1. What is Interchange??
Interchange is a term used in the payment card industry to describe a fee that a merchant's bank (the "acquiring bank") pays a customer's bank (the "issuing bank") when merchants accept cards using card networks such as Visa and MasterCard for purchases.

2. Interchange & Assessments
Merchants Must Pay a Fee to Accept Cards
Interchange is paid to the Issuing Banks
Assessments are paid to VISA/MasterCard/Discover
Discount is paid to Elavon (authorization, settlement, risk)
Interchange: wholesale price paid to issuing banks for the settlement of a credit card transaction

3. Interchange & Assessments (continued)
Assessments on Settled Transactions
Fees paid to card associations (VISA & MasterCard & Discover)
VISA is % and $ per item
MasterCard is % and $ per item
Discover is 0.11% and $ per item

4. Interchange & Assessments (continued)
Assessments on all Authorizations
Fees paid to card associations (VISA & MasterCard & Discover)
VISA is $ (NAPF) and $ (Risk ID Service) per auth
MasterCard doesn’t have auth assessments
Discover is $ (Data Usage Fee) per auth

5. Interchange & Assessments (continued)
Visa Per Occurrence Assessment Fees
Account Verification - $ – Authorization fee billed on zero dollar account verification transactions
Mis-Use of Auth - $ – Authorization fee billed on authorizations that are not settled or pre-authorizations that are not settled.
Zero Floor Limit - $ – Authorization fee billed on transactions that are settled, but not authorized.
Zero Floor Limit - This is judged by transactions that are settled without a Tran ID to match to an auth. Forced transactions will most likely get billed here.

6. Visa Authorization Examples
Fee Category
NAPF
Account Verification
Mis-Use of Auth
NAPF (2nd Auth)
Zero Floor Limit
Auth Cost
Ex. 1. Zero Floor Limit fee imposed for no Auth with Settle
Ex. 2. $1.00 Status Check, no Reversal; then Auth and Settle
Ex. 3. Account Verify, AVS, CVV2; then Auth with Settle
Ex. 4. Auth with Settle
Ex. 1 Force No Auth
Ex. 2 $1.00 Status Check
Ex. 3 Account Verify
Ex. 4 Auth & Settle
(Optimal)
$0.0000
$0.0195
$0.0250
$0.0450
$0.1000
$0.0840
$0.0445
While most authorization and clearing transactions are processed correctly, those that are not can impact a cardholder’s open to buy, cause confusion at the point of sale, and impair the effectiveness of automated risk and processing intelligence systems

7. Elavon Specific Costs Authorizations Settlements Foreign Networks Fees
Every instance in which a POS system submits a request from processing network
Processing Network checks with banks to confirm validity, funds availability
Most companies charge between $0.05 and $0.25
Covers network infrastructure costs
Can be bundled with per item in Discount rate
Settlements
When authorizations are approved, they must be settled by processing network
Processing Fees are assessed as a percentage and per item rate on settled transactions
Funds are transferred to merchant bank account
Foreign Networks Fees
Competitors: Vital, Global, Paymentech, ADS
Gateways: Shift4, Merchant Link

8. Industry Pricing Methods
Tiered
This is the most common: about 80% of all Elavon merchants are boarded with Tiered pricing.
Merchant receives three, four, five, or six tiers (such as Qualified, Mid-Qualified and Non-Qualified)
Each tier contains a collection of interchange categories
Downgrade tiers are the most profitable for banks and processors
Interchange Pass-Through (or “Cost Plus”)
Popular method for pricing large merchants/industry specific (large ticket, Utility, Supermarket etc).
Merchant pays a fixed processing fee over and above the cost of interchange and assessments
Method is usually transparent and easy to see
Least profitable of the three methods
Interchange Differential (Elavon)
Infrequently used in MSP Channel, but common across the industry
Merchant receives one qualified rate and the downgrades are assessed at the difference between the qualified and non-qualified rates
Can be considerably more complex for the merchant or competitor to understand

9. Pricing Tools BET Reference Nationals Guide Pricing Model
Building a Buy Rate Model
Retail
MOTO

10. BET Reference & Nationals Guide

11. Elavon Pricing Model for MSP Channel
Click in the box above to open the Pricing Model

12. Tools for building a Buy Rate
One for Retail
One for MOTO

13. Building a Buy Rate Visa Retail Qualified Buy Rate - 1.68% + $0.2255
CPS Retail Interchange – 1.54% and $0.10
Visa Assessments – % and $0.0025
Visa NAPF and Risk ID Auth Assessments - $0.0205
Processing Fees – 0.03% and $0.03
Authorization - $0.05
Buy Rate % + $0.2255

