How A Typical Credit Card Transaction Works and How Credit Card Fees Work for Merchants

Here’s how typical credit card transaction works:
When a consumer pays with a credit card, the merchant sends the details of the transaction along with the credit card information to the merchant’s bank. The merchant’s bank forwards the information to the cardholder’s bank for approval. If approved, the cardholder’s bank sends the required amount to the merchant’s bank, minus the merchant discount rate. The credit card companies don’t receive any revenue directly from interchange rates. Instead they make their money by charging the banks fees for networks, transactions and other kinds of services.

Up until April 2008, interchange rates were simple and inflexible. At that point, the company decided to move to a more dynamic system.

Interchange rates now vary from card to card, depending on the types of services and incentives offered. Typically, premium cards, which come with rewards for things like travel, cost merchants more to process. The rates also vary by type of transaction, and even by type of retailer. At times, the card companies have, for example, set special rates for grocery and gas retailers in a bid to boost credit-card use in locations where cash and debit traditionally dominated. The card companies have also introduced a growing number of premium and even super-premium cards that cost merchants more to process. The cards appeal to consumers because they contain a number of attractive incentives, such as travel and other rewards. The changes in the rate structure followed a change in the credit card companies’ business model in the mid 2000s.

Visa and MasterCard evolved from private associations owned mainly by the banks they serviced to publicly traded, profit-driven entities beholden to a wide range of shareholders. Merchants say the fees they pay to accept credit cards are rising as a result and have become increasingly unpredictable. Critics of the credit card companies say the merchant is a powerless middleman in a system that entices consumers to use their cards and banks to reap the benefits.

The credit card companies say the system benefits everyone, including merchants, by providing a rapid, secure form of payment.

Every time you use your credit card to make a purchase, the merchant pays what is called the “merchant discount fee.” The merchant discount fee is calculated as a percentage of the good or service purchased. It can range from 1.5 per cent to 3 per cent. On a $100 item, for example, the merchant could pay a fee of between $1.50 and $3.The merchant discount fee covers a number of things, such as terminal rentals, fraud protection and transaction slips. But the biggest component of it is based on the interchange rate, which is set by the credit card companies.

In a complicated twist, the credit card companies don’t make any money from the interchange rate. The banks do. The interchange rate is what makes the credit card system work.  This rate ensures the banks have a financial incentive to issue and accept credit cards.

Posted in Credit card Processing, Electronic Payments, Merchant Services Account, Visa MasterCard American Express Tagged with: associations, bank, card, cardholder, charging, credit, credit-card, discount rate, dynamic, fees, financial, fraud, interchange, merchant, Merchant's, networks, payment, process, protection, Rates, rentals, secure, services, terminal, transaction, travel

To Ease In-App Purchase Pain Facebook Adds Autofill

Facebook this week began testing a new feature dubbed “Autofill with Facebook” that aims to simplify mobile purchases by filling in customers’ credit card information for them, thus eliminating the need to type it in each time. This “Autofill with Facebook gives people the option to use their payment information already stored on Facebook to populate the payment form when they make a purchase in a mobile app,” Facebook spokesperson told the E-Commerce Times. “The app then processes and completes the payment.”  The feature “is designed to make it easier and faster for people to make a purchase in a mobile app by simply pre-populating your payment information.”During the test period, which began Monday evening, the feature will show up only to Facebook users who have already provided credit card information to the social network — in other words, those who have made in-game purchases or bought gifts for friends.

Facebook has partnered with PayPal, Braintree and Stripe as financial partners on the service, which is initially available only on the e-commerce iOS apps JackThreads and Mosaic.

Ironing Out the Wrinkles Autofill with Facebook isn’t a move to compete with PayPal and credit card companies, but to complement payment services by adding a layer for convenience, much the way Facebook, Google and Amazon have created a single login that works across a network of websites.

