March 10, 2008 • Issue 08:03:01

PIN-ing profits

By Scott Henry
VeriFone

A merican consumers love debit cards. And according to a recent survey by Gartner Inc., they love PIN debit more than they love signature debit. That’s a big reason why your customers should utilize consumer-friendly, secure PIN pads.

Gartner reported that an August 2007 survey of 4,500 online U.S. adults indicates consumers prefer alternative payment types that they believe are more secure.

“Despite significant marketing campaigns by banks and card issuers to steer consumers towards using debit cards with a signature – ostensibly so that the banks can earn more interchange revenue – consumers prefer entering their personal identification number (PIN) to pay for groceries with their debit card over all types of signature-based card payments, whether credit or debit,” Avivah Litan, Vice President and Distinguished Analyst at Gartner, stated in an announcement about the survey.

That’s bad news for banks that try to steer consumers to signature-based debit payments.

Merchants can’t risk losing customers to competitors who do provide a preferred payment option, You may be passing up revenue that will end up going elsewhere if you ignore this opportunity.

The 2007 Federal Reserve Payments Study, released in December 2007, found that the annual use of debit cards increased by about 10 billion payments from 2003 to 25.3 billion payments in 2006. “Debit cards now surpass credit cards as the most frequently used electronic payment type,” the Fed said.

According to data in that report, by the end of 2006 the volume of PIN debit payments was rapidly gaining on signature debit, experiencing a compound annual growth rate of 20.6%.

Growing trend

There should be plenty of incentive for merchants to put PIN acceptance on their countertops once they understand the megatrends and cost advantages.

Consumers vote with their wallets. More specifically, they vote with a primary piece of plastic carried in their wallets. Since more payments are made with debit cards than credit cards, and more consumers favor PIN authorization over signature authorization, consciously or not, they are likely to favor establishments that offer PIN debit acceptance.

How soon these trends begin to show up on a merchant’s bottom line is hard to predict, but ultimately it will result in lost sales for those who don’t offer PIN authorization. Once customers turn to a competing merchant, it’s much more expensive to win them back than it would have been to make a modest investment to retain their loyalty.

A multitude of options are available today for PIN debit acceptance. They can be relatively simple to implement, such as PIN pad peripherals that connect to existing terminals or electronic cash registers. They can be more sophisticated PIN pads with powerful processor and memory components and the capability to adapt to multiple forms of payment, including contactless.

Or, they can be sleek, ergonomic hand-over terminals with built-in PIN pads or even wireless handhelds suited to restaurant and other hospitality environments.

Tighter security

Whichever option is best for a particular merchant environment, security should be foremost among considerations. PIN pads being sold today must meet Payment Card Industry (PCI) PIN Entry Device (PED) security requirements.

Older devices in place can still be used (Pre-Visa PED systems will have to be taken out of service in 2010, according to current regulations), but there are much better alternatives available today, which should enable you to encourage replacement sales.

PEDs should accommodate consumer needs; the consumer should not have to adapt to a completely new interface in every location he or she shops.

The common thread for shoppers is, without doubt, the ATM interface. They have successfully adapted to it over the last two decades, and it doesn’t make sense for merchants to try and create new behavior.

The latest PIN pads feature large backlit displays, large keypads, programmable function keys and more in one stylish, ergonomic device.

A merchant’s countertop can become an indelible part of his or her brand. For the PIN debit customer, the card acceptance device can become an indelible part of that brand. An important part of the selling process is advising merchants on consumer sensitivities and the value of having a device that is consumer-friendly and expertly designed.

Easier money

Mega-trends and consumer brand issues aside, the profit potential of PIN debit acceptance is a factor that any merchant should be able to grasp. The difference between PIN debit and signature debit to a merchant’s bottom line is significant.

As the Boston Globe noted in a November 2007 story, “Banks prefer the credit option for debit cards because they make more money in fees.

“For a $200 transaction, for example, they make $1.99 if the customer chooses ‘credit’ and signs his or her name, according to one estimate, more than three times the 60-90 cents they make from customers who choose ‘debit’ and enter a PIN.”

First Data Corp. noted that with PIN debit payments, “electronic deposits are made to the merchant accounts automatically, simplifying daily deposit reconciliation and improving cash flow.”

A signature is also relatively easy to fake, compared to a PIN. So signature debit is much more susceptible to fraud and chargebacks.

Barring any major change in technology or consumer usage, PIN debit is on a trajectory to eclipse signature debit in the next few years. Capitalizing on buying patterns is a solid sales strategy.

—
Bill Hoidas
Sales Manager
Larger B2B/MOTO/Internet Accounts
Product Development Manager
Matrix Payment Systems
(847) 381-3482 office
(847) 381-4289 fax
http://paymentconsulting.net
http://chicago.citysearch.com/profile/44659273/barrington_il/matrix_payment_systems.html
John 3:16 For God so loved the world, that he gave his only begotten
Son, that whosoever believeth in him should not perish, but have
everlasting life.

