The Litle Blog

Why the timing is right for Fraud Chargeback Prevention Service

bcohn@litle.com (Bill Cohn) — Fri, 14 Jun 2013 06:56:58 PDT

It was a pleasure to see Litle win an award for “Best Chargeback Management Program” at the recent CNP Expo held in Orlando, Fla. More than ever, merchants need strategies and tools to predict and prevent chargebacks and this award was a good indicator of that. We are finding our Fraud Chargeback Prevention Service (FCPS) is the right product at the right time.

Why is this the right time?

According to an analysis of Litle merchant chargeback data, 2/3 of chargebacks are fraud-related, indicating merchants could greatly reduce their chargeback costs and losses by focusing on fraud chargebacks. And further, three trends are converging:

Chargebacks are easier to claim: Banks have made it easier than ever for cardholders to dispute payments and issue chargebacks. About a year ago, both Visa and MasterCard changed their rules; now cardholders no longer need to physically sign a form in order to file a chargeback. For example, in some cases consumers can simply go to their online bank/card statement and click on a box to dispute a payment. When combined with increased consumer awareness about using chargebacks as recourse, the number of chargebacks coded with “Cardholder does not recognize/did not authorize this transaction” has grown.
Chargebacks are coming in faster: In the past 5 years the percent of chargebacks being issued within 30 days of the deposit has increased from 28% to 46% -- according to analysis of Litle merchant chargeback data. Thus, the window of opportunity for a merchant to take action to preclude a chargeback is shorter than ever.
CNP fraud is growing: The institution of EMV (chip and PIN) terminals in Europe and soon in the U.S. is forcing fraudsters to migrate away from “skimming” techniques. The rapidly growing online commerce space is a logical “beneficiary” of fraudsters’ attentions.

The goal of FCPS is to help merchants gain control of their chargeback counts and rates. Most Litle merchants currently using the service are taking advantage of the Auto-Refund feature, which helps them to take faster action on fraud alerts – increasing the merchants’ chances of successfully preventing a chargeback– while shifting the workload of refunding on fraud alerts from the merchant to Litle.

Of course, we are actively working to improve product features of FCPS and Litle’s data scientists are currently looking at ways to predict which fraud alerts are most likely to turn into chargebacks. This information will enable merchants using FCPS to be more selective in their refunding, helping to reduce costs with equal if not better efficacy. For more information on FCPS, click here.

Stay tuned for more from FCPS and Litle’s other fraud products! In the meantime, feel free to leave your thoughts in the comments section.

The Road to Mobile Payments Adoption

areynolds@litle.com (Alison Reynolds) — Mon, 10 Jun 2013 11:41:01 PDT

Vantiv and Mercator Advisory Group recently collaborated to produce: Top 10 payment trends to watch in 2013. We had the opportunity to talk with Lorena Harris, Vice President of Corporate Marketing, Vantiv, who headed the research. In a series of blog posts, Lorena will answer some of our questions on what brands and retailers need to be aware of when it comes to payments in the evolving multichannel landscape.

Previously, we discussed the proliferation of mobile payments and consumer security concerns. This time, we asked Lorena what needs to happen in order for mobile payments to catch on.

Q: Why do you believe mobile wallets have yet to catch on for consumers?

A: Consumer confusion around mobile wallets still exists. Today, the market is saturated literally hundreds of options – from store payment apps to eWallets that manage many payment types. With so many different options available, but none in very widespread use - consumers don’t know which way to turn, according to Vantiv’s Top 10 payment trends to watch in 2013. Forty-four percent of consumers are aware of mobile wallets, but most have never seen one in action and are not sure what value they offer. Couple this with the negative media attention around security, and only 10% of consumers reported being interested in mobile wallets, down 3% from 2012. This indicates brands and retailers need to focus on building added value into mobile wallets and showing consumers how they could fit into their lives.

Q: What needs to happen in order for mobile wallets to become a top payment choice for consumers?

The leading reasons why consumers prefer one payment method over another remained steady from 2012-2013 and provide good insight into what the mobile payment landscape needs to look like in order for mobile wallets to become a top payment choice for consumers. Eighty percent cite the importance of methods that are no-cost/low-cost, while 78% cite convenience/fast to use, and 73% cite being secure against fraud.

