Payment Processing News and Commentary

From the Stripe to the Chip

2012-05-02T18:07:48Z

While we haven't been noticing it in the United States, there is a worldwide advancement in credit card technology.

Magnetic stripes, seen on the back of most of the cards in your wallet, are not nearly as secure a method for storing your information as a microchip embedded inside the card itself.

The cards with these embedded chips, known as an Integrated Circuit Cards, adhere to a standard language among EMV (Europay, Mastercard, and Visa) authentication systems.

This 3 mm x 5 mm chip can encrypt the data within the card, something a magnetic stripe cannot do. This makes them more secure and less prone to fraud, saving money for merchants and banks.

So, why isn't the US adopting these cards?

The problem is with current POS (Point of Sale) technology. While most POS terminals in the United States are built to read magnetic stripes, they have to be upgraded (or replaced) in order to read EMV cards.

Merchants typically do not want to invest in new equipment without a demonstrable increase in security, or reduction in fees.

To incentivize the POS changeover, Visa is offering merchants a waiver on annual security fees if they adopt the new technology. Mastercard has said it will shift liability for fraud on cards with magnetic stripes away from the bank, and onto the merchant.

Merchants have been slow to upgrade, and widespread adoption relies on acceptance on the ground, at the terminal, the Point of Sale.

Change is Inevitable

In the rest of the world, magnetic stripes are becoming obsolete. Americans traveling abroad would be wise to have at least one EMV card in their wallet, or they may find themselves at an ATM with a wallet full of useless cards.

Simply put, the current card technology in the United States is outdated technology. Upgrading to EMV cards will happen, but the pace and difficulty of the adoption could be longer and harder than anybody wants.

Chip Inventor Offered Reward to Hackers

Roland Moreno, the inventor of the microchip used in credit cards, offered a reward of a million francs to anyone who could break the encryption. Moreno died this week in France, and to this date, the encryption on these credit cards has proved to be unbreakable.

Do you have any microchip-powered cards in your wallet? Tell us in the comments below.

Matthew Koren is the President of Priority Payments Northwest, a credit card processing and payroll service provider located in Portland, OR. He runs his company, as well as partnering with a consulting practice: Causeit, Inc. You can contact him by filling out the Contact Us page, or by calling 866-402-1485, ext 750.

AMEX OnePoint saves you money!

2012-01-13T16:52:10Z

Priority Payments is now a certified servicing agent of AMEX OnePoint!

American Express OnePoint was created to simplify life for small and midsize merchants by combining statements, settlement and customer service for all major card brands into one place. In addition to putting everything onto one statement, this program also eliminates the separate monthly fees associated with American Express.

Start saving time and money! Give Priority Payments Northwest a call today and find out how.

Debit Card Fees on Consumers Good for Small Business?

2011-11-18T19:02:34Z

Note: The following article was originally written for publication in early October. We went for a different one, but after recent news we find this newly relevant. It turns out we were wrong - instead of other banks releasing fees similar to the Bank of America one mentioned below, Bank of America revoked the fee after a public outcry. But that makes the analysis below even more important. Small businesses must continue to be on the lookout for the ways in which taxes and financial costs are bared by them above all, in order to be able to adapt and educate.

Ever since Bank of America announced last month that they'll be assessing a $5 charge every month whenever a checking account user charges a payment with their debit card, there have been a ton of complaints about how unfair the new charge is to consumers.

All the different types of fees that banks charge are a real nuisance, and many of them do extort the complexity of the banking system to squeeze a few more dimes and nickels from the uneducated. But is it necessarily the case that charging consumers for using their debit cards is unfair?

If you own or manage a business, you know about a different side of the story. You know how much money you pay every month for the ability to allow customers to pay by card. Despite the fact that these fees make a serious dent in your margin, many consumers simply don't know that you have to pay them. When I first started working for a processor, and talked with my friends about the job, I was amazed by how many individuals didn't even know that merchants pay a fee whenever a card is swiped.

What these new fees really mean is that the economic costs of the use of debit cards will now be more apparent to the consumer. That's actually a good thing for businesses who already know about those costs so well. Consumers will, not all at once, but surely on occasion, switch from debit card use to other forms of payment.

