and welcome to today's webinar. Our speaker today is Colin O'Keefe from Merchant Cost Consulting. Before I turn it over to Colin, I'd like to let those of you who are live with us know that you may submit questions during the webinar via the Q&A tab at the bottom of the screen. This webinar will also be recorded so that you may watch or re-watch on demand at your convenience. With that, I turn it over to Colin. Awesome. Thanks, Katrina. I appreciate it. I'm excited to be here and kind of walk you guys through the good old credit card processing and the payments industry. As Katrina said, if you guys have any questions or feedback or anything like that during the presentation, obviously, yeah, we wanna keep this fairly informal. So just please go ahead and ask. And then at the end, we'll also have a Q&A if you guys wanna save some questions or things kind of pop up through the webinar and everything like that. But yeah, so I'll keep it fairly quick and short. This is gonna be about kind of understanding the payments landscape and kind of how it works, everyone's favorite subject. I know it can get a little technical and boring, but obviously, at the end of the year, it tends to be a big line item on the P&L. So I'll kind of jump right in here. So a couple of things that we'll be reviewing today and the objectives and all that good stuff is we wanna give you guys essentially a good understanding of kind of what you guys should be paying to your credit card processing vendors, right? So from like a all-in, we would call it an effective rate perspective, total cost of processing, basically the total fees divided by the total volume. You know, kind of like where you guys should be, what's competitive, what's not. You know, when's a good time to start evaluating vendors and your pricing and things like that. You know, then we'll kind of walk through quickly some different factors that can contribute to your overall effective rate, you know, being above the point that we would feel is appropriate for companies of your volumes. We'll discuss briefly, you know, some strategies and pricing that is fair, different pricing structures, kind of, you know, where you guys should be from a pricing structure standpoint. And then, you know, lastly, I know quite a few of the members within the group that we've been able to help already are seeing a decent amount of business to business transactions. So we're gonna review on how you can reduce and optimize those anywhere from, you know, half a percent upwards of 1%, which is called, you know, level two or level three processing. I'm sure some of you guys in here are familiar with that already. So I'll kind of jump in here. So, you know, quick background, I guess, about our team and myself is, you know, a long time ago, one of my first jobs at college was selling credit card processing for First Data. And when I took that job, I didn't even know when you go to like a local, you know, grocery store or restaurant and swipe a credit card that there's a fee associated with that. It's kind of one of those things that's like out of sight, out of mind. You know, you don't necessarily pay attention to it. So I worked there for a while and kind of climbed my way up the executive ladder and obviously gained a good understanding of the industry. And like, you know, to read these statements, you almost need a PhD. It's absolutely insane, all the different fees, there's hidden fees, stuff like that. So long story short, you know, we launched a consulting firm. So we have no direct affiliation with any processing companies or anything like that. We essentially help our clients kind of bring transparency and navigate the world of payments. You know, in a brief summary, you know, before I jump into kind of all the technical processing fees and everything like that, essentially, you know, companies, you know, quite a few from AED have hired us to essentially help them reduce and optimize their credit card processing spend without them having to change from their current credit card processing company, software, ERP systems, or anything like that. So in short, what we do is we kind of leverage our knowledge and analytics to essentially drive down the fees with the existing vendor. And then we audit the account for optimization and ensure the pricing is accurate and all that good stuff. So quick kind of understanding of the industry and how it works. As I said, you know, I don't want to get too technical on this because it is super complex and there's a million different pricing structures and card brand fees and scheme fees and stuff like that. But in summary, you know, how the industry is kind of set up, right, is the card brands also, you know, known as like Visa and MasterCard, Amex, Discover, et cetera, right? They set certain rates for every card, right? So like a business card tends to be higher than a debit card. You know, obviously rewards cards are fairly high because, you know, businesses are paying for, you know, the customer's free flight to Florida or wherever they're going, right? So essentially what happens is they