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Informed Merchant Blog
The initial idea for TransFS was mine (Sean) based on my frustration in shopping for credit card processing for another business that I owned.
To deal with my frustration, my first step was not initially to start TransFS. First I learned as much as I could about credit card processing, so I could get a good deal for my own business. Next, I launched a blog to help other business owners solve the same problem, called Informed-Merchant.com. It was 2006, everyone was starting blogs! 
Several years later, after getting my first business to a stable position, studying business financial services in more detail, writing more blog posts on informed-merchant.com and meeting my co-founders Josh and Eric at the University of Chicago Booth School of Business, I launched TransFS.
After starting TransFS, I left the content up at Informed-Merchant.com, but recently it became too difficult to keep that content up to date and keep up with the content on TransFS.com, so I moved all the content here, to the TransFS blog, so that it can remain a useful resource for business owners in the future. More than 50,000 people have used this content over the past few years, a number that I hope will grow over time.
All of the informed-merchant.com articles are available in the Informed Merchant category. Direct links to the some of the most popular articles are here:
- Interchange Plus
- What is Interchange
- Largest Merchant Acquirers
- Reading a Merchant Statement
- Signature Debit vs. PIN debit
- Reading an Interchange Plus Merchant Statement
- Payment Gateways
- Largest ISOs
- Merchant Account Costs
- Getting a Good Deal on your Merchant Account
This article originally appeared on informed-merchant.com, a blog started by one of our founders, Sean, before he started TransFS.
The FTC recently sued Merchant Processing, Inc. (MPI), an ISO based in Beaverton Oregon as well as two affiliates of the company Vequity Financial Group and Direct Merchant Processing Inc, as well as the president Aaron Rian and vice-president Michael DeGroat for using deceptive tactics to sell credit and debit card processing services to small businesses.
Unfortunately, the business practices which landed these guys in hot water, basically misleading merchants about fees, are quite common in the industry. In the three merchant account providers I have used for my small business, not once have the fees been explained to me with 100% accuracy. Even my current merchant account provider, who I am mostly happy with, neglected to mention some expensive fees (hundreds of dollars / month) before signing me as a customer. As a spokesperson for the FTC mentioned in a Digital Transactions News article “These practices aren’t unique to MPI, and the FTC is serious about enforcing consumer-protection law in this industry“.
I encourage all small business owners to read the text of the FTC Complaint as well as the text of a parallel complaint filed by the the Attorney General of Washington State to gain a better understanding of how they could be duped by their credit card processing company. By being informed we can all increase our odds of being dealt a fair deal.
The tactics outlined in the complaints include:
* The Defendants misrepresented that: they would charge merchants lower discount rates and transaction fees on credit and debit card transactions, merchants would save money by using Defendants’ services, transaction funds would be made available to merchants within 24 hours, merchants would need to purchase or lease new terminal equipment in order to use Defendants’ services and Defendants would “buy out” merchants existing equipment lease agreements with other service providers
* Defendants entered into written contracts with merchants who purchased service from Defendants, typically after a sales presentation by Defendants or their agents. The terms of the written contracts often differed from the sales presentations in ways that affected how much Defendants charged merchants for their services.
* After entering into contracts with Defendants, many merchants discovered that Defendants’ services cost more than their previous credit card processing arrangements. Merchants also discovered that they were paying additional fees that increased the cost of each transaction over what Defendants’ sales representatives had promised. Some merchants were charged more “per-transaction” fees than they had transactions. Additionally, Defendants withdrew a monthly fee directly from merchants’ bank accounts, which sometimes was charged to merchants after they canceled their contracts with Defendant.
* Merchants also discovered that many of the representations Defendants made regarding the bank card processing equipment were untrue. For example, merchants discovered that they did not need to purchase new equipment in order to use Defendants’ bank card transaction processing services. Merchants also discovered that they would be locked into costly equipment lease agreements with third parties, even if they canceled their bank card transaction processing service from Defendants. In addition, Defendants did not “buy out” merchants’ existing equipment lease contracts with other service providers, resulting in merchants continuing to receive bills for equipment they no longer used.