With this in mind, brands and retailers can help influence adoption through targeted mobile payment offers. As discussed previously, 44% of consumers would change payment methods if a discount on a purchase were offered, while 42% of consumers would switch for earning added rewards. Brands and retailers can use such offers to create a seamless omni-commerce experience that encourages customers to adopt new payment methods.

Mobile payments are coming. Sixty-six percent of consumers surveyed expect mobile payments to be common in 5 years and 39% of consumers see themselves using such payment methods in that timeframe. Brands and retailers must lead consumers to understand how these innovations can enhance their daily lives.

For more information on the “Top 10 payment trends to watch in 2013” leave your questions in the comments section or download the full report here.

Mobile Payments and Security

areynolds@litle.com (Alison Reynolds) — Thu, 06 Jun 2013 05:23:50 PDT

Previously, we discussed mobile payments and the emergence of omni-commerce. In the minds of consumers a barrier to entry for the adoption of mobile payments is security. We asked Lorena about the perception of security and mobile payments.

Q: What are some of the security concerns of traditional card-based payments that you see influencing the perceptions of mobile payments?

A: Consumers still have a number of security concerns with traditional card-based payments and they transfer those perceptions to mobile payments. More than 15% of the population has had direct experience with fraud, and 46% of those consumers indicated that they now think about security with every transaction. And there are many urban myths that only enhance consumer concerns. For example, 63% of consumers believe NFC can be intercepted by criminals during the payment process. A lack of information and a great deal of misinformation is contributing to these perceptions. As Ken Paterson, Vice President, Research Operations at Mercator, points out in the Top 10 payment trends paper, “The lack of a security narrative in the industry for mobile means that consumers tend to fill in the blanks for themselves – often, with misconceptions.”

The main driver behind consumer security concerns with mobile payments is uncertainty. Why? Consumers aren’t sure that their smartphone is a secure device. According to Vantiv’s Top 10 payment trends to watch in 2013, only 19% of consumers surveyed feel smartphones are secure. This is a 2.5% increase from last year – indicating consumers are gaining trust in their smartphone. Security remains the top reason consumers believe mobile payments have not taken off and 44% of consumers believe security problems will be a barrier to mobile payments becoming common.

Q: What should brands and retailers be doing to overcome consumer security concerns?

A: Brands and retailers should focus on creating a connected customer experience that rewards and entices customers to use their mobile devices. When asked what would motivate them to change payment methods, 44% of consumers indicated a discount for using an alternative payment method would be enough for them to make the switch. Forty-two percent of respondents would switch payment methods for earning added rewards –and many are willing to switch payment methods for a discount or the chance to earn rewards.

Despite all the concern, only 24% of consumers would switch payment methods due to a data breach. For brands and retailers, this indicates consumers would bypass mobile payment security concerns and use these devices, if the reward were adequate. Rewards that may entice consumers to make the switch include: providing special offers via a mobile device, using geo-location to target mobile offers, and offering cross-sell promotions.

There will be a tipping point, where the benefits of utilizing mobile payment devices will outweigh consumer security concerns. We’ve already seen online privacy concerns for consumers under 35 plummet and the indication is that the same will stay true for mobile payments security. Once one mobile payment method breaks away and consumers are more aware, their concerns around security will fade.

Next time, Lorena will address what will make mobile wallets attractive to consumers.

The Tablet’s Impact on Omni-Commerce and Mobile Purchasing

areynolds@litle.com (Alison Reynolds) — Tue, 04 Jun 2013 06:46:32 PDT

Q: What’s the role of the tablet in omni-commerce? Do they make mobile purchases an easier option for consumers?

A: The proliferation of new technology has resulted in the changing nature of the way we expect to pay for things, and the emergence of “omni-commerce” – the seamless approach to the consumer experience through all available shopping channels. Perhaps the biggest technological advance impacting the omni-commerce experience for both retailers and consumers is rise of the tablet.

According to Vantiv’s Top 10 payment trends to watch in 2013, 27% of consumers surveyed own a tablet. This marks a big jump from 2012, when only 12% of consumers surveyed reported owning one. This type of growth certainly makes mobile purchasing more of an option for consumers.