Hi,

This was sent to me by someone in the army so it is valid. I think it’s a fantastic idea and will be doing it.

http://www.gratitudecampaign.org/shortmovie.php

Bill

Hi,

Contrary to what other processors will tell you I am here to tell you there are things you can do especially if your business is experiencing chargebacks frequently or high dollar volume chargebacks. I have recommended TransMedia for a few years and their expertise which was good to start with is getting better and better.

Winning by the rules

When it comes to chargebacks, it is typically merchants versus cardholders. And it’s tempting for ISOs and merchant level salespeople (MLSs) to take sides – favoring their clients, naturally. But there is another approach: relying on the rules.

The payments industry implemented rules and regulations so ISOs, MLSs and merchants would all understand proper procedures and adhere to them – or face the consequences of not doing so.

Even with the rules in place, however, some feel cheated or treated unfairly once fines are handed down. If people are unhappy with a policy or a decision, there are channels to go through to change or appeal it. But navigating the channels isn’t easy; who can they turn to for guidance?

Transmedia Payment Services Ltd. is a credit card chargeback loss prevention consulting firm that works with merchants, acquirers and issuers to help them understand the rules and navigate the often murky chargeback waters.

When a business is challenged with a disputed transaction, Transmedia steps in to ensure the chargeback laws and policies are properly explored and exercised. It handles approximately $5 million in chargeback case volume each month.

Start of something different

Transmedia is made up of loss prevention experts and self-proclaimed “dispute gurus.” “Our mission is to make card transactions secure by appropriately providing recourse to remedy disputed transaction for merchants, acquirers and issuers,” said Sam Neuman, Transmedia’s Director of Sales.

The company was founded in 2003 by Bernard Klein and is currently headed by Klein, Isaac Klar and Neuman. It employs a staff of 19, operating from its Brooklyn, N.Y., headquarters.

The investigative team works aggressively to find the people behind fraudulent transactions or locate missing merchandise. The team can either find the individual who will pay for the transactions or reverse chargebacks.

Transmedia started its business with just a handful of merchant clients. Over the years, many acquirers, issuers and merchants have been added to the company’s portfolio.

In fact, Transmedia has had more than 100 percent growth for four consecutive years.

Neuman attributed the business increase, in part, to the company’s uniqueness. “It’s a brand new idea,” he said.

“There are maybe two other companies that have a similar service, but they are more tailored as a basic outsourcing service and not focused or capable to handle lost chargebacks. It’s a very exciting opportunity that we bring to merchants or acquirers. They can’t lose. It’s a win-win situation.”

Transmedia provides other services, including:

* Identifying fraudulent transactions
* Disputing defective claims
* Disputing shipping and restocking fees
* Professional advice to prevent chargeback
* Professional consulting on how to meet the credit card chargeback regulations
* Merchant educational seminars

Transmedia also has two programs in pilot phases, with hopes of launching them in the summer of 2008. One trial ensures merchants for all chargeback reason codes, while the other purchases merchant chargebacks, similar to when collection firms buy debt.

Always room to improve

Transmedia is focused on the areas of card Association dispute resolution guidelines, regulations and extensive fraud investigation.

“With the expertise in these areas, we have developed procedures and methods to effectively recover and prevent definite losses to merchants, acquirers or issuers,” Neuman said. The company also serves law enforcement agencies.

Transmedia investigates all types of card-not-present transaction scams. “When we look at the pattern of a fraud claim and order, we will very easily determine what type of fraud scenario that will fall under, and whether merchandise may still be retrievable,” Neuman said.

The company stays on course with payments industry rules because it knows policies were created to better serve all payments professionals.

“Our research and practice finds the federal credit acts, as well as the bank card Association rules, to be well constructed programs with fine streamlined resolutions to assure that the most reasonable and fair results are achieved by those rules,” Neuman said.

However, Neuman pointed out that this does not mean the system is perfect. Over time, many of the rules have either been ignored or forgotten. “The only problem is that over the years, most of the useful detailed rules have been undermined, unstudied and unknown to the communities for which they were created,” he said.

Neuman wants payments professionals to know there is a problem with the way chargebacks are handled, and it is costing money. But, he also wants to inform them that something can be done about it. “ISOs and merchants are so used to the idea that a chargeback has to be paid and there is no way to reverse it,” Neuman said. “ISOs can reduce their liability. There is money out there.”

Chargebacks are, in fact, reversible and winnable. “Often you need help to initiate a chargeback, and often you need help to fight a chargeback,” Neuman said. “We are here to get into the driver’s seat to assure that reasonable justice is accomplished and to assure that all technical requirements are properly met.”

All merchants need chargeback guidance, not just those who are high risk. “Every retailer has a 5 percent return,” Neuman said. “Every card-not-present merchant has at least one-tenth of a percentage of chargebacks. There are always some instances that can’t be resolved in good faith.”

ISOs, MLSs and merchants can hire Transmedia on a case by case basis or on retainer to train staff on chargeback guidelines. Merchants don’t need to face a chargeback issue to benefit from education. The company works with merchants to help them learn procedures to prevent and fight future chargebacks.

Breaking bad habits

The company believes card issuer chargeback programs have been running out of control. “Just because a chargeback can physically be initiated by the push of a button, chargebacks should not be a dictating mechanism unless it has met appropriate and reasonable requirements before initiated,” Neuman said.