In addition to dishonesty by the merchant account providers and their salespeople, the reason why we small business owners are easily ripped off is that the product is complicated and we don’t take the time to educate ourselves about how credit card processing works. If you don’t do any research before shopping you are asking to be taken advantage of. To avoid being taken advantage of, read these articles – “How to Read a 3-Tier Merchant Account Statement“, “Reading an Interchange Plus Merchant Account Statement” and “Overview – How to Get a Good Deal on Merchant Account Processing“.
This article originally appeared on informed-merchant.com, a blog started by one of our founders, Sean, before he started TransFS.
Microsoft and First Data announced on January 15th that they would release an integrated , PC-based, POS system designed for small retailers. This combination, which has it’s own (not very useful) informational website, is a combination of First Data‘s processing services, Microsoft’s Dynamics POS Software, and the HP nPC retail computer. 
Historically large retailers have undertaken million dollar efforts, led by big consulting firms like IBM, to introduce this kind of technology into their stores, while most small businesses have relied on credit card terminals and traditional cash registers.
Benefits of Integrated POS systems
PC-based systems like this almost always connect to the processing networks using IP over your broadband connection, rather than a dialup modem, which is nice because it dramatically decreases your transaction times.
Most small businesses do not have electronic records of their inventories and sales, which makes it harder for them to run their business. My retail business briefly had a physical operation and it was an incredible mess compared to our online operation which, by necessity, had fully electronic records or inventories and sales. Having such records makes business decision making much simpler, you can see what is selling, when it is selling and order accordingly, reducing inventories and stock-outs (times when someone wants to buy something but cannot because you are out of it).
I believe that one reason why so few small merchants have POS systems like this is that they are really a pain to put together and not many of the technology providers have focused on making it easy. You can order laptops and desktops off of dell.com or bestbuy.com but there is no way to order a POS system (Intuit is the only exception).
Problems with this system
First, I am not a big fan of the lack of information available about the product. Why don’t they say how much it will cost or exactly what is included?
Second, because it is being distributed by First Data, a merchant acquirer, they likely will try to slip in some unfavorable processing rates. All else equal you would be much better off with a system that does not lock you into a single processor.
Third, because it is leased, you must Beware of Ripoff Leases.
Conclusion
I believe that a major change is afoot, with technology being better packaged for use by small businesses. Small business is a huge segment of the economy and one that has been underserved by technology for a long time, mainly because it has been too hard to use. Now that the big companies have all the technology they need and are no longer as profitable a market, I think we will see more technology companies target small business as an end-market.
This article originally appeared on informed-merchant.com, a blog started by one of our founders, Sean, before he started TransFS.
Interchange Plus billing is the most transparent way to get billed (see “Interchange Plus“) because it clearly lays out what VISA and Mastercard are charging you (which isn’t negotiable) and what your Merchant Account Provider is charging you (which is negotiable). It is the only way to compare apples-to-apples a quote from one Merchant Account Provider against another (see “Inconsistent Bucketing“).
Here is an example of a Merchant Account statement for an account with Interchange Plus pricing.
1. The breakdown between each of the card types.
2. Notice that the Net Amount is the “Batch Amount” minus the “3rd Party Batch Amount”. The “3rd Party Batch Amount” are the Discover and Amex transactions. Such transactions are still processed by your merchant account provider’s processor, but are then passed along to Amex or Discover both for authorization and settlement. This merchant will still receive his Amex and Discover billings, but as seperate checks / EFTs from Amex and Discover, rather than from his Merchant Account Provider. Likewise, the transaction fees for Amex and Discover will be billed seperately by those companies.
3. Each row in this section corresponds to an interchange category. The category on this bill is denoted by a number (TYPE) and the merchant can get a key from the Merchant Account Provider which maps those the interchange numbers to the interchange description. For each interchange category there are three kinds of charges, the first line is what is paid to the merchant account provider for transactions in that category. The second line is the interchange charges for that category and the third line is the assessments for that category. Interchange is the amount that is passed through to the card issuer, assessments are what is kept by Visa and Mastercard (see “Who Makes Money From My Merchant Account“).
