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UnderstandingCredit Card Processing Improve your bottom line Presented by Integrity VenturesALL RIGHTS RESERVED. No part of this report may be reproduced or transmitted in any form whatsoever, electronic, or mechanical, includingphotocopying, recording, or by any informational storage or retrievalsystem without express written, dated and signed permission from theauthor.

© Copywright 2006-Integrity Ventures-All Rights Reservedhttp://www.creditcardprocessingknowledge.com

Table of Contents IntroductionChapter 1 Credit Card Processing 101/The basicsChapter 2 Credit Card Processing EntitiesChapter 3 Storefront/MOTO/Internet ProcessingChapter 4 Three Different Pricing ModelsA. Three Tier PricingB. Four Tier PricingC. Cost Plus PricingChapter 5 Debit Card Pricing/On-line and Off-line

Chapter 6 Underwriting and Risk Chapter 7 Equipment and SuppliesChapter 8 Ask the QuestionsChapter 9 More valuable information to understandGlossary of termsConclusion

IntroductionWelcome and thank you for purchasing Understanding Credit Card

Processing. The first thing that you will notice is that this report doesn’thave all kinds of fancy graphics or whistles and bells. What you have here is

just the facts and figures that you NEED to make an intelligent decisionregarding the acceptance of credit/debit cards in your business.It gets updated as needs arise. And, you can keep abreast withdevelopments in this industry, by visiting us regularly at our main website:www.creditcardprocessingknowledge.comLet me state, first and foremost

I AM NOT SOLICITING YOUR CREDIT CARD PROCESSING



BUSINESS IN THIS REPORT It is my desire, with this publication, to give you the specificknowledge you need to be better able to make informed decisions regardingthe acceptance of credit/debit cards for your goods or services. The reps thatare walking through your door typically aren’t providing you with a thorougheducation…for obvious reasons.What makes me qualified to provide this information to you? Well,let’s just say that I am a well-seasoned professional in the industry so I am

providing you with some “insider” info.For my many years in this business, I have been employed by one of the largest, primary, single source, direct processors in the industry. In theyears that I have been involved in this industry, it’s become very apparentIhow little the majority of merchants really know about how the credit cardindustry is structured and how to minimize their costs. It’s not your faultthough because most reps quite simply don’t want to take the time to educateyou so they can make more money off of you.Quite often, when I offer my services to perform a competitive rateanalysis, merchants hand me their current processing statement…unopened.They have given up trying to figure out the complexities of how they are

being charged and simply just focus on other parts of their business. All theydo is deduct the total fees due from their bank account each month and feelthey are just paying “too much”. However, now, more than ever, it is

becoming more crucial for you to understand this “expense” in your business.In recent years, industry trade journals have indicated that for the first time

ever, “ payment for goods and services utilizing a credit or debit card, hasexceeded payment with checks or cash” (Green Sheet). Consequently, it canrepresent a major expense to your business, however, with the knowledgeenclosed, you will be able to greatly reduce those expenses.The good majority of my income is based on residual income from myexisting and growing client base. Consequently, it’s important to me, and myfamily, to continue to grow and maintain the number of accounts that are inmy portfolio. That way, my income continues to grow. I learned early onthat the best way to approach this business is to educate my merchants andform a kind of “partnership”. My clients know that I have their best interest

in mind when putting together a program for them.If you are in business, you know that this is a very competitive business and likely have several credit card processing reps a month stop by, phone, fax or email your place of business. They approach you in manydifferent ways but mostly try to convince you that they have a “better deal”…but do they really? To me, it’s all about relationship and that’s whatmakes the difference. Since I work the same area all the time, I make it a



the customer. The merchant settles, or batches, their terminal atthe end of the day, the processor finalizes the credit cardtransaction with the issuing bank and the funds are transferredinto the merchants account typically within 48 business hours.Step 3: Merchant pays bank (your credit card processor) a “discountfee” for its services. These fees are billed either once a monthon the total volume or, in some cases, it is billed daily from each

batch total (this is called daily discounting…an accountingnightmare…good for the processor but bad for you).Step 4: Merchant bank (again, your credit card processor) paysinterchange fees (these are wholesale costs to the processor charged by the member banks of Visa and MC) directly to theIssuing Bank of the cardholder that made a purchase from you.Interchange helps cover the banks cost of issuing cards andcollecting payments. This will be discussed further in later chapters.Step 5: Issuing Bank charges its customer for the purchase and collects

payment.As you can see, it is a pretty simple process but many merchants havenever given it much thought and their provider has not taken the time toeducate them. The majority of the fees that are collected from you, by your

provider, go directly to the card issuing banks (in the form of “interchangefees”) of the cardholder. Some, in the form of “assessments” go directly toVisa and MasterCard and a very small piece of the pie goes to the processor.

Chapter 2Credit Card Processing EntitiesThere are many ways you can acquire credit card processing services.Here is a brief description of those entities so you have a better understandingof what to expect.Banks: Likely, if you’re in business, you have a commercial account set upwith your bank. They may have asked about your merchant services (i.e.credit card processing) and offered to have someone contact you regarding a“competitive rate comparison”. The “selling point” is to get “all your

business services, under one roof”. Well, in the greatest majority of cases,

banks are not in the credit card processing business…..they’re in thebanking business. However, they typically will have contracted with a provider (a processor) and offer their services to you. Typically, thedesignated representative will contact you, and they will provide the servicesfor you. The problem with this is that the bank earns a “fee” from the

provider for the referral, which will usually mean your rates are a bit higher tocompensate for the banks earnings. You may even get statements from the



processor each month, with the banks name on it (part of the agreement)making it look like the bank is actually providing the services. Not that this isa bad deal because the up tick in rates won’t likely be substantial, but don’t

just assume that the bank is your best alternative. Shop around and try to godirect to obtain the best rates and service.ISO: This is an Independent Sales Organization and is a private entity thatreps for several different processors. Some of them are good and reputable

but just remember, they are in business to make a profit. Often times their MLS’s (Merchant Level Salespeople) will have great “gimmicks” and “sales

pitches” to get you interested and often don’t tell you “all the details”. Theyhave a way of making an offer look better than what it really is. I’ll give youan example: I had a merchant call me recently, that has been with me for several years now. A rep from an ISO called him and my merchant gave hima copy of his monthly statement from us (which I encourage my merchants todo periodically, just to keep us on our toes) and had him give him a ratecomparison. Well, my merchant got it in writing and faxed it to me for review because he said, “this looks really good to me and unless you cancompete, I may have to switch”. After careful review, I was able to showhim where he was being misled and advised him the specific questions to ask this rep about his numbers. This rep, by the way, wasn’t local and hadcontacted him from half way across the continent. When he finally returnedhis call, which was several days later, he provided lots of fancy footwork butnever directly answered his questions. Needless to say, this merchant is still

part of my portfolio and still sends me referrals.

