit) Emerging Markets Core (UR debit) Retail AIP Core (credit) Card Not Present (credit) Retail AIP Core (UR debit) Card Not Present (UR debit) 1.45% + $0.05 0.90% + $0.20 1.56% + $0.10 1.87% + $0.10 1.02% + $0.16 1.62% + $0.16

Supermarket Petroleum Utilities Visa Tax Program
Infrequently Used Programs Supermarket Petroleum Utilities Visa Tax Program Other restrictions apply. Contact Partner Sales Support for details. The merchant types which qualify for these programs have very narrow profit margins, and as such are rarely targeted for merchant services. MCC – Supermarkets & Grocery Stores MCC – Service Stations MCC 5542 – Automated Fuel Dispensers MCC – Municipal Utility Services MCC – Tax Payments

What is a Convenience Fee?
A Surcharge is a fee which is applied to one payment type (i.e., credit cards) but not another. With Discount for Cash or Check, payments made by credit card are for the full sale amount while other forms of payment are discounted. A Convenience Fee is an administrative surcharge applied to ALL payment types via an alternate payment channel which offers a true “convenience” to the customer. This type of fee is allowed, with restrictions, by the Card Schemes.

Customer Utility What is a Convenience Fee? $205.54 $205.54
Monthly bill is mailed to the customer Customer Utility $205.54 Primary payment option: Mail a check $205.54 Secondary payment option: Pay by card online or by phone Convenience $205.54 $5.00 fee = $210.54 “Administrative Fee”

Convenience Fee Regulations
YES YES Allowed for MOTO/e-commerce? NO YES Allowed for face-to-face/retail? ALL ALL Eligible MCCs NO NO Registration required? YES YES Fee disclosure required? NO YES Allowed for recurring billing? NONE NONE Fee maximum Fixed per-item fee only Fixed fee, tiered fee, or fixed percentage Fee format NO Recommended Fee authorized and settled separately?

YES YES NO YES ALL NO YES YES YES NO YES NONE NONE NO
Convenience Fee Regulations Govt & Higher Ed Service Fee Program YES YES Allowed for MOTO/e-commerce? NO YES Allowed for face-to-face/retail? ALL 8220, 8244, 8249, 9211 9222, 9311, 9399 Eligible MCCs NO YES Registration required? YES YES Fee disclosure required? NO YES Allowed for recurring billing? For debit card transactions, Visa allows a variable fee even if the fee for other card types is fixed. NONE NONE Fee maximum Fixed per-item fee only Fixed fee, tiered fee, or fixed percentage Fee format NO Required Fee authorized and settled separately?

YES YES YES YES ALL YES NO YES YES YES YES NONE NONE
Convenience Fee Regulations Gov’t & Education YES YES Allowed for MOTO/e-commerce? YES YES Allowed for face-to-face/retail? 8211, 8220, 9211, 9222, 9311, 9399 ALL Eligible MCCs YES NO Registration required? YES YES Fee disclosure required? YES YES Allowed for recurring billing? For debit card transactions, MasterCard allows a variable fee even if the fee for other card types is fixed. NONE NONE Fee maximum Fixed fee, tiered fee, or fixed percentage Fixed fee, tiered fee, or fixed percentage Fee format Recommended Recommended Fee authorized and settled separately?

Questions?

Pricing 302: Statement Analysis

(number of transactions, in billions) Nilson Report, November 2012
Statement Analysis - Knowing the Industry 2011 U.S. Bank Card Volume (number of transactions, in billions) Nilson Report, November 2012 There are fewer than 10 major Acquirers in the U.S. market. Of the thousands of ISOs in the U.S., nearly all rely on these major Acquirers. Since the Acquirers generate the merchant statements, there are a limited number of statement types. Bank of America 12.94 Vantiv (Fifth Third) 9.61 First Data 9.30 Chase Paymentech 8.20 Citi 5.83 Worldpay Heartland Global Payments Elavon Wells Fargo By looking at this pie chart, we can see that there only a few major acquirers and they own the majority of the market share in our industry. Even though there are multiple MSPs and ISOs in the field, they are all using a larger processor to support their business. What does this all mean? It means that there are only a handful of different statement types that you will encounter in the field.