14. Building a Buy Rate (continued)
MasterCard Retail Qualified
Merit III Interchange – 1.58% and $0.10
MC Assessments – 0.11% and $0.0185
Processing Fees – 0.03% and $0.03
Authorization - $0.05
Buy Rate – 1.72% + $0.1985

15. III. Building a Buy Rate (continued)
Discover Retail Qualified
Retail AIP Credit Interchange – 1.71% and $0.10
Discover Assessments – 0.11% and $0.0075
Discover Data Usage Fee - $0.0050
Processing Fees – 0.03% and $0.03
Authorization - $0.05
Buy Rate – 1.85% + $0.1925

16. Building a Buy Rate (continued)
Visa, MasterCard and Discover Rates are Different
Typically a merchant is quoted a single Qualified Rate for all card types
Based on a 70% Visa, 25% MC and 5% Discover Card Acceptance you will need to blend the qualified rates for all card types to determine the effective buy rate.
Visa Retail Qualified Rate – (1.68% + $0.2255)*.70
MC Retail Qualified Rate – (1.72% + $0.1985)*.25
Discover Retail Rate – (1.85% + $0.1925)*.05
Effective Qualified Rate – % and $0.2171

17. Building a Buy Rate (continued)
Blending Card Types
Can offer additional revenue and competitive advantage when quoting a single Qualified Rate
Consumer Card Retail Qualified Rate – 1.70% and $0.20
Check Card Retail Qualified Rate – 1.15% and $0.25
Example – 60% Consumer Cards, 40% Check Cards
Effective Qualified Rate – 1.48% and $0.22

18. Elavon Pricing Tiered Pricing Interchange Pass-Through
Simplified rate structure
Four to six possible rates
90% of Elavon’s merchant
Interchange Pass-Through
Interchange & Assessments are charged at cost to the merchant
MSP adds a small mark-up
Large merchants or Merchants on Special Interchange Programs (i.e. Utility, Large Ticket, etc)

19. Elavon Pricing Tiered Pricing Important Considerations: Qualified
Qualified-Rewards
4th Tier Debit (Check Card)
Mid-Qualified
Commercial Non Qualified
Non-Qualified
Important Considerations:
Interchange rates fall into one of those “buckets” (See BET Reference)
Rates should be designed around industry (Retail, MOTO, Supermarket)
Interchange Grids (BET) found on the MSP Info Center provide further detail

20. Pricing Strategies Interchange is Complex Keep it Simple
Difficult for merchants to understand
Lots of categories makes it intimidating
Lots of math
Keep it Simple
Tiered pricing is a simplified presentation
Know When to Use Tiered vs Pass-Through
Tiered is simple, easy to explain, and offers the best margins
But it is easy for competitor’s to beat
Interchange pass-through is cheapest for the merchant and safest where you can’t be sure where a transaction will qualify.
But spread is limited and may be complex to explain

21. Pricing Strategies Percent Rate versus Per Item Ticket Size Matters
Example “Low” Rate: 1.60% + $0.25
What is the size of the average ticket?
What type of business is it?
Are there debit transactions?
Ticket Size Matters

22. Pricing Strategies Effective Rate Example
Means of calculating rates charged to merchant where fees are not fully discernable.
Calculated by dividing Total Discount Fees by the Processed Volume
Tool for Merchant Statement Comparison where limited information is provided.
Example
Total Discount Fees Due $160
Total Processed Volume $10,000
Effective Rate 1.60%

23. Working with Statements
There are less than 10 major acquirers in the field today. While there are thousands of Independent Sales Organizations in the industry, they rely on a handful of acquirers. This means there are a limited number of statement types. Statements can be used to identify acquirers and therefore pricing methods. Many acquires purposely make their statements confusing so merchants can not easily compare between providers.

24. Working with Statements
Use statements as information source, don’t automatically assume a math equation has to be done.
Don’t lead the customer, or let the customer lead you to sell on price/savings comparison.
Many acquirers purposely make their statements confusing so merchants cannot easily compare between providers.
Don’t expect merchant statements to add up completely – focus on understanding how the merchant is priced, versus reconciling the statements to the penny.
90% of all statements can be deciphered, the few statements that may be difficult to analyze include: Certain BofA/NPC and Paymentech reports, indirect channel First Data statements, some gas station/pay-at-the-pump statements.
Remember that acquirers are going to price business to make money.
Look at downgrades, fees, avg. ticket, industry type, distribution of transactions, effective rate.