Now, don’t take this to mean that all of these entities are bad. Thereare many that have been around a long time and they have a serious interest intaking care of their accounts. Just remember that you are dealing with amiddleman in these cases.Processors: These are the actual business’s that “process” the transactions

between you, through the Visa/MasterCard networks through to the cardissuing bank and then back to you with an authorization or denial for the sale.They pay the issuing banks the “interchange fees” and Visa or MasterCard,the “assessments”. They in turn, charge you, a “discount rate” or your ISO a“buy rate” (who then charges you a percentage on top of that). These

companies will provide your customer care and technical support as well.You can find lots of information on-line about processors. Rather than giveyou any specific links here (I don’t want you to think I am showing favoritismor trying to “lead” you in any way), I’ll let you use your own searchcapabilities. The research may be time consuming, but rewarding in the longrun armed with the knowledge you are gaining with this manual. You couldgo to www.google.com/grphp , and type in the name of the processor you’re



considering. Also, add one of these keywords to the search (scam, fraud,lawsuit, rip-off, dishonest, illegal etc.). This way, you’ll be able see whatother people are saying and who has the best reputation.PayPal: You’re probably aware of PayPal, or other on-line payment

processing services. These services are great for the small-time business or very infrequent users. They have no contract term and typically, most of them have no set-up fees. Their rates, however are on the high side (1.90% +$.30 up to 2.90% + $.30). If you’re serious about your business, search for your own individual merchant account through one of the sources listedabove.Chapter 3

Storefront/MOTO/Internet Processing As a business owner, you fall into one or all three of the categoriesabove. I’d like to give you some insight on how these different entities areviewed by Visa and MasterCard.Storefront: Obviously, this is your typical brick and mortar retailestablishment. People walk into your establishment, select items or eat ameal, and come to the register to pay. If they are paying with a credit/debitcard, you will swipe their card through your credit card terminal or your POS(Point of Sale) system. The card is electronically read and you will pay your lowest rate on this type of transaction. Sometimes, the magstripe on the back of the card is not readable and you have to hand key the transaction into your terminal. On the other end, the computers think the card is “not present” andtherefore, comes inherently with greater risk and your rates will be higher

(Mid-Qualified or Tier 3). In the retail game there is always the possibility of returns or dissatisfied customers and the possible “chargeback”. In therestaurant business, rates will most often be a bit lower than they are for retailestablishments doing similar volume, because there is inherently fewer chargebacks nationwide.MOTO: Mail Order Telephone Order. Many brick and mortar stores havediscovered the benefit of printing a catalog and sending it periodically to their database. This generates more sales but they are most always going to beorders taken over the phone and paid with “card not present” credit/debitcards. There are safeguards that you can take to minimize your risk in these

types of transactions as follows:A. Only ship goods to the address listed as the address of thecardholder. This is done through address verification on your terminal.B. Obtain the CVV or CVC code from the customer (that’s the threedigit code located in the signature line on the back of the card).This ensures you that the person placing the order actually has the



card in their possession and didn’t just swipe the numbers off of Aunt Betty’s card and are going on a shopping spree.Always keep in mind, that these “card not present” types of transactions,

because of the increase risk of fraud, will come with a higher discount rate(typically in the form of a surcharge to your swipe rate). But, the increase in

potential sales, especially if your market is affected by seasonal trends, iswell worth it. Just take the necessary steps to protect yourself.Internet Sales: Nowadays, in the world of ecommerce, savvy merchants aredoing all they can to obtain customers email addresses (a good majority of

people have them these days). This way, they can, in a very cost effectivemanner, market to an ever-increasing customer base. This can be an excellentway of selling overstocked or end of season goods rather than continuing tocarry them in inventory. This can be done either by having people call thestore and place an order or by shopping via your website and utilizing your shopping cart. In either case, when the purchase is made using a card, it is“card not present” and the above steps should also be taken to minimizefraud and loss on your part.If you have business cards, make sure they are prominently displayedand if you have a website, make absolutely sure it is on your cards. Whensomeone walks through your doors, it’s obvious they are interested in thetypes of things that you sell, so they will, even in the off season, when theyare not around, be a good potential customer for you. If you’re not alreadytaking advantage of this HUGE potential market, do so immediately….theworld is your marketplace.

Chapter 43 Different Pricing ModelsIt used to be, just as little as three or four years ago, that there wasreally only one pricing model available to the majority of merchants. Themajor national retailers were always privy to better pricing models simply

because of their volume. Nowadays, there are three different pricing methodsand it’s important for you to understand them all. It’s not a matter of “onemodel fits all” any longer. Your business, and how you transact business, isdifferent than any other so let’s make sure you’ve got the best pricing modelto accommodate the processing of plastic.

Keep in mind that pricing will depend on your business. New businesses pretty much get a set program and rates. The processor will ask you how you plan to transact sales and the approximate average ticket. For the existing merchant, your pricing will depend on your average monthlyvolume and your average transaction size. And, equipped with theinformation in this ebook, you will be able to know whether or not you aregetting a good deal.



3 Tier PricingFirst, we’re going to take a look at 3 Tier Pricing, which is what themajority of merchants, are still on today and it may not be the best one for them. Under 3 Tier Pricing, you will have three different rates. Here’s how itworks:Qualified Transactions: This will be for transactions for either debitor credit cards that are swiped through your credit card terminal or POS(Point of Sale) software for a purchase. It will always be your best rate

because swiped transactions are considered to be the least risky.Mid-Qualified Transactions: These will be transactions for debit/creditcards that are “card not present”. In other words, these will be cards that arehand-keyed on your terminal either because the magstripe on the back of thecard is unreadable or the customer making the purchase is not present. Youwill be charged a “surcharge” above and in addition to your Qualified Rate onthese. This could also be for some of the Rewards cards becoming prevalenton the market these days.Non-Qualified Transactions: This type of transaction will be for cardsissued in a corporate entity name rather than an individual. It could also besome of the Visa/MasterCard Rewards cards. You will also be hit with a“surcharge” on these transactions that is typically even higher than themidqualifiedsurcharge.Under a 3 Tier Pricing model, rates can be quoted in either a “bundled”or “unbundled” fashion. Unbundled will be a rate plus a per item,

authorization or transaction fee (for example: 1.69% + $.18). Typically, if you have a low average ticket in your business, (let’s say $10 for example)you would probably want to consider the bundled type of rates. Otherwise,the authorization fees will eat you alive. Bundled rates will be higher than theunbundled but without a per item fee. For example, it could be 3.27%

bundled. So on that $10 transaction, it would cost you $.35 in fees unbundled(at 1.69% + $.18) or $.33 bundled (at the 3.27% rate). You can see, thedifference is only pennies but it adds up in time.

Now, on the other hand, if you have a much higher average ticket, youtypically want the rate portion of the equation to be as low as possible since

that is where the majority of your fees are coming from. Just to be surethough, ask any merchant services provider that is quoting rates for you togive you both a bundled and unbundled quote. Then, do the math based onyour average ticket and determine which is best for you. Unfortunately,many processors quote you the program that is best for them and not for youso… BEWARE .Typically, the higher the average ticket, say in the $100 plus range, 3



Tier pricing will be the best model for you because there will likely be a small percentage of debit cards actually being used which we’ll discuss under 4Tier Pricing. For example, let’s say, as a customer, you are paying $225 for an auto repair and you have a choice of using your debit card (knowing thatyou had enough money in your checking account to cover the transaction) or you could use your frequent flyer credit card and earn miles and then simply

pay your credit card bill at the end of the month, which one would you use?Like most people, you’d probably opt for using your frequent flyer or Rewards card, and pay the card balance at the end of the month so you don’tincur interest charges…..it just makes good sense.

