The battle for small business payment processing

The opportunities in the Payment processing services for small businesses enters the third-inning of a revolution.

For as long as anyone can recall, small business owners – everyone from the neighborhood florist, the pharmacist, to the local repair garage – obtained credit and debit card processing services from local independent sales organizations and individuals who operated as independent agents representing banks who processed payment transactions.

Payment processing sales people would mark-up the wholesale “buy-rate” to whatever the market would bear, or better said, small business owners would blindly pay. This is largely due to the absolutely confusing interchange rates, rules, and charge-back policies that required an accounting degree and ten years of payment processing experience to decipher.  Small business owners often had no idea what they paid in fees to the banks and their army of sales people.  

I once owned an art gallery as part of a real estate project I invested in back in the 1990s. Seldom did a week go by when yet another independent sales rep from a credit card processor would declare they could save me money on credit card fees, if only I would part with my last three months worth of statements so they could do a detailed analysis of how much I could save.

I nibbled more than once on the offer-of-the-week, and even changed banks (after getting turned inside out during the credit application review process) based on a promise I’d save money (but mostly because my wife worked for the bank, and the sales rep was a friend of hers). If I saved money, I never noticed.

So, when Square demystified the entire process for small business owners and cut out the middle-people (ISOs), they essentially threw the first stake into the heart of the old-school business model followed by the payment processing industry. I knew instantly that the world was changing – and putting the small business owner back in charge.

Square, followed by Intuit, PayPal, and now Amazon, made it uber-easy for small business to compare fees, and sign-up for credit card processing.  Each offers a simple, flat rate, transparent pricing policy. No hassle to sign-up, no hassle determining how much the fees were, and clearly a big savings over what my wife’s friend was charging me.

A  friend of mine who owns a fairly large ISO just sold his business for a king’s ransom.  Maybe he knows the writing is on the wall that the old-school business model is being upped by the new kids in town.

Today, thanks to Square, and now Amazon, their local small businesses customers are paying the same bank fees as their giant competitors, be it a Walgreens, a Target, or even Walmart.

MORE THAN 575 MILLION #EMV CHIP CARDS IN U.S. BY 2015

The Payments Security Task Force (PST) today provided an update on its discussions and activities since its inception. The task force, which represents a diverse group of U.S. electronic payment industry players, has initially focused on continuing the momentum of EMV chip implementation in the United States.

In a recent forecast, nine of the country’s largest payment card issuers who participate in the task force estimate that they will have issued more than 575 million chip-enabled payment cards by the end of 2015. The participating issuers include Bank of America, Capital One, Chase, Citi, Discover, Independent Community Bankers of America (representing issuing members), Navy Federal Credit Union, US Bank and Wells Fargo & Company.

“These numbers reflect the significant momentum behind the adoption of EMV chip in the United States,” said Ryan McInerney, president of Visa Inc. “By the end of next year, these issuers estimate that one in two of their U.S. payment cards will be chip-enabled, which represents real progress given the scale and complexity of this overall effort.”

The task force plans to update the issuer forecast regularly and expand it to include acquirer and merchant perspectives on EMV chip terminalization.

“The move toward enhanced security for cardholders and merchants is real and tangible,” said Chris McWilton, president, North American Markets, MasterCard. “We’re gaining alignment around the most significant challenges where the industry needs to have a common foundation.”

To promote EMV chip adoption, the task force is working to identify best practices around merchant testing and certification to help significantly reduce the testing and implementation time.

“The pace of EMV adoption is rapidly accelerating with many institutions already issuing EMV chip cards, and even more coming onboard every month,” said Guy Chiarello, president, First Data. “First Data is strongly encouraging all institutions to launch their EMV plans immediately, and not wait for the October 2015 liability shift. Issuing EMV now will benefit consumers by making the most secure payment card available sooner, while reducing fraud losses and enhancing payments system security for all.”

“Global Payments is at the forefront of enhancing security for our customers,” said Jeff Sloan, Chief Executive Officer, Global Payments Inc. “Having implemented EMV in many other markets around the world, we have in-depth experience in managing the complexity of an ever changing dynamic payments ecosystem. We encourage early adoption of EMV by our customers.”

Among the next priorities for the task force is identifying an actionable, long-term roadmap to deliver a consistent level of security for payments in the digital and physical environments. Part of this will include providing clarity around enhanced security solutions like tokenization and point-to-point encryption.

