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Table of Contents

Lead Story

Legislative outlook:
Some clouds but no rain

Patti Murphy
The Takoma Group


Industry Update

New fees, more money for Visa, MasterCard

RBS, Heartland PCI compliance revoked: What's next?

A token of payments to come

Raising the ACH bar

Virtucard for virtual goods


Bill Pirtle

Breaches across America
installment two

Selling Prepaid

Prepaid in brief

Boom time for prepaid game card market

Global payroll done with SaaS

The state of escheatment


Be the toast of hosts

Scott Henry

Sluggish economy spurs faster payments

Nasreen Quibria
Association for Financial Professionals

Mobile payments? Not yet

Biff Matthews
CardWare International


Street SmartsSM:
Who are you?

Jon Perry and Vanessa Lang

Pull back the expense curtain

Jeff Fortney
Clearent LLC

Downshifting to rev up sales

Christian Murray
Global eTelecom Inc.

PCI versus tricky technology

Michael Wright
Panoptic Security Inc.

Five magical questions in making sales

Daniel Wadleigh
Marketing Consultant

Company Profile

UseMyBank Services Inc.

Data Delivery Services Inc.

New Products

Instant mobile processing

MerchantWare Mobile
Company: Merchant Warehouse

A most literate check reader

Company: Parascript LLC


See it, believe it



Resource Guide


A Bigger Thing

The Green Sheet Online Edition

April 13, 2009  •  Issue 09:04:01

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Pull back the expense curtain

By Jeff Fortney

We have all seen the movie: Dorothy quivered with fear as she held the witch's broom before the great Wizard of Oz. She had met his conditions; now he was adding more. This scared her companions away, but she shook off her fear and stood her ground.

While Dorothy argued, Toto pulled back a curtain to reveal the so-called wizard, a simple man from Kansas who owned a hot-air balloon. She had expected to find an all-powerful being at the end of her long journey, but the truth was completely different.

Since that time, the term "pulling back the curtain" has been used to describe situations in which information is revealed that gives a true picture of what's going on behind the scenes. Doing this can pose a risk because it invites closer examination.

If done in an honest attempt to disclose facts, it can benefit relationships. When done inadvertently or due to lack of knowledge, it can result in lost sales and ruined relationships.

Perception versus reality

Fearing this, ISOs often either do not thoroughly train merchant level salespeople (MLSs) or train them selectively. In essence, the curtain between the processing partner and the salesperson remains closed.

Unfortunately, some processing providers think it's just easier to live in a world of perception rather than disclose information and facts. For them, it's easier to provide simplicity, even when simplicity paints an erroneous picture.

MLSs are told repeatedly in articles and advertisements that the best relationships are based on the per-transaction fee and revenue split. Processors recognize these two factors are influential, and they build their compensation programs around them, feeding the perception that agents can earn more revenue through lower fees and higher splits.

But this strategy actually generates more income for processors. These programs aren't about partnership. They're about growing the processors' bottom lines.

This isn't to say the advertised splits and fees are wrong, but there are so many other factors involved with processing that the true, effective rate (the actual cost) is almost always much higher.

So many variables and different ways to calculate splits exist that MLSs, once lured by these types of programs, find themselves earning much less than they originally thought they would.

Our economy is in a fragile state. Merchants are especially sensitive to their cost of sales. MLSs should have that same sensitivity when examining their current relationships.

In turn, speaking as a processor, it's time that all processors pull back the curtain. It's time to put perceptions aside and help MLSs find partnerships that truly fit their businesses - not ones MLSs mistakenly think fit them. It's time we educate our partners on all the costs of doing business.

Effective rate

Merchants and salespeople have used effective rates as a comparison for years. The question is, then, why aren't MLSs using them when comparing programs?

There is a simple process MLSs can use to compare partners. It starts with determining the effective cost per transaction. To do so, you need to convert monthly expenses into transactional costs.

Use one of your average merchants for the following exercise:

  1. Determine monthly dollar volume, average ticket size and transaction count.
  2. Divide all monthly fees by the total transactions to get an individual transaction expense.
  3. Multiply any basis point markup (such as a bank identification number fee) by the average ticket to get a transaction expense.
  4. Factor in any required annual expense as well. Divide it by 12, and then by the number of tickets in the month.
  5. Factor in any batch fee (a charge for submitting a group of transactions, which is usually done daily) by the following formula: Divide your number of transactions by the number of days in the month. Then divide that by your batch fee to get a transaction cost.
  6. Add the costs determined in steps two through five.

The total is your true, effective transaction expense. There is one caveat. You need to use dial-up authorization expenses, not expenses based solely on Internet Protocol (IP)-communication. Using IP expenses for calculation can result in a misleading number, as the majority of merchants are using dial connectivity.

Share analysis

The revenue share can be the most difficult to pinpoint, but if you aren't careful you will find your perception is far from reality. You must understand how your share is determined to know your true percentage. To do this, answer these questions:

These points are critical when determining your true share. Several shares that seem high may ultimately result in numbers below 50 percent. In reality, your true share is what you actually make - not what you perceive it to be.

It is truly up to you to analyze each processing relationship and confirm to your satisfaction that it is an honest, two-way partnership. If you evaluate how well new partners will be able to meet your specific needs, you can use this information to select the best option.

Your merchants understand their true expenses. Shouldn't you?

Jeff Fortney is Director of Business Development with Clearent LLC. He has more than 12 years' experience in the payments industry. Contact him at or 972-618-7340.

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.

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