According to Neuman, the habits of cardholders and issuers have allowed such programs to be misused, and both sides are responsible. “It’s the same with the opposing side of the table,” he said. “Credit card transactions are often inappropriately initiated, causing losses for issuers and cardholders in the billions of dollars, all because the merchant was trusted with a merchant account.”

Neuman noted that in many cases, a chargeback arises when a cardholder claims the merchandise received was defective, while the merchant insists the item is adequate. In instances such as this, the issue becomes more about making a point and being right, which is not helpful for winning the dispute.

“We would typically never argue that merchandise was not defective,” Neuman said. “That’s useless. That is not going to make you win that case. You have to look into other causes.”

There are many requirements to make a chargeback valid, and it must be proved that all the rules necessary for a chargeback were followed. “If you don’t raise the appropriate cause, you are going to lose the case,” he said.

One of Transmedia’s key service features is the minimal involvement of merchants. The company can usually resolve half of its cases without merchant participation: In issues that do not involve fraud, it resolves more than 90 percent of the chargebacks; in issues of fraud, the rate is approximately 74 percent.

Referrals worth making

Transmedia works with referrals from acquirers, ISOs, MLSs and others. ISOs earn revenue by recommending the service to their merchants. Transmedia staff closes the sales, but ISOs must perform the initial introductions and offer personal recommendations.

“After we close the sale, there is nothing that we require from the ISOs to keep up, except if they stop giving us the chargeback, we may ask the ISO to call the merchant and refresh them about us,” Neuman said. Transmedia also “locks” merchants to the ISO by not servicing merchants if they decide to switch. ISOs can choose one of two compensation programs: a flat referral fee, or a 10 percent residual for the life of the account. “Depending on the frequency and the number of leads, we have different commission-based programs to sales partners,” Neuman said. “These programs can start as little as just a one-time bonus and as high as lifetime residuals.”

Whenever there is a dispute or disagreement, it can be difficult to see who is right or wrong; there is plenty of room for shades of gray. It can be helpful to have a set of rules nearby to transform those areas to black and white. But those rules are only helpful if they are properly understood and implemented.

Transmedia can help merchants, acquirers and issuers do just that. And when regulations are known and enforced, everyone wins in the long run.

—
Bill Hoidas
Sales Manager
Larger B2B/MOTO/Internet Accounts
Product Development Manager
Matrix Payment Systems
(847) 381-3482 office
(847) 381-4289 fax
http://paymentconsulting.net
http://chicago.citysearch.com/profile/44659273/barrington_il/matrix_payment_systems.html
John 3:16 For God so loved the world, that he gave his only begotten
Son, that whosoever believeth in him should not perish, but have
everlasting life.

Hi,

Here’s your chance to tell your U.S. representatives that you’ve had enough of MC/Visa raising their rates twice every year. Time is of the essence however. So instead of just complaining about cc rate increases send this email or your own version to your congressional representative. It’s easy to find their contact info. Just go to http://www.visi.com/juan/congress/index.html and scroll down just a little bit and type in your address on the left hand side.

Interchange act coming back stronger

hey’re angry, they’re organized and they’re being heard. No, it’s not some hardscrabble, anti-this-or-that protesters. It’s a group of merchants who have come together through such organizations as the Merchant Payments Coalition, National Association of Convenience Stores (NACS) and the National Retail Federation. They want interchange reform – yesterday. And the U.S. Congress is bowing to the pressure.

U.S. House Judiciary Chairman John Conyers, D-Mich., and Rep. Chris Cannon, R-Utah, planned to introduce the Credit Card Fair Fee Act the week of Feb. 25, 2008. The bill will ostensibly provide a mechanism by which merchants can negotiate interchange fees with MasterCard Worldwide and Visa Inc.

The legislation will also establish a panel to decide on proper interchange rates should negotiating parties be unable to reach an agreement. The panel’s decisions will be legally binding, if the act becomes law.

Congress held hearings on interchange in 2007. Retailers claimed the fees are arbitrary and exorbitant, costing merchants and consumers $40 billion per year. Visa and MasterCard assert that interchange fees are a necessary and fair cost for the services they provide. They also claim that merchants already have the right to negotiate interchange fees; merchants counter that they are completely out of the rate-setting loop.

However, the bill, which was first drafted in 2007, has been delayed, not due to lack of support, but because retailers and their representatives have swayed Congress to such a degree that interested legislators need an additional week or two to review the legislation and sign on as original cosponsors, according to John Eichberger, NACS Vice President, Government Relations. When was the last time you called Congress?

—
Bill Hoidas
Sales Manager
Larger B2B/MOTO/Internet Accounts
Product Development Manager
Matrix Payment Systems
(847) 381-3482 office
(847) 381-4289 fax
http://paymentconsulting.net
http://chicago.citysearch.com/profile/44659273/barrington_il/matrix_payment_systems.html
John 3:16 For God so loved the world, that he gave his only begotten
Son, that whosoever believeth in him should not perish, but have
everlasting life.