K12 School Purchasing, Credit Cards, School P Cards, Procurement Cards

I run an edtech business, one part of which sells to schools and teachers. Most of that revenue (65%) comes in from credit cards, 35% from purchase orders.

Problem number one. You probably read that last sentence and thought it was the whole story. I wish it were. I use to think it was. It turns that there are lots of schools who purchase through a PO but when it comes time to pay, they pay with a credit card. So in fact, some purchase are purchase order AND credit card.  Sure messed up our accounting until we figured it out and learned to account for it.

Question number one. Q1. Of the 65% of the revenue that comes in from credit cards, is there a way to distinguish on our side between personal credit cards and school Pcards?  It would be really interesting to know.

Second question. Of the teachers paying with their personal credit card, should we start asking them whether they are being reimbursed by their school for it?

Fintech is a hot area as in school fintech with company such as Class Wallet and others looking at possibilities for improvement through technology to help education.

Startup Advice - Merchant Accounts is where you make your money

Here's what I learned over the last decade about setting up credit card merchant account for my online business in which we sell an intangible good with card not present.

1. Like it or not, you are in the credit card business. It's where your revenue actually comes from and it's a few percentage points of your cost structure. It can also go horribly wrong. Learn the basics and pay attention to it.

2. Using Paypal as your merchant account vendor is not the worst thing in the world. Nor is it the best in the world. Their reports sort of suck but their support is reasonable. As far as I know, they are not real good at subscription service processing but I've never really tried it with them.

3. Be careful that any merchant account contract that you sign has a clear way to get out of it. Note,  if you are a subscription site, there are two levels of getting out of it: 1. Switching to a new vendor to start processing new subscription orders. 2. Getting existing subscribers credit card info switched to a new credit card vendor. In my experience, the latter is impossible. You just have to add a new vendor for new subscribers and then over time, as users login, get them to update their credit card info and in doing so, switch it to a new processor.

4. Costs. The pricing for credit card fees to you is weird. As far as I know, there are three systems:
- one where each credit card has its own fee structure and you pay them
- a tired system where your process puts the cards in tiers and charge you by the band. By tiers I mean, debit cards vs credit cards. Credit cards with special benefits (miles, money back, free massages) vs credit cards without benefits.
- a fixed price system which Paypal seems to use.
The fees are a mix of monthly fees (for no reason), start up fees, % of bill fees, and a fixed per item processing fee. There are also fees for credit card verification, refunds, and other chargeback disputes.

5. Security. Keep your website secure. Update your CMS (ie Wordpress) at each update as well as your coding languages (ie php), and your tools. Run your PCI vulnerability scan every month. Screen your employees.  When they talk about security needs, listen!

Credit Card Processing Changing at Retail

I often eat breakfast at a low end very nice diner which I like because of location, food, and they have a nifty high tech looking cash register. It's basically a tablet mounted on a little stand. It integrates credit card processing presumably as an and probably has sorts of other useful apps on it.

Square Retail Credit Card Processing

When I take a closer look at it and ask some questions, I hear that it's the Square Credit Card system.  The stand has a magnetic strip reader built into it. The attached little white thing is the chip reader. And it also takes Apply Pay.  I asked about fees, payment schedule, and reports. She's nto entirely sure about the fees today but thinks that they are rising to 2.75%. She loves the daily reports. She's a little vague on when she gets her money into her account. I asked about the tablet for credit cards and she says it's an ordinary iPad and she's thinking of adding the Square app for payroll on it too.

Square Credit Card Reader, Chip Reader, Screen

What's funny is from this little restaurant, I can also see another recent innovation in credit card processing. There is a retail store peddling credit card processing equipment and presumably processing services.  Notice the retail sign below for Ignite Payments and FirstData?

Retail Vendor of Credit Card Processing Services & Equipment

And while I don't yet have a picture, there are also parking meters nearby which are the new variety incorporating credit card payments.  In the credit card processing world, the times they are a changing...

Apple Pay on the Rise: Credit Cards Doomed?

I think the use of Apple Pay will quickly and greatly expand at retail, I think the credit card industry will, after its decades of poor management, be totally shaken up.