look at kind of the rewards and risk associated with each card, right? And then they make up a fee, let's say it's 1.5%. They pass that fee, you know, over to their credit card processing company. It could be Global Payments, First Data, Bank of America, whomever it is. And then Bank of America or First Data, whomever, will add markups above the interchange fees. And that's basically where they make their margins, right? And those theoretically are really the only fees that can be negotiated directly, right? You can't negotiate directly with the card brands. There are numerous ways to reduce those transaction fees from the card brands, which we are going to focus on quite a bit in this webinar. But the markup from your processing company from a negotiation standpoint is where you guys would want to focus if you were going and just negotiating, right? So that's kind of like how the industry is structured and kind of where some of the fees are coming from, right? There's quite a bit of hands in the pot. Obviously you don't go directly to Visa or anything like that. They kind of push that to a middleman who then pushes it out to you guys, right? So from a pricing standpoint, like different pricing structures and things like that, right, there's really three main ones, tiered pricing, interchange pricing, and flat rate, right? So I'll start on tiered pricing. Essentially with a tiered pricing, there'll be like three buckets, right? It'll be like a qualified, mid-qualified, and non-qualified. If you are seeing like anything like mid-qualified or non-qualified on your statements, you're gonna wanna basically discuss that with your existing vendor because a tiered pricing structure from a cost perspective is probably the least competitive and most deceptive pricing structure out there. Basically the buckets downgrade and it ends up being like 3.5%, 4% with the downgrade, especially with the card types from the groups that we're seeing. So an interchange pricing plan, if you're gonna take a couple of things away from this webinar, one of them to take away is basically that you wanna ensure you're on an interchange pricing plan. Essentially how this works is, as I said before, Visa, MassCard, Discover, they set the rates for each type of card, they pass it over to the middleman, and then they add just a small markup right on top of that. That's gonna be the most transparent and obviously from an overall cost standpoint, the best pricing as well. It's gonna have to deal with what the markup is that the processing company chatted about and onboarded you guys with, which we will discuss kind of on the next slide, what we feel like is a fair and appropriate markup compared to what we feel like isn't. And then you have a flat rate pricing plan. Obviously a flat rate is super self-explanatory, it'll be 2.5 plus 15 cents or whatever it is. It's not from a pricing standpoint, overall effective rate, it's not something that we would recommend. Some CFOs or VP of finances, et cetera, they tend to prefer it though because of the reporting purposes, like you know every single time exactly what you're gonna be paying. It doesn't have to deal with like one thing, it would like one month if you saw more Amex or you saw more B2B cards or the cards downgraded, things like that. So those are really the main pricing structures. As I said, interchange plan, as long as it's a true interchange is gonna be where you guys wanna be for sure compared to the tier, the second best would be a flat rate. So a question that we get on these webinars all the time is essentially like, we don't really wanna look into all the technical stuff, the statements are confusing, what do we think we should be paying all in and if we're paying that, I think we're okay. So what we would consider is appropriate pricing, all in and I mean the total fees divided by the total volume is gonna be somewhere around 2.25% give or take probably five basis points each way. And it's gonna have to deal with like how affluent of an area you're in, the card types you're seeing, transaction size, stuff like that. But right around that 2.25 in kind of your guys' industry based on the card types and the data that we've seen, we feel that is appropriate with your existing vendors. So if you're sub that, you're probably in a really, really good spot from an overall optimization fee standpoint. If you're finding yourself 2.5, 3, 3.5, 4, it's probably time to evaluate it after this webinar and kind of look into some of your fees and things like that. So I'll keep going here. So I wanted to discuss basically, some items and kind of fees that you can be aware of and fees that are negotiable that you could basically bring up to your credit card processing company, essentially explaining to them what the knowledge component that we're providing you guys and give you guys some ammo to be able to go to them. So as I said, they call it a discount rate. That's basically the fee on top of the interchange rates from Visa and MasterCard, Discover, Amex, et cetera, that the credit card processing company is providing. So you can see