Maybe some will switch to credit cards, which are no better for merchants. However, consumers have plenty of reasons to avoid using their credit cards too often . There will probably be quite a few who switch from using debit cards a couple times of month to using cash. Now that's good for small businesses. To adapt an old idiom: a buck in hand is worth two charged on a card.

Thomas Craig is a Sales Agent for Priority Payments Northwest, a credit card processing and payroll service provider located in Portland, OR. He also works with Matthew Koren, President of Priority Payments Northwest, at the consulting firm Causeit, Inc. You can contact Thomas by filling out the Contact Us page, or by calling 503-548-6312, ext 760.

Movenbank Offers Competition in the Next-Gen Banking Industry

2011-10-21T02:03:49Z

We wrote before on BankSimple, an awesome new banking website and app that aims to make banking work better for its clients (which, coincidentally, just announced it'll be going live in November). We think that's a great idea, and it's definitely in line with our mission here at Priority Payments Northwest: to bring simplicity, trust, and integrity back to payment processing.

Well, more good news: there's going to be competition in the sphere of next-generation banking. Another all-online bank is also beginning a private beta-phase, and offers a potentially even more radical revision of how a bank can serve its customers better.

Movenbank, unlike BankSimple, will completely ditch all the traditional physical components of brick-and-mortar banks. While BankSimple will still provide plastic cards to customers, Movenbank will rely on mobile communications technology for payments. No more debit cards: all your payments through your smartphone and online. Maybe it sounds crazy, but with over 14,000 merchants in the US able to accept payments by NFC technology, it's becoming more practical every day.

One of the most revolutionary features of Movenbank's operations will be its use of social media data from its customers to help it understand clients, and help clients understand their finances. Their idea is to replace traditional credit scores with what they're calling "Cred." While there are some detractors who fear Movenbank my be biting a bit more off the web data buffet than it will be able to chew, its definitely a great way to be able to proactively engage with your clientele.

What do you wish banks did that they don't do now? What do you fear about losing as banks move online? How do you feel about banks using your recent Facebook check-in at the local watering hole to remind you that you only have $23.38 available to spend on beer until your paycheck clears at midnight? Let us know your thoughts!

Google Making Phone Payments Routine

2011-09-20T23:32:53Z

You've probably heard that stock markets have had a hard time the last couple months here. They have. But two stocks that haven't done so bad are Visa (V) and Mastercard (MA). If the American consumer is still unsure about the future, and thus unsure about taking on further debt, why are the biggest credit card agencies in the world rising in the eyes of investors?

Today's news, which sent the stocks up again while the rest of the market was flat, was a further expansion of the Google Wallet program that we've mentioned here before. Google, like Square and Paypal before them, is working to further integrate its system with that of the established networks behind Visa, Mastercard, and Discover. Those three networks will now license virtual cards to Google smartphones, opening up a potentially huge market to phone based payments.

More businesses around Portland have begun to accept various phone payment technologies, but these transactions still count for a tiny fraction of total credit business in the country. However, businesses looking to attract particular types of customers are beginning to adopt the practice. I've seen, in particular, a few hip bars for younger audiences accepting phone payments.

We're always happy to help you find the right technology for your business. Phone payments don't make sense for many businesses, but let us know if you'd like to find out whether the investment would be worth it for yours.

DISCLAIMER: This article in no way encourages the purchase of any equity, a risky investment that can result in loss of capital. Neither Priority Payments Northwest nor Matthew Koren owns the stock of any company mentioned in this article.

Innovative Portland Tech-Finance Start-up Receives Venture Funding

2011-08-19T19:51:56Z

Portland has long been known as the "Silicon Forest," home to a host of home-grown champions of the tech (especially open-source) world. Along with Google and Square testing their new payments-revolutionizing technology here, a small Portland firm that opened in 2009 might help the Silicon trees grow deeper financial roots.

BankSimple, founded by CEO Josh Reich, CFO Shamir Karkal, and CTO Alex Payne, is not a bank, but plans to take consumer banking by storm with the release of its all-in-one web-based money management system. It has partnered with processors like Visa and banks like Bancorp and Allpoint to allow consumers to integrate all of their personal financial in one web-based and mobile-accessible interface. Unlike the websites for major banks in the US, which only 53% of Americans believe provide quality service, BankSimple's technology is designed from the ground-up to optimize customer-experience, rather than designed to interact with a decades old banking system. While it won't hold deposits, BankSimple will automatically forward savings into FDIC-insured partners, and provide a streamline proxy through which the customer gets real-time information and can keep easy notes on transactions at the time they take place through their smart phones.