As a consumer, I just tried using Apply Pay at retail. It was fast and efficient. In contrast, the use of the new chip technology on credit cards in the US is incredibly messed up. It's slow, inconvenient, and does not greatly increase security.  The chip would have been a big step forward if it was implemented with additional security, say a PIN. But instead, the great expense of switching to chip-based technologies does not make sense there are not enough increases in security.

What's wrong with the US credit card system?

The the US credit card system keep relying on signatures. It's an expensive technology (all those touch screens etc) and does not really improve security. A credit card system in which your picture is taken for large pictures would help crack down on fraud.  A credit card system with a PIN would greatly increase security. And while the chip is a step forward over the magnetic stripes, they didn't require (as they do in Europe) a switch to mobile terminals so that customers are never separated from their credit card.

The US credit card system keeps getting more expensive. Of course, the consumer pays these costs but does not see them.  Seen all those ads about credit cards giving you 1%, 2%, even 5% and 10% back? Who do you think pays for this? The credit card companies just charge the increased fees to the merchants who, in turn, have to increase costs to cover the transaction costs of these credit cards.

The use of an Apply Pay-like system greatly increases security and at this point, the costs to merchants are lower and the convenience to consumers is lower.

"Apple Pay is a mobile payment and digital wallet service by AppleInc. that lets users make payments using the iPhone 6, 6 Plus, and later, Apple Watch-compatible devices (iPhone 5 and later models), iPad Air 2, iPad Pro and iPad Mini 3 and later."

New Style Payment Page With Direct Bank Billing

Today I was ordering a book online and I saw a new style online payment page. It suggests as the first type of payment, pick your bank! I guess the idea is to bypass merchant accounts and credit cards and online payment systems and do a direct debit

The online payment page is marked: Powered by PayPal". While the idea really caught by eye, I predict that this will FAIL in the mark place.

Why do I predict this direct bank withdrawal  not take off in the market place as a payment system. Because it  primarily addresses the vendor's issues. For a vendor, it probably reduces the fees from credit card processing. It probably speeds up payment. It might also cut down on chargebacks but all of these issues matter only the vendor.

From a consumer's point of view, I'm less likely to share my bank details than my credit card details. Also, I don't carry my bank details around with me whereas I do have my credit cards in my wallet.

Heh PayPal, do you have any views on this?  Am I missing the point?

Online Pay with Online Bank Account

In contrast, I paid for my lunch today with ApplePay. WOW, that was fast and easy!

Credit Card Chip System in the US: So Messed Up

Whether you got chips in your cards or not in the last few years, I'm sure you are aware of the painfully slow performance of the chip-based card payment system.  If you use the chip, if you're like me, you try to avoid using the chip since it takes an extra 20+ seconds. Even if you don't have a chip, I'm sure you've waited in line behind people who do.

We've all wondered why. It turns out, it's poor software.  Visa announced this past week that they will update the software with a faster implmenetion. And I quote:

An upgrade from Visa aims to shave a significant amount of time off this process. If Visa’s new “Quick Chip” upgrade — announced this morning — works properly, customers will no longer have to stand there awkwardly for 10-20 seconds with their card sticking out of the reader, waiting for approval. Instead, it would be more akin to the typical ATM experience, where the customer dips the card into the reader for only a second or two.

However, it's much worse than a simple question of speed.  Here's what's wrong:

1. We all prefer Apple pay. It's faster and more convenient and it's coming on fast.  Bravo to the credit card companies for totally blowing their dominance of automated payments by a slow late awkward implementation.

2. The chip system does not really address security very well. While it does move away from the incredibly easy to copy magnetic stripes, it does not fully implement what is known as the "chip and PIN" system used in all the countries in the world except for the US.  In all the other countries, there is both a chip and then the user must enter their PIN to maintain security. Most of the world implemented this.  However, the US  did not implement the PIn system since we felt it might be too hard on consumers so we remain with a sytem which is not so secure or advanced.