like 0.25% plus 10 cents, 0.45% plus 15 cents, 0.10% plus 10 cents, something like that. So that'll be where the bulk of the profit for the most part is coming from for the processing companies. So that's probably where I'd focus most of my time for you guys. Obviously, monthly miscellaneous fees and things like that. In regards to what I would feel is a competitive markup for like, you know, discount rate or we would call it basis points over interchange, I would say, you know, 0.10% or 10 basis points would be competitive for you guys. If you're seeing somewhere 0.20, 0.50, something like that, I wouldn't necessarily feel that that is a competitive pricing schedule. You know, and it's something to keep an eye on because a lot of times, obviously, you'll sign up for, you know, 15 basis points or whatever it is. And six months later, they jack it up to 25, right? So those are some of just kind of the general markups that you can evaluate with your existing vendor. And then some other things like, and probably one of the most important things in this webinar we're gonna be discussing is the interchange rates for you guys, right? So typically, that's where 90% of your overall fees are coming from or from the interchange rates. So these fees are non-negotiable, but there's something called level two and level three optimization, right? And basically, what that means, that means optimizing all of your business to business and business to government transactions to achieve substantial savings, right? Now, there's kind of tricks and certain data points and processes to take the cards and things like that to be able to achieve these level two and level three rates, which we will be walking through here shortly. But this can cut your overall cost by, you know, give or take 25% if you guys are seeing, you know, the correct card types here. And then PCI compliance is kind of like another, you know, moneymaker nickel and dime fee for these processing companies, right? I'm sure some of you are familiar. They make you take an annual survey. Sometimes it's quarterly, depending on which vendor it is to basically ensure you're within compliance, right? Now, if you do not pass that survey, if someone forgets to take it or whatever, they will either charge you additional basis points, they'll charge you a monthly fee ranging from $79 to $125. They could charge you an extra transaction fee, anything like that. So if you're seeing something like PCI non-compliance on your statements, first and foremost, it is very important to be compliant. Now that is something that we do for all of our clients. But if you are not compliant, you'll wanna look into securing compliance survey, and then asking for a refund from your vendor for up to six to 12 months of the fees that you guys had to incur for being non-compliant. Okay? So I wanted to discuss what kind of is level two and level three with you guys, because we've seen substantial opportunities for savings from this group within kind of these metrics, right? So what is level two and level three? So this only applies to companies taking business to business or business to government transactions, right? So Visa and MasterCard will offer a discount, a substantial discount for anyone taking B2B or B2G transactions, as long as the correct data is being inputted, and the systems are set up correctly while taking that transaction, right? So below, I attach just a little graph. I'll walk through some of them. Primarily the most important, because level three only applies to purchasing and fleet cards. I'll walk through basically level two. Which is where you can see, substantial amount of savings, right? So essentially, it would include already the level one data that most people are gathering, that's like the zip code and the amount and stuff like that, right? So it would include all of that data. And then for MasterCard, you would add in the tax amount, tax indicator, tax ID and customer code, right? And then for Visa, you would add in the tax indicator, tax ID, customer code. And then Amex level two is tax amount, customer reference number and shipping information, right? So it's not a ton of information to add in to achieve these results. It's definitely worth it to evaluate. Now, some people are like, oh, we don't have a tax amount or tax indicator or something like that. And that's not the end of the world. There are ways that we can kind of route around that kind of pending on how our clients are set up to still be able to achieve that optimization, right? So jumping to the next slide, I kind of wanted to show you guys the difference here. So this is basically the level two and level three chart in regards to Visa, right? So the column on your right is gonna be your standard, they would call it level one transaction rate, right? So as you can see for all of them, it's essentially 2.95%, right? This is just your standard, I call in, I make an order, you take the zip code, you take my name, address, purchase price, things like that. That would qualify for the standard rate at 2.95%, right? Now, if we flip over and we