“Community banks are nimble and able to move quickly on technological advances once the business case for such changes are clear,” said Camden R. Fine, president and CEO, Independent Community Bankers of America. “It’s evident that EMV chip-based technology is an effective control against card counterfeiting and an important step forward as community banks plan ahead for our customers’ security and ease of payment when using cards to make a purchase.”

About the Payments Security Task Force

The Payments Security Task Force was announced in March 2014 to drive executive level discussion that will enhance payments system security. The task force includes a diverse group of participants in the U.S. electronic payments industry including payment networks, banks of various sizes, credit unions, acquirers, retailers, point-of-sale device manufacturers and industry trade groups.

Among the participants are Bank of America, Capital One, Chase, Citi, Credit Union National Association, Discover, First Data, Global Payments Inc., Independent Community Bankers of America, National Association of Federal Credit Unions, MasterCard, Navy Federal Credit Union, Shell, Subway, US Bank, VeriFone, Visa and Wells Fargo & Company.

Source: MasterCard

Prepaid Cards for College Students

My first job as an aspiring marketing professional was working part-time in the marketing department at Bank of America while a student at USC. One of my duties was helping the student marketing program manager promote student credit cards across various four-year colleges through a small army of “Campus Representatives” hired by the bank to work the college crowd at various events and activities on- and off-campus.

The team signed up thousands of new customers every week.  Long-term studies I’ve led over the years consistently show most of these once-students held on to their first credit card far longer than any subsequent card added to their wallet.  In fact, I still have my first credit card, which started out as a student BankAmericard card more than (gulp) 30 years ago.

 

Student Card Marketing now focuses on Prepaid

Student Card Marketing now focuses on Prepaid

Javelin Strategy & Research just released a new report on the prepaid market among college students.  The study reminds me how important the student market is to the long term future of a financial institution, but only if they pull it off smartly.

According to the Javelin report, the CARD Act of 2009 “severely limited the once-pervasive trend of issuing credit cards to college students, and some issuers turned to prepaid cards to continue providing cards to college campuses.”

Once again, regulators are proposing new regulations for college cards that could dramatically alter payments for students.

Card issuers have always been focused on students because of the long-term ROI and low cost of acquisition. Bankers hope that they can retain these cardholders as they evolve into financially independent and increasingly affluent banking customers.
According to Javelin, today, 23% of students own a general-purpose reloadable (GPR) prepaid card and approximately 107 colleges offer a campus-specific prepaid card to students.
The new study examines the controversial regulatory environment for campus prepaid cards and recommends how issuers and universities can best manage potential regulation. The report also analyzes the unique financial needs of today’s college students and offers insight into how providers can best help young customers and build long-term financial relationships.

Visa Helps Gas Station Retailers Reduce Fraud at the Pump

New Visa Service to Help Gas Station Retailers Reduce Fraud at the Pump

Reducing Fraud at the Gas Station

Reducing Fraud at the Gas Station

Intelligent analytics help merchants identify fraud before it happens; Fraud rate dropped more than 20 percent in pilot test

Visa Inc. (NYSE:V), the global leader in payments, is helping U.S. fuel retailers prevent credit and debit card fraud at the pump with intelligent analytics that identify higher-risk transactions that may be fraudulent.

While global fraud rates across the Visa payment system remain near historic lows – less than 6 cents for every $100 transacted – fuel pumps can be targets for criminals because they are often self-service terminals. The new solution, Visa Transaction Advisor (VTA), enables merchants to use real-time authorization risk scores to identify transactions that could involve lost, stolen or counterfeit cards. A pilot test of the new service showed a 23 percent reduction in the rate of fraudulent transactions – all without costly infrastructure upgrades or disruption of the customer experience.

“Visa Transaction Advisor uses sophisticated analytics based on the breadth and scale of VisaNet data to flag the riskiest transactions,” said Mark Nelsen, Vice President of Risk Products and Business Intelligence, Visa Inc. “By working with fuel companies to understand their needs, we were able to create a new service that builds on Visa’s predictive analytics capabilities, providing fuel merchants with more intelligence to prevent fraud and improve their bottom line.”