4. Notice that this interchange category has no Amount but it does have a Processing Fee. This must be the refund category (notice how it has the same number of transactions – 30 – as the VISA refunds on the first page). VISA and Mastercard still charge interchange on refunds and usually at a slightly higher rate than on purchases.
5. Figure out that rate being charged for assessments by dividing the assessment processing fee for an interchange category by the Amount of that category, in this case 15.61 / 16,882.28 = 0.0009 (or 0.09%). Try it for a few categories if you are curious, the answer is always about 0.09%. VISA’s assessment on every transaction is 0.092% while Mastercard’s is 0.095%. It doesn’t always divide to exactly those numbers because of rounding.
6.The first line of each interchange section is the fee to the Merchant Account Provider. On this bill it is 0.10% for every interchange category. Do the math for this interchange category: 5,628.63 * 0.10% = 5.63. In most cases there would be a per-item fee as well.
7. Look at these two interchange categories for an example of how interchange rates differ. Every interchange category has a 0.10 transaction fee (see “What Is Interchange“) so start by subtracting 0.10 * 101 = 10.10 from the 347.79 total in the 1221 row. The result is 337.69. Now divide that 337.69 into the transaction amount 17,317.86, which yields 1.95%. Now do the same for category 1231, you will get 1.64%. By looking at the interchange charts you can see that 1.64% is the Mastercard Merit I rate for Debit Cards and 1.95% is the Mastercard Merit I rate for standard credit cards. Merit I is just a name that Mastercard gave to transactions that have authorization (a credit card terminal or online terminal was used to authorize the transaction before the goods were transferred) but where the card stripe was not read.
8. The merchant account provider does not charge anything for Amex and Discover on this bill. That service charge will come later from Discover and Amex. Sometimes the merchant account provider will charge an extra per-item fee for each Amex or Discover transaction.
9. Your merchant account provider likely will also pass on to you the cost of authorizations, which it then passes on to it’s processor (see “Merchant Account Supply Chain“).
10.This merchant is charged an additional $6 / month here denoted as a “statement fee”. The other 3fees in this section are per-transaction fees, all of which are $0.00 for this merchant.
11. This is the total monthly bill for processing. First figure out the total % that this merchant is paying – 2.02% (2,413.52 / 119,480.60) – which is pretty good and well below the average cost for a merchant of this size (see “Merchant Account Costs“). Now go back to page 2 of the statement above and you can add up how much of that total is going to Interchange and Assessments and how much is kept by your Merchant Account Provider. In this case $119.50 in discount was paid to the Merchant Account Provider, plus the $6 statement fee and $67.50 in authorizations (some of which will need to be passed on to their processor), for a total of $193 and $111.58 was paid to Visa and Mastercard as assessments and the remainder, $2,108.94 was passed on to the issuing bank as interchange payments.
Amex and Discover
This article originally appeared on informed-merchant.com, a blog started by one of our founders, Sean, before he started TransFS.
Most of this site is dedicated to explaining how Mastercard and Visa credit card transaction work. Mastercard and Visa accounted for $1.7 Trillion of the $2.1 Trillion in electronic card payments in the US in 2005 according to the Nilson Report. The remainder are mainly store cards (without a Mastercard or Visa logo on them), Discover and American Express.
Closed Networks Vs. Open Networks
Mastercard and VISA are known as open-loop systems because multiple banks participate in the system as issuers or acquirers (or both). Discover and Amex are known as closed-loop systems because there is only 1 acquirer and issuer on each network, which is Discover or Amex themselves. There really isn’t any practical difference from the merchant’s perspective except that there are a lot more VISA and Mastercards and the rates are more negotiable.
How to Accept Amex and Discover
Accepting American Express and Discover is easy and is usually facilitated by your Merchant Account Provider. You just need to get an account number with Amex and Discover and tell it to your merchant account provider who will program it into your terminal or online processing gateway so that you can process Amex and Discover just as if they were a Visa or Mastercard.