provided that level two data on a MasterCard business level one credit card, that would be one point that, I flipped to the wrong page, sorry. All right, so Visa commercial prepaid card or Visa business tier one card, standard is 2.95. Now, if we are getting level two there for our clients, they would be paying 2.05% on that transaction by just adding in those three additional line items, right? So that's a savings of upwards of 1%. And some of these transactions can obviously be extremely high, 10,000, 50,000, 100,000, et cetera. So a ton of savings there. If you guys are optimizing, this is definitely a huge opportunity for reduction and something that I would encourage everyone to look into, look at their interchange tables, kind of see what they're getting. You can start with the overall effective rate. If it's not at the 2.25%, it probably means it's not being optimized, right? So MasterCard, I made a table, very similar. Obviously here is gonna be the standard rate, a bit higher. The standard rate is a bit higher for MasterCard than Visa. And then you've got data rate to level two, we would call it. On the MC business level one card, you're looking at a 1%, 1.05% savings, right? Which is fantastic. So all of these yield substantial savings for sure, like 45 basis points, 1.05, et cetera. So something to definitely evaluate and ensure that you guys are optimizing the transactions. As I said, about 90% of your fees can be incurred from the card brands. Obviously, if you chat with the processing company, they're gonna tell you that they're not negotiable to card brands, which is true, but that doesn't mean they can't be optimized to be reduced. Okay, so lastly on the optimization piece, I wanted to jump in. We've seen a lot of large ticket items from AED members, which yields another opportunity for savings for you guys, as long as everything is set up correctly, right? So with MasterCard, you can see, obviously the transaction fee is tremendously higher. This would entail receiving all the level three data. Transaction would have to be above $7,254. And then these are gonna be the rates that you guys would get on, say a $10,000 transaction, right? So tremendously lower than the standard rate to say the least. You're saving a ton of money here, especially if you're doing high tickets, high volume. And then Visa only offers that on just their purchasing cards, which is great. Because obviously, a lot of the P cards are where people are making those large transactions as well. So that's kind of the general idea on the level two, level three and optimizing interchange that I just wanted to bring to your attention, kind of make everyone aware of it, because there is a large opportunity for savings there for sure. So I'm gonna jump into the next slide here. I just wanted to come up with some general questions to kind of start the process for companies to kind of evaluate their existing credit card processing setup and landscapes, et cetera. So the first question that I'd wanna ask if you guys aren't aware is understanding kind of the pricing structures that you guys are on, right? Are you on the interchange pricing plan, flat rate, tiered, et cetera? If you're on an interchange pricing plan, you wanna basically see, okay, what's the basis points or what's the discount rate above interchange that you guys are charging me from a transaction basis point standpoint? As I referenced earlier, we think 0.10 or 10 basis points is fair across the board for you guys. And then lastly, on the interchange piece and probably most importantly is, you wanna ensure you're on what we would call as a true interchange. Basically what happens is sometimes, depending on each processing company, they receive the interchange and then they mark up that interchange and then add the basis points on top of that basically to pad in extra profit, right? So that's kind of where things get a bit confusing and technical because there's about 700 to 800 different card rates out there. So it's super hard to kind of tell when they're marking it up. So you wanna confirm in writing that you guys are receiving what we would call as a true interchange pricing plan, right? Secondly, you wanna ensure you're within compliance. We just discussed that on the last slide, so I won't go into that too much. But you always wanna ensure, for one, protection of the business, right? You don't wanna have to run into any issues with the card brands. And then two, make sure you're not paying any fees on that and all that good stuff. And then lastly, when you're dealing with a processing company, a lot of times you're kind of dealing with a sales agent or general support. They might not necessarily be well-versed in the optimization piece as it does get fairly technical, right? So you'd wanna do your own research and based on kind of the slides that I had just provided, obviously we can do it for you guys as well. You kind of wanna see if you're getting off And then if you're not, sometimes the processing companies will have certain tools to basically help you guys automatically receive optimization. Now, the