Opening the Door to Results

I wanted you to know that, as a result of your Company Profile on TurnKey Business Solutions ("Unlocking Payment Processing Solutions," The Green Sheet, Nov. 11, 2002, issue 02:11:01), I had six phone calls on the first business day after the article came out.

Tom Koziol

TurnKey Business Solutions

Understanding Interchange

I have asked four different people (who should know the answer) what is the breakdown on who gets the interchange (1.38% cps retail), and I have gotten four different answers. Is it split between the ISO and the banks or what?

Lee Robertson

Lee:

Interchange is composed of three components - cost of money, risk and a transaction-fee component.

The cost-of-money component and the risk component go to the issuing bank to hold it harmless for both extending the money before it can collect from the consumer and for the risk associated with the consumer not repaying the money. The transaction fee component goes to the card association for putting the transaction through its systems. Merchant banks add an amount for providing access to the authorization and settlement infrastructures, plus their costs for their transaction processors and settlement processors, plus their profit margins, thus creating and setting their "buy" rate. ISOs then add an amount to that for their cost and profit structures, thus creating a second level "buy" rate for their salespeople and their independent contractors. (Note: These "buy" rates can vary even within the same organization, but the initial interchange rates are established by the card associations.)

The ISO salespeople then add their cost and profit structures, creating and setting the final discount rates for the merchant. Sometimes the ISO can set the discount rates, but the practice varies wildly within the market. It's easier to frame interchange as the wholesale cost and discount as the retail cost, with the difference reflecting the costs applied by a huge set of middlemen (industry term, no sexism intended).

Remember that merchant banks, acquirers and third-party processors also have internal salespeople who get different "buy" rates than they provide to ISOs, plus ISOs can shave the "buy" rates to give merchants better rates, making up the difference in other fee structures, or pad the "buy" rates to take advantage of small unknowledgeable merchants, etc.

"Buy" rates also vary greatly based upon projected volume, stability and size of the merchant, negotiating ability and a plethora of different conditions and circumstances. Good Selling!^SM

The Green Sheet Staff

Got a Code?

I have an ISO and subscribe to The Green Street, and I thought you might know the answer to this question: What is the SIC code for an ISO in the credit card industry? Thanks.

Michael Dattoma

Michael:

We were unable to identify a specific SIC code associated with ISOs in the payment-processing industry. We did find 22 matches for "sales" and 8 listings for "credit card" on the Web site for the NAICS Association (North American Industry Classification System), www.naics.com

Good Selling!^SM

The Green Sheet Staff