If the proposed settlement in the Payment Card Interchange Fee and Merchant Discount Antitrust Litigation case is approved, merchants will receive billions of dollars, a temporary Interchange rate reduction and the ability to surcharge card payment transactions. In return, the agreement releases Visa and MasterCard from future legal claims regarding Interchange, network rules, merchant fees and related issues by merchants.

Both the National Grocers Association and the National Association of Convenience Stores say they will oppose the agreement on the basis that the agreement does not address how Interchange is set or the complexity of Interchange fee schedules. Target and Wal-Mart are not plaintiffs in this case, but have criticized the proposed settlement for similar reasons and because it would grant Visa and MasterCard releases from future legal claims, even by merchants who aren’t part of the settling class.

Over the next few months, the judge will make a decision to approve or reject the proposed settlement. The next step is a “fairness hearing” in Brooklyn federal court. Despite some objections, most analysts don't expect enough merchants will opt out of the settlement deal to derail it. One reason is that without a settlement, it will take many more years and cost a lot more money to take the case all the way to trial. Another may be that the largest retailers have secured a collective bargaining provision to negotiate lower Interchange rates directly with the payment networks. It has been reported that 15 of the top 100 retailers representing 80% of Visa and MasterCard credit-card volume have already agreed to a separate settlement with the card networks. And while merchants give up their right to sue the networks and credit-card issuers over similar issues, lobbying efforts at both the federal and state levels are expected to continue for merchant rate Interchange reductions and simplification.

In the proposed settlement of the Payment Card Interchange Fee and Merchant Discount Antitrust Litigation case, merchants would win the ability to impose surcharges on customers who use card payments.

However, according to analysis of the proposed settlement, the ability to surcharge customers includes numerous restrictions and requirements:

• The surcharge amount will be limited by a cap established by Visa and MasterCard and by card type (debit card surcharge allowances to differ from credit card surcharge allowances)
• Merchants will be required to notify Visa and MasterCard before surcharging begins.
• Merchants post signs notifying customers that they surcharge
• Merchants must include the surcharge amount of any fee on receipts
• Merchants are not allowing a surcharge on Visa and MasterCard cardholders greater than charges to customers paying with American Express or Discover cards. For practical purposes, since AmEx prohibits surcharging, merchants would be forced to drop this payment choice.

Of course these surcharge rules will not apply in the 10 states that prohibit that practice by state law to protect consumers. The states that prohibit surcharging for credit cards include California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas. If more merchants implement payment type surcharges at the point of sale, we can expect consumer advocacy groups to push for even more state regulations to prevent what they will frame as gouging consumers with fees.

Then there is the question of how payment surcharge fees will hurt sales. It is argued that surcharging can cause consumers to think twice about their purchase at the checkout counter, reduces the amount of goods and services consumers will buy and lowers the average sale transaction. In highly competitive consumer markets, customers are expected to respond negatively to payment surcharges. Therefore, surcharge fees are expected to be market-driven and seen in environments where consumers have little choice but to pay them.

Merchants have long been able to offer a cash discount, pricing as an additional reward for cash carrying customers, rather than a penalty for those paying with plastic. And recent industry changes already allow merchants greater flexibility to steer their customer's payment choice.

• MasterCard and Visa Settled with Department of Justice to allow merchants more options to steer consumer payment choices
• Merchants also won Card Acceptance changes under the Dodd-Frank Act

Instead of surcharge fees, today’s best practice for implementing payment steering policies include offering a discount or benefit to encourage your preferred payment method, offer a promotion after the transaction is completed (like a credit on the billing statement or rebate) or use a separate coupon or voucher.

An estimated 7 million retailers will be affected by a proposed settlement in the Payment Card Interchange Fee and Merchant Discount Antitrust Litigation case.

According to Reuters, it has been announced that Visa and MasterCard along with their card issuing banks have agreed to settle the Payment Card Interchange Fee and Merchant Discount Antitrust Litigation case with U.S. retailers for $7.25 billion. If approved by the judge, it would be the largest antitrust settlement in U.S. history.

According to reports, the settlement will include provision to allow stores to surcharge customers extra in an attempt to steer customers toward less expensive payments (although certain states laws prohibit the practice), will pay stores $6 billion and will lower interchange fees by the equivalent of 0.10% (10 basis points or $1 per $1,000 in sales) for 8 months valued at $1.2 billion with an additional $525 million paid to stores suing individually.