Competitor Pricing Strategies
Tiered pricing with low qualified rates and higher mid- and non-qualified rates Interchange Differential and Tiered pricing Discount with Billback (Similar to Differential but the markups are harder to identify) Interchange Differential and Tiered pricing When looking at some of the competitor’s statements, it’s important to note that different processors typically employ different strategies. As you can see, First Data typically utilizes Discount with Billback, where Bank of America typically utilizes Interchange Differential, both aimed at making it difficult for our MSPs to understand and analyze the statements. Take a look at the other competitors and how they typically price. By familiarizing yourself with these, you will arm yourself to better compete with these competitors. Interchange Differential Interchange Pass-Thru

Important Reminders Statements are designed to confuse Focus on
Prevents detailed cost analysis by the merchant or by competitors Most statements can be deciphered Practice makes perfect Focus on the pricing method Don’t try to account for every penny Cross-statement reporting can make this very difficult Competitor is making money Fees are sometimes hidden or misleading Don’t be intimidated by a low qualifying rate Educate the Merchant Pricing isn’t everything Don’t get stuck selling only cost savings Emphasize Elavon’s Merchant support and Value-Added Services

Statement Analysis Checklist
Pre-Analysis – Getting the information you need from the merchant Get 3 months’ worth of statements Identify the current processor Identify the equipment being used Identify the processing environment Analysis – Getting the information you need from the statement Calculate the effective rate Calculate the distribution by card type Calculate the average ticket (Excluding PIN Debit and AMEX) Identify “other fees” Calculate monthly and annual volume Identify current pricing Post-Analysis – Using that information to create and present a proposal Create proposal and compare Suggest improvements

Step 1 – Get 3 monthly processing statements
Three months’ statements will enable you to: Calculate the monthly and annual volume more accurately Verify the merchant’s pricing is consistent Identify monthly vs. per occurrence fees Having only one monthly statement means: You will have to assume that month’s volume is typical of all months You cannot verify if one-time fees occur every month

Step 2 – Identify the equipment to be used
If the merchant has equipment: Terminals – verify Elavon supports and can reprogram it VARs – identify the processing solution, verify compliance and compatibility with Elavon If Elavon doesn’t support it – sale opportunity! If the merchant needs new equipment: Sale Opportunity! Find out what type of terminal or PC-based solution would work best for them

Step 3 – Identify the current processor
Look for the vendor name on the first page of the statement: If the vendor name isn’t familiar, it may be an ISO associated with a larger processor Do a Google search for the vendor name to investigate further Keep copies of competitors’ statements: Vendors tend to favor certain pricing practices; familiarize yourself with them, to recognize them in the future

Step 4 – Identify the processing environment
How does the merchant accept cards? Card Present/Swiped Card Present/Keyed Mail Order Telephone Order Internet Combination? What is the merchant’s industry type? Retail Restaurant MOTO Lodging Supermarket Pay at the Pump Internet What types of cards are accepted? Corporate/Business card? Check cards? Foreign-issued cards? These factors impact not only Interchange but how their equipment will be programmed.

Step 5 – Calculate the effective rate
The merchant’s effective rate is their total monthly processing fee divided by their total monthly volume: Leave out any equipment fees, annual fees or other large one-time fees which may dramatically skew the result This produces a high-level figure that is easy to compare and work with Total processing fees: $820.47 Total sales volume: $22,455.12 Effective Rate: 3.65%

Step 6 – Calculate the average ticket
The merchant’s average ticket is their monthly card volume divided by the number of transactions: This will influence the discount rate vs the per item fee in your pricing Total sales volume: $22,455.12 Number of Transactions: 856 Average Ticket: $26.23

Step 7 – Calculate the monthly and annual volume
Average the volume on their statements together: Don’t assume a high-volume month is typical Ask the merchant: Is their monthly volume consistent or do they have peak months and low months? What is your total annual business volume? Seasonal Merchants Monthly volume = average volume of open months

Step 8 – Calculate the distribution by card type
The card type distribution is determined by dividing the volume for each card type by the total sales volume: This is important for determining an average rate to apply to all card types, as well as for using with the Pricing Model Visa volume: $16,032.85 Total volume: $22,455.12 Visa distribution: 71.42%

Step 9 – Identify “Other Fees”
Leave no fee on the statement unaccounted for: Vendors often include “revenue-generating” fees (those with no associated cost) Often found at the end of the statement Sales opportunities: You can “beat” the competitor’s revenue-generating fee or “waive” it altogether You can leave the fee in place and let it generate revenue for you

Step 10 – Identify their current pricing
Find the pricing method and rates or markup: This is essential for determining competitive pricing and winning the merchant’s business Can be easy or difficult, depending on the statement type and pricing method This step usually takes the most time Remember – Practice Makes Perfect!

Step 11 – Create proposal and compare
Using the MSP Pricing Model: Enter the competitor’s pricing Enter your own proposed pricing Generate a proposal which presents the cost comparison and savings Educating the merchant: Use the proposal to show the merchant where they are being overcharged by the competitor Reveal “hidden” fees Become a Sales Consultant to the merchant, building a relationship of trust and credibility

Step 12 – Suggest improvements
Do they have excessive downgrades? Teach them how to avoid downgrades Is their equipment outdated? Suggest new equipment to improve efficiency Are they interested in online reporting? Recommend MerchantConnect Premium Are they thinking of setting up a website? Recommend an Elavon gateway for e-commerce Do they accept checks? Recommend Elavon’s ECS program Are they interested in selling gift cards? Recommend Elavon’s EGC program

Statement Analysis Example – Tiered Pricing
Now that you understand what all is involved in working with statements, let’s take a look at a couple of statements and put what we have learned to the test!

