“Interchange fees can comprise up to 95 percent of the transaction cost,” said Rob Little, sales and marketing vice president for National Bankcard Services in Plymouth, Minn., “and every year major credit card brands keep adding to them by mandating biannual price increases.”
Since interchange rates are set by the card brand, neither a processor nor a retailer can change the cost of a branded transaction. But as Brian Ridder, senior vice president of business development for First National Merchant Solutions in Omaha, Neb. pointed out, retailers could save a lot by smart negotiating for the rest of the processing costs.
“Many merchants are on the quest for a lower rate, but it’s important to look at how that rate applies to the average ticket,” advised Ridder, whose company services thousands of c-store and petroleum sites. “If your average price for a fuel ticket is $20, how does a rate of 1.25 percent and a per item cost of 25 cents compare to a rate of 1.7 percent and a per item cost of 10 cents? The first option will cost you 50 cents and the second 44 cents,” he said.
Perhaps the best scenario for retailers, processors and consumers alike are private-labeled and Automated Clearing House (ACH) cards. Bypassing interchange fees altogether, these options not only improve the profitability of the transaction but some say increase customer loyalty too.
Atlanta-based First Data Corporation serves 5.4 million merchant locations nationwide, including many petroleum and convenience store sites, and last year processed 33.9 billion transactions last year. “As interchange rates continue to go up, everyone is looking for alternative payments to help lower their non-cash costs,” said Paul Cwalina, senior vice president of national and global accounts.
“In general, ACH products are approximately one-third the cost of a typical Visa or MasterCard transaction,” Cwalina continued. Moving consumers to that option could save retailers thousands. “The trick is the value proposition for cardholders and giving them enough incentive to actually use the card. Even if you offer an enticing discount, you’re still in a better position at the end of the day.” One popular idea, he said, is for petroleum retailers to partner with local grocery store chains in an effort to improve profitability and loyalty to both companies.
Little agrees that the best way to reduce the cost of interchange rates is to avoid them altogether. “One of the ways we help is to work with you in developing your own branded cards,” he said. “Whether it’s private-label, prepaid, loyalty, ACH or gift cards, you make up the rules in those cases. And it helps you mitigate the number of transactions that are processed through Visa and MasterCard.”
Because interchange rates on major card brands are regularly increased, a growing number of retailers are exploring alternatives. “Some of our customers are processing more than 50 percent of their card transactions via private-label brands and that makes them fundamentally more profitable than their competitors,” Little pointed out. “You can share your savings with consumers through price rollbacks, which creates loyalty. If you put a little energy into it, you can use a private-label card to market and promote your c-store and fuel brand. A club card is like having a billboard for your business in customers’ wallets.”
Rather than just avoiding interchange fees, prepaid cards have the added bonus of capturing customer data so that retailers can “create a strategic database and then promote to those customers,” said Little. “It’s taking a proactive approach.”
Proactive Security Saves
Fraudulent transactions hurt profitability. And for petroleum retailers, pay-at-the-pump transactions are more susceptible to fraud than in-store payments, according to Ridder of First National Merchant Solutions. However, processors can provide retailers with technology to prevent fraud. “For example,” he asserted, “verifying the billing address is important at the point of sale. Asking for a zip code really does minimize the number of fraudulent transactions.”
Another important tool to combat fraud is velocity checking. “If a bad guy has a card, he will circulate it quickly, getting his friends and family free fill-ups at the pump,” said Ridder. “Velocity checking can identify how many times a card was used at a merchant or set of merchants.” Prompting cardholders to come inside for attended transactions can also discourage fraud while increasing the likelihood that legitimate fuel customers will purchase store items.
Most card processors provide these general services but each has different options. For instance, National Bankcard Services “has the ability to restrict the type of card that typically gives you the most trouble,” said Little. “Soft declines might need to happen more frequently in urban areas, while you may want more flexibility in rural locations.”
As Cwalina pointed out, “First Data allows you to set parameters for single-site or chain
locations together. We can also do velocity checking based on the quantity of transactions or the dollar amount.” By setting such parameters, potentially fraudulent transactions are referred inside—so that retailers are not left in the lurch.
If fraud does occur, fast detection increases the likelihood that perpetrators are caught. “We offer real-time fraud alerts,” said Cwalina. “When the parameters that you’ve set are violated—for example, the number of times a card is used in manually keyed transactions during specific timeframes throughout the day—then you can receive an email or text notification.”
Recently, First Data developed TransArmor, a solution that “combines encryption and tokenization technology to protect and remove payment card data completely, so you don’t need to store it,” Cwalina explained. “Because the solution maintains the primary account number data in a First Data ‘vault,’ it reduces the scope and cost of PCI [payment card industry] compliance.”
Knowing the true cost of your transactions is a key to maintaining profit margins. National Bankcard Services “provides online reporting through Bank of America,” noted Little, “and they have analysts who can help you find ways to reduce costs. You can get complete reporting on all transactions, and you’re able to query and download that data.”
First National Merchant Solutions offers the FNMS Online® service which “enables you to do everything from monitoring fraud and ticket sales to reducing chargebacks and interchange rates,” said Ridder. “Smaller merchants can use the reporting tool to export certain data into an Excel spreadsheet, while larger merchants benefit from predetermined reports.”