Now let’s take a look at the next pricing model 4 Tier Pricing

Now that we’ve got a better handle on 3 Tier pricing, let’s get a better understanding of 4 Tier Pricing and its benefits. Debit card usage isdramatically on the increase. Statistics as of June 2003 indicated that morethan half of all transactions processed by Visa during the first six months of 2003 were performed with Visa debit cards. Obviously now, in 2006 thenumbers are certainly higher especially since many banks are offering“rewards” to their customers for using debit cards. What follows are nationalaverages for Signature Debit transactions as determined in October 2004.Use these as a guideline in determining whether 3 or 4 Tier pricing is best for you. Since 2004, debit card usage has increased but the percentages byindustry type and average ticket should still be fairly accurate.Retail Signature Debit

Ticket Range Estimated Percentage of SignatureDebit Transactions< $10.00 78.72%$10.01-$25.00 75.55%$25.01-$50.00 51.0%$50.01-$100.00 40.2%$100.01-$500.00 31.9%$501.00-$1,000.00 23.1%>$1000.01 17.8%Restaurant Signature Debit

Ticket Range Estimated Percentage of SignatureDebit Transactions<$9.99 83.5%$10.00-$24.99 68.2%$25.00-$49.99 55.16%$50.00-$99.99 39.14%>$100.00 26.84%



You can see from these charts that if you are either Retail or Restaurant with an average ticket of under $50.00, it looks like 4 Tier Pricingwould be of benefit since nearly 50% of your transactions will be debits.Let’s take a look at what a large processor is currently charging for New

Retail Merchants and the difference between their 3 Tier and 4 Tier pricing:3 Tier PricingQualified 1.79% + $.25Mid-Qualified 2.54% + $.25Non-Qualified 2.79% + $.254 Tier PricingTier 1 1.49% + $.25Tier 2 1.84% + $.25Tier 3 2.54% + $.25Tier 4 2.74% + $.25So, if you anticipate that your average ticket is going to be under $25.00, you’d certainly be wise to request 4 Tier since over 70% of your volume will likely be debits. You see, in 3 Tier pricing, whether you swipe acredit or debit card, it is going to get the 1.79% + $.25 Qualified Rate. On 4Tier, the Tier 1 is for debit cards swiped, or off-line (lower rates because of lower inherent risk) and Tier 2 is for Credit cards swiped. Sure, you’ll payslightly more for credit cards on Tier 2 than you would for them on 3 TierPricing (Qualified) but, they will typically be a much smaller percentage of your overall volume based on national averages.

Now, if you have determined that based on your average ticket size

that debits are probably a good percentage of your business, you should alsoconsider looking into getting a Pin Pad and setting yourself up to take on-lineor Pin based transactions. If you are a retailer, it is much more feasible tocapture pin numbers from customers when they are cashing out. In therestaurant business (pay at the table), the only way you will be able to capture

pin numbers is by using a wireless terminal, at the table, with a built in pin pad. The benefit of capturing pin numbers is twofold. First, when you simplyswipe a debit card without the pin number, the computer looks in thecustomer’s account to verify the availability of funds to issue anauthorization. When you get the pin number, not only does it look for

availability, it also immediately captures the funds. Second, when youcapture a pin number, the transaction goes through a different network andcould cost you less. Here’s the Network Access Fees for on-line pinneddebits and is current as of October 2007:Debit Network Availability Fee ScheduleNetwork Name Effective Date Purchase/Cashback Acquirer FeeACCEL/XCHG



Trans Alliance2/1/2007$0.15 + 0.65%Caps @ $0.53Current $0.240 Qual SupmktCU242/1/2007

$0.055 + 0.65%Caps @ $0.375All Other POS MCC/SIC$0.190Qual Supmkt-SIC 5411,5300$0.65 + 0.60%Caps @ $0.325Petro-SIC5542,7511,5541$0.065 + 0.55%Caps @ $0.325Pharmacies-SIC 5912$0.045 + 1.25%Caps @ $0.325QSR-SIC 5814,5812$0.190SIC 5310AFFN3/1/2006$0.13 + 0.55%Caps @ $0.53Gen’l Retailers$0.170Qual Supmkt-SIC 5411,5300$0.08 + 0.50Caps @ $0.38SIC 5310,5499,5541,5542,5912,7511,9399

Alaska Option ??? $0.070INTERLINK 5/1/2007$0.185 + 0.75%Caps @ $0.535$0.275 Qual SupmktMaestro4/1/2005$0.175 + 0.75%Caps @ $0.525$0.265 Qual Supmkt NYCE10/1/2007$0.1375 + 0.65%

Caps @ $0.6875$0.2775 Qual SupmktPULSE4/1/2007$0.14 + 0.65%Min = $0.14 Max = No CapGen’l Retailer $0.14 + 0.65%Min = $0.14 Max = No CapPetroleum



$0.250Qual SupmktSHAZAM7/1/2006$0.280Gen’l Retailer $0.200

Qual SupmktSTAR 9/1/2007$0.1925 + 0.75%Caps @ $0.6925Gen’l Retailer $0.1725 + .60%Caps @ $0.4425Petroleum$0.2825Qual Supmkt

So, let’s take a look at an example of a debit transaction, using an averageticket of $35 using the 3 Tier, 4 Tier and pinned debit rates indicated above.Transaction Type Rates Total Fees3 Tier Swiped Transaction 1.79% + $.25 $.884 Tier Swiped Transaction 1.49% + $.25 $.77Pinned Debit thru the STAR Network As a Retailer rather than restaurant$0.1925 + 0.75% $.455 (plus processor fee of approximately $.20 or a total of $..655

As you can see from looking at these numbers, pinned debit woulddefinitely be the way to go. Remember, pretty much all bank issued debitcards these days are branded with a Visa or MasterCard logo and the cards

can be used either way (with or without a pin number). All these cards willeither say “Debit” on the face of the card or will say “Check Card” (Visa

branded) or “Money Card” (MasterCard branded), so they’re easy to identify.When a customer gives you their debit card, they know that there is enoughfunds in their account to cover the transaction so all that is required for you toobtain the transaction savings is to have them key in their pin number. Now,not everybody even knows their pin number and some may just, for somereason, flat out refuse to use it. But, you should at least try to get them toenter it for the resulting savings for you. Some merchants use “incentives” toobtain pin numbers. I’ve seen merchants that will have a fish bowl of giftcards that are all pre-loaded with some value. Most are for $1 but maybethere are a couple $5’s, $10’s and maybe even a $20. The sign at the counter reads…”enter your pin and win”. When they enter their pin number, they getto stick their hand in the bowl. The gift card they pull out is only good atyour place of business so they either find something else to buy, on the spot,or it brings them back in another time. There are lots of creative ideas youcan come up with in order to capture more pin numbers. Remember: Debit



cards are NOT CREDIT CARDS. They will never issue the cardholder credit. If the account backing up the card does not have sufficient funds

for the transaction, the card will be denied.So, now we’ve looked at 3 Tier and 4 Tier and the benefits of both.One of the inherent “problems” with either 3 or 4 Tier pricing is that

processors lump several types of card types (with their own individualsurcharge rate) into one of the available “buckets” of Mid-Qualified, Non-Qualified or 3rd or 4th Tiers. This could work to your disadvantage so let’stake a look at a possible solution.