In a recent blog post on the company's website, Reich announced that the firm has received another round of funding worth $10 million. This means great news both for consumers and for Portland. Consumers get a much needed re-invigoration of the consumer finance sector. Portland gets a significant investment in a growing business that provides high-quality, skilled work for our community members. We applaud both these trends enthusiastically.

The only question we have (and it's only a question) is how this system will look to our primary clients, the merchants. We hear that BankSimple intends to make a significant amount of its revenue from debit card fees charged to merchants on the cards that BankSimple users spend their funds with. Will this be another continuation of the now 40-year trend of making finance simple for consumers, but leaving small businesses to clean up the mess? We certainly hope not. And we have great faith in our fellow Portlanders to make a product that improves finance for everyone.

Consumers and Businesses at odds?

2011-07-25T04:46:48Z

The unfortunate truth of the structure of the payments industry in the United States means that merchants and consumers seem to be pinned against one another. Merchants are disallowed from passing their fees directly on to customers, and don't want to lose business by not accepting some forms of payments. Consumers want the ease of payment cards provide, and are also increasingly drawn to rewards cards that further squeeze their merchant's margins.

Of course, at root, it's the Visa, MasterCard, and Discover associations that enforce policies on their member merchants that prevent customers from seeing the true costs of their cards. The climate is changing though, as fees charged for processing receive more political attention after the Dodd-Frank financial reform. But in other ways, the tide is still turning against merchants: customers are using rewards cards more and more frequently and regularly, consumers are taught that they can "save money" in various ways that hurt merchants (see for example this article in Time).

What can merchants do to keep their customers happy without finding themselves stuck with unsustainable fees? We built our business on the idea that most important is having a relationship with your processor, that ensures they'll be watching out for what subtle changes you could make to your payment system to keep fees low.

But there's also one easy step to take with any processor to ensure you're getting a fair deal. "Interchange Plus" pricing means that your processor is passing on to you whatever it is that Visa/Mastercard actually charge them for the cards being used. A traditional, "tiered" plan works great if you know and trust your processor, but if you're signing up now, the best pricing is always the one that gives you the most information about your suppliers costs. If you know just what their margin is, you can be sure you're getting the price you should.

If you get a fair and transparent price on your processing, its easier for you to speak with your customers with integrity about what providing the service costs. In the long run, its making sure that we're all on the same page, not at odds with one another, that will help everyone get a good deal.

The Payments Industry Revolutionized ... Again?

2011-06-06T16:01:47Z

Two perennial innovators made headlines again last week, launching new services that they claim are the future of payments. Tech giant Google and processor start-up Square both released platforms that promise to eliminate a wallet full of cards for consumers, while simplifying accepting payments for businesses.

Google announced the launch in San Francisco and New York of Google Wallet, in concert with CitiBank, MasterCard, First Data, and Sprint a system that utilizes Near Field Communication (NFC) technology to allow users to swipe their phone in front of a reader to pay with whichever card of theirs they wish. As with all big announcements of this type, commentators have seen both positive and negative futures for the product. Integrating every card we carry in our wallets into our phones has a clear benefit, but it also raises questions about security and cost. It will take time and many trials, but most analysts expect that Apple will be releasing a similar upgrade for its iPhone in the near future, heightening competition to make the best system.

Square's new Card Case is an interesting way around the issue of card security. Rather than read payment info each time, Square's system allows consumers to set up a "tab" with businesses they frequent which process with Square. They tell the cashier their name, she charges their account from an iPad, and the payment automatically processes. The company claims that the system is a step towards eliminating the need for a register at many businesses, though of course one can't store cash in an iPad. While a great idea for certain businesses with a small and dedicated client base, Square's restrictions on cashflow (30 day holding period for all volume above $1000 per week) are too onerous for even many small coffee shops.

