The Players of the Credit Card Industry

Who are the main players of the credit card industry?

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One of the main goals of companies that establish merchant accounts is to simply a complicated process. By simplifying it not only do they make their jobs in selling the service easier, but it also makes it easier for the merchant to understand as well. As with any other business, there are also many layers of participants who make a service happen. Knowing whom all of the players in establishing merchant accounts really isn’t necessary to accept credit cards. But knowing who affects your rates and how your account operates allows you to make better informed decisions when establishing an account or working with an existing account.

The Card Companies

Without the credit card companies there would be no credit card to accept. These companies not only issue the credit cards and govern how consumers may use them, but they also govern how the merchants may accept them.

Visa and MasterCard

Visa and MasterCard are separate worldwide payment service organizations composed of member institutions. They set and enforce rules and regulations governing their bankcards, such as operational and Interchange procedures. They create advertising and promotion programs to support their brands and develop new products to serve banks and consumers and are also responsible for conducting clearing and settlement processing of credit card transactions through Interchange. They supervise the bankcard processing function within their members’ banks.

Combined Visa and MasterCard account for 83% of all credit card transactions in the United States.

American Express

American Express started off as a travel card and is often classified as a “Travel & Entertainment” card. However, it is a true credit card like Visa and MasterCard and is accepted at most types of business. American Express is the preferred credit card of many businesses and, although American express usage is far less then that of Visa and MasterCard, businesses that deal primarily with other businesses (b2b) or is frequented by business professionals may see American Express as their primary credit card being accepted. Unlike Visa and MasterCard American Express is not comprised of member banks but is its own entity. This means you need to apply directly with American Express or your merchant account provider needs to be an authorized representative to establish the account for you.

American Express accounts for 13% of all credit card transactions in the United States.

Discover Card

Discover Card was started by Sears and is the newest of the four major credit cards. Although Discover Card has more cardholders then American Express, in terms of processing it is by far the smallest of all of the major credit card providers. Like American Express, Discover Card is not comprised of member banks but is its own entity and a merchant account must be established directly through them. Unlike American Express, however, Discover Card is now partnering with processing banks to have merchant accounts established just like Visa and MasterCard.

Discover Card accounts for 4% of all credit card transactions in the United States.

Others

While Visa, MasterCard, American Express, and Discover Card comprise the overwhelming vast majority of credit card transactions in the United States, they aren’t the only credit cards some merchant may see in the normal day-to-day of operating their business. Foreign credit cards like the Japanese issued JCB credit card are fairly popular on the west coast in Hawaii. Some restaurants may accept the Diners Club card. Truck stops may accept fleet cards. Since these special cards are so limited in their use and acceptance this article will not cover them.

The Card Issuing Banks

The card issuing bank is the bank that issues the credit card. They are a licensed member of Visa and MasterCard and can also be an Acquirer (see below). The Issuing Bank solicits, screens, and approves the cardholder for a credit limit. Once the cardholder has the card, the Issuing Bank approves or declines sales the cardholder wants to make with the card, bills the cardholder for charges to the card, and collects funds from the cardholder to pay the merchant for purchases.

Acquirers and Processing Banks

The Acquirer provides credit card processing services to the merchant by acting as the communications link between the merchant and the card issuing bank. The Acquirer is a member of Visa and/or MasterCard.

Member Service Provider / Independent Sales Organization

A Member Service Provider (MSP) is a licensed broker of credit card services or banks through which business is processed. A MSP is usually an independent salesperson or company who contracts with a bank or a processor to sell credit card processing, equipment, and services to the merchant. The MSP sometimes provides back office functions such as settlement and chargeback/retrieval management, equipment-related customer service, paper storage and retrieval, and supplies. MasterCard originated the term MSP, while Visa uses the term ISO (Independent Sales Organization).

Sales Agents

Sales agents are individuals who represent a MSP/ISO. They are not members of Visa or MasterCard and are not contracted directly with a bank or processor. As a result they are not allowed to sell merchant accounts under their own business name. They must use the business name of the MSP/ISO with whom they are affiliated.

The Cardholder

The cardholder uses the credit card given by the card issuing bank to purchase goods and services or to obtain a cash advance and receives a monthly bill from the card issuing bank for every purchase or use of the card. The cardholder is expected to sign the back of the card and limit its use to only authorized users, stay within the assigned credit limit, and pay the card issuing bank all or a minimum amount of the balance when the monthly bill is received.

The Merchant

The merchant provides goods and/or services to the cardholder. Visa and MasterCard require that the merchant be financially responsible and of good repute and adhere to all rules and regulations set forth by them. The acquirer requires that the merchant adhere to the merchant processing agreement they signed that details the prices the merchant will pay for equipment, discount rates and fees. It also spells out the terms and conditions under which the merchant will conduct credit card business, such as the card types the merchant will accept, chargeback rights, and access to the merchant’s bank accounts.

Platforms and Networks

Processing Platforms, also known as Processing Networks, are the computer networks that electronic transactions occur over each day. There are multiple networks available for electronic transactions to occur over but the merchant does not choose which platform(s) they use. Each acquiring bank establishes relationships with the processing platforms they feel would be best for their business model (usually basing the decision on cost and availability).

Not all platforms are created equally. Each platform establishes a unique API for which software and equipment can communicate with it. Thus, software and equipment cannot use a platform to process electronic transactions until it has verified that it can support that platform’s API successfully. As a result some software and equipment will only work on some platforms and not others.

When choosing a merchant account provider, some merchants will base their decision on the platforms that provider has available to them. This will typically be because the merchant has a specific piece of software or equipment that only works on a specific platform. An example would be restaurants that use proprietary POS software.

