In the Forum section of The Green Sheet, Sept. 10, 2012, issue 12:09:02, we published a series of questions from Bruce I. Reisman of Focus Financial Solutions LLC, along with answers provided by Harbortouch's Jared Isaacman. We received responses from a number of other Advisory Board members, as well, and we sincerely appreciate all who shared their perspectives with us. The questions, along with the additional answers, follow:
Obviously, this program was an answer to the Durbin Amendment. However, the problem is card-not-present businesses are being affected harder. Has Visa done it again - robbing Peter to pay Paul? It would give me great pleasure to hear your perspective on this issue.
1. In my opinion, this is an indirect result of ongoing government regulation in our industry, and it does not appear to be changing anytime soon, unfortunately. When the government tries to regulate the interchange system for whatever reason, Visa is a public company and its response is to increase shareholder value, and many of its shareholders are the large issuing banks which were affected by government regulation: Durbin.
So in reality, it is robbing Peter to pay Paul, in my opinion, and Visa is simply recovering revenue lost from government regulations, and in the end, the merchants and the consumers will pay more. As ISOs and MLS agents, we end up being the messenger for all of this.
I have no idea how this formula works out, and it astonishes me why QSR and small-ticket merchants are absorbing a higher percentage of this new fee, when they had received the least benefit of the lower debit interchange costs. My perspective is this is just a response to ongoing government regulation of our industry.
2. The fact of the matter is that this fee is levied directly on the acquirers, who have the choice to absorb or not absorb the cost to the merchants. So they do not have to disclose this fee to the merchants, as it is outside of actual interchange rates and is billed directly to the acquirer, who has to figure out how to recover this additional levy.
3. In my opinion, this does look like "factoring" or aggregating, and it appears that the definition of merchant aggregation is changing, at least from what I have learned at recent ETA and regional conferences.
I do not really know the ground rules, but it appears registered ISOs can be registered as a TPP or third-party payment processor and get into this business with some limitations. So in the future, this could be a new market to explore for our own purposes. We would rather focus on merchants who want a direct merchant account, have actual business addresses and process at least $5,000 a month, at least for the foreseeable future.
Field Guide Enterprises LLC
The reader's questions ask us to speculate about the thinking behind Visa's policies. The questions are certainly fair, but I don't think I'm in a position to guess about FANF or Visa's position on aggregators, such as Square.
Impact Recruiting Group
1. I'm not a FANF expert yet, but the answer to this is pretty straightforward. The $132,000 merchant is basic retail with one location, and the $6,000 merchant falls into the customer not present, merchant aggregators and fast food restaurants categories.(For more information on that, see this link: www.ratewatchdogs.com/customers/Visa-FANF-fee-0412.pdf)
2. Not a clue. Maybe someone from Visa can chime in with an answer.
3. I don't believe that they use factoring. I have a Square account and a few others just to understand them. The bigger issue for me with Square is their underwriting process and how that compares to the restrictions many banks put upon their ISOs.
Allen P. Kopelman
Nationwide Payment Systems Inc.
1. Personally, I am not in favor of any new fees, but merchants sue or the government gets involved, and the card associations always fight back with new fees. Every merchant is going to pay a minimum of $2 for a single mid and then pay more if they key enter even one credit card.
Here are some examples:
2. I'm not sure why it is not posted on their site. I am sure Visa will have this on their site at some point since they have 100+ pages of interchange to confuse everyone as it is.
3. Square is not factoring. They are not paying out money in advance. They are aggregating merchants under one merchant ID: Square. There are more and more aggregators entering the market, and we will even see a few ISOs do the same thing as Square. There are already a few doing it, and there will be more in the next year or so.
While everyone was focused on what Visa was doing - all this is going on; no one has been watching - MasterCard has a new fee coming through as well. So more fees for the merchants.
And quietly under the radar, American Express made a few changes back on April 20, 2012. Now, if you key a card, 40 percent extra, and if the card is issued outside the United States, add .40 percent more to a swipe or keyed transaction. And a few levels that did not have transaction fees now have transaction fees. They did lower prepaid card interchange to 1.85 percent.
1. I do not believe the card associations want anyone to comprehend this or any other fees or fee structures. If you fully understand it, then you can fight it.
2. I suspect they will eventually publish the FANF. In the meantime, contact your bank. However, the banks to whom I've spoken about FANF are as confused as you.
3. Industry veterans accept that Visa more than other card associations is "do as a I say, not do as I do." Not only is Square factoring, the Square dongle does not encrypt the card data. Compared to other card associations, Visa is dysfunctional in communicating a common, unified message that crosses multiple departments.