Brands looking to create an omni-commerce experience can’t ignore the tablet. Fifty-nine percent of consumers indicated that they are aware they can pay via a tablet in store. Twenty-seven percent of consumers are interested in paying via a tablet this way. Nineteen percent of consumers have already used a tablet to pay in-store, up 3% over last year. Merchants are taking notice, too, and tablet-based POS systems are becoming more common.

When thinking about omni-commerce, brands and retailers should consider what demographic is most likely to own and purchase via the tablet. According to the research, consumers who own tablets are most likely to be 18-34 years old. Consumers in this age group are technology savvy and more interested in mobile payments than any other age group. The behavior and interest of this age group may be a good indicator for retailers looking to get a better sense of what the proliferation of mobile really means.

As consumers adjust to evolving payment options, it’s important to understand what motivates them to use certain payment methods. Top reasons why consumers prefer one payment method over another have held steady since last year’s report and include: no-cost/low-cost, fast and convenient, help control spending, and secure against fraud. Brands should focus on these consumer priorities when they think about their mobile purchasing options – whether it’s in-store or via a mobile website or app.

While consumers remain interested in the omni-commerce experience, retailers still need to create added value throughout the entire customer lifecycle. Yes, the technology is new and cool - but that isn’t enough to prompt consumer adoption. Consumers want an “omni-commerce” experience. Therefore, mobile rewards, special offers, and making mobile purchasing more convenient will help drive mobile payment adoption.

If there’s anything holding consumers back from adopting mobile payment methods its concern about security. In a follow-up post we will discuss some of the security concerns influencing the perception of mobile payments.

Payments Bootcamp from Litle & Co.

tpouliot@litle.com (Tom Pouliot) — Wed, 29 May 2013 13:54:25 PDT

At last week’s CNP Expo Karen Coffey and I had the great pleasure of presenting payment processing basic training. Our goal was simple: give conference attendees the opportunity to get level set on the top 10 topics that face card-not-present merchants. The need for such a presentation – (a 3 hour session, plus we hung around for another hour answering everyone’s questions) was evidenced by the nearly 200 people who attended. I want to thank all those who attended the CNP Boot Camp. The topics we covered included: Basic(s) training, interchange, best practices, chargebacks, fraud, PCI compliance, recurring billing, and alternative payment options. To download a copy of the presentation click here.

A lot of ground was covered but the two subjects that got the most attention were interchange and fraud and chargebacks. Not surprising since every merchant wants to cut costs and interchange typically makes up the largest portion of processing fees. And every merchant wants to know how they can stop chargebacks. This has not changed in the nearly 30 years I have been in the payment and card industry.

To help merchants tackle these challenges we went through a variety of methods of reducing interchange expense, which includes making sure that the merchant is first properly categorized and then the transaction data is perfect so the merchant qualifies for the best interchange rates.

Here are the four factors that determine interchange discussed in our presentation:

Everyone hates fraud. So, Karen demonstrated to attendees what merchants can do to mitigate the consequences of fraud. Here are some of the best practices for fraud prevention we discussed:

It was an interactive three hours where we did our best to provide insight into the most mysterious 6 trillion dollar industry of payment processing. What questions do you have about the best practices of payment processing? Leave your thoughts and questions in the comments section.

For more information download the presentation: Payments Bootcamp from Litle & Co.

Put Your Guard Up with Tokenization

aarthur@litle.com (Alison Arthur) — Tue, 21 May 2013 10:50:33 PDT

Of all the business advice I’ve heard in my life, this is one of my favorites: “You can’t watch everybody. And when you can’t watch everybody, watch out.”* It makes me think about all of the business decisions we make compensating for the fact that we cannot, indeed, watch everybody.

In the payments world, the power of close observation is most important when it comes to protecting your customers’ data. The mere thought of a data breach is enough to quicken the pulse of any merchant, especially considering high-profile headlines of businesses managing the after-effects of data exfiltration. It’s impossible not to put yourself in their shoes and wonder if your business’s security measures are enough. The “what-if” scenarios are endless.

The reality is that data breaches occur most often due to three major causes: lost computers and storage devices, negligent insiders, and criminal attacks. While merchants continually refine their approach to controlling for these factors, there are steps you can take now to protect your customers’ sensitive cardholder data in the event of a breach, no matter what the cause.