Stay tuned for more coverage on this settlement. But be careful. In the 2003 Visa and MasterCard settlement of a lawsuit by stores over the the "honor all cards" rules, $3 billion was paid out and many merchants gave up a third or more of their take to law firm solicitations. Just be patient. The details will come out on what if anything merchants need to do. In regards to the lower Interchange, as we continue to preach, move to a direct Interchange pass through service provider to take advantage of these savings (have we mentioned that's what we do?)

Our PCI Compliance and Security partner ControlScan plans to integrate the SAQ P2PE-HW into our merchant portal by the end of the quarter, as it’s expected that P2PE certified solutions will be listed on the PCI SSC website later this year. We will alert our merchants as soon as the SAQ P2PE-HW is available.

The PCI SSC Releases its P2PE SAQ
In May the PCI Security Standards Council (SSC) published a fact sheet to offer guidance for merchants evaluating technology to accept payments using a smartphone or iPad/tablet. The fact sheet explains how a point-to-point encryption (P2PE) solution can be leveraged to secure mobile payments.

As a next step in its P2PE program, the SSC has released a P2PE Self-Assessment Questionnaire (SAQ). The new, reduced SAQ (SAQ P2PE-HW) is similar to SAQ B and contains 18 questions.

The PCI SSC website does not currently list validated P2PE solutions; however, the SSC plans to release the necessary documents for reporting and validation "in the coming weeks." Once this occurs, P2PE assessors, solution providers and application vendors can complete their assessments and submit their reports and validation documentation for acceptance and listing.

As the P2PE validation process progresses, merchants meeting the following criteria should use the SAQ P2PE-HW:

• Merchants processing cardholder data via hardware terminals included in a validated and PCI SSC-listed P2PE solution;
• Merchants who do not have access to clear-text account data on any computer system, and only enter account data via hardware payment terminals from a PCI SSC-approved P2PE solution; and
• Merchants who are brick-and-mortar (card-present) and/or mail-order-telephone-order (card-not-present) merchants. For example, a MOTO merchant could be eligible for SAQ P2PE-HW if they receive cardholder data on paper or over a telephone, and directly key it into a P2PE validated hardware device. Note that SAQ P2PE-HW would never apply to ecommerce merchants.

The merchants cited above would validate compliance by completing SAQ P2PE-HW and the associated Attestation of Compliance (AoC), confirming that:

• Their business does not store, process or transmit any cardholder data on any system or electronic media (for example, on computers, portable disks or audio recordings) outside of the hardware payment terminal used as part of a validated PCI P2PE solution;
• Their business has confirmed that the implemented PCI P2PE solution is listed on the PCI SSC's List of Validated P2PE Solutions;
• Their business does not store any cardholder data in electronic format, including no legacy storage of cardholder data from prior payment devices or systems; and
• Their business has implemented all controls in the P2PE Instruction Manual (PIM) provided by the P2PE Solution Provider.

Visa Inc and MasterCard Inc are moving closer to a settlement in a seven-year old case named In re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation. Most analyst are predicting a settlement and possibly by the end of July. One of the possible settlement outcomes could be a reduction in interchange fees which is expected to have a negative impact on bank stocks. If your holding bank shares of major card issuers, be warned. If you are a small merchant, we will keep you posted here about what it means to you and anything you will need to do.

Visa posted positive double digit gains and says it will “live forever with less share than we once had” due to government regulations.

Visa reported “very vibrant transaction growth rates in U.S. (consumer) credit” and also noted that their commercial credit card side is growing at a good clip. As expected, debit volume declined as banks deemphasized debit and removed rewards programs associated with debit cards that once played an important role in driving volume.

Visa also said “the U.S. Department of Justice Antitrust Division issued a civil investigative demand requesting additional information about PIN-authenticated Visa Debit and elements of our new debit strategies, including the fixed acquirer fee.” Visa says it is confident their actions are appropriate.

As you know, Vantage provides the most transparent, direct pass-through of the payment industry’s universally established Interchange, Assessment and Access fee schedules.

This April, a whole new set of card fees are being introduced. Vantage reports on and tracks these industry fee changes as they occur on our web site and this resource is often use by reporters and market analyst as well as merchants, businesses and banks. We also post about the payments industry and card Interchange on our blog. In July 2011 we first alerted merchants to the Visa announcement to charge a new location fee.

Vantage passed through all the Fed regulated debit rates to our clients. We posted a Vantage Study Revealing the Results of Fed Regulated Debit in October. And while Vantage clients took advantage of the savings immediately, most Small Businesses are Missing Out on Debit Interchange Savings.