Next, we will take a look at Cost Plus Pricing, which has only justrecently become available to small to mid-size regional type merchants and isgrowing rapidly in popularity.Cost Plus PricingIn the past, this form of pricing was made primarily available to thelarge national chains like Target, Wal-Mart, and Sears etc. Now, if your volume and types of transactions justify this type of pricing, it will becomeimportant to explore this option for the cost savings that it could potentially

provide.Okay, take a look in your wallet. You probably have a credit card(possibly more than one) and a debit card or two. For example, I carry aCapital One MasterCard that I use. Whenever I use that card at a merchantfor goods or services, Capital One earns the “Interchange Rate” . This feecovers their costs of issuing cards and collecting payment from me, thecardholder. Currently (as of October 2007) the Interchange Rate for a

MasterCard swiped transaction, is 1.58% + $.10 (see the Interchange sheets below). So, if I spend $100, Capital One makes $1.68 on that transaction(translated to mean, it costs you the merchant that amount). Then, on top of Interchange is also an “Assessment Fee” which in this case, is currently.095% (again, see the Interchange sheets below). This fee goes directly toMasterCard International, which pays for upkeep on the electronic networks,and helps pay for their national advertising on behalf of their member banks.In a Cost Plus pricing model, you pay these direct costs “plus” something tothe Merchant Bank, or processor, for handling the transaction. The “plus” fee can be quoted either in cents or basis points or a combination of both,

depending on your average volume and transaction size.Currently, taking into account credit cards, debit cards, corporatecards, world cards, rewards cards etc., etc., there are in excess of 130different card and transaction types all of which have their own InterchangeRate. If you’re in a 3 Tier or 4 Tier model, the processor knows fromnational averages for your industry type, that you will likely get X% of thistype and X% of that type of card. Some cards cost more than others so what



they do is take several categories and just lump them into one of your categories. Consequently, you may be paying way more on sometransactions than what is fair and, likely on those transactions that they knowyou will likely get very few of, you are paying less than interchange on them,

but, since they are charging you more on the majority of transactions, theystill make a profit. For example, I just did an analysis for a restaurantmerchant who is currently paying 2.535% bundled on Visa transactions. Theinterchange on those transactions is currently 1.63% plus .0925% assessment

plus $.10. In other words, cost is about 1.54% + $.10. I figured I could offer him Cost Plus $.15 so instead of costing him $.91 on his $36 averagetransaction, it will cost him $.80. It’s only pennies but based on the volumehe is doing, it will ultimately save him over $4000 a year …ChaChing!!!Those pennies really add up! For your typical brick and mortar type business,the majority of your transactions, whether they be debits or credits, will beswiped through your credit card machine and therefore, receive your bestrate. However, when you hand key a card or take a corporate or rewardscard, they are going to cost you more whether you are on 3 tier, 4 tier or CostPlus. You just want to make sure you’re getting as close to cost of the actualcard/transaction type, as possible. Take a look at your current statement.Does it break down specific card types? Check the rates you’re payingagainst the Interchange Rates shown below.Remember, the processor is in business to make a profit just as youare. But, it should be fair and reasonable based on their costs and risks thatthey are taking. Shown below is the current Interchange Rates (effective

April 2006). If your current processor refuses to talk to you about this pricingmodel or if someone is approaching you with a “deal” and refuses to talk withyou about Cost Plus….look elsewhere.Interchange Fee Schedule – October 2007Visa CardsVisa Consumer Credit Rate Per Item Assessment FeesCPS Retail 1.54% $.10 .0925%CPS Retail Threshold I 1.43% $.10 .0925%CPS Retail Threshold II 1.47% $.10 .0925%CPS Retail Threshold III 1.51% $.10 .0925%CPS Rewards 1 1.65% $.10 .0925%CPS Restaurant 1.54% $.10 .0925%CPS Rewards 2 1.90% $.10 .0925%CPS Supermarket 1.24% $.05 .0925%CPS Supmkt Threshold I 1.15% $.05 .0925%CPS Supmkt Threshold II 1.20% $.05 .0925%CPS Supmkt Threshold III 1.22% $.05 .0925%EIRF 2.30% $.10 .0925%CPS Key Entered 1.85% $.10 .0925%CPS E-Commerce Preferred 1.80% $.10 .0925%CPS E-Commerce Basic 1.85% $.10 .0925%CPS Card Not Present 1.85% $.10 .0925%Standard 2.70% $.10 .0925%CPS Automated Fuel 1.50% $.05 .0925%



CPS Retail Service Station 1.43% $.10 .0925%CPS Small Ticket 1.65% $.04 .0925%CPS Hotel/Car RentalCard Present1.58% $.10 .0925%CPS Hotel/Car RentalCard Not Present1.58% $.10 .0925%CPS Retail 2 1.43% $.05 .0925%Utilities 0.00% $.75 .0925%Visa Consumer Debit Rate Per Item Assessment FeesCPS Retail 1.03% $.15 .0925%CPS Retail Threshold I .62% $.15 .0925%CPS Retail Threshold II .81% $.15 .0925%CPS Retail Threshold III .92% $.15 .0925%CPS Restaurant 1.19% $.10 .0925%CPS SupermarketCaps @ $.351.03% $.15 .0925%CPS Supmkt Threshold I .62% $.13 .0925%CPS Supmkt Threshold II .81% $.13 .0925%CPS Supmkt Threshold III .92% $.13 .0925%EIRF 1.75% $.20 .0925%

CPS Retail 2 .80% $.25 .0925%Utilities 0.00% $.75 .0925%CPS Automated Fuel .70% $.17 .0925%CPS Retail Service Station .70% $.17 .0925%CPS Small Ticket 1.55% $.04 .0925%CPS Hotel/Car RentalCard Present1.36% $.15 .0925%CPS Hotel/Car RentalCard Not Present1.36% $.15 .0925%CPS Key Entered 1.60% $.15 .0925%CPS E-Commerce Preferred 1.55% $.15 .0925%CPS E-commerce Basic 1.60% $.15 .0925%CPS Card Not Present 1.60% $.15 .0925%

Standard 1.90% $.25 .0925%Interchange Fee Schedule-October 2007Visa (continued)Visa Commercial Credit Rate Per Item Assessment FeesUtilities 0.00% $1.50 .0925%Purchasing Electronic 2.45% $.10 .0925%Business Electronic 2.40% $.10 .0925%Corporate Electronic 2.20% $.10 .0925%Purch Card Not Present 2.40% $.10 .0925%Business Card Not Present 2.25% $.10 .0925%Corp Card Not Present 2.20% $.10 .0925%Purchasing Retail 2.20% $.10 .0925%Business Retail 2.20% $.10 .0925%Corporate Retail 2.20% $.10 .0925%Purchasing B2B 2.10% $.10 .0925%Business B2B 2.10% $.10 .0925%Corporate B2B 2.10% $.10 .0925%Business/Corporate/Purchasing Standard2.70% $.10 .0925%Purchasing Level II 2.00% $.10 .0925%Business Level II 2.00% $.10 .0925%Corporate Level II 2.00% $.10 .0925%Purchasing Level III 1.80% $.10 .0925%GSA Large Ticket (with aminimum of 1.35% of Net



Sales).95% $35.00 .0925%Purchasing Large Ticket .095% $35.00 .0925%Refund – ConsumerCreditRateMO/TO-E-Commerce 2.04%All Other Markets 1.73%Refund – ConsumerDebitRateMO/TO–E-Commerce 1.87%All Other Markets 1.31%Refund – CommercialCreditRateCommercial 2.24%Interchange Fees are paid directly to the cardholder’s issuing bank. Assessment fees are paid to V/MC.