Step 5: Calculate the Effective Rate Total Processing Fees $69.51 Amount of Sales $ Effective Rate = % Divide the total processing fees by the total amount of sales. Exclude annual fees, equipment fees, and other large one-time fees which would dramatically affect the result.

Step 6: Calculate the Average Ticket (Excluding PIN Debit and AMEX) Amount of Sales $ Number of Sales Average Ticket = $33.29 Divide the Amount of Sales by the Number of Sales. This information will be valuable later when determining the Discount Rate markup versus the Per Item Fee markup.

Step 7: Calculate Monthly and Annual Volume Amount of Sales $ x Annual Volume $22,369.08 To find the monthly volume, average the Amount of Sales from the available statements. To find the annual volume, multiply that result by twelve.

Step 8: Calculate the Distribution by Card Type Visa Sales $ Total Sales $ Visa Distribution = % MasterCard Sales $573.09 Total Sales $ MC Distribution = % Discover Sales $33.53 Total Sales $ Disc Distribution = % Calculate the percentage according to Sales Volume, not Number of Sales.

Step 9: Identify “other fees” When examining “other fees”, begin by separating per-occurrence fees from one-time fees.

Step 9: Identify “other fees” Since the numbers of these fees correspond with the numbers of sales for each card type, these are likely authorization fees. $0.25 $0.20 $0.20 $0.01 These are essentially revenue-generating fees. While they should be factored in to the merchant’s current Effective Rate, they would likely not be included in your proposal to the merchant. $0.03 $0.05 Divide the total by the number of occurrences to find the per item fee for each fee type.

Step 9: Identify “other fees” $0.25 $0.20 The merchant is being charged a special monthly fee for accepting Discover cards – another example of revenue-generating fees. $0.20 $0.01 This is likely an annual PCI Compliance fee. Most merchants are charged some type of monthly statement fee. $0.03 $0.05 These are one-time fees – but are they monthly or annual?

Step 10: Identify the pricing Begin by distinguishing the processing fees from all other fees on the statement.

Step 10: Identify the pricing The rates in this section suggest that the merchant is being charged 1.74% + $0.00 for credit and business transactions, and 1.47% + $0.05 for debit transactions. Is that all?

Step 10: Identify the pricing By dividing the sales amount by the total fee, we see the surcharge rate applied to each downgrade category. % Rate 1.53% 1.53% 1.51% 0.30% 1.52% 0.30% 0.30% 0.85% 1.52% The numbers for each card type are fewer than those in the first section, suggesting that these fees are for downgrades. Since these are additional fees for downgrading transactions, we will need to add them to the qualifying credit rate from the first section to see the Total rates.

Step 10: Identify the pricing Qualified Rate Downgrade Rate % Rate 1.53% + 1.74% = 3.27% 1.53% + 1.74% = 3.27% 1.51% + 1.74% = 3.25% 0.30% + 1.74% = 2.04% 1.52% + 1.74% = 3.26% 0.30% + 1.74% = 2.04% 0.30% + 1.74% = 2.04% 0.85% + 1.74% = 2.59% 1.52% + 1.74% = 3.26% The merchant appears to have three possible downgrade rates: 2.04%, 2.59%, and 3.26%.

Step 10: Identify the pricing Per Item $0.25 $0.20 $0.20 We’ve already established that these are likely Authorization fees which apply equally to each transaction.

Step 10: Identify the pricing Discount Rates Per Item Fee Authorization Fee Qualified Rewards Mid-Qual Non-Qual Debit 1.74% 2.04% 2.59% 3.26% 1.47% + $0.00 + $0.05 VISA MasterCard Discover + $0.20 + $0.25 Plugging this information into the Pricing Model will enable you to make a highly accurate comparison for your proposal to the merchant.

Statement Analysis Example – Pass-Thru Pricing
Now that you understand what all is involved in working with statements, let’s take a look at a couple of statements and put what we have learned to the test!

Step 1: Get 3 months worth of card statements After Tiered Pricing, Interchange Plus or Cost Plus as it’s often referred to is the most popular pricing method. Let’s take a closer look at what an Interchange Plus statement looks like so that you can indentify them in the field.

Step 5: Calculate the Effective Rate Total Processing Fees $489.24 Amount of Sales $16,312.05 Effective Rate = % Heartland has made this step very easy, by putting the sales and fee totals on the first page of the statement.