“Facebook is not interested in being a payments company,” an analyst, told the E-Commerce Times. “Instead, it is aiming to be the entity that irons out bumps in the payment process — something it is well-positioned to do. “With Autofill, Facebook will act as the lubricant that makes the commerce experience more seamless, providing a number of benefits to all stakeholders.”

Partners in the deal ensure that Facebook will succeed in Autofill with Facebook, it doesn’t care about payments, it cares about reaping the benefits that come from making the payment experience better.”

‘The Potential to Be Lucrative’ There could be significant financial benefits as well. “This approach has the potential to be lucrative for Facebook in that it will help plug the mobile conversion gap,” McKee suggested. “If Facebook can prove to its partner merchants that an ad on its site led to a purchase, the validity of its platform can easily be proven. Ideally, this will help convince other companies to advertise with Facebook as well.”

Taking it a step farther, Facebook will also gain transaction data, which McKee believes has considerable value. “Facebook can leverage transaction data with what it already knows about us for precision ad targeting. This will increase the relevance and placement of ads on Facebook.”

The Security Factor While many mobile customers will appreciate the Autofill function, security issues still lurk in the back of every consumer’s mind. Yet while privacy concerns have been an ongoing issue for Facebook, it has a good track record where security is concerned. “Facebook has been relatively incident-free when it comes to security breaches.”  “However, this is more a problem of consumer perception. Will consumers feel comfortable storing their payment credentials with a social media platform?

“Facebook is already approaching ‘big brother’ status, and this takes it one step further.” “To succeed, Facebook must provide visibility into what it plans to do with transaction data.”

‘It’s a No-Brainer’ The convenience factor, meanwhile, could be a compelling one for consumers. “It’s no-brainer useful to mobile users…who wants to enter their credit card on a mobile phone more than once?” “It could be more secure than mobile payment alternatives.” If Facebook gets past its hurdles, it will also succeed in building strengths in areas where it has been lacking to date.

“Right now Facebook isn’t super strong at the conversion side of  e-commerce.” “Autofill will give them a lot of data about purchases, which might help them remedy that.”

‘Strategic Smarts and Ambition’ As for those benefits to Facebook, there are potentially many. One example,”Autofill admits them to the online payments world.”

“This is another example of the strategic smarts and ambition of Zuck.” “One gets the sense that he wants to be a major competitor for everything online.”

Posted in Credit card Processing, Credit Card Security, Digital Wallet Privacy, e-commerce & m-commerce, Electronic Payments, Mobile Payments Tagged with: Amazon, commerce, credit card, e-commerce, Facebook, google, media, mobile, mobile phone, network, payment, payment information, payment services, PayPal, platform, processes, secure, social, transaction

Convergence of mobile banking, ATM channels is a given

Convergence of mobile banking, ATM channels is a given

 Auriga, Diebold, NCR and Wincor Nixdorf International have all demonstrated their mobile phone-based cardless cash withdrawal solutions. It is interesting to note that all of these vendors have embraced the QR code technology…a clear endorsement for a technology that is secure, low-cost, and readily available.

It doesn’t take a deep examination to realize that the mobile banking and ATM channels are heading toward convergence,  and when the fusion of these dominant channels occurs, the consumer should be at the heart of it.

Auriga has advanced this idea by combining cardless ATM withdrawals with its mobile payments solution. The company has also added an option to make payments using a bank account rather than a card to support those consumers who do not embrace, or do not qualify for, traditional bank cards.

Not surprisingly, many large retailers are watching these developments with keen interest, ever mindful of the significant interchange fees they pay for accepting card based payments.

Although cardless ATM withdrawals and mobile payments are exciting, they are only the start of a deeper, multi-channel convergence. The real channel convergence is not happening at the endpoint devices, it is happening internally within the banks and processors, where modern, flexible technologies are being increasingly deployed to augment or replace yesterday’s legacy infrastructure.

The abilities to centralize business services to save costs, to easily deploy services over any channel for greater consumer choice and to achieve faster times to market for new services are no longer “nice to have” luxuries — they are now “must have” attributes to stay in the game.