Interchange Fee Schedule – October 2007MasterCardMasterCard ConsumerCredit (Core Value)

Rate Per Item Assessment FeesPublic Sector 1.55% $.10 .095%Convenience Purchase 1.90% $.00 .095%Merchant UCAF 1.58% $.10 .095%Merit III 1.58% $.10 .095%Merit III Tier I 1.43% $.10 .095%Merit III Tier II 1.48% $.10 .095%Merit III Tier III $.10 .095%Supermarket 1.48% $.10 .095%Supermarket Tier I 1.27% $.10 .095%Supermarket Tier II 1.32% $.10 .095%Supermarket Tier III 1.42% $.10 .095%Standard 2.95% $.10 .095%Merit I 1.89% $.10 .095%Full UCAF 1.68% $.10 .095%

Service Industries 1.15% $.05 .095%Warehouse Club 1.10% $.05 .095%Warehouse Club Tier I .90% $.00 .095%Key Entered 1.89% $.10 .095%Utilities 0.00% $.75 .095%Petroleum (max$.95) 1.90% $.00 .095%MasterCard ConsumerCredit (Enhanced Value)Rate Per Item Assessment FeesKey Entered 2.04% $.10 .095%Merit I 2.04% $.10 .095%Merchant UCAF 1.73% $.10 .095%Full UCAF 1.83% $.10 .095%Merit III 1.73% $.10 .095%Merit III Tier I 1.43% $.10 .095%Merit III Tier II 1.48% $.10 .095%Merit III Tier III 1.55% $.10 .095%Supermarket 1.48% $.05 .095%Supermarket Tier I 1.27% $.00 .095%Supermarket Tier II 1.32% $.00 .095%Supermarket Tier III 1.42% $.05 .095%Warehouse Club 1.10% $.00 .095%Warehouse Tier I .90% $.00 .095%Public Sector 1.55% $.10 .095%Convenience Purchase 1.90% $.00 .095%Service Industries 1.15% $.05 .095%Utilities 0.00% $.75 .095%



Petroleum (max $.95) 1.90% $.00 .095%Standard 2.95% $.10 .095%MasterCard WorldCardConsumer CreditRate Per Item Assessment FeesStandard 2.95% $.10 .095%Merit I 2.05% $.10 .095%Key Entered 2.05% $.10 .095%Merit III 1.73% $.10 .095%Merit III Tier I 1.53% $.10 .095%Merit III Tier II 1.58% $.10 .095%Merit III Tier III 1.65% $.10 .095%Convenience Purchase 2.00% $.00 .095%Supermarket 1.58% $.05 .095%Supermarket Tier I 1.37% $.00 .095%Supermarket Tier II 1.42% $.00 .095%Supermarket Tier III 1.52% $.05 .095%Warehouse Club 1.58% $.05 .095%Warehouse Club Tier I 1.37% $.00 .095%Merchant UCAF 1.73% $.10 .095%Full UCAF 1.83% $.10 .095%Service Industries 1.15% $.05 .095%Public Sector 1.55% $.10 .095%

Restaurant 1.73% $.10 .095%T&E 2.30% $.10 .095%Utilities 0.00% $.75 .095%Petroleum (max $.95) 2.00% $.00 .095%MasterCard World EliteConsumer CardRate Per Item Assessment FeesStandard 3.25% $.10 .095%Merit I 2.50% $.10 .095%Key Entered 2.50% $.10 .095%Merit III 2.20% $.10 .095%Merit III Tier I 1.53% $.10 .095%Merit III Tier II 1.58% $.10 .095%Merit III Tier III 1.65% $.10 .095%Supermarket 1.90% $.10 .095%

Supermarket Tier I 1.37% $.00 .095%Supermarket Tier II 1.42% $.00 .095%Supermarket Tier III 1.52% $.05 .095%Warehouse Club 1.58% $.05 .095%Warehouse Club Tier I 1.37% $.00 .095%Merchant UCAF 2.20% $.10 .095%Full UCAF 2.30% $.10 .095%Restaurant 1.73% $.10 .095%T&E 2.75% $.10 .095%T&E Large Ticket 2.00% $.10 .095%Petroleum-CAT/AFD(max $.95)2.00% $.00 .095%MasterCard ConsumerDebitRate Per Item Assessment Fees

Merchant UCAF 1.05% $.15 .095%Small Ticket 1.55% $.04 .095%Restaurant 1.19% $.10 .095%Petroleum-CAT/AFD(max $.95).70% $.17 .095%Petroleum-Service Stations(max $.95).70% $.17 .095%Emerging Markets .80% $.25 .095%Merit III 1.05% $.15 .095%



Merit III Tier I .70% $.15 .095%Merit III Tier II .83% $.15 .095%Merit III Tier III .95% $.15 .095%Supmkt (max @ $.35) 1.05% $.15 .095%Supmkt Tier I (max $.35) .70% $.15 .095%Supmkt Tier II (max $.35) .83% $.15 .095%Supmkt Tier III (max $.35) .95% $.15 .095%Standard 1.90% $.25 .095%Merit I 1.64% $.16 .095%Full UCAF 1.15% $.15 .095%Service Industries 1.15% $.05 .095%Warehouse Club(max @ $.35)1.05% $.15 .095%Warehouse Club Tier I(max $.35).70% $.15 .095%Warehouse Club Tier II(max $.35).83% $.15 .095%Warehouse Club Tier III(max $.35).95% $.15 .095%

Key Entered 1.64% $.16 .095%Utilities 0.00% $.75 .095%MasterCard BusinessCardRate Per Item Assessment FeesCommercial Face to Face 2.32% $.10 .095%Commercial Face to FacePetroleum2.05% $.00 .095%Comm Large Ticket I 1.20% $40.00 .095%Comm Large Ticket II 1.20% $40.00 .095%Comm Large Ticket III 1.20% $40.00 .095%Standard 2.95% $.10 .095%Data Rate III 1.75% $.00 .095%Data Rate II 2.32% $.00 .095%

Data Rate I 2.65% $.10 .095%Data Rate II Petroleum 2.05% $.00 .095%Commercial T&E III 2.15% $.10 .095%Commercial T&E II 2.20% $.10 .095%Commercial T&E I 2.35% $.00 .095%Interchange fees are paid directly to the cardholder’s issuing bank. Assessment fees are paid to V/MC.

