1. 1 Recent Changes to Credit Card Processing The information contained herein and stated by the speaker is provided as a courtesy and is for general informational purposes only. This presentation is not intended to be a complete description of all applicable policies and procedures. The matters referenced are subject to change. Individual circumstances may vary. The information contained herein includes, among other things, a compilation of documents received from third parties. ABTEK shall not be responsible for any inaccurate or incomplete information. Nothing contained in this presentation is intended to supplement, amend or modify any applicable contract, rule or regulation. ABTEK Financial... educating merchants since 1986

2. 2 Topics Impacting Credit Card Processing  Definitions  Credit card transaction flow  Who makes money when you run a transaction  Different Pricing Platforms  Unique Pricing in the Education Environment  The Durbin Amendment  Visa’s Response – The FANF  MasterCard’s Response – MasterCard License Fee  Current Pending Legislation  IRS Reporting

3. 3 Definitions Interchange – A combination of a flat per transaction cost and percentage of sale that goes back to issuer of card (Capital One, Citi, Chase, etc.) Interchange – A combination of a flat per transaction cost and percentage of sale that goes back to issuer of card (Capital One, Citi, Chase, etc.) Assessment – A flat percentage that goes back to the association (MasterCard, Visa, Discover) Assessment – A flat percentage that goes back to the association (MasterCard, Visa, Discover) Sales Discount – Percentage that goes back to processor (company you have contract with) Sales Discount – Percentage that goes back to processor (company you have contract with) Association – Visa / MasterCard the corporation. Association – Visa / MasterCard the corporation. Issuer – Bank that issues the card. Theirs is the logo next to Visa / MasterCard. They support the card and billing. Issuer – Bank that issues the card. Theirs is the logo next to Visa / MasterCard. They support the card and billing. Acquirer – Merchant bank Acquirer – Merchant bank

4. 4 Credit Card Transaction Flow

5. 5 Who Makes Money when you run a credit card? Associations: Associations: Assessment – A flat percentage that goes back to the association. Assessment – A flat percentage that goes back to the association. Issuer: Issuer: Interchange – Variable, based on card type, how presented, how quickly settled and type of merchant. Interchange – Variable, based on card type, how presented, how quickly settled and type of merchant. Typically a percentage and per item fee ranging from 0.05% to 2.95% and $0.10 to $0.22. Typically a percentage and per item fee ranging from 0.05% to 2.95% and $0.10 to $0.22. Roughly 300 different categories. Roughly 300 different categories. Processor: Processor: Sales Discount – Depends on pricing platform. Sales Discount – Depends on pricing platform.

6. 6 Pricing Platforms  Fixed Rate: Merchant pays one flat rate based on sales.  Advantage: Know what you will pay after every sale.  Disadvantage: Does not take advantage of lower cost cards.  Billback /Enhanced Billback: Merchant pays a lower flat percentage, then is charged a premium for higher rate interchange categories.  Advantage: Blend of lower flat rate with some premium up charges.  Disadvantage: Does not take advantage of lower cost cards.

7. 7 Pricing Platforms (continued)  Tiered Pricing: Merchant pays a flat rate based on qualification level – Usually three tiers (Qualified, Mid Qualified, Non Qualified).  Advantage: Ease of understanding – not many categories to learn.  Disadvantage: Although it indicates a low qualified rate, merchant ends up overpaying on non qualified and extremely low interchange categories to make up for it. Also, processor controls which cards hit each category.  Pass Through /Interchange Plus: Merchant pays the assessment, appropriate interchange and sales discount that are all broken out.  Advantage: Merchant takes advantage of all possible discounts.  Disadvantage: Can be confusing. THREE HUNDRED CATAGORIES!!

8. 8 Unique Pricing in a University Setting  Interchange categories designed to assist universities  Emerging Market  Visa Credit – 1.43%+ $0.05  Consumer Credit, Rewards, Signature  Swiped and keyed transactions  Visa Debit - 0.65% + $0.15  MasterCard Debit - 0.80% +$0.25

9. 9 Unique Pricing in a University Setting  Most common cards seen in a university setting.