Step 6: Calculate the Average Ticket Amount of Sales $16,312.05 Number of Sales Average Ticket = $37.02 The totals we need are at the very end of the statement.

Step 7: Calculate Monthly and Annual Volume Amount of Sales $16,312.05 x Annual Volume $195,744.60 To find the monthly volume, average the Amount of Sales from the available statements. To find the annual volume, multiply that result by twelve.

Step 8: Calculate the Distribution by Card Type Visa Sales $12,312.70 Total Sales $16,312.05 Visa Distribution = % MasterCard Sales $ Total Sales $16,312.05 MC Distribution = % Discover Sales $151.99 Total Sales $16,312.05 Disc Distribution = % Calculate the percentage according to Sales Volume, not Number of Sales.

Step 9: Identify “other fees” Heartland has buried a $15.00 monthly Merchant Services Fee in among their processing fees, contrary to what the first page of the statement suggests.

Step 10: Identify the pricing “Pass-thru Interchange” is a big sign that this merchant is set up with some kind of Pass-thru pricing. These amounts also suggest which portion of the merchant’s fees that goes to Interchange and Assessments. This line item tells the merchant what fees are being paid to Heartland. We already found one hidden fee; we need to make sure the Visa/MC/Disc fees correspond with Interchange.

Step 10: Identify the pricing By referring to the Billing Element Table, we see the fee descriptions correspond with Visa’s Interchange category descriptions. The discount rate and per item fees also correspond with the Interchange fees on the April 2011 Billing Element Table. The Pass-thru Interchange fees are correct. We can now proceed to the Heartland Processing Fee section.

Step 10: Identify the pricing Since the statement separates Heartland’s fees from Interchange and Assessments, we know that the mark-up is 0.75% + $0.08 for every transaction.

Statement Analysis Checklist
Pre-Analysis – Getting the information you need from the merchant Get 3 months’ worth of statements Identify the current processor Identify the equipment being used Identify the processing environment Analysis – Getting the information you need from the statement Calculate the effective rate Calculate the distribution by card type Calculate the average ticket (Excluding PIN Debit and AMEX) Identify “other fees” When analyzing a statement, there are several different approaches that you can take. Today, we are going to show you the way that we feel is the most comprehensive. There are several steps to properly identify how a Merchant is priced. First, try and get at least 3 months worth of statements. The reason for this is so that you can get a good idea of how the Merchant is processing. By obtaining less than 3 months worth it makes it tough to get an average, as one statement could reflect their busiest month. Next, be sure to identify the type of equipment they are using. Is this something that is compatible with Elavon? Is it a terminal that can be reprogrammed? Could you offer a better solution that may save them $? You will also want to be sure to see who they are currently doing business with. You may be able to do some research on that processor and be better prepared when it comes time to compete for the business. The next step is to identify the merchant environment. Is it MOTO, Retail, eCommerce? Always know your potential Merchant’s business – coming into a meeting with a Merchant where you understand their business, allows you to become a Payment Consultant, instead of just another sales rep. This gives the Merchant a piece of mind, knowing you are interested in their business and gives you an insight that may prove beneficial down the road when consulting similar merchants. After understanding their business, next calculate the effective rate to get a high-level average of what the Merchant is paying in processing fees. Next, calculate the average ticket for all card types they are accepting. This comes into play when you are looking at the percentage that they are paying. A higher % on a high ticket Merchant = higher fees. Then look at the Merchants monthly volume and multiple it by 12 to get their overall annual volume. Next, calculate the percentage by card type. This is very important should the Merchant be priced differently for each card type. Then look at the other fees the Merchant is being charged. Are they being charged a monthly fee, statement fee, or any other fee that you can either remove or reduce. Often times, Merchant’s aren't aware they are being charged these fees and MSPs can save them money in this area alone. Next, identify the type of pricing the Merchant is set up on. Are they on Tiered, Interchange Plus, Differential? Most likely, the Merchant is oblivious to this and you will need to do some detective work to figure this out. Again, by becoming a consultant to your Merchant allows you to educate them on what and how they are priced. Now that you have gathered all of your data and facts, it’s time to propose your pricing to the Merchant. Can you beat their current rate? Or, can you simply improve their processing and save them money and time. By and large, merely educating your Merchants about our Industry gives them the feeling that your are wanting to become a partner and not just another Merchant Services Provider. Let’s now dig deeply into each of these steps and discuss them further. Calculate monthly and annual volume Identify current pricing Post-Analysis – Using that information to create and present a proposal Create proposal and compare Suggest improvements

Questions?

Pricing 303: The MSP Pricing Model
Presenter: Mark Killefer

Presenter: Justin Corum
Wrap-Up Q&A Presenter: Justin Corum

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