Interchange Fee Schedule – October 2007MasterCard (continued)MasterCard Fleet Card Rate Per Item Assessment FeesCommercial Face to Face 2.45% $.10 .095%Comm Face to Face Petro 2.05% $.00 .095%Comm Large Ticket I 1.20% $40.00 .095%Comm Large Ticket II 1.20% $40.00 .095%Comm Large Ticket III 1.20% $40.00 .095%Standard 2.95% $.10 .095%Data Rate III 1.75% $.00 .095%Data Rate II 2.45% $.10 .095%Data Rate I 2.65% $.10 .095%Data Rate II Petroleum 2.05% $.00 .095%Commercial T&E III 2.15% $.10 .095%Commercial T&E II 2.20% $.10 .095%Commercial T&E I 2.35% $.00 .095%MasterCardCommercial, CorporateWorld, & CorporateWorld Elite Card



Rate Per Item Assessment FeesCommercial Face to Face 2.05% $.00 .095%Comm Face to Face Petro 2.05% $.00 .095%Comm Large Ticket I 1.20% $40.00 .095%Comm Large Ticket II 1.20% $40.00 .095%Comm Large Ticket III 1.20% $40.00 .095%Standard 2.95% $.10 .095%Data Rate III 1.75% $.00 .095%Data Rate II 2.05% $.00 .095%Data Rate I 2.65% $.10 .095%Data Rate II Petroleum 2.05% $.00 .095%Commercial T&E III 2.15% $.10 .095%Commercial T&E II 2.20% $.10 .095%Commercial T&E I 2.35% $.00 .095%Commercial Rebate 0.00%MasterCard BusinessWorld, & BusinessWorld Elite CreditRate Per Item Assessment FeesCommercial Face to Face 2.32% $.00 .095%Comm Face to Face Petro 2.20% $.00 .095%Comm Large Ticket I 1.35% $40.00 .095%Comm Large Ticket II 1.35% $40.00 .095%

Comm Large Ticket III 1.35% $40.00 .095%Standard 2.95% $.10 .095%Data Rate III 1.75% $.00 .095%Data Rate II 2.32% $.00 .095%Data Rate I 2.65% $.10 .095%Data Rate II Petroleum 2.20% $.00 .095%Commercial T&E III 2.30% $.10 .095%Commercial T&E II 2.35% $.10 .095%Commercial T&E I 2.50% $.00 .095%Commercial Rebate 0.00%MasterCardInternationalRate Per Item Assessment FeesCorporate & Purchasing 2.15% $.00Merchant UCAF 1.91% $.10 .095%

Full UCAF 2.01% $.10 .095%Electronic 1.37% $.00 .095%Standard 2.10% $.10 .095%Refund – ConsumerCredit & WorldCardCreditRateRefund Group 1 2.42% Blank Blank Refund Group 2 2.09% Blank Blank Refund Group 3 1.95% Blank Blank Refund Group 4 1.82% Blank Blank Refund Group 5 1.73% Blank Blank Refund – ConsumerDebitRateRefund Group 1 1.72% Blank Blank Refund Group 2 1.68% Blank Blank Refund Group 3 1.40% Blank Blank Refund – CommercialCreditRateRefund Group 1 2.37% Blank Blank Refund Group 2 2.30% Blank Blank Refund Group 3 2.21% Blank Blank Refund Group 4 2.16% Blank Blank Interchange fees are paid directly to the cardholder’s issuing bank. Assessment fees are paid to V/MC.



Chapter 5Debit Card Processing/On-Line and Off-LineAs discussed earlier, under 4 Tier Pricing, there is a difference betweenon-line and off-line debit card rates. If you are priced on a 4 tier structure,and aren’t using a pin pad, your Tier 1 rates will be off-line debit transactionsand will be your lowest “swiped” rate. If, however, you have a pin pad

present and customers are entering their pin number, you are processing onlinedebit transactions. In some cases, this will be less expensive for you butit really depends on your average ticket. Take a look at the scenariodiscussed in the chapter on 4 Tier Pricing to determine if you should have andutilize a pin pad for savings. Typically, if you elect to use a pin pad, the

processor will charge you a monthly fee to access the Debit Networks. Makesure you use that charge when calculating to determine if it will be an overallcost sensible option for you.Chapter 6Underwriting and Risk Understand that when a processor runs a transaction for you, and thenwithin 48-72 business hours, deposits the funds for the sale in your account,they are taking a risk. They pay you before they receive payment from thecard-issuing bank. Consequently, each processor has an underwriting andrisk assessment procedure they go through for every account. Your typical

brick and mortar retail or restaurant type business that swipes the cardthrough a terminal, represent the least amount of risk for processors. If youswipe less than 80% of your sales, as a rule of thumb, your provider will

likely charge you a bit higher rate (or a surcharge) for this “assumed” higher risk to them.Certain industries are inherently more risky as well. Lodging is a goodexample. Many processors charge higher rates for lodging merchants

because of the relatively high incidence of chargebacks. A guest reserves aroom, giving the innkeeper their credit card number. Then, for whatever thereason, at the last minute, doesn’t show up. The hotel/motel charges thecustomers’ card for a “cancellation fee” and the customer disputes the charge

because they never actually stayed there. This is one example but there aremany others as well. Furniture stores, for example would be one. Customer

places a special order for something they saw in a catalog. The customer gives their card to place a deposit for the item. When the item arrives, thecustomer doesn’t like it and refuses delivery and the store is stuck with thegoods. Customer wants deposit back and the store refuses and the next thingyou know, there is a chargeback dispute happening. So, this type of industrytypically gets charged higher rates.Each processor has their own guidelines for assessing risk. Many will



have “special high risk merchants” and most will have “prohibitedmerchants”. When you make your application, the agent will be asking youquestions about your type of business and how you transact business so thattheir Underwriting department can get a better understanding of the risk tothem.Chapter 7

Equipment and SuppliesIn order to process credit cards for payments, you will need a POS(Point of Sale) terminal or software. First let’s talk about payment terminals.There are lots of different types with all kinds of bells and whistles. With theInternet at your fingertips, it’s quite easy to research the different types andfind the best price and terminal type for your needs. Here’s a list of thelargest manufactures listed in order of the most terminals in service to theleast:VerifoneHypercomIngenicoLipmanThalesThere are other manufactures but the ones listed above are the major

players. Obviously, each company has many different types of terminals(wireless, terminals with built in printers, terminals w/o printers, smart cardterminals, check readers, etc). Do the research and determine what will bestsuit your particular needs now as well as in the future.

Now, when looking at terminals, keep in mind one big importantthing….make sure you are not purchasing a proprietary terminal that onlyworks with one processor (like a Linkpoint that only works with onecompany….they figure if they can sucker you into purchasing their terminal,you’re less likely to ever leave them because it would involve buying another terminal). Also, you will need to determine if you are going to purchase or lease the terminal. I’ll tell you this that there are many reps out there that aremaking a HUGE living off of just leasing terminals to people for say, “only$69 a month for 48 months”. Do the math! That comes out to over $3300 for a terminal that probably cost about $3-600. Most often, you will be better off

purchasing rather than leasing. Some companies will let you split the purchase price up over a period of several months with no interest. Oh yah,when you see some of those ads that say “FREE TERMINALS with your merchant account”. Have you ever heard the saying “if it sounds to good to

be true, it usually is”? These things COST MONEY and somebody ends up paying for them and it’s not the processor…. get what I mean?The other way that you can process transactions is thru a software



program that has a credit card processing application built in. Somemerchants elect to utilize a software program because of all the other businessapplications they get like, inventory control, time and attendance, accountingand other valuable business tools. These programs will most often cost quitea bit more than a credit card terminal. However, it may be a real cost savingsin the long run because of improved business efficiencies.Supplies can be purchased from your provider and in some cases, theyhave a regular monthly program, for a fee that covers supplies and insuresequipment. What I’ve found is that you are most often better off getting your

paper rolls and ribbons from Sam’s Club, Costco, Staples, OfficeMax etc. or even take a look online as well….isn’t the Internet great?Chapter 8