I believe this is because it is highly siloed with managers that are even more highly territorial. In dealing with Visa, what you hear depends on which side of their mouth is speaking, that is, the department and the message they want conveyed, who is speaking, the intended audience, and with which ear you are listening. Putting questions 1 and 3 into context, Visa defies logic.
Elite Merchant Solutions
1. When I was notified of the recently introduced FANF, I, like many of my peers, was both surprised and confused: surprised that Visa would implement such a fee coming off the recent passing of the Durbin Act and confused as to the fee itself and how it is actually calculated. In my opinion, the card associations are just asking for more government regulation by implementing fees like FANF. Merchants are going to flood their payment processors' customer service departments, demanding answers regarding FANF.
Large merchants and associations will be banging down the doors of government representatives with their powerful lobbyists demanding new legislation. The lobbyists will be pointing to this FANF and how it is a perfect example of how the card associations are free to impose new fees at will with nobody to stop them. They will further show that the consumer is ultimately hurt as merchants will have to pass along these costs in the form of higher prices.
The problem with the FANF is that it is not as clear-cut as your typical raise of a particular interchange category. FANF has several factors that must be considered when calculating the fee such as merchant category code, the mix of card-present versus card-not-present transactions and the number of locations a merchant has.
I am sure everyone has seen the FANF tables showing how the fee is calculated; however, it can get quite confusing when you have businesses with multiple locations and a mix of card-present and card-not-present transactions. Card-present merchants pay fees based on their respective volume and number of locations, where card-not-present merchants pay based on their volume processed.
Investors have already awarded Visa for implementing the FANF, as the stock has risen from $112.25 June 1, 2012, to over $128 on Aug. 22. Visa is saying FANF will be a wash basically because they are removing/reducing other fees, but the big institutional investors know better and have already calculated the new revenue into future earnings and thus contributed to the big increase in the stock price.
Although this particular fee was a surprise to me, by no means are increases by the associations a surprise. Merchants were doomed the day the card associations went public. Wall Street does not tolerate flat earnings, so granted the only way for the card associations to increase revenue and please shareholders is to implement raises and implement new fees.
It will be interesting to see what the future holds with respect to new fees/raises by the card associations and if/when the government steps in.
2. I briefly looked at the Visa website and did not find any information on the FANF, nor was it listed on the interchange chart on their website.
However, the latest interchange chart I was able to pull was from June, so I am sure it will be on their updated schedule. Nevertheless, it is pretty surprising Visa does not have more info on the FANF and an up to date interchange chart with the FANF table included.
3. Square is what is referred to as a merchant aggregator. Square basically has a master deal with Chase Paymentech, and they in turn sign up all the merchants under their master account.
Chase Paymentech would bill Square, and Square bills their merchants on their agreed upon fees. Square uses the Chase Paymentech Salem platform, which allows for soft descriptors, which is how all of these merchants using Square can have their unique business name show up on the receipts and cardholder statements Visa investing in Square is, in my opinion, like the fox watching the hen house. How can Visa, who is responsible for maintaining the integrity of electronic payment processing effectively and without prejudice, do this with companies in which it has significant investments.
What would happen if Square gets breached or commits serious violations of the association rules. Is Visa going to impose fines and/or sanctions that could seriously hurt their investment? Perhaps we will never know, but certainly it is an arrangement most would agree is a conflict of interest.
Signature Card Services
1. Fair or not, the reason is behind the algorithm of FANF calculation, which is based on a Merchant Category Code and credit card acceptance method. For card-present businesses, excluding fast food restaurants, the amount of FANF will be based on number of locations. Businesses with one location will be charged $2 to $2.90 a month, and up to $85 a month for businesses with 4,000 or more locations.
For card-not-present businesses plus fast food restaurants, the amount of the FANF will be based on gross Visa processing volume. Most likely, card-not-present businesses will see a greater impact from the FANF than card-present businesses due to the fee being determined by volume.
As a part of our ongoing educational series, Signature Card Services is providing in-depth training on FANF and its impact on both merchant processing and ISO sales and business development. For more information, readers can call us at 888-334-2284.
2. We can't speak on Visa's behalf, and our answer is a pure speculation. FANF is calculated based on multiple factors; therefore, constructing a table would be complicated. There are simple calculators available online, and Signature is putting together its very own and it will soon be available to our agents and merchants at http://signaturecard.com.
3. Square is an IPSP. An IPSP must maintain a registered merchant account and also register its sponsored merchants who accept credit cards under the IPSP master account. Merchants usually pay higher fees to accept credit cards through an IPSP than through a merchant account. One cannot use a merchant account of another business to accept credit cards without a proper IPSP registration. That would be "factoring."
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