cost of those tools is different. Sometimes they'll share that optimization, which we don't think is appropriate. So that's something that you wanna bring up. And if they don't have a tool, then obviously you gotta kind of dive under the hood and figure out what data we're collecting or what data we're collecting. And then if you're not, figure out what data we're collecting. Are we authorizing the card correctly? Is everything going to the card brands accurately? Stuff like that. So that's kind of where I would start with a processing company to start the process and evaluation. And then I wanted to just provide like a very brief case study kind of on our services and what we do and kind of how it works and everything like that. So a company called MaxTool, they had reached out to us, maybe I forget the exact timeline, fairly recently. And they were having issues because they felt like they were paying too much in their credit card processing systems, but they were integrated within their ERP system. So obviously switching processing companies and nevermind ERPs is a huge lift for any company that size. So they didn't wanna switch, but they basically felt that they were overpaying and they wanted someone to evaluate it to ensure they're optimized and the discount rate was right and everything like that. So they reached out to us, they essentially hired us to negotiate with their existing vendor to reduce and optimize their credit card processing spend without having to change their current ERP system, gateway, equipment, et cetera. So we're able to reduce their fees by about 30% a month, which is fantastic on their volume, yielding hundreds of thousands in savings on an annual basis. And then we also got refunds for the prior six months of overbilling and hidden fees and billing errors from the processing companies and things like that, right? And then moving forward, what we do for the clients is we essentially audit their statements to ensure their optimization, ensure the pricing is accurate, ensure there's no fee fluctuations, hidden fees, et cetera. As I'm sure some of you guys are aware, the credit card processing world, I kind of compare it like the cable industry on steroids. You know how your cable bill goes up and you gotta sit on hold for an hour every year and they tell you the special promo package and they're not going back down. It's similar to that, except the statements are tremendously more complex and honestly, it's a lot more expensive than cable, right? So we essentially audit those statements monthly to validate the pricing, make sure there's no fee increases. When they do increase the fees, which tends to happen quarterly, we flag it, we reach out on behalf of our clients, we get them a refund and get their rates back down. So, yeah, as I said, I just wanted to kind of give you guys some information and some ammo. I know the payments industry is complex and not the funnest thing to necessarily talk about. So I wanted to keep it kind of short and sweet and give you guys some good tools rather than kind of going through everything. So I'm sure I was gonna walk through some statements and kind of showcase you guys how to read them, the only problem is every single vendor has a different format of statement. So it would pertain to a small percent of everyone on this meeting. So I didn't wanna walk through that. Obviously, as a one-off, we can review and audit anyone's statements after the call. But yeah, so I really appreciate you guys jumping on and taking the time to meet with us here. I hope I brought you guys some good information and I hope I brought you guys some good value and some good knowledge. But yeah, I'll kind of open it up for questions for you guys and kind of see if we can help you out. And obviously my contact is all right here. If you guys wanted us to review some statements or have a conversation or discuss further, yeah, of course, feel free to reach out and we'll schedule a time to connect. Colin, it looks like you had a question in the chat. Okay. Are you able to see it or do you need me to? I can't see the question, I'm sorry. Okay, that's okay. It says, when you say input the data to move between levels, where is it input? So it kind of depends on how you guys are set up, but it would typically be input within the virtual terminal. I'm not sure if you guys are keying the cards or if you're swiping them, et cetera. But if you're keying the cards, you would have to add fields onto the virtual terminal that you guys are accepting cards with to be able to input that data to receive the optimization. Okay, it looks like that was the only question that was in there. And if nobody else has any other questions, we can wrap it up Collins information is on the screen. Thank you so much for joining us today and thank you today, Colin for speaking with us today. Yes, of course. Thanks everyone. I appreciate it. Thanks Katrina. Have a good one. You too. Thanks. Bye.

credit card processing

payments industry

pricing structures

effective rate

interchange optimization

negotiating with processing companies