Ask the QuestionsThis is your business and you are signing on the dotted line in order to

be able to accept plastic in your business. Before you do, ask the questionsand even ask to see a copy of the “fine print” in the agreement and actuallyread it . Ask for a copy that you can review, overnight, if need be. If theyrefuse to let you look at a copy, run. Know what you are getting into. Hereare some things to ask: Is there a contract term? If so, how long is it? If I terminate my contract, is there a penalty? If so, how much?(Depending on how far along you are into your contract and you’re looking toleave for a better deal, you may be better off just continuing to keep theaccount active and just paying the Monthly Minimum for the duration insteadof the termination fee). Some processors will even pay your termination fee to

come on board. Ask the questions and do the math. Is there a monthly minimum? If so, how much? Is there a statement fee? If so, how much? Are there Batch Header Fees? How much? Are there any set-up or New Account fees? How much? Are there any Annual Fees? How much? Can my rate increase during the contract term? Why and how much? How about chargeback fees? How much? Set-up fees for AMEX or Discover? Voice Authorization fees? Do they offer 24/7 Customer Support? Do they have totally redundant processing centers? In other words what

happens if a tornado wipes out their main center? What happens to your processing? Is the equipment they are recommending proprietary (only usable with that processor) or could you use it with any other processor if you decide toterminate your relationship with them? Do they refund the discount rate to you when you issue a credit to thecustomer? Can you reprogram my existing equipment? Don’t replace it unless you



absolutely need to. If so, shop around on-line or even on eBay for your best price.

Chapter 9 More valuable information for your benefit DISCOVER: Recently, Discover has begun charging most merchants

$9.95 a month simply to send you a paper statement. You can accessthem on-line for FREE by simply contacting them and let them knowthat you no longer want to receive the paper. Also, while you’re at it,it would be a good idea to attempt to negotiate a lower rate with them.They’re typically pretty good to work with and will usuallyaccommodate your request. And, eliminating the ten bucks a monthfor the statement is a great way to easily put an additional $120 in your

pocket each year.AMEX: Here’s another way you can save yourself over $50 a year. If you are currently accepting AMEX for payments, and you are

receiving a paper statement from them, they are charging you $4.50 per month. Again, you can access it on-line, if you so desire, for FREE by simply contacting them. Don’t even bother trying to negotiate ratewith them because they won’t budge. If you’re not currently acceptingAMEX and feel you want to give it a try, they have a $5 monthly flatrate program. If at any time in a twelve month period, however, if youexceed $4,999 in AMEX volume, they will automatically kick you intotheir 3.25-3.50% rate program.Check Guarantee Services: Most credit card processing entities also offer the availability of a check guarantee service. If you have an issue with bad,checks, you should certainly look into this service. The general rule of thumbis if you write off more than about $300 a year in bad, uncollectable, checks,the service will pay for itself. The reason being is that they offer many typesof programs but typically they come with a monthly minimum fee of about$25. You would only run checks on people that are questionable or possiblyeven new customers just to protect yourself. There is no need to run regular customers checks. And, don’t let someone try to sell you a check reader machine unless you are doing a huge volume of checks that you’re going torun. You can simply use your credit card machine for this service once it is

programmed accordingly. Most of these services also offer “features” thatmay benefit your business. You can get business check coverage, stop

payment coverage and even a multiple check option that you could use andoffer to customers to help increase business.ECC (Electronic Check Conversion): This may be a service that you’veexperienced yourself. You write a check to pay for a purchase. The cashier scans it through a check reader and then hands your check back to you. Inessence, what has happened is that your check has been converted to a debit



transaction and hit your account immediately. This may be a service thatcould be of benefit to you if you take a large number of checksGift/Rewards Cards: Many processors now offer gift and reward cards.The gift cards are more functional and durable than paper gift certificates.The rewards cards replace old punch cards and help to build customer loyalty. Both of these types of cards, with some creative thinking, can help to

build your business. Merchants are coming up with all kinds of innovativeapplications for them. And, typically, you can get on-line tracking andreports for them that make them even more functional for you.Glossary of TermsAcceptorA business that has qualified to accept credit or debit cards as

payment.AcquirerThis is an organization that is registered as a member of Visa andMasterCard as a member bank or bank/processor. They are in the business of

processing credit card transactions for businesses.Acquiring Financial InstitutionThe acquiring financial institution (acquirer) contracts with the bank and the merchants to enable sales utilizing credit cards. The acquirer depositsdaily credit card totals and debits processing fees from the merchants’ bank account.Address Verification Service (AVS)AVS is a service provided as part of a credit card transaction and

validates and confirms the cardholder’s address with the card issuer’srecords. This helps to protect the merchant from fraudulent transactionsespecially on Card Not Present transactions. A code is returned with theauthorization indicating the address match up.AdjustmentThe acquirer to correct a processing error initiates an adjustment. Theerror could simply be a duplication of a transaction or could be the result of acardholder dispute. The acquirer debits or credits the merchant DDA accountfor the dollar amount of the adjustment.Associations

Theses are entities that are formed to administer and promote creditand credit cards. Of course, the best-known associations are Visa andMasterCard.AuthorizationThe authorization verifies that the card has sufficient funds available tocover the amount of the transaction. The authorization code is returned back to the merchant on their credit card terminal and will print on the receipt.



Typical responses will be:Approval: transaction approvedDecline: transaction denied or not approvedCall Center: more details are needed and merchant will need to call atoll-free Authorization number.Authorization FeeWhen your rates are “unbundled” you will have a rate plus anauthorization or transaction fee. This could be anywhere from $.05 to $.50.Also, most processors will charge you a transaction fee for processingAMEX, Discover, JCB or other card types of usually no more than $.25 each.Auto-CloseThis is a terminal function that enables the machine to automatically

batch out at a predetermined time each day. However, this is never guaranteed, due to possible technical difficulties so you should always verifythe day after on your printer to see “batch accepted” “batch settled” or something similar, indicating a successful batch.Automated Clearing House (ACH) fileThis is an electronic file with instructions for the exchange andsettlement of electronic payments paid between financial institutions.Average TicketThe average dollar amount of the merchants’ sales. This number isobtained by taking the total sales volume divided by the number of sales.Processors in determining your rates most often use this figure.Batch

