Surviving the Merchant Processing Jungle

Do not ask for whom the bell tolls: it tolls for thee.

If you accept credit cards at your business, there are a whole list of fees and charges you’ll be subject to, and they’re the same for every processor. Not one of them can get you a better deal, or dodge these bullets. The largest processor in America is First Data, and they pay exactly the same interchange rates as the smallest little local bank with just three branches in your home town.

Interchange rates represent the largest part of the credit card processing expense, and every last dollar goes to the card issuing banks, as the card brands don’t see any of this revenue and neither do the processors. There are many different factors that go into determining which rate will apply, however. If a card is swiped in a retail transaction the interchange rates will be lower than if the card number is keyed in. Rewards cards and Business Cards will cost the merchant more than plain vanilla consumer cards. To further complicate things, different types of businesses will be subject to different interchange rates.

If all this seems complicated, it is, but there are good reasons for it. If the card is physically present and “swiped” in a terminal, it is less likely to be a fraudulent transaction that one where the merchant keys in a card number taken over the phone. Restaurant transactions are considered to be less risky than sales made at pawn shops or adult bookstores.

It’s important to realize that all processors pay exactly the same Interchange rates.

Assessments are fees that are paid to Visa, MasterCard and Discover every time there is a transaction using one of their cards. Just like interchange fees, all processors pay the same rates, and none of them can get you a better deal on these mandatory charges. What follows is just a sample of the different assessment fees that come into play:

• Visa

o    .11% – Assessment
The assessment applies to gross Visa transaction volume.

o    $0.0195 – Acquirer Processing Fee (APF) – Credit
The Acquirer Processing Fee applies to all U.S.-based credit card authorizations acquired in the U.S. no matter where the issuing bank or cardholder is located. If your business is based in the U.S., the acquirer processing fee will apply to all Visa credit card authorizations.

o    $0.0155 – Acquirer Processing Fee (APF) – Debit
Beginning in April 1, 2012, Visa began charging a separate lower APF of $0.0155 for transactions involving a debit card.

o    Transaction Integrity Fee (TIF)
Effective as of April 13, 2012, Visa began charging a Transaction Integrity Fee (TIF) of $0.10 on transactions involving Visa debit and prepaid cards that do not meet CPS requirements.

o    Variable – Fixed Acquirer Network Fee (FANF)
Effective as of April 1, 2012, the FANF is a monthly fee that varies based on processing method, number of locations and volume.

o    $0.0023 – Settlement Network Access Fee – Also called a Visa Base II Fee, this is applied to all U.S.-based settlement transactions.

• It should be noted that the Settlement Network Access Fee (Visa Base II Fee) and the Acquirer Processing Fee  apply to the vast majority of transactions run by U.S. business, bringing the total fee to $0.022

o    $0.045 – Misuse of Authorization Fee
The Misuse of Authorization Fee is applied to authorizations that are not followed by a matching clearing transaction (or if there is an authorization that cancels or times and is not reversed properly).

o    $0.10 – Zero Floor Limit Fee
Visa’s Zero Floor Limit applies to cleared transactions that can’t be matched to a previously approved or partially-approved authorization. Basically, it applies to settlement transactions submitted without a proper authorization.

o    $0.025 – Zero Dollar Verification Fee
The Zero Dollar Verification fee applies to Zero Dollar Verification messages (approved and declined). Zero Dollar Verification messages include the verification of the card account number, address verification (through AVS), Card Verification Value 2 (CVV2) and Single Message System (SMS) acquired Account Verification authorizations. The Visa Misuse of Authorization Fee does not apply to these requests. The fee comes into play when a merchant verifies a cardholder’s information without actually authorizing a charge to the card.

o    .40% – International Service Assessment Fee
This Fee applies to U.S. acquired transactions paid for with a card issued outside of the U.S.

o    .45% – International Acquirer Fee
The International Acquirer Fee applies under the same circumstances as the International Service Assessment Fee noted above.

• MasterCard

o    .11% – Assessment (Transactions less than $1,000)
The assessment applies to gross MasterCard transaction volume.

o    .13% – Acquirer Brand Volume Fee (Transactions greater than $1,000)
This assessment applies to consumer and business credit volume on transactions of $1,000 or greater, but does not apply to signature debit transactions no matter what the dollar volume may be.

o    $0.0195 – Network Access and Brand Usage Fee (NABU) The NABU fee applies to U.S.-based authorization transactions regardless of whether the transaction is settled. The fee applies to both authorization and refund transaction.

o    .40% – Cross Border Assessment Fee (Domestic)
The domestic Cross-Border Assessment Fee applies to U.S. acquired transactions paid for with a card issued outside of the U.S. and settled in USD.

o    0045% – Acquirer License Fee (ALF)
Beginning in April 2012, MasterCard began charging 0.0045% as an Acquirer License Fee assessed on gross MasterCard processing volume. This fee is referred to by several processors as a License Volume Fee.

o    .80% – Cross-Border Assessment Fee (Foreign)
The foreign Cross-Border Assessment Fee applies to international transactions settled by U.S.-based merchants in a currency other than USD.

o    .85% – Acquirer Program Support Fee 
The Acquirer Program Support Fee applies under the same circumstances as the Cross-Border Assessment Fee (Domestic) noted above.

o    $0.0075 – AVS Fee (Card-Not-Present)
MasterCard charges a fee each time a merchant access the address verification service when processing a transaction and the card is not present

o    $0.005 – AVS Fee (Card-Present)

o    $0.0025 – Card Validation Code Fee
Effective in October 21, 2013, MasterCard began a Card Validation Code 2 (CVC2) transaction fee of $0.0025. This fee is charged on transactions acquired in the United States with the CVC2  included in the transaction for authorization and the CVC2 response value equals ’M’ (Match) or ’N’ (Invalid/did not match). The fee does not apply to Account Status Inquiry (ASI) requests.

o    $0.025 – Account Status Inquiry Fee
This fee is charged for transactions where a merchant authorizes an amount on a cardholder’s account, but instead, validates aspects of the account. Account status inquiry transactions may include requests for address verification service (AVS), card validation code (CVC2), or both.

o    $0.055 – Processing Integrity Fee (Card-Present, Card-Not-Present, No reversal)

o    In June, 2011 MasterCard began charging acquirers the Processing Integrity Fee of to encourage merchants to abide by proper transaction authorization standards. The Processing Integrity Fee applies under the following circumstances:

• Card-present: Transactions are not settled, cleared, or reversed within 24 hours of the original authorization transaction/request
• Card-not-present: Transactions are not settled, cleared, or reversed within 72 hours of the original authorization transaction/request
• No reversal: An authorization transaction cannot be matched to a corresponding settlement record after a period of 120 days
• Exempt merchants: Travel and entertainment merchants classified as MCC 3351-3441, 3501-3999, 4411, 7011 and 7512 are exempt from the Processing Integrity Fee

• Discover

o    0.105% – Assessment
The assessment applies to gross Discover card transaction volume.

o    $0.0185 – Data Usage Fee
The Data Usage Fee applies to all U.S.-based authorization transactions.

o    $0.0025 – Data Transmission Fee
The Data Transmission Fee applies to all sale transactions.

o    40% – International Processing Fee
The International Service Fee applies to U.S. acquired transactions paid for with cards issued outside of the U.S.

o    .55% – International Service Fee
The International Service Fee applies under the same circumstances as the International Processing Fee noted above.

Do you really need to know all that?  Probably not, but at least you’ve seen it.

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