Protect that information by tokenizing it – it’s one of the most straight-forward ways to protect your business from the negative exposure of a data breach. Your processor takes the card or account number and provides a proxy (also known as a token) that is stored and used for future payment transactions. Each token is specific to the merchant and useless to anyone else who might get their hands on it.

Unlike the card or account number, you can store the token on your system without concern of a security breach exposing critical customer information. Your processor stores the information in a secure vault and accesses it only when you submit a transaction using the supplied token. It’s a single step you can take to provide peace of mind for you and your business. To learn more about our tokenization solutions, watch our video and contact us with your questions.

Unfortunately, you can’t watch everybody. We’ll help you watch out.

* Quote from Stanley Kirk Burrell, aka MC Hammer, via VH1’s Behind the Music.

LCC 2013: Learn, Connect, Grow

areynolds@litle.com (Alison Reynolds) — Tue, 14 May 2013 12:08:37 PDT

There is nothing more valuable than the opportunity to gather with like-minded peers to discuss the evolving payments landscape, industry best practices, and the latest innovations. That’s why every year we host our merchants in Boston for a two-day client forum – bringing together industry experts, Litle employees, and our merchants – to explore topics affecting the payments industry. The event provides education and networking opportunities and attendees leave with valuable information to optimize their payments program. Further, the event helps to successfully foster community building throughout our merchant base and beyond.

What’s in store this year? We caught up with Lisa Tennant, vice president, customer experience management at Litle & Co. to discuss why Litle merchants should attend, what merchants can expect to learn, and what she’s most looking forward to. Not a Litle merchant? Learn why we value this opportunity to connect with merchants and get a sense of topics we’re focusing on this year.

Download the mp3 here

For more information visit: www.litle.com/lcc

State Fare Grounds: A Closer Look at the Internet Tax

aarthur@litle.com (Alison Arthur) — Tue, 14 May 2013 09:18:38 PDT

The Marketplace Fairness Act (aka the “Internet Tax”) is making headlines. On May 6, the U.S. Senate passed the legislation, but before the Act can become law it moves to the U.S. House of Representatives for further debate. What does it mean for merchants and consumers if more ecommerce transactions are subject to state and local taxes? Listen to our interview with Payments Evangelist Tom Pouliot as we discuss the Act’s history, influencing factors, and potential impact.

Download the mp3 here

Is Your Payment Processor a 5-Tool Player?

aarthur@litle.com (Alison Arthur) — Thu, 25 Apr 2013 09:22:14 PDT

A few months ago, I received a star-struck text message – Ken Griffey, Jr. had just played through my contact’s round of golf. Aware of my limited baseball knowledge, I consulted the omniscient Wikipedia to formulate an appropriate response. Luckily, you don’t have to be a baseball fan to understand that Ken Griffey, Jr. was the man. A 13-time All-Star with 630 home runs and 10 Gold Glove Awards, he is counted among an exclusive group known as 5-tool players – the ideal position players.

I love the concept of a 5-tool player. And while the connection might not be obvious, it’s the perfect analogy to use when selecting a payment processor. What tools does a well-rounded processor need to be the all-star of your payments program?

Look for these:

Core Payments Processing and Acceptance – choose a processor that excels at the basics. They should process your transactions efficiently, optimize interchange, offer exceptional customer service, and provide performance data through intuitive reporting and analytics.
Revenue Recovery – partner with a processor that is equally invested in recovering dollars that would otherwise be lost. Can they automatically update expired card information? And recycle failed authorizations in a timely, intelligent manner? If not, find one that does.
Cardholder Insights – payments are often an untapped stream of customer intelligence. Make sure your processor offers solutions that help you uncover these hidden truths.
Card Data Security – if you’re not tokenizing your cardholder information, you could be susceptible to the negative effects of a data breach. Find a processor that offers solutions to protect both your cardholder data while reducing your scope of PCI DSS compliance.
Fraud Solutions – fraud is an unfortunate fact of life. Your processor should offer solutions that identify fraudulent transactions at the point of authorization and avoid fraud-related chargebacks before they happen.

According to my source, baseball scouts still use the 5-tool model to determine the potential of young players. Make sure you do the same when evaluating payment processors.