Costs of Amex and Discover
Discover discount rates are usually about the same as Visa and Mastercard and American Express is usually 1.50% higher than Visa and Mastercard. Unlike VISA and Mastercard, you can’t really negotiate with Discover and American Express, they don’t discount (except for very large companies) and they don’t do tricky things to gouge small and uninformed merchants.
Inconsistent Buckets
This article originally appeared on informed-merchant.com, a blog started by one of our founders, Sean, before he started TransFS.
One of the worst practices of the Merchant Account industry is the use of inconsistent buckets because it is completely deceptive.
Most merchants are billed on a 3-Tier or 3-Bucket price schedule. The transactions, which VISA and Mastercard classify into one of 130+ interchange categories (see “What is Interchange“), each with it’s own price, are grouped by the Merchant Account Provider into 3 buckets, each of which has a price determined by the Merchant Account Provider (and negotiated by you – see “3-Tier Pricing and “Reading a 3-Tier Merchant Statement“).
However, the buckets are different at each Merchant Account Provider. To make things even worse, some Merchant Account Providers use different buckets for each of their customers and most Merchant Account contracts have no written obligation for them to disclose wihch interchange categories are being bucketed into each buckets.
One of the easiest ways for a Merchant Account Provider to make extra money off of a merchant is to reclassify a transaction type that would fall into the Qualified Rate bucket so that it now falls into the Mid-Qualifed Rate bucket. Especially due to the common practice of “Marking Up The Downgrades“, doing so will juice their profits and increase your costs significantly, probably without you even noticing
Most Merchant Account Providers are not crooked enough to overnight change your buckets. However, many will manipulate the buckets during the price-comparison process. Since you get a better deal the more you price compare, this undermining of your ability to price compare also undermines your negotiation power.
There are 2 ways to fight this:
- Get Interchange-Plus pricing
- Insist on seeing a detailed breakdown of which interchange categories fall into each bucket
This article originally appeared on informed-merchant.com, a blog started by one of our founders, Sean, before he started TransFS.
The supply chain that provides merchant account services is complex. It helps if you know how much money each company in the chain is making off of you so that you can be a savvier negotiator and get a better deal. For more information on the players in the supply chain see “Who Am I Dealing With?“.
Keep in mind that these are rough averages based on data that we dug up from several sources, each situation is a bit different but we believe this view is representative.
Interchange is the amount that is passed through VISA and Mastercard to the issuing bank (big credit card issuers like MBNA, Capital One, Chase), this is the biggest part of the total and is completely non-negotiable.
Visa and Mastercard take a 10bps cut called an assessment. Historically VISA and Mastercard were cooperatives owned by the issuing banks. Now that there are fewer issuing banks VISA and Mastercard are becoming independent companies. Judging from Mastercard’s financial statements , they make quite a lot of profit from that 10bps. This part is also completely non-negotiable.
Only banks are allowed to process transactions through the Mastercard and VISA networks. However, the majority of merchant account providers are not banks, but are independent companies called Merchant Acquirers, specializing only in merchant accounts. They are allowed to do that if they get a bank to “sponsor” them, for which they pay a small part of their fees. There are only a few banks that provide most of the sponsoring activities, HSBC, Chase, Key Bank, etc. This is basically a fixed cost to your processor, so don’t expect them to charge you less than a 5 bps markup unless you are really special.
Processor / processing costs – sometimes merchant account providers (merchant acquirers) do their own processing (usually these are the larger ones), but usually they outsource the processing, for which they pay a fee to the outsourced processing company. The processing company usually makes pretty large profits off of this fee, so consider these 18 bps to be within your negotiating scope.
Merchant acquirer – this cost covers their cost to support you, their selling costs, and their profit. It is a big chunk of the total and you should negotiate it down.
The reason this data is useful is that you know there is basically 68 bps of profit built in to the processing, underwriting and selling of your merchant account. If you are diligent you can negotiate the original quote down by 30 bps. If you have been in business for a while, do strong (>$1M / year) volume, or are really committed to getting the best deal, you can negotiate the original quote down further. Even if they are only marking it up by 10 bps, that is still revenue for the person you are negotiation with, revenue they wouldn’t have if you weren’t their customer.