25. Competitor Pricing Strategies
First Data – Employs a variety of pricing methods, including Discount with Billback. Discount with Billback pricing can be explained as the same style of pricing as differential but downgrades and markups are not clearly visible.
Bank of America – Based on Vital platform. Frequently uses interchange differential on old BofA portfolio. Acquired NPC division is largely priced as tiered.
Elavon – Frequently utilizes tiered pricing with lower lead rates, higher mid, commercial and non-qualified rates.
Fifth/Third Bank – Interchange differential is popular.
Global Payments – Popular platform for ISOs, uses a mix of interchange differential and tiered pricing.
Heartland – Interchange pass-through is very popular, although it still often puts merchants on differential with no surcharge.

26. 10 Steps for Statement Analysis
1. Get current complete statements
Not reports or partial statements
Preferably 2 consecutive months
Identify the processor
Look for logo or name
May be masked by MSP name, bank name etc.
Become familiar with formats
Identify the volume mix between credit and debit cards between Visa , MC and Discover, and average ticket
This could be a chart located on the statement or you may need to calculate based on summary information in the statement
Formula to figure percentages is sales by card type divided by total amount of sales
Identify Gross or Net
Net will indicate credits issued for refunds on statement as a negative discount due
Gross will not show any fee credits for refunds
Consider the merchant’s business: What do they do, what do they sell? Would they qualify for any special interchange programs?
Look for specific Interchange categories on statement for example (supermarket or fuel)
Review interchange guides (BET & Nationals Guide) to better understand programs that are available to better educate the merchant. You may be able to save them money by adding value rather than negotiating based on rates.

27. 10 Steps for Statement Analysis- continued
What kind of pricing do they have?
Tiered- Should recognize repetitive rates on the statement for Qualified, Mid, etc. Up to 6 rates.
Interchange Differential- One qualified rate, downgrades assessed at the difference between qualified and non qualified. Often seen as one rate with a small basis point and/or per item markup on various categories. Enhanced differential will indicate credit discount on check card transactions.
Interchange Pass-Through-Usually transparent and easy to see as a fixed processing percentage and/or per item over interchange
Identify the distribution of transactions: How many were qualified, hand-keyed, corporate etc…..
Estimate based on Interchange categories presented. The Interchange Grid can be used as a guide to determine qualifications keeping in mind they may differ from other processors.
Identify current pricing (rate, per item, mark up)
Pass-through easily recognized with a set mark up in basis points and/or per item
Tiered pricing contains a rate based on a collection of interchange categories and will typically be shown with the qualification level and the rate assigned for that level.
Differential is more complex and harder to recognize. Look for a lead rate and then markup on individual categories.
Reconcile all fees and bankcard-related charges in the pricing model
Statement fees, monthly minimums, auth fees etc. The pricing model user guide will assist with entering data into that tool.
10. Determine current processors margin and then determine your pricing strategy and proposal
Use pricing model as a tool for completion of the 10 steps.

28. Heartland Statement Breakdown
Statement Type-Heartland
Heartland typically targets the restaurant industry and other low average ticket industries with pass-through, differential, or enhanced differential pricing. These statements are typically easy to analyze. In the Fee Summary section below you will see that this merchants pricing is interchange plus .25% and a .20 transaction fee.

29. Identify current Pricing, rate, per
Step 2
Identify the
Processor
Step 3
Identify the
volume mix
of card type
Step 5
Consider the
merchants
business what
Do they do
or sale
Step 4
Identify net
or gross
Step 7
Identify the
distribution of
transactions
Step 6
What type of
pricing do they
have
Step 9
Reconcile
all fees
Step 8
Identify current Pricing, rate, per
Item, markup

30. Step 3
Identify the
volume mix
of card type
Step 1
Get current
complete
statements
Step 10
Determine current
processors margin and
then determine your
pricing strategy
and proposal.

31. Heartland Statement Breakdown
Steps:
Get current and complete Statements
preferably 2 months
Identify the processor
Heartland identified by logo on statement
Identify the volume mix of card type: Formula is sales by card type divided by total amount of sales
M/C=54%
Visa=46%
Identify gross or net:
Net-per credit issued for refunds on statement
Merchant business type.
Unable to tell because DBA is not available. Per interchange categories this is a MO/TO merchant
Pricing type.
Pass-through-easily visible on statement
Identify the distribution of transactions by adding the different qualification categories and divide by total volume for percentages this will give you an estimate. Note: this is based on Elavon qualifications as disclosed on the Interchange Grid from the MSP Info Center.
Moto Qualified-4, (divided by) 11, = 42%
Non Qualified-6, (divided by) 11,498.96= 58%
Current pricing
Pass-Through .25% and .20 per item
All fees
Service Fee- $8.00 in addition to pricing indicated above.
Margin and pricing Strategies:
Effective rate-2.34% Total Bankcard Discount fees (divided by) Total Bankcard Sales volume-
$ (divided by) $11,498.96