[Report] Forrester: U.S. Online Retail Sales to Hit $370 Billion by 2017

tpouliot@litle.com (Tom Pouliot) — Mon, 25 Mar 2013 13:39:19 PDT

According to Forrester Research and a breakdown of the forecast from Mashable, “Ecommerce, which generated $231 billion in sales for U.S. retailers last year, is expected to increase 13% to $262 billion this year.” From near nothing a decade ago, it is nice to see ecommerce start to hit its potential. It is certainly becoming the preferred method of shopping for the on-the-go consumer.

Beyond consumers embracing this mode of shopping – they’ve also embraced it alongside the newer smartphone and tablet technologies. In fact, Forrester cites one main factor in the growth we are seeing in ecommerce to the increased usage of smartphones and tablets. When it comes to ecommerce and the proliferation of mobile the proof is in the transactions, and they are up.

Of course, this is not all new marginal business. As Mashable points out, “little of ecommerce’s growth can be attributed to new shoppers, as only 4 million people are expected to shop online for the first time in 2013." If you have seen the vacant strip mall stores like I have, you have to wonder has ecommerce taken away sales that would have gone to these local store owners?

By no means am I predicting that brick-and-mortar is a dying breed, but it is clear consumer buying behaviors are changing. And those who have chosen to shop via ecommerce outlets have reaped the rewards of great product selection, amazing prices, and a new level of convenience. It is because of these factors that you will see large retailers moving towards creating an omnichannel experience for their customers.

As we move forward into the future we will only see more goods and services provided online with many more consumers shopping via this channel. Forrester predicts, by 2017 ecommerce will account for 10% of total retail sales or $370 billion. Ecommerce has only one direction to go.

Source: Mashable

Solution Shorts: Unlocking Tokenization with Vault and PayPage

sshabeer@litle.com (Sayid Shabeer) — Mon, 25 Mar 2013 13:41:36 PDT

As name-brand businesses coping with the aftermath of attack continue to make headlines – protecting data has never been more important. There are countless considerations as you fortify your business against the threat of data theft and its associated losses. At Litle, the first thing that comes to mind is tokenization. Last week I shared the top 5 reasons to use tokenization, but how can you bring these solutions to life and apply them to your daily payment management practices?

According to Verizon’s 2012 Data Breach Investigation Report, based on post-breach reviews, 18% of organizations were in compliance with stored data requirements in 2011. While merchants have gotten a handle on protecting data while it is transmitted (PCI-DSS Requirement 4: Encrypt transmission of cardholder data and sensitive information across public networks), merchants still struggle with PCI-DSS requirement 3: protecting stored data. What can you do to better protect your data while it is in transit and at rest?

This short video explains the importance of tokenization and why you should consider it for your business. Still have questions about protecting data and utilizing tokenization solutions? Leave your thoughts in the comments.

Don’t see the video? Click here.

The Top 5 Reasons to Use Tokenization

sshabeer@litle.com (Sayid Shabeer) — Mon, 25 Mar 2013 13:46:47 PDT

When you think about a data breach, what comes to mind? News headlines of name-brand businesses coping with the aftermath of attacks? “Hactivists” targeting global businesses? The investments your business makes to protect your data against an attack?

There are countless considerations as businesses fortify themselves against the threat of data theft and its associated losses. When we here at Litle think about data breaches, the first thing that comes to mind is tokenization. It is one of the most simple and straight-forward ways to protect your customers against the negative impacts of a data breach. Here are the top 5 reasons why you should use our tokenization solutions, Litle Vault and PayPage, for your business.

1. Tokenization allows you to remove sensitive cardholder information from your systems.

Vault allows you to substitute a credit, debit, prepaid, or checking account number stored on your system with a string of numbers known as a token. We store the cardholder information securely and access it only when you submit a transaction using the supplied token. Each token is specific to your business and useless to anyone else who might try to use it, so you can store it without concern. This shifts the costs and risks of managing card security off of you and on to us.

2. Implementing and using tokens is seamless.

Implementing and using Vault’s tokens is transparent to both you and your end users. Our tokens are card-based, not transaction-based, so they easily fit in to your existing systems including OMS, billing, and ERP systems. Here’s an overview of how it works.