Both systems are signs of that the industry is changing fast, but either would take years to become widespread in use. They'd also have to reach a critical mass of users in order to begin growing in a self-sustaining way.

The revolution keeps coming slowly, but there's still more research, more questions, and more experimentation to be done. We'll be watching.

Building Back the Trust in Finance

2011-05-20T06:44:41Z

As payment processors we sit at a pretty unique spot in the financial services universe. Everyday we see money move in the blink of an eye from a tourist's foreign bank account to the ownership of your neighborhood coffeeshop. Money has never moved so fast, and there is a great demand for trusted individuals who can vouch for all the parties involved. As industry-regulated middle men, we are the risk assessor for the banks authorizing all these transactions. We tell them whether it's OK to sign off on a transaction from Tammy's Widget Shop, and assure them it isn't just a front for money laundering activities.

We've also had the opportunity to stand in this unique spot during an extraordinary time for the global financial system. Since 2008 the world of banking and transferring funds has quickly and drastically changed. On the one hand, technology has rapidly advanced, and we've all become far more savvy, compounding the effect on expectations of ease. In 2007, the idea of depositing a check from your phone was unreal. Today it is almost routine.

On the other hand, the traumatized rhetoric of recession and life "in this economy" has left behind a new, underlying fear of risk, even now that we talk about recovery. We've all reacted. Consumers for some time paid down their credit card debt, reversing the decades-long trend of extending more and more credit. Only in the last two months have people started accepting more credit card debt again. Others have resorted to more drastic manners of "improving" their balance sheet.

Banks too have become more cautious with their spending, and occasionally have also resorted to extra-contractual manners of holding on to precious cashflow. Indeed, there are times when this verges on outright dishonesty, or worse. But even, perhaps especially, in more petty situations banks increasingly demand that i's and t's are dotted and crossed if one does not wish to draw a greater amount of scrutiny.

Why? It all comes down to one issue: trust. Banks no longer trust their clients, and clients seem to no longer trust their banks. Despite historically low interest rates across the economy (compare treasury yields in 2005 to those today), its difficult to find a mortgage or small business loan because banks are just plain unwilling to take on any more risk.

Now more than ever is the time to build relationships and ensure that you know the people handling your accounts and your cashflow. That's what we do at Priority Payment Northwest every day: we're working to build trust with our clients and our financial partners, and working to build back up the finances of Portland businesses. By making sure that they have the representation they need when approaching the banks that deal with their funds, our trust in Portland businesses is helping them trust their banks, and we all see the benefits.

What does Visa want with Square?

2011-05-06T16:10:54Z

Why would the name of the established credit card processing industry want to help out the vanguard of changing times? Twitter-founder Jack Dorsey's company, Square, which came onto the credit card processing scene in 2009 with its controversial mobile processor for iOS, received an undisclosed amount of money recently from industry staple Visa. Square, of course, processes largely Visa cards (Visa has around 40% of the credit card market in the US, and more of the debit market), so it is reasonable for Visa to want to be involved.

But many of the businesses in the industry other than Visa itself have been outright hostile to Square. Do they fear being outdone by Dorsey's start-up? And is Visa's strategic bet an indication that the key company in the industry thinks they're right to be afraid?

That may be part of it. The card industry needs to change fast to keep up with rapidly advancing technology, and is doing so. We here at Priority Payments Northwest have to (and love to) spend time every week researching new advancements so that we can stay ahead of the curve.

However, Visa may also be looking to find ways to get Dorsey to play a bit more nicely with others. Square complements the current processing market, it doesn't replace it. It fills in a hole where there used to be one with regards to peer-to-peer transactions. It's cost effective for small transactions between friends and very small businesses, but can get pretty expensive when dealing with large numbers. And as all business owners know, numbers get large very fast, often even before you make a profit!

Visa's investment is undoubtedly a vote of confidence in Square, and an attempt to get in on the new market that Square's product opens up. It's also an act that brings Square further into the fold, and incorporates Square into the existing structure of credit card processing in the US. Visa's still in charge.

Matthew Koren is the President of Priority Payments Northwest, a credit card processor and payroll service provider located in Portland, OR. He runs his company, as well as partnering with a consulting practice: Causeit, Inc. You can contact him by filling out the Contact Us page, or by calling 866-402-1485, ext 750.