In this day and age, how would you like to be in a business where it is actually more competitive to raise your prices? Basically that’s what the card brands were doing in an effort to compete over which one the banks would choose for their debit card brand. As their pricing increased, so did the ire of business owners as increased fees cut into their profits. Senator Dick Durbin got wind of their plight, and in March of 1994 he entered a bill to get the card brands to lower their rates.

All we heard from within the industry was doom and gloom. How could we possibly allow the government to intervene in our business? Well, the Durbin Amendment only partially intervened, as the price adjustment was only for debit cards, and there seemed to be quite a bit of confusion over whether it was only for PIN debit and/or both PIN debit and signature debit. Although the price cut was not as much as first intended, it still made quite a dent for merchants—and banks, for that matter—that stood to lose billions in transaction fees.

Armageddon was poised to strike on October 1, 2011, but as industry experts went to interpret the new law, a funny thing happened. While the banks were indeed losing big bucks on transaction fees, most in the ISO community were rejoicing, as our debit card cost was lowered. And if your clients are not priced on cost plus, as most of mine are not, then good news, we’re getting a raise! As over 60 percent of my volume is debit cards, my residuals shot up 20 percent, and let me tell you, there is nothing like a raise at Christmastime, because my eleven-year-old son doesn’t want G.I. Joe with the kung fu grip anymore, he wants an $80 video game, a $100 baseball glove, and a $250 bat.

But wait, there’s more behind door number two! There are just over five million businesses that accept credit cards in the good ol’ U. S. of A, but just fewer than five million who now know they can get lower rates. So if you learn anything from this book, learn this! There has never been a better time to get into this business since its inception. And while the banks and the card brands are singing the blues, everyone I know in this business is rejoicing (see Chapter 19: The Plan). The margins are still there on the credit card side, but now you can offer big savings on rates, and some are even pricing qualified cards on a three- or four-tier pricing as a loss leader on the credit side to get the account.

(See Chapter 10: Pricing.)

So I thank you, Mr. Durbin, and my many students thank you in advance of their untold fortunes!

3: What Happens When You Present Your Card for Payment?

When you go to your local auto mechanic and offer him a credit or debit card for payment, what happens? He takes your card and swipes it through the terminal, and if he’s following the rules he turns it over to view the signature strip, asks you to sign a receipt, and matches the signatures. Assuming they match, you go on your happy way.

When the mechanic swiped your card for payment, your card information was sent at the speed of light though the card-issuing bank and the merchant-acquiring bank networks. Then it’s back to the merchant, where the receipt prints for your signature. Although the money is not yet en route to the merchants bank, a hold has been put on your card account for that amount. This keeps you, the cardholder, from spending more money or using more credit than you have available (although if you don’t opt out with your debit card, your bank probably will allow you to spend more than you have, thus generating a nice overdraft fee). At the end of the day, when the merchant batches out, the money is finally on its way to the merchant’s bank account. The fees for the transaction are either taken on the fly or deducted at the end of the month, which is the preferred method of most merchants. The money will then be directly deposited into the merchant’s bank account in as little as one business day or as long as two or three.

At the end of the month, where does all the money go? The lion’s share obviously goes to the merchant. The biggest portion of merchant cost goes to “interchange,” which is the main cost before the markup. The Interchange fee goes to the company of the credit card that was swiped. That’s right, folks. Credit card companies get you coming and going. They’re making money on the merchants who accept the card, and they’re making money on the cardholder. How about that for a business model! But wait, there’s more. Most of the markup goes to the processor, the independent sales organization (ISO), or even the merchant level sales rep (MLS). That’s you! Believe it or not, for the most part the card brands take the smallest portion of the pie, although they take a bite of every piece.


Lets get started!
Call James Darle Jones with your questions @ 301 829 3331