With these new fees, Visa is responding to government regulations that require all debit cards to have two unaffiliated network choices. Visa is lowering it’s per transaction access fee (Vantage is passing this savings on to our clients) and is instead implementing a fixed acquirer fee. Visa hopes to encourage merchants to route more transactions to Visa (a monthly fee divided by more transactions equals lower overall per transaction pricing), or so the story goes. This article in an industry trade journal discusses the reaction to these industry wide changes from the Electronic Transaction Association. Here you can listen to expert commentary on how card fee structures are changing in response to government regulations on debit.

Overall, if you accept lots of too-big-to-fail bank debit cards you should still come out ahead. If your customers don’t use debit cards, chalk these new fees up to more unintended consequences of government regulation.

Global Payments identifies and self-reports unauthorized access into a small portion of its processing system limited to track 2 card data only (no track 1 card data, no names, no social security numbers and no bank account information was compromised).

Global Payments reports incident does not involve our merchants or their relationships with their customers. Global Payments continues to provide uninterrupted processing services.

ATLANTA March 30, 2012 – Global Payments Inc. (NYSE: GPN), a leader in payment processing services, announced it identified and self-reported unauthorized access into a portion of its processing system. In early March 2012, the company determined card data may have been accessed. It immediately engaged external experts in information technology forensics and contacted federal law enforcement. The company promptly notified appropriate industry parties to allow them to minimize potential cardholder impact. The company is continuing its investigation into this matter.

“It is reassuring that our security processes detected an intrusion. It is crucial to understand that this incident does not involve our merchants or their relationships with their customers,” said Chairman and CEO Paul R. Garcia.

For more information please visit www.2012infosecurityupdate.com.

Like his previous article discussing the merchant services industry, Michael Conticelli has done it again with a must read insightful report in the Ft. Myers Small Business Examiner titled “New trend in merchant statements hides rates and fees”.

Michael specifically calls out SunTrust for purposely redesigning their merchant statements to eliminate all rate and fee detail, leaving merchants no clue as to how charges are calculated. SunTrust made the decision to keep merchants in the dark about their “surcharge fees, bill backs, annual fees, PCI fees, etc.” because when merchants “don’t actually see the rates and fees month after month” they can’t ask questions.

Michael warns “Merchants need to be vigilant in monitoring their merchant fees.”

We couldn’t agree more! In fact, Vantage Card Services takes the exact opposite approach with our clients. Not only do we provide a very detailed merchant statement, we also provide our PayView analytics tool to help merchants explore stats and trends, chart their sales, manage their Interchange qualifications and track their effective "real rate" calculations month after month.

PayView is a user-friendly dashboard and analytics reporting tool that merchants can use to gain greater insight and more transparency into the cost of accepting card payments. This added layer of business intelligence empowers our clients with a greater understanding of where fees come from, best practices to keep costs down and a historic tracking of processing expenses.

Read more and take a tour at http://vantagecardservices.com/payview.

Update 3/3/2011: MasterCard is creating new small ticket Interchange charge types as discussed below but NOT introducing new rates. MasterCard is implementing these new buckets for small ticket likely so they can track the volume separately from other regulated debit transactions. We expect that companies like USA Tech will continue to opt out of accepting MasterCard debit until they lower the small ticket debit Interchange rate.

Vantage Card Services specializes in providing card payment processing services at direct and transparent Interchange pricing to merchants and businesses of all sizes.

For our B2B and B2G clients, VantageB2B.com is a resource focused on the payment acceptance policies, strategies and best practices to lower cost, increase productivity and enhance security. An integral part of our service is helping our clients manage Interchange qualifications when accepting commercial card payments. Given this B2B processing focus, we are particularly engaged with the recently announced Interchange modifications by Visa to become effective April 2012. We work with clients daily to establish and manage Level 3 merchant services. A significant number of Interchange modifications have been announced impacting Visa commercial card rates.

• Visa will make changes to their existing Corporate Card Level 3 and Corporate Electronic with Data Interchange programs.
• Visa will implement a new P-card product and associated Interchange Fee programs that will be available to commercial card issuers in the U.S.
• Visa is making changes to existing Interchange rates in their business, corporate, commercial and purchasing card categories as well with the most significant change coming for the Purchasing Card Large Ticket category that today requires a Visa registration fee.
• Visa will separate its non-regulated Business debit card from Business credit programs.

Another interesting and potentially significant change was announced from MasterCard. MasterCard will introduce new Regulated debit small ticket debit and credit Interchange programs in April 2012. While we don’t yet know the specific details, for companies like USA Technologies this is a welcome development.

Vantage is home to world-class payment solutions and features the best value package of price, terms, service, solutions and incentives available in the payments industry. For more information, follow Interchange developments as they happen here.