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first six digits of the card, also referred to as the card’s Bank Identification Number (BIN).
The Card Network will: • Keep a percentage of the $5.75 for itself as the Network Assessment Fee. • Take a percentage of the $5.75 and pass it on to the card Issuer as the Interchange Fee.
The Federal Trade Commission has set some policies for handling chargebacks on debit and credit cards,6 but ultimately, it falls on the card Issuer to make a decision as to how much liability will actually fall on the cardholder.
In the United States, if an EMV Chip card is available, and the Merchant does not use the chip and instead swipes using the magnetic stripe, the chargeback liability immediately goes to the Merchant and the Merchant will not be able to fight it.
Key Term: 3D Secure This is a standard for offering cardholders one more layer of security for online transactions. When card numbers are entered into a website to pay for something, 3D Secure will require the cardholder to enter one more form of authentication, such as a one-time-use PIN or passcode, similar to how two-factor authentication works for websites.
The card networks place stringent rules on their Merchant Acquirers to make sure that all Merchants maintain chargeback rates below 1 percent. Specialized Merchant Acquirers will underwrite riskier businesses but will charge a lot more per transaction.
The reason why you can take money out of just about any ATM is because of the Durbin Amendment and its requirement that every debit card must have a secondary unaffiliated network.
Independent Sales Organization (ISO) An ISO is granted a license to sell Merchant acquiring services from a Merchant Acquirer such as Wells Fargo or Chase Paymentech.
Payments Facilitator (PF or PayFac) This is a layer on top of a Merchant Acquirer. Payments Facilitators can typically onboard Merchants very quickly and offer out-of-the-box hardware and software to enable a Merchant to start accepting card-based payments quickly.
Interchange Plus works much like Emmet’s mocha example, where each swipe would incur an Interchange fee that would be a percent of the total transaction, a Network Assessment fee that is typically percentage based, and then an Acquirer fee that can be a percentage or a flat amount per transaction.
Typically, the Acquirer fee can be set up on volume tiers, meaning that this cost could go down based on the total monthly volume
Payment Service Provider (PSP) A PSP is an aggregator of payment methods. It allows a website operator to get paid via debit cards, mobile wallets, and financing schemes.
To the end Merchant, credit cards are actually a more guaranteed form of payment because they know that they will be paid by the Issuing Bank regardless of if the cardholder has enough money in their bank account.
The travel industry, in general, prefers credit cards and is willing to pay higher Interchange rates for this risk mitigation.
The two major factors that define the Interchange rate is the type of card and the type of Merchant.
The Durbin Amendment to the Dodd-Frank rule basically regulates Interchange that can be earned by large Issuers. An Issuer who has $10 billion in assets or more falls into the “regulated” Interchange category.
Merchants who clear transactions faster can also qualify for better Interchange rates and this is factored into their Interchange rate table.
The key drawback to using your personal credit card is that if the expense is large and you don’t get paid back from your employer in time, you are liable for paying the interest charges.