Why is the US doing it this way? It might be a problem of our economic system which is dogmatically private sector-oriented so the government cannot dictate a move to a higher security system.  So instead, the market is left to figure out how to move forward which means since nobody wants to show leadership, the low security system remains in place with the costs of fraud remaining incredibly high which of course, ultimately gets stuck back onto the consumer.

Card Not Present, Recurring Bills, and All the Business Questions

Dear Readers,
I'm going to totally update the content on this site with a set of new posts, or maybe pages, summarizing our knowledge on these key topics.

It will be a summary of the key business issues related to the credit card processing of a card not present intangible subscription business model. It'll be a course unto itself.

I have written on all these topics before but for my own purposes, I will update and review my thinking on these topics and write out a top level summary.

You lucky readers will benefit from all this wisdom. In return, I ask for not for cash. If you think it is useful, just comment on the site saying so,  link to this site, tweet or post about it (directly to the articles that you find most useful) and also, if you see an ad that is of interest to you, don't hesitate to click on it and patronize the advertiser.  At $0.20 a click to me, after a few years, I might find that given the time that I will investing in this site, that I might be making all of a dollar an hour. Woo hoo!

Topics (subject to change, feedback desired).

Credit card transaction cost systems: Interchange versus <what's the other one called?>
Interchange rate details
Key Metrics on an online subscription business: Recruiting and Retaining
Shopping Card Declines
Subscription Member Services
Credit Card Declines: Interpreting the codes
Credit Card Processing:  Storing Cards, Cards in a Vault with tokens,
Changing Credit Card Vendors
Credit Card Processing Contracts
Visa, Mastercharge, Diners Club, Discover, and American Express
Shopping Cart Software

Card Not Present Credit Card Fees

I would like to thank the Card Fellow people who have a great guide to credit card processing. Worth reading....

One of the ways that credit card processing figure costs is with the interchange rates.  The interchange fees f  change twice a year in April and October. Here are the current interchange fee schedules:

• Visa's interchange reimbursement fees
• MasterCard Interchange Rates and Criteria
• Merchants are charged a series of costs: interchange, dues, assessments and the provider's markup.   
• Ben Dwyer has a good article on interchange rates and costs.  And I quote a bit...
• 
  

Historically, interchange has been imposed upon merchants to reimburse issuing banks for lost interest resulting from a cardholder's grace period for repaying their debt. This is why Visa still refers to interchange fees as "interchange reimbursement fees." Today, Visa states that "the primary role of interchange is to create an equitable balance of incentives between a cardholder's financial institution — which issues Visa cards to consumers — and a retailer's financial institution that enrolls retailers and processes Visa transactions for them." (Source)
When a credit card transaction takes place the issuing bank (cardholder's bank) pays the acquiring bank (merchant bank) for their cardholder's purchase less the interchange fee for the transaction. The acquiring bank then pays their merchant from the remaining balance minus a markup for processing the transaction.

Mastercharge To Reduce Unnecessary Credit Card Declines

MasterCard is introducing behavioral and contextual analytics tools to help card issuers navigate fraud risks. Called Authorization IQ and Assurance IQ, the tools are part of a new product line called, of course, MasterCard IQ.

Mastercharge recently announced a mobile alert system for Mastercard holders to notify them of out-of-locale or large spending.  They are following this with announcements related to reducing credit card declines which they are calling Mastecharge IQ.  

Authorization IQ offers issuers insights on the behavioral patterns related to user accounts, analyzing them to determine the risk level of a current transaction. Assurance IQ, meanwhile, extracts information from a merchant concerning a transaction’s circumstances and analyzes it to produce a risk score with respect to potential fraud.

The problem being addressed is false declines.  These false declines create several problems.  One is that it results in lost business. The value of false declines per year is estimated now as $118 billion. By any measure, hat is a huge amount of lost business.  

But it gets worse since once a person finds that their card is unreliable, they start to lose confidence in their card and to use other cards instead.  So this is a very competitive area for people to improve on. I saw a number of sites today that rehashed the Mastercard announcement about reducing credit cards declines.  What I didn't see is any analysis of whether this brings Mastercard up to par with Visa and Amex declines or whether it puts them ahead.

Anyone?