One of the best ways to negotiate is to negotiate on an interchange plus basis because it makes totally clear the size of the cut that your merchant account provider is taking.
Surprise Reserve
This article originally appeared on informed-merchant.com, a blog started by one of our founders, Sean, before he started TransFS.
One of the toughest things that happened to me with a previous business was that I got hit with what I called a Surprise Reserve on my merchant account. Our sales had been steadily increasing over our first 10 months in business when a very hot new product was released in our industry in October of 2005. Combined with holiday demand, our sales that October were 4x higher than September. We were ecstatic but also incredibly busy and stressed out fulfilling that demand.
We went a few days without looking in our bank account and were suddenly surprised by having one of our checks to our main supplier bounce. We knew we were selling more than we were buying and didn’t understand what had happened. Upon looking at our bank account we found that we had gone 5 days without any transfers to our business checking account from our merchant account. Where was our money?
A Horror Story
After waiting on hold for hours, talking to the tech support people at our merchant account provider, talking to their managers, etc, we found that they had placed a “reserve” on our account without telling us and were withholding all of our money until they had accumulated a $30,000 reserve. We told them that if they did that we would go out of business and they agreed to return all but $10,000, so long as they could keep 5% of every transaction in the future until we had reached $30,000. We agreed because we had no choice. With a negative balance in our checking account we couldn’t pay our suppliers for the goods and couldn’t deliver the products to our customers.
The reason why merchant account providers require a reserve is that if a customer disputes a charge with your store you (the merchant) are liable for it. If you are not able to make good on it, then your merchant account provider is liable for it (see “Disputes, chargebacks and liability”).
It is completely understandable that merchant account providers need to have a reserve to mitigate their risk in certain cases but this was frustrating for several reasons:
1. The reserve was obviously way out of proportion to the risk they were bearing. We had only had a few hundred dollars in chargebacks ever, when a scammer used someone else’s credit card at our site and we didn’t catch them before we shipped it out.
2. The merchant account provider wasn’t ever able to give us up-to-date balances on our reserve
3. We weren’t given the notice we needed to find another merchant account provider
Note: we eventually got the reserve back 6 months after we switched to another merchant account provider. Try and avoid reserves, they can be a really big drain on your cashflow.
The Solutions
The first thing you can do to avoid such a situation is to get your Merchant Account Provier to agree in writing that there will be no reserve on the account, unless something changes in your business that increases your risk, before you sign the contract. If you don’t have a lot of chargebacks in your past you can probably find plenty of merchant account providers that will not require you to have a reserve.
The second thing you can do is to warn your Merchant Account Provider if you anticipate a spike in sales. Recognize that they bear a lot of risk and that most merchant account providers have been burned in the past by merchants that sold stuff to customers and then didn’t deliver, leaving their Merchant Account Provider on the hook for the damages. If you can anticipate your periods of higher sales and warn them they will view you as a responsible merchant who does not cause them much risk.
Payment Gateways
This article originally appeared on informed-merchant.com, a blog started by one of our founders, Sean, before he started TransFS.
If you want to process transactions over the internet, you will need a payment gateway. I often find that people are confused about what the payment gateway does vs. what the merchant account provider does. I also find that merchants are usually steered by their merchant account provider to a certain gateway because their merchant account provider gets a commission from that gateway, not necessarily because it is the best product for that merchant.
The Gateway and the Merchant account Provider are not (necessarily) the same
The gateway sits between your shopping cart software (or POS software if you are a physical store) and your Merchant Account Provider / credit card processing. The Merchant Account provider ALWAYS must be the one who sets you up with authorize.net – you can do it yourself but you need information that only the Merchant Account Provider can give you. Additionally, many times the Merchant Account Provider refers the merchant to a gateway.
While they are interlinked, remember, in most cases Merchant Account Providers can interface with many Gateways, so use the combination that you like the best.
