1. Payments Conference & Networking Dinner Berlin, February 15, 2016

3. Interchange Optimisation

4. Welcome! Christos Georgousis Senior Product Owner Payments & Pricing

5. Small Intro Interchange costs Biggest part of cc costs 1. xxx 2. xxx 3. xxx Note: xxx Source: xxx

6. What is Interchange: Interchange cost: Whenever the Issuing bank processes money for a transaction it deducts a small amount as recompensation for the costs involved with issuing cards (e.g. Customer support, accounts infrastructure, fraud prevention). These interchange fees vary greatly depending on factors like card type, merchant’s country, issuing banks country, type of transaction (ecommerce or card present), etc

7. Interchange++ Bundled pricing The PSP sents the merchant a report showcasing the cost components of each transaction like in the example above. A fair model provided the merchant has a way to verify the interchange and assessment fee costs. In this model the PSP “bundles” all the costs involved and gives the merchant one total cost based on an analysis of the type of transactions submitted (in theory a mix to incorporate the most dominant interchange costs involved in each transaction). 1. xxx 2. xxx 3. xxx Note: xxx Source: xxx Interchange and Βilling 2 main different models

8. Popular hybrids -Bucket model -Interchange +

9. Main Problems

10. So how can we optimise it?

11. Knowledge is power Know what you pay! At least know the total cost per market, does it make sense? E.g. 3% interchange cost for Europe does not make sense

12. You should always ask for transaction level data Example same bin (516732) Routing 1: Interchange cost: 100*0.3%=0.3EUR Assessment fees: 100*0.11%=0.11EUR Acquirers markup: 100*0.2%=0.2EUR Routing 2: Interchange cost: 100*1.3%=1.3EUR Assessment fees: 100*0.11%=0.11EUR Acquirers markup: 100*0.2%=0.2EUR If you can spare the resources built a reconciliation model or hire third party interchange reconciliation services

13. How to optimise -Get Intra EEA interchange anywhere it applies https://www.visaeurope.com/about-us/interchange/fees-and-interchange https://www.mastercard.us/en-us/about-mastercard/what-we-do/interchange.html “Intra EEA” countries may include more than you think e.g. Turkey and Israel for Visa. Corporate vs consumer cards, Amex in the uk (optblue), Visa and Mastercard are all fair game -Get the extra data incentives (e.g. fraud prevention incentives or 3ds) -Depending on your market and volumes it might make sense to go for local interchange vs Crossborder. In most cases you will need a local entity. Balance between costs of maintaining that entity vs interchange +foreign exchange +authorisation improvement benefits.

14. Issuers as Acquirers model If you are big enough on a market and/or if the market only has a few large issuers. -Special prices on own cards -Better authorisation rates -Potentially faster remittance

15. Direct Integration Model Merchant connects to multiple issuers that acquire their own cards.

16. Gateway/PSP as Facilitator Merchant decides on acquirer uses a gateway to facilitate integration

17. Gateway/PSP on the Helm Merchant uses the gateway’s optimisation service

18. Wrapping it up! Take a good hard look into your interchange costs. Otherwise you may be losing on significant profit margins!

19. Thank you Questions? Contact info: christos.georgousis@blacklane.com