To further manage and minimize interchange costs, Ridder continued, “We send timely statements, often electronically, so you can manipulate your own data and see how much you’re spending on various interchange categories.” First National account managers regularly review clients’ data, he said, “to identify where problems are coming from, perhaps whether a certain store has a high volume of manually keyed transactions or isn’t submitting transactions on a timely basis.”
First Data’s reporting tool is called ClientLine and “offers hundreds of generic reports,” said Cwalina, “including an interchange management report that lets you review and manage downgraded transactions on a store-by-store basis, review retrieval requests and chargebacks, and proactively manage your business to minimize interchange costs.”
Situations Under Control
Though interchange fees can be a source of frustration, savvy retailers focus on what they can control. For instance, said First National’s Ridder, “Depending on when you close the end of your day, it can affect whether or not you receive next-day settlement. The later your day closes, the more likely it is that you’ll have to wait 36 hours before you receive payment in the bank.”
Cwalina of First Data pointed out that the time required for PIN-Debit settlement can also depend on the processor’s policy. “Each PIN-Debit network has different cut-times for their business day,” he explained, “but for many years now, First Data pays you for what batches you submit when you end your business day. This makes reconciliation easier for you because we manage the cut-time variations and we then balance to the penny from our host to the PIN-Debit
Retailers should likewise inquire how processors handle chargebacks. “Often these occur during an outdoor transaction when you’re not getting a signature,” said Cwalina. “In 94 percent of those cases, at First Data we’re able to do a substitute draft. That means we don’t have to bother you and instead respond on your behalf.” By contrast, substitute drafts are not typically permitted for indoor transactions.
On the other hand, Cwalina continued, First Data’s ACH card product “is layered with TeleCheck. So if the transaction is approved, you’re guaranteed payment no matter what. The TeleCheck database is best-of-class in the industry.”
For his part, Little of National Bankcard Services confirms that the best solution to combating high fees is to focus on what you can control. “Make an impact on your bottom line,” summarizes, “by moving as many consumers as you can to a private label card. And then take the resources and energy you have and come up with the right incentives that will make the card a success.”
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Below are companies that provide payment processing solutions for petroleum marketers and convenience store operators.
Alliance Data (www.AllianceData.com) and its family of businesses provide loyalty and marketing solutions derived from transaction-rich data. Through creation and deployment of customized solutions that measurably change consumer behavior, Alliance Data helps clients create and enhance customer loyalty. Alliance Data manages millions of customer relationships for some of North America's largest and most recognizable brands. Headquartered in Dallas, the company employs approximately 7,000 associates at some 50 locations worldwide.
Chase Paymentech (www.chasepaymentech.com), a subsidiary of JPMorgan Chase, provides payment processing and merchant acquiring and is capable of authorizing transactions in more than 130 currencies. The company’s proprietary platforms provide access to a wide variety of payment methods such as credit cards, debit cards, prepaid stored value cards, and electronic check processing. In 2008, Chase Paymentech processed more than 21.4 billion transactions—including an estimated half of global Internet transactions—valued at nearly $714 billion. The company also provides solutions for accelerating cash flow and managing transaction data.
Comdata Corporation (www.comdata.com), a wholly-owned subsidiary of the Ceridian
Corporation, provides business-to-business electronic payment solutions. As an issuer and processor, the company annually enables millions of fleet card, credit card, paycard, and virtual card transactions. Comdata captures and reports detailed transaction data, enabling clients to analyze spending patterns and control expenses. Other Comdata solutions include truck stop point-of-sale systems, regulatory compliance programs, and receivables financing options.
Based in Brentwood, Tenn., Comdata has more than 1,100 North American employees.
RBS WorldPay (www.rbsworldpay.us) provides electronic payment processing services including credit, debit, EBT, checks, gift cards, e-commerce, customer loyalty cards, fleet cards, ATM processing, and cash management services. RBS WorldPay is the US-based payment processing division of the Royal Bank of Scotland Group plc.
National Bankcard Services (www.nbs-inc.com) provide transaction processing solutions for petroleum and convenience store chains and for national retailers. Customized payment and loyalty solutions meet clients’ specific authorization, data capture, settlement, and reporting requirements in order to improve efficiency and productivity. Credit, debit, EBT, proprietary, prepaid, fleet, check, and loyalty card processing services are integrated into a suite of solutions that increase sales and build customer loyalty. The company provides processing for more than 50,000 sites and 70,000 point-of-sale systems across North America. Within the petroleum and convenience store segment, National Bankcard Services is the third-largest independent processor in the United States. For settlement of bankcard, debit and EBT transactions, National Bankcard Services have a strategic relationship with Bank of America, the largest wholly bank-owned electronic payments processor in the U.S.
First Data (www.firstdata.com) is a global technology and payments processing provider that serves more than 5 million merchant locations, some 2,000 card issuers and their customers, and millions of consumers worldwide. Whether the choice of payment is a gift card, a credit or debit card or a check, First Data securely processes the transaction and harnesses the data to deliver intelligence and insight for its clients.
First National Merchant Solutions (www.firstnationalmerchants.com) is a payment processor with more than 50 years of experience. Products and services are available whether a merchant needs to accept major card brands, debit or gift cards or electronic checks, or is looking for e-commerce solutions.
Electronic Clearing House (www.echo-inc.com) serves more than 110,000 businesses nationwide, in a range of industries and business models, through products and services that streamline selling. ECHO partners include value added resellers, community banks, collection agencies and independent resellers.
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