Background
At the heart of the credit card processing system are the payment networks. Each of the major credit card processors, such as First Data, Total Systems, Chase Paymentech, etc. have several processing networks. Additionally, some of the larger merchant account providers such as Heartland and ECHO have their own processing networks. Those networks gather the transaction data from millions of merchants, aggregate it and then send it off to VISA and Mastercard to calculate how much each bank needs to pay each other to settle up at the end of the day.
Traditionally the way that merchants connected to those networks was through dialup modem communication. The reason why you hear a modem tone after swiping your card into an older point-of-sale terminal is that there is a modem in there that is dialing into the network to get authorization for the transaction.
Increasingly, the transactions are no longer done via dialup but rather through IP and leased line. In the case of internet transactions and transactions using modern, IP-based POS (point-of-sale) terminals the connection is always via IP.
However, you cannot just connect to the network on your own for several reasons:
- It is hard – each network has it’s own protocol which requires engineering to implement properly
- The network owners don’t want the networks bogged down and are stingy about who they let in (they must test and certify anyone who wishes to connect)
- You wouldn’t want to connect directly unless you had built some management logic into your code to manage the transactions (for example, what if you want to reverse a transaction, or prevent duplicate transactions, etc.).
Therefore, a number of service providers, called Gateways, exist to provide the middle layer between your online store or your IP-based POS system and the processing networks.
gateway process flow
Information Flow
1-2. The customer navigates to your website, selects an item and clicks “Buy”
3. Your website’s shopping cart software sends the credit card data to your Gateway
4. Your gateway connects to the processing network. This processing network is either a service that your Merchant Account Provider pays for, or it is owned by your Merchant Account Provider
5. That processing network connects to the VISA or Mastercard network
6. The processing network tells your Merchant Account Provider (and their sponsor bank) and your customer’s bank (credit card issuer) about the transaction so that they can sort out the money transfer
7. The result (either the transaction was sucessful or it was not) is passed backwards through the chain – the Visa / Mastercard network tells your processor’s network the result of the transaction. The processor’s network then tells the gateway, which in turn tells your website, which in turn tells the user.
Money Flow
The money flow is simpler. The money flows from the customer’s bank (credit card issuer) to your Merchant Account Provider to your bank account.
Independent Gateways
Independent gateways can be used with most any merchant account provider.
Authorize.net – the largest in volume, with about 25% of the market. Authorize.net usually costs about 0.10 / transaction, although the pricing is determined by the reseller (merchant account provider). Because of their large precense on the web, many people first call Authorize.net when they want to setup online processing. Authorize.net then sets them up with a merchant account provider from which they get a commission. Many merchants think that they can’t get better pricing than they did when they were initially set up with Authorize.net, which isn’t true. As the largest, Authorize.net can interface with every merchant account provider.
Cybersource – the second largest in volume. Cybersource has historically focused on the larger merchants, with 50% of the top 100 internet merchants. They are widely believed to have the best interface and the most robust anti-fraud tools. They are beginning to focus more on small and medium sized merchants but very few people have experience with them right now. Cybersource can be used with any merchant account provider.
Payflow – the third largest, was sold in 2006 by Verisign to Paypal. Historically Payflow has also had a focus on small and mid-sized merchants and also costs $0.10 / transaction. Payflow can be used with any merchant account provider.
USAEPay - Not as well known.
Captive Gateways
Captive gateways are owned by merchant providers and only made available to their customers.
Captive gateways are usually much cheaper, either free, used as a loss-leader to capture the fees associated with your merchant account, or for a monthly fee, with no per-transaction fee.
Linkpoint – Linkpoint is owned by First Data and can only be used with merchant account providers that use First Data for processing. However, First Data is the largest processor by far, with over 50% market share, so chances are pretty good that your merchant account provider can set you up with Linkpoint. Linkpoint doesn’t have as nice an interface as Authorize.net but it is significantly cheaper, costing only a monthly fee of $25 with no transaction fee.