At the end of the day, you will “settle” your terminal. In other words,you will “batch out” which takes all credit card transactions run thru your machine for the day and sends them for settlement. Within a couple businessdays, you will receive the deposit into your account.BankcardThis would be a credit card issued by a Visa or MasterCard sponsoredfinancial institution. Cards such as Discover, American Express, DinersClub, JCB, etc. are issued directly from them rather than through banks.CardholderThis is, of course, the individual that owns the credit card that is being

used in your business.Card Issuing Bank A network member bank that offers credit/debit card purchasing for their account holders. An example would be Citibank and the Citibank Visacard.Card Not PresentWhen you process a transaction on a website, over the phone or fax or



even if you have to manually enter a card number due to the magstripe beingunreadable, you will be charged CNP rates. When a credit card is notelectronically read by a credit card machine, it is considered by V/MC to be ahigher risk transaction and therefore, your rates will be higher than they arefor cards swiped. In some cases, if you obtain the CVV/CVC code from the

back of the card, it may lessen your rate surcharge somewhat.Chargeback This is a credit card transaction that is billed back to the merchant after the sale due to a dispute from the customer. The credit card issuer on behalf of the cardholder initiates Chargebacks. Typical cardholder disputes involve

product delivery failure or product/service dissatisfaction. You will betypically be charged a “chargeback handling fee” in the neighborhood of $25,or more. When you receive a chargeback, you will have a specified period of time to respond with proper documentation validating the original charge tothe customer in order to retrieve the funds. These are never fun! Make sureto keep you batch totals and individual sales receipts on file.Commercial CardCredit cards issued to business entities to cover expenses such astravel, entertainment and procurement. This could include purchase cards,

business cards, corporate cards and fleet cards. There are special proceduresto be followed with prompts on your POS machine that will assist in passing

billing information back to the card-issuing bank. This information will, inturn, be displayed on the cardholder statements. This program helps promotethe use of credit cards for business purchases by providing tracking to

business users.Corporate CardSimilar to Commercial Cards discussed above and are issued for

business related expenses.Credit ReversalThis is the cancellation or reversal of a sale that was done on the sameday. The transaction is still in the terminal and it is simply a transaction doneon the POS machine to wash out the transactions.Demand Deposit Account (DDA)This is simply your bank account where you will have your sales

deposited to.Discount RateThe percentage rate that the processor charges the merchant for thesettlement of sales transactions.Interchange FeeThis is the largest part of the Discount Rate charged by the processor and could be referred to as a “pass-through” fee. These fees get paid directly



from the processor to the card-issuing bank, which covers their costs of issuing cards, collecting payments and marketing expenses. There are over 100 different Interchange Fees currently and it is constantly changing. Mostmerchants think that the processors are making all this money but, in reality,they make very little per transaction while the bulk of the fees are paid to theissuer.Issuing Bank This would be the bank that issued your credit card. There arenumerous “issuing banks” today. They give a credit card to a Cardholder andgrant them the rights to borrow money from them up to a “credit limit”. Thecardholder then makes payments on the balance back to the issuer and paysinterest unless they pay the balance in full each month.Knuckle BusterThis is a manual credit card imprinter. Every merchant should haveone of these around for the occasional power outage or network downtime.Merchant AccountYou are the merchant and you obtain a “merchant account” from a“Sponsoring Bank”, “Acquiring Bank”, or “Merchant Bank”.Merchant ID number (MID)Your processor will issue you a MID to identify you during the

processing of sales transactions.Mid-Qualified Transactions (MQ)Any time you process a card not present transaction, you will becharged, at least, MQ rate surcharges. Again, remember these types of

transactions are considered to be more risky and therefore, are charged more.Some processors charge you even higher NQ rates for these types of transactions.Net Effective RateWhen trying to figure out what you are really paying for your creditcard services, take your total monthly fees and divide by your total monthlyvolume. This will give you a more accurate assessment of your “actual rate”.

It’s very important to understand what the Effective Rate is because it canbe significantly more than the “discount rate” you have been quoted.Non-Qualified Transactions (NQ)

These are sales that do not meet Visa or MasterCard criteria and are processed at a higher rate. Many corporate entity type cards and someRewards cards are charged NQ rates.Payment ProcessorThis is the company that your credit card authorization requests andelectronically routes the sale thru to the card issuer and coordinates fund

payment to the merchant.



PhishingPhishing (pronounced “fishing”) is a general term used to refer to thecreation and use of e-mails and websites – designed to look like legitimate emailsand websites from well-known businesses, financial institutions, andgovernment agencies – in order to deceive Internet users into disclosing their

bank and financial account information or other personal data such asusernames and passwords. The phishers then take that information and use itfor criminal purposes, such as identity theft and fraud.Point of Sale (POS)When you’re shopping in a retail store or dining at a restaurant, andyou make a purchase and present your card. Your card is swiped thru amachine or POS system, an authorization is received (hopefully), a receipt is

printed and you sign for the transaction.POS TerminalThis is electronic equipment used to collect, transmit and/or/ storecredit card transaction information at the point of sale. There are numerousmanufactures but the largest and oldest are Verifone, Hypercom, Lipman,Thales, and Ingenico etc. There are others too but sometimes reps will try tosell you a “proprietary” machine that will only work with their processor.Always make certain that you buy, or lease a universal machine so you don’tget yourself tied to a non-performing processor.ProcessorsThese are companies that process credit card transactions thru the bank system for you. Typically, banks utilize a third party to process transactions

rather than providing the service themselves. Their expertise is in banking,not credit card processing.Real-Time ProcessingTypically used on websites but can now, more frequently, be seen inthe retail environment as well. Real-time processing requires a secure

payment gateway for the security of card/cardholder information.Secure Payment GatewaySoftware utilizing Secure Sockets Layer (SSL) and encryptiontechnology to transmit transaction data over the Internet. It is typically a third

party service held on a different server so the customers’ credit card info

doesn’t need to be stored on the merchant’s server.Settlement AmountThis is the amount of proceeds deposited into your account after thesales and settlement of your terminal. Typically, funds are deposited 24-48

business hours after settlement. Some processors charge “daily discounting”meaning that they take their discount fees out of each batch. This can be anaccounting nightmare. Shop around until you find a processor that gives you



discovers something wrong is happening with their account.Virtual TerminalSoftware that is used to collect, transmit and/or store credit cardtransactions information on an ecommerce site.Voice Authorization

These are needed when the merchant can’t get an authorization thrutheir normal method or if the transaction amount is unusually high or when atransaction is being declined without a specific reason. You may get a “callcenter” indication on your POS terminal.CONCLUSION As a long time sales rep in the credit card processing business, I havediscovered that it is extremely competitive. As a result, there are constantlynew reps coming into the business because many, quite frankly, can’t handleit. So, consequently, the majority of the people that walk through your door or call you on the phone attempting to secure your business, are probablynovices. They are “pitching” you what they have been taught which certainlymay not ultimately be the best “plan” for your business. All merchantaccount providers have similar costs and there really isn’t one provider over another that can significantly beat another. Be prudent and do your ownresearch and you will be blessed in the long run.The benefits that you receive from this guide is that, once you’ve gonethrough it thoroughly, you will become better educated than 90% of the repscoming through your door. Knowledge is power…..nobody cares more aboutyour business and your bottom line than you do. This guide will help you

know for sure that you are controlling your costs, in this segment of your business, the best that you can. I would greatly appreciate any testimonialcomments that you could email me regarding how this ebook helped you.Visit our website once in a while for news that may be helpful to you andyour business. Thank you for reading and if you have any questions or suggestions for additional information that I could provide in this ebook, youmay contact me at:[email protected]

ALL RIGHTS RESERVED. No part of this report may be reproduced or transmitted in any form whatsoever, electronic, or mechanical, includingphotocopying, recording, or by any informational storage or retrieval

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