10. 10 Durbin Amendment Why was it necessary?  Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010.  Interchange was initially meant to cover fraud, transaction costs and other overhead.  Due to lack of negotiating power by merchants it has become a major revenue stream for the banking industry.  On an average $40 transaction, the cost has gone from $.50 in 2000 to $1.00 in 2009  Impacts institutions with $10 billion in assets or more.

11. 11 Durbin Amendment The Specifics  Goals – Introduce competition in debit processing network and cap swipe fees.  Drastically lowers swiped fees on debit cards.  Old rate - 0.95% swiped / 1.60% keyed for Visa  New rate – 0.05% keyed / swiped  Allows merchants to impose $10 minimum transaction requirement.  Allows merchants to give tiered cash discounts.  Does not attack the problem with credit cards only debit.  Federal Reserve states reducing income of large banks $8.06 billion annually.

12. 12 Durbin Amendment The banking industry’s response  Cost to consumers:  Banks are making up for lost revenue stream by removing free/low cost checking products.  Bank of America attempted $5.00 monthly debit fee.  Multiple banks trending toward charging for bill pay services.  Cost to Merchants:  Banks are hitting back at merchants through new fees (Visa FANF and MC License Fee).

13. 13 Visa’s Fixed Acquirers' Network Fee  Effective April 01, 2012  Department of Justice Antitrust Division opens investigation on March 13, 2012  Card present merchants – based on number of locations.  Card not present merchants – based on gross Visa processing volume.

14. 14 Fixed Acquirer's Network Fee Billing Table

15. 15 MasterCard’s License Fee  Based on overall volume of the previous year.  Two phased process  July, 2012 – December, 2012 – 0.0076%  January, 2013 – 0.0038%  In an attempt to drive business to PIN debit, PIN transactions will be excluded.

16. 16 Pending Legislation  Seven years in the making.  $7.5 billion settlement from card networks to merchants and potentially allowing merchants to surcharge.  Merchants must release card industry from future litigation regarding interchange.  Opposition to settlement  National Association of Convenience Stores  Restaurant Association  National Retail Federation  Wal-Mart and Target  The hearing has been pushed back until at least late January.

17. 17 IRS Reporting Requirements  Housing and Economic Recovery Act of 2008  The goal is to ensure that all income is reported.  Originally intended to roll out January, 2012, it has now been pushed back until January, 2013.  Process to verify TIN/Legal name is electronic file match  Initial test files resulted in only 25% matches.  Non compliance penalty will be 28% of gross sales.  You will not get that money until you file your taxes.  Please confirm with your processor that all merchant accounts are compliant.

18. 18 IRS Reporting Requirements  Housing and Economic Recovery Act of 2008  The goal is to ensure that all income is reported.  Originally intended to roll out January, 2012, it has now been pushed back until January, 2013.  Process to verify TIN/Legal name is electronic file match  Initial test files resulted in only 25% matches.  Non compliance penalty will be 28% of gross sales.  You will not get that money until you file your taxes.  Please confirm with your processor that all merchant accounts are compliant.

19. 19 Reminder: Get PCI Compliant Recent University Data Theft Headlines  Cornell University ( November 2, 2012)  2,000 people associated with university resulting from unintended disclosure.  University of Georgia (October 16, 2012)  8,500 current and former students resulting from a hack.  Northwest Florida State University (October 10, 2012)  279,000 students resulting from hack.  Colorado State University (August 21, 2012)  19,000 students resulting from unintended disclosure.  Yale University (July 19, 2012)  1,200 students and staff resulting from hack.

20. 20 Additional Resources   www.abtekusa.com  http://www.gao.gov/new.items/d1045.pdf  http://www.mastercard.us/merchants/support/interchange-rates.html  http://usa.visa.com/merchants/operations/interchange_rates.html  http://www.discovernetwork.com/  http://www.whateverymerchantshouldknow.com  http://www.americanbanker.com/bankthink/Visa-Fixed-Acquirer-Network- Fee-antitrust-1050440-1.html

21. Copyright 2009, First Data Corporation. All Rights Reserved. Recent Changes to Credit Card Processing Thank You! ABTEK Financial... educating merchants since 1986 Arthur Berry ABTEK Financial (800) 544-9145 arthur@abtekusa.com