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Education

Payments, a retrospectiv e category would fall. Three-tier pricing allowed for conver-
Payments, a retrospective
sion from manually imprinted card acceptance to the EDC
terminals because magnetic stripe transactions were less
expensive. The floor limit on these transactions was zero,
and the Warning Bulletin became irrelevant.

Bank executives and their sales teams were accustomed to
receiving referrals and accepting applications from will-
ing merchants. Thus, they had little to no clue how to sell
payment card acceptance services and POS terminals. So
they looked to independent sales organizations (ISOs) to
assist in distributing terminals.
One professional's Subsequently, some unscrupulous actors gave the card
networks a black eye, so the networks codified the ISOs’
journey – Part 1 place as sponsored entities and delineated which respon-
sibilities may be delegated to a third party. Initially, ISOs
did not receive residuals. They leased the simplistic Veri-
By Ken Musante fone Zon Jr and the deluxe Zon Jr XL to merchants at pun-
ishingly high lease factors.
Napa Payments and Consulting A new phase begins

y first job out of college was with Wells Fargo In 1993, I departed Wells Fargo for Humboldt Bank, a
Bank’s issuing division. It was 1989, six years small regional northwest bank, to start the merchant ser-
after The Green Sheet's launch. Decades later, vices division. I secured from Visa a bank identification
M GS, the industry and I have come a long number (BIN) and from Mastercard an Interbank Card
way.I'm honored to contribute to this retrospective series Association (ICA) number and provisioned them to First
celebrating this publication's 40th year.
Data Corp. Cardservice International, a prominent ISO
founded by Chuck Burtzeloff, was our first client, and we
When my career began, many merchants submitted physi- set up a sponsor relationship with Humboldt earning 15
cal drafts to their acquirers. Before manually imprinting basis points (0.15 percent) on all volume processed.
a transaction, which was then physically brought to the
bank, the merchant checked the weekly Warning Bulle- The term "rent-a-BIN" commonly refers to an ISO utilizing
tin for any transaction over the floor limit. The Warning a bank’s BIN and ICA while making most of the risk, ser-
Bulletin was about as thick as three laptop computers and vice and pricing decisions on the bank’s behalf. Because
contained lost or stolen card numbers. If a card was on the CSI pressured us to lower our sponsorship fee, we sought
bulletin, and the merchant failed to cross reference it at alternative sponsor customers and began directly sourc-
the POS, the issuer could chargeback the transaction.
ing merchants in and around our branch network. The
irony is we were still making double-digit bps, which is
This expensive, laborious, error-filled acceptance process many times higher than today’s going rate.
gave rise to the electronic data capture (EDC) terminal.
Initially, many EDC terminals would authorize (circum- National Bank of the Redwoods (purchased by WestA-
venting the need to check the Warning Bulletin) but still merica in 2005) introduced me to CreditCards.com, which
required depositing a paper draft at the local bank.
later became Electronic Card Systems. ECS became our
Interchange arrives second sponsored ISO. Not only did we sponsor ECS, but
we also performed back-office functions such as merchant
In the early '90s, Visa and Mastercard were not-for-profit adjudication, monitoring and chargeback processing. We
Associations owned by their member banks. The card net- were able to significantly increase our share of the income
works implemented incentive interchange to provide pref- by taking on a greater share of the services and venturing
erential interchange for electronically submitted transac- further out on the risk scale.
tions. This led to an interchange schedule, and the number
of categories grew to five. Pricing migrated from a single During much of the '90s, high-risk merchant chargebacks
rate to a lower priced, three-tier structure of Qualified, were running in the mid to high single digit percentag-
Mid-Qualified and Non-Qualified. es. When Humboldt Merchant Services began accepting
high-risk merchants, the card networks implemented a
Throughout the '90s, when the number of interchange chargeback to a sales threshold of 3 percent. While this
categories expanded and the structure became more com- number seems enormous by today’s standards, it was a
plex—with differentiation for signature debit, rewards painful transition for many merchants.
and commercial card transactions—acquirers and proces-
sors had to determine which tier each new interchange
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