Understanding Card Acquiring

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Pat A. McDavitt

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• Article Title: Understanding Card Acquiring

• Author: Pat A. McDavitt.

• Word Count: 660

Understanding Card Acquiring
Article Start:

Coping with the card acquiring market can be a big task. Several different streams of business are included in this market—hardware and software providers, transaction authorization, processing and settlement services, merchant banks, and MLS (Merchant Level Salespersons).

The following information should be of assistance:

Visa and Mastercard are companies that issue transaction cards bearing their logos that can be used to access lines of bank credit or demand deposit accounts (checking and savings accounts). Discover and American Express are travel and entertainment card companies. Discover and American Express can be used to access credit lines only, and are not demand deposit accounts.

Interchange is set by Visa and Mastercard. Interchange are fees paid by the merchant bank to the bank that issues the card.

Discount is what it costs the retailers. The discount fee includes interchange plus mark-ups for processors and other service providers.

Discover and American Express’s merchants pay these companies discount fees.

A bundled rate combines and average of every possible charge for a transaction in one price.

Unbundled pricing provides a different price for each sector.

The buy rate is the cost charged merchant level salespersons by the merchant bank. A buy rate reflects interchange costs plus the bank’s mark-up. The discount rate is what the MLS charges the merchant after marking up the buy rate. Pricing can vary because some companies mark up more than others.

Transaction authorization costs involves a communication between the card issuing bank and the merchant’s bank to verify that the cardholder has available credit or funds in his demand deposit account to cover the transaction.

A chargeback can occur. The cardholder can request a credit for any transaction for a number of reasons. His card may have been stolen and he did not make the purchase. Or, the cardholder may claim that the product or service rendered were inferior. There are many rules and time limits regarding chargebacks that determines whether the chargeback is granted.

Debit cards are basically electronic checks. When a consumer uses a debit card, an electronic communication occurs to determine of the cardholder has available funds to cover the transaction. If the answer is yes, the amount of the transaction is reserved until settlement. Debit card fees are less than credit card fees.

Lastly, a merchant can default. To avoid merchant defaults, acquiring banks must use underwriting procedures that assess the risks. Also, there are authorization and settlement guidelines set by the card companies to further reduce risks. To avoid high default rates, you need good merchants who follow the rules.

Of course, no matter how good underwriting, authorization and settlement guidelines are in place, some merchants still default. There are insurance companies that specialize in this type of risk.

Policies or surety bonds related to merchant card acceptance are available to protect against losses. These products can provide payouts arising from merchants that do not deliver a product or service, unauthorized transactions (stolen cards, for example), deceptive and misleading practices, merchants that mislead and other occurrences that lead to losses.