The card number is submitted from the payments checkout webpage to your system, and passed to Litle for authorization. In the transaction response, Vault returns a token for use with all subsequent transactions on that card. A Litle token looks similar to a card number, in that it’s numeric and 15 or 16 digits long. The last 4 digits are the same as the original card number and the first 11 or 12 digits are randomized. The last 4 digits can then be displayed when the customer selects their payment method during checkout and can also be used to reference the card in a customer service inquiry.

3. You can completely eliminate personal account numbers from ever entering your systems.

Implementing PayPage with Vault takes security a step further by eliminating the card number from passing through your systems at all. It transmits card information collected on the checkout page directly to Litle’s PayPage server (which returns a registration ID) and scrubs out the card information before the checkout form is submitted to your system. The registration ID is passed to Litle with the transaction, and the process continues as described above with Vault alone.

4. Tokenization can reduce your scope of PCI-DSS compliance.

Using Vault and PayPage can reduce the scope of your systems that fall under PCI-DSS (Payment Card Industry Data Security Standard) compliance requirements, thereby reducing the costs and man hours associated with the auditing process. This can extend beyond your production system to include your failover system, disaster recovery (‘backup’) system, and testing environments.

5. You can get your data back.

If at any time you want your cardholder information returned to you, we will provide it in a secure, PCI-compliant manner in its entirety. You never lose ownership of your vital customer information.

Fundamental Fridays: Recapping the Common Pitfalls of Discount Pricing Models

areynolds@litle.com (Alison Reynolds) — Mon, 25 Mar 2013 13:47:23 PDT

Over the last several weeks we’ve been discussing the common pitfalls of discount pricing models and what it means if you’ve entered into this type of arrangement with your payment processor. Let’s take this Friday to recap what’s been discussed.

Common Pitfalls of Discount Pricing

Understanding your merchant statement or payment processing report can be challenging. There is no standard for presenting the variety of potential fees that can be levied upon merchants. To simplify the structure many processors advertise a bundled rate where all applicable fees are rolled-up into a single percentage rate – referred to as a discount rate – which often hides the true costs of processing and can be the more expensive processing route.

Agreeing to Tiered Discount Rates & Downgrades

An important point to understand when considering a bundled rate agreement is that it seldom involves a single contract rate. Explicit in many of these arrangements are downgrade provisions, i.e. provisions to cover transactions that receive a less than optimal interchange rate for one reason or another. Downgrades are generally not reported in terms of actual interchange, it is often impossible to determine why these transactions were downgraded in the first place.

Fixed Transaction Fees and Their Relationship to Sale Price

Bundled percentage discount arrangements frequently tack on a fixed per-item fee assessed by the payment processor on each sale transaction. These fees can range from just pennies to amounts exceeding $0.25 per transaction. This type of fee should not be confused with the per-item portion of the interchange, which is cloaked by the bundled discount rate itself. For example, the processor might tack on an additional per-item charge resulting in a total fee to the merchant of 3.0% + $0.15. This looks like an interchange rate, but the real interchange — which also contains both a percentage and per-item fee — is already included in the 3.0% bundled rate. The $0.15 per-item fee goes directly to the processor as an additional fee.

Agreeing to Forgo Returned Interchange on Refunds

When you issue a customer a refund on a purchase, the interchange you paid on the transaction to the card-issuing bank is for the most part revered. More simply put, the card-issuing back pays you back. But, this isn’t always the case. If you’ve agreed to a bundled discount rate as opposed to an itemized or pass-through rate you may not be getting this interchange money back.

Missing Interchange Saving Opportunities

Aside from the simplicity, bundled billing arrangements often appear to offer one more advantage: price protection. The card brands adjust their interchange rates from time-to-time. These changes usually occur twice per year in October and April. While some interchange rates go down, many increase. Under a strict bundling agreement, the payment processor would have to absorb those increases resulting in lost profit and what would be a windfall for merchants. This, of course, comes down to what you have agreed to in contract. It is not uncommon, for processing agreements to provide for interchange related fee increases. You should therefore review proposals and contracts thoroughly prior to entering into any agreements.