Innovative Gateway – Intuit bought a merchant account provider called Innovative Merchant Services that had a gateway called Innovative Gateway which is now branded as part of their Quickbooks Merchant Services offering.
Bluepay - a smaller competitor, compatible with a wide number of shopping cart packages.
Orbital Gateway – a gateway owned by Chase Paymentech, can be used by merchants that are directly served by Chase Paymentech or by merchants served by other merchant account providers that use the Chase Paymentech platform.
Viaklix – owned by Nova (a subsidiary of USBank).
Private Label Gateways
There exist many merchanct account providers that are not as large as First Data or Quicken but still want to offer their merchants something other than Authorize.net. For such companies it is cost-prohibitive to build or buy their own payment gateway technology.
Consequently a number of companies have sprung up that provide gateways that such merchant account providers can package and sell as their own. It is harder to figure out who all the players are in this part of the industry because they don’t put their name on their product. Just keep in mind that if your merchant account provide suggests something other than the “Big 3″ (Authorize, Cybersource, Payflow) to make sure that it has the capabilities that you need (you can get a free demo of Authorize.net to compare) and that it is priced less than the Big 3.
Network Merchants – This is an independent company but they sell their gateway services only through merchant account providers who private label it as their own. I have never used it before but I hear that it works.
This article originally appeared on informed-merchant.com, a blog started by one of our founders, Sean, before he started TransFS.
When I first signed up for processing I had a difficult time figuring out with whom I was dealing. Who were the guys calling me up and trying to sell me processing services when I first opened the business? Who were the people on the other end of the phone when I had questions about my bill? Who decided what rate I got charged?
The electronic transaction industry has grown very quickly. The industry has grown up in an efficient manner where companies at each stage of the supply chain share their resources with other companies. This manner, however, has become quite confusing to the customer. The chart below is our attempt to provide some clarity to the situation.
| Category | # | Examples | Explanation |
| Credit card associations | 2 | Visa, Mastercard | |
| Sponsor Banks | 10 | Chase, HSBC, Bank of America, Wells Fargo, First Bank of Omaha, 5th-3rd Bank, USBank | |
| Processors | 5 | Chase Paymentech, First Data, Global Payments, Nova (USBank), TSYS | These companies run the networks in which the transactions communication takes place. There are fewest of these types because running such networks is massively expensive.
The processor is responsible for verifying that the money for the transaction is available and then for transferring the money from one account to the other upon settlement of the transaction. |
| Acquirers | 100s | Chase Paymentech, First Data, Global Payments, Nova (USBank)
United Bank Card, Heartland Payment Systems, Cynergy Data, North America Bankcard, many many more |
Most processors are also acquirers.
The acquirer is the company that ultimately bears responsibility for and “owns” the relationship. For example, if the merchant has chargebacks that they cannot pay the acquirer is first in line to accept liability for the returns, the acquirer handles the underwriting of the account. If the Acquirer wants to switch processor or sponsor banks they usually can without the merchant needing to sign a new contract. The Acquirer and the ISO split the customer service burden. Which party bears the majority of responsibility depends on the situation but oftentimes the Acquirer will handle call-center based issues and routine customer service issues (such as billing issues and terminal reprogramming). |
| ISOs (Independent Sales Offices) | ~1K | Chase Paymentech, First Data, Global Payments, Nova (USBank)
Heartland Payment Systems, Cynergy Data |
While most acquirers sell their own services they also contract with ISOs to sell their services.
For most merchants the primary relationship is with the ISO but the contract that the merchant signs is the Acquirer and usually the ISO cannot move the merchant with them if they decide to work with another acquirer. |
| Agents | ~14K | The ISOs and acquirers employ agents that sell the product to the merchant. The agents don’t have an official customer service responsibility but usually they provide some level of service to their customers after the sale. |
Merchants often ask if it is better to get service from a company higher up on the supply chain. For example they hypothesize that they might get better pricing or service by using Chase Paymentech directly than by using an ISO that resells Chase’s acquiring services. In our experience no such hard and fast rule exists and you should consider your options on a case-by-case basis.