How It Works

After a cardholder inserts the card at the pump, Visa analyzes multiple data sets such as past transactions, whether the account has been involved in a data compromise, and nearly 500 other pieces of data to create a risk score. This allows merchants to identify those transactions with a higher risk of fraud and perform further cardholder authentication before gas is pumped.

The time and costs associated with resolving fraudulent transactions can be substantial for both merchants and financial institutions and inconvenient for cardholders, which is one of the reasons why fraud prevention is critical. Visa’s solution is easy to implement – using existing message fields and formats as well as pump software or hardware to ensure minimal impact to merchants and acquirers.

Several fuel merchants who piloted the technology over the last several months noticed a decrease in fraud, without negatively impacting their consumers’ experience.

“We are excited about VTA as a tool to help mitigate fraudulent transactions. We saw a 23 percent reduction in the rate of fraudulent chargebacks during our Los Angeles pilot program,” said Gabriel Andres Porras, Merchant Acquiring Manager, Chevron. “This was done with minimal impact to the customer experience, making secure payment at the pump as convenient as possible.”

“We provide fuel to millions of customers each month through approximately 15,000 service stations in the United States,” said Mike Swillo, US Credit Card Operations Manager, from Shell. “When we consider new solutions and technology it has to have a clear business benefit, be customer-centric, and easy to implement. With no infrastructure investment, we are testing VTA as part of our proactive fraud prevention tool-set to better identify fraudulent card activity earlier in the transaction cycle, without inconveniencing our customers.”

Visa Transaction Advisor is available to merchants through participating U.S. acquirers. Visa has partnered with Vantiv and is also working with other acquirers to offer the service to its fuel clients.

“Ease of implementation is a critical requirement whenever we’re talking about a new merchant service,” said Donald Boeding, president of merchant services at Vantiv. “Visa Transaction Advisor builds on existing payment infrastructure, is easy to implement and flexible enough to allow customization by merchants, which is why we are excited to be the first acquirer to offer it to our oil merchants.”

Source: Visa USA

CFPB Begins Accepting Consumer Complaints on Prepaid Cards

The Consumer Financial Protection Bureau (CFPB) recently distributed a media release announcing it is now accepting complaints from consumers encountering problems with prepaid cards, such as gift cards, benefit cards, and general purpose reloadable cards. Consumers can also now submit complaints about additional nonbank products, including debt settlement services, credit repair services, and pawn and title loans.
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CFPB now accepting complaints on prepaid cards

“Today we are taking another important step to expand the Bureau’s handling of consumer complaints,” said CFPB Director Richard Cordray. “By accepting consumer complaints about prepaid products and certain other services we will be giving people a greater voice in these markets and a place to turn to when they encounter problems.”

The Bureau started taking complaints about credit cards when it opened its doors in July 2011. In addition to taking complaints regarding today’s new products, the CFPB also handles complaints about mortgages, bank accounts and services, private student loans, auto and other consumer loans, credit reporting, debt collection, payday loans, and money transfers. The Bureau requests that companies respond to complaints within 15 days and describe the steps they have taken or plan to take. The CFPB expects companies to close all but the most complicated complaints within 60 days. Consumers are given a tracking number after submitting a complaint and can check the status of their complaint by logging on to the CFPB website.

Prepaid Cards

Prepaid cards generally allow a consumer to access money that has been paid and loaded onto the card upfront. A prepaid card can refer to a number of different types of cards. For example, gift cards are prepaid cards that typically can be used at one specific company like a restaurant or retailer and are used up once the value on the card is depleted. Other cards may be loaded with a consumer’s salary or other employee benefits such as healthcare or transit payments.

“General purpose reloadable” prepaid cards allow consumers to pay to reload the card and reuse it, and often allow consumers to take money out at ATMs. Many consumers use reloadable prepaid cards as an alternative to a traditional checking account. Some prepaid cards, however, have fewer consumer protections than debit or credit cards. In the coming months, the Bureau plans to issue a proposed rule aimed at increasing federal consumer protections for general purpose reloadable prepaid cards.

Consumers can submit prepaid card complaints to the Bureau about:

  • Problems managing, opening, or closing their account
  • Overdraft issues and incorrect or unexpected fees
  • Frauds, scams, or unauthorized transactions
  • Advertising, disclosures, and marketing practices
  • Adding money and savings or rewards features

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