The Virtues of a Pass-Through Fee Arrangement

Under the pass-through or cost-plus method the payment processor reports on all of the constituent components: interchange, assessments, and processor fees, as separate fee areas. Generally speaking, there is no notion of a discount. Interchange fees and assessments are reported in the same format as the card brands’ published rates. The processor fees will be billed and reported on to you as agreed upon by you and your payment processor. From a reporting standpoint, it is always more desirable to be billed under the pass-through model. In this way, it is perfectly clear what you are paying and to whom you are paying fees.

We hope this series has helped you understand both discount and pass-through billing models allowing you to make the best payment processing decisions for your business. Still have questions? Leave your thoughts in the comments.

2013 New Year's Resolutions

tpouliot@litle.com (Tom Pouliot) — Wed, 08 May 2013 09:44:42 PDT

It is that time a year again, where we try to predict what is going to happen in the New Year. But this year I wanted to do something slightly different. I wanted to make some New Year’s Resolutions for myself and maybe for the entire payments industry as well.

Interchange. Mobile. Big Data. These were all hot topics in 2012 and will likely continue to be hot topics in 2013. But we need to think differently about how we are looking at each of these focus points. Let’s take a look at what I believe should be the payment industry’s 2013 New Year’s resolutions.

1. We will stop suing each other over interchange!

2013 needs to be the year we stop suing each other and come to mutually beneficial agreements involving interchange.

I talked a lot about the interchange settlement in 2012 and my view-point hasn’t changed. Suing each other is not going to solve the problem at hand. Still, this doesn’t mean I want merchants to simply give up their rights to sue Visa and MasterCard like the potential settlement says.

The card brands want higher interchange rates; merchants will always want lower interchange rates; and the consumers are likely the ones that will miss out. What we need, and what I propose for 2013, is a third-party interchange rate agreement board that works to set fair interchange prices with the card brands, merchants, and consumers all in mind. After all, it is the consumers that will lose out in the long run from all of this suing. At a minimum, I wish that the card brands include a representation from the merchant community into the interchange rate setting process. It is not that complicated, and maybe, just maybe we can avoid this revolving fiscal interchange cliff in 2013.

2. It’s not mobile, it’s multichannel.

What I really wanted to say was, “It’s not mobile. It’s multichannel, stupid.” But I don’t think you’re stupid, we did hear a lot about mobile in 2012. What I am trying to warn merchants about is that it is not only the mobile channel – it is every channel. Consumers are interacting with you in more ways than ever before and you can’t ignore the old (brick and mortar) for the new (mobile). You need to put focus on creating an integrated, seamless experience no matter the channel. This may mean a mobile shopping app, this may mean self-aisle checkout, this may mean a whole lot of things. But what is driving me crazy is that too many merchants are thinking about mobile commerce the way they used to think of ecommerce — just throw up a web site, now make it mobile compatible, and you are done. If you think that way you have missed the boat.

As for mobile payments, while people may begin to pay with their mobile phone, whether it is through a mobile website, with mobile wallet, via a device like Square, or a solution that does not yet exist – the infrastructure is all the same. These payments are still tied to credit cards, they are still processed in the same way, and you are still charged the normal fees for these transactions. While it is important you pay attention to new innovations, what is more important is paying attention to where your customers are, how they’re interacting with you, and amend your solution as such.

3. Merchants should get involved in chip.

There has been a lot of innovation from the technology providers, the banks, and the card brands when it comes to making the point-of-sale experience better for merchants and customers. Who we haven’t seen as much innovation from are merchants themselves – and who knows their customers better than the merchant? So my resolution is for merchants to get more involved with the standard organizations (like those pushing for EMV and NFC) to help make sure there are benefits involved for the merchant and the consumer.

Let’s be candid for a moment, how many U.S. consumers have ever completed a full EMV transaction at the point-of-sale? If you have let me know your feedback – but personally I think it stinks. EMV is slow and I am always worried the terminal is never going to give me my card back.

As for the EMV chip and PIN advocates, the one question I have is this: Why do you think chip and PIN will take off in the U.S. any more than mag stripe and PIN has? I understand that EMV and NFC have great potential, but they also have a great expense. I have also witnessed first-hand how technology providers and the associations have come up with protocols that were (to be kind) not implantable. They were too big and too complex for everyone in the process.

The main reason I want merchants involved is that somebody has to explain how important checkout is to the US retailer. I know that speed kills, but lack of speed at the POS can cripple a retailer. That’s why my resolution is to get merchants involved with the standard organizations to make sure that there is something — other than security benefits –in it for the merchant and consumer.