It is little wonder that leading banks are shifting their IT investments away from solutions that perpetuate a fragmented services approach in favor of true multichannel systems that facilitate the ultimate consumer experience.

“Channel convergence does not mean that the ATM or the mobile device is at the center, it means the consumer is at the center.”

Once the consumer is placed at the center of your self-service strategy, you quickly realize it is their needs and preferences that should rightfully guide your approach.

The real secret is to allow consumers to interact with their bank the way they want to…with as few restrictions as possible. There is no magic silver bullet that will suit every consumer’s needs.

Banks can create deeper and more enduring relationships with their customers by implementing personalization profiles that allow consumers to tailor their own service experience.

MySpend solution is an excellent illustration of how banks and consumers can better cooperate to combat fraud, consumers can define their own use rules to significantly improve the accuracy of any fraud detection system. For example, card transactions from specific countries can be readily declined if a consumer knows that he or she will not be there, it also provides consumers with an instant notification of their transactions and the means for them to immediately flag any transaction they did not perform.

The use of consumer-specific profiles can be easily extended beyond the anti-fraud focus of MySpend solution. For example, Auriga’s Internet banking solution allows consumers to choose their own login security options from the bank-approved list, including an option for phone-based authentication using QR codes. More broadly, consumer-configured use profiles can improve the entire consumer experience, regardless of the chosen service channel.

Auriga’s ATM solution includes an intelligent menu that automatically tracks the consumer’s transactions and presents the most frequently used transactions on conveniently accessed menu buttons.

“The technology already exists to allow (consumers) to customize their own ATM menu through their mobile or Internet banking channel.” “It is only a matter of time to see the widespread adoption of this advanced customer-centric convenience.”

Ultimately, the business challenges are not about technology; they are about learning how to use the technology to promote growth and identify new competitive advantages. A recent ATM Marketplace report said that “the bank of the future will be a multichannel, multifunction and multi-device environment.” Given the current evidence, it seems this is a sentiment everyone can agree with.

Posted in Electronic Payments, Mobile Payments Tagged with: banking atm, banks, card based payments, convergence, diebold, interchange fees, mobile banking, Mobile Payments, mobile phone, QR code, secure, technology

“Hardware”: Key to Mobile Commerce’s Future

“Hardware”: Key to Mobile Commerce’s future

If you thought mobile commerce was about the cloud or software, proof to the contrary is mounting. In fact, four key moves by three big companies over the past week have provided more evidence that software and the cloud are taking a back seat to a significant force in mobile.

OTA VS. Device Access

Without security mobile commerce is dead in its tracks after the first major breach. Two basic elements: Access to mobile apps and over-the -air security. Both necessary but they play entirely different roles. Mobile apps have direct access to our lives. With them we can share our professional story, personal lives and of course move money around with mobile banking and mobile commerce apps. Therefore, ensuring that no one but YOU can access your apps is important. That is why you probably have myriad user names, passwords and PINs. This brings us to our first big hardware move.

Apple’s Touch ID

Apple introduces hardwarebased biometrics with its new Touch ID. Essentially the first commercially product available biometric button, combines the user request (pushing button) and the identity check (scanning the fingerprint) into one action.

Apple correctly presented this feature as an excellent for a personal identification number to activate the phone or complete an iTunes purchase.

Apple’s Secure Enclave

The “secure element” is essentially hardware and software that, when combined, function like a smartcard running on a part of the mobile phone that no other app can access. Apple announced that the highly sensitive fingerprint data from its Touch ID product would not be stored on a remote server, in the cloud or even in the iPhone memory. It will be stored in the “secure enclave” of its new A7 processor chip.

Difference between a secure enclave and a secure element? Probably little or nothing. We don’t know if Apple’s secure enclave uses smartcard technology, we know it is essentially hardware and software running on the part of it’s a& chip that no other app can access.

 

Posted in Electronic Payments, Mobile Payments, Mobile Point of Sale Tagged with: Apple, commerce, mobile, secure, Security