MSIQ is dedicated to saving merchants money on what they already have to pay. We believe that educating our merchants about the industry is the best way to earn and keep your business.

Types Of Merchant Accounts

In the world of credit card processing one size does not fit all

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Businesses operate in different manners and this affects the kind of merchant account they will have. It is important for a merchant account provider to establish a merchant with the proper account during the application process as to prevent the many problems that can arise if the merchant is improperly classified. Having the proper merchant account not only helps to keep a merchant’s rates to a minimum, thus saving them money, but also helps to protect against fraud and chargebacks.

Retail (Card Present)

A retail business is face-to-face with their customers and can swipe their customers’ credit cards through a credit card terminal and process them in real time. Brink ‘n Mortar retail stores are typical examples of a retail business but they are not the only ones. Merchants who have stands at flea markets and have access to a telephone line and electricity can also be retail if they use a credit card terminal at their stand.

A merchant with a wireless credit card terminal is also considered to be retail. Why? Even though they may be standing on a street corner while processing their transaction they can swipe their customers’ credit cards through their credit card terminal and process the sale in real time. As a result they get all of the perks and benefits typically offered to a traditional retail store.

Card Not Present

Businesses that are not face-to-face with their customers at the time of sale are classified as Card Not Present (CNP) accounts. These businesses typically take payment in any of the following manners:

• Telephone
• Fax
• Email
• Mail

The one thing they all have in common is that the merchant is not face-to-face with the customer at the point of sale. These transactions are usually keyed into a credit card terminal or POS software.

Another for of CNP business is merchants who perform recurring billing. Although the very first transaction may occur in a retail environment (face-to-face with the merchant and swiping the credit card through a credit card terminal) every recurring transaction afterwards will not be swiped. Because these recurring transactions comprise the majority of the transaction for this merchant they would be considered a CNP merchant.

In the world of credit card processing one size does not fit all

Internet

An Internet business is very similar to a CNP business. The distinguishing characteristic between the two is how the customer’s credit card information is acquired. An Internet merchant acquires their customers’ credit card information through their website. The customer’s information is physically captured and transmitted through the merchant’s website.

A business is not considered to be an Internet business for the following reasons:

• A company has .com in their business name
• The website that advertises their products but does not take payment
• Customers place an order over the phone by reading the contents off of the website
• The merchant uses a payment gateway to process their transactions

Although some of the situations listed above are characteristics of an Internet business, unless payment is accepted through the merchant’s website, the merchant is considered to be a CNP business.

Mobile

A mobile business is very similar to a retail business. They are face-to-face with their customers at the time of sale. The main difference is that a mobile business does not have the means to process the transaction in real time. Typically this is the result of a telephone line or electricity being available at the point of sale.

To compensate for the lack of resources to process a transaction in real time, a mobile merchant typically uses a manual imprinter to capture an imprint of their customers’ credit cards and obtain a signature. This allows them to manually process the transaction at a later point in time. It also offers the mobile merchant additional chargeback protection typically reserved for retail merchants.

Seasonal Businesses

A seasonal business is only open for a specified period each year. This period is consistent and does not change from year to year. For example, a Xmas decoration store will be open every year from October through December. They won’t need their account from January through September. Seasonal businesses can have their accounts closed for the off-months each year during which they will incur no fees including their monthly service charge.

Typical seasonal businesses include:

• Landscapers
• Fireworks sales
• Xmas/Holiday-based
• Some tradeshow merchants

Seasonal merchants cannot open and close their account at random times. The months they wish to be closed must be determined during the application period. They may vary slightly based on the needs of the merchant but this is on a case-by-case basis. Merchants who were not declared seasonal during the application process typically cannot close their account on a temporary basis.

Terms To Know When Shopping For A Merchant Account

Fee Terms And What They Mean

Over the past couple of weeks I have run into many merchants that feel ripped off by their merchant sales representative. Time and time again I hear “I just didn’t know what to ask for.” Like with any other purchase for your business, it is important to learn about your product.

Here is a list of common terms you should know when talking to credit card processing companies:

• Qualified Rate – This is typically the rate you are quoted when you sign up for a merchant account. This rate only applies to swiped regular retail cards. Be sure to ask what your Mid-Qualified and non-Qualified rate will be.
• You may also be charged an Authorization fee. This is the amount charged to a merchant account each time communication happens between the software or point of sale terminal and the authorizing network. Make sure you are not charged an additional transaction fee because the two are the same.
• Your sales agent may refer to Basis Points. Basis points are the percentage that you are charged on a credit card transaction. One basis point is equal to 1/100th of 1 percent. Thus a rate of 1.85% is equivalent to 185 basis points. For some merchants, a basis point mark above Interchange is advantageous.
• Batch Closure fee – This is a fee charged each time a settlement or end of day processing totals are sent to the financial institution.
• Electronic Data Interchange (EDI) – The electronic communication of business transactions, such as orders, confirmations and invoices.
• Transaction Fee – A per transaction amount charged by the bank for processing each transaction. This amount is in addition to the discount rate. For example: a discount rate of 1.85% plus 30 cents per transaction. Make sure you are not being charged an Authorization fee as well.
• PCI Compliance Fee – This fee is usually assessed by your merchant bank because they are passing on a fine they received from the card associations. Make sure to dispute this with your processor if you see it on your statement.

Knowing the merchant processing industry lingo is just one way to protect your business from getting ripped off.

Merchant Solutions IQ is dedicated to saving merchants money on what they already have to pay. We believe that educating our merchants about the industry is the best way to earn and keep your business.

We perform custom rate analysis free of charge no obligation to any merchant who asks. Just contact me, Kevin at ksarisky@merchantsolutionsiq.com for more information.