4. CFOs and CTOs will break down their defenses and bring the CMO into the conversation.

Payment processing has long been a focus of only the CFO and CTO, a necessary evil of conducting business and a place where cost-savings are typically trying to be met. But, let us not forget that the business case for Third Party Credit was to increase business. It is a marketing tool.

I will never forget one of the first merchants I ever signed to a merchant contract way back in 1984 in Plaistow, NH, the Red Shoe Barn. The owner at the time could not understand why they should pay to have someone pay them. I can remember giving him all sorts of reasons and advantages, but what it came down to was that if he took credit cards he would sell more and his customers would be happier.

A number of years later and the dialog is changing. We’ve convinced businesses that accepting Third Party Credit is absolutely necessary. Now, we need to get the Chief Marketing Officer into the conversation to look at new markets, gain an international presence, scope out new payment options, and now to start utilizing the neglected information that can be gleaned from payments – payments data – providing insight into whether we can get and keep better customers. It is time to step up your payments game in 2013.

We are turning the page when it comes to payments. They should no longer be looked at as a commodity but rather an area that can truly add value to your business. We call it payments intelligence and it calls for your marketing director to be involved in the payments conversation. Payments data can give insight into customer lifetime value, propensity for the next purchase, and valuable demographic data. In 2013 you need to start using this data to better know and understand your customers. And your CMO needs to be part of this conversation.

5. You won’t be afraid of cross-border payments.

Cross-border payments can be challenging, but they’re worth it. In the changing face of commerce having an international presence has never been more important. While there may be risks often associated with doing business internationally there can also be great revenue rewards. Start small in 2013 by expanding slowly and testing the waters of your international presence.

6. You’ll make sure there is a payments manager within your organization.

Payments can be confusing and as new offerings emerge it is only getting more confusing. Having a defined payments manager can help you navigate these channels, monitor payments beyond the sale authorization, and help get strategic partners in your own organization involved in making payments a central hub of your organization. Make your payments program shine in 2013.

7. Recurring transactions won’t be considered evil.

OK, this one is directed to my friends in the non-profit segment, who somehow got the impression that asking to put a monthly charge on your credit card is tactic used by the devil to steal your soul. OK, I’m being a bit dramatic. But, remember my friends at the Red Shoe Barn? They had a hard time hard time understanding that not all credit products are bad, and they soon overcame this fear.

Non-profits, I say the same to you – recurring transactions aren’t all bad either. I know there are some in Washington D.C. who believe that they are, but their logic has always escaped me. It is time to overcome the prejudice that has developed around recurring payments and realize just because something is convenient does not make it evil. You have donors out there that would like to support you on a recurring basis and others won’t be offended if you simply ask.

What’s on your New Year’s Resolution list? Leave your thoughts in the comments! I wish everyone a safe and happy New Year.

Fundamental Fridays: The Virtues of the Pass-Through Fee Arrangement

areynolds@litle.com (Alison Reynolds) — Fri, 22 Mar 2013 10:58:44 PDT

We’ve spent the last few weeks discussing the common pitfalls of discount based processing fees and what it means for your business if you’ve agreed to this model. This week let’s discuss the pass-through fee arrangement and the benefits of this billing model.

What’s more, itemized interchange reporting allows merchants to fine tune their interchange qualification – usually the largest component of your payment processing fees. The only drawback to pass-through billing is that you are subject to interchange and assessment fee increases. As we have discussed, however, it is not uncommon for interchange rates to decrease. Further, the benefits of transparency in pass-through arrangements therefore usually outweigh the potential drawback of pass-through fee increases.

As stated, processor fees will appear independently as agreed to by the merchant. Processor fees may be expressed in terms of a fixed per transaction fee, a percentage, or a combination of the two. The important thing is that the processor itemizes your fees and hopefully provides good detail around interchange reporting.

Card processing is an inherently complex subject. Many payment processors complicate matters more by favoring a bundled discount arrangement. The larger the merchant, the more potentially costly this type of arrangement becomes. Although not necessarily simple, a pass-through feed arrangement with good reporting offers you more accountability and greater ability to optimize interchange.