I need to know what the process is for becoming a credit card
processing company. What are the requiremnts? What are the
restrivtions? Most importantly I want to know what the financial model
looks like in a general sense. For exampla, CardService International
charges a vendor (like a gift store that excepts credit cards) $0.30 +
2.9% of the total transaction. In general terms i would like to know
how they make mnoney off of that traansaction? What are their major
business costs? Do they have to pay Visa and Master Card a cut of that
transaction? All their cost dictated by the costs required to process
the credit card transactions, Ect... Thanks, please help.

---

Request for Question Clarification by jbf777-ga on 17 Sep 2003 15:45 PDT

Hello -

Are you looking to become a processor that can process transactions
from physical terminals (for instance, at stores), or are you looking
to become an Internet-based processor for websites?

Thanks,

jbf777
Researcher

---

Clarification of Question by scoop501-ga on 17 Sep 2003 18:30 PDT

No, I am looking to become an Internet-based processor for websites.
Actually, I have only one website that does a large volume of credit
card transactions so I would like to be my own credit card processor
and not have to pay CardService or some other credit card processing
company the .30 plus 2.9% per transaction they charge. Arte you
familiar with what Card Service and other card processing companies
do? To be completely honest I am not certain my self, but I know that
they are a go between between Visa / Mastercard (ect) and the sard
holder. Or perhaps it's ther banks.

So I guess to answer your questiuon, yes these would be all internet
transactions. But to clarify, I want to be my own card processor and
avoid paying that transaction fee. Or better yet, I would like to know
if I can creat an environment where I can pocket that ffee so to
speak. Does this make sense?

---

Request for Question Clarification by jbf777-ga on 17 Sep 2003 19:58 PDT

Ok, I see what you're after.  Give me a little bit and I'll have an answer.

jbf777
researcher

---

Clarification of Question by scoop501-ga on 18 Sep 2003 15:10 PDT

ANy status on my answer?

---

Request for Question Clarification by jbf777-ga on 18 Sep 2003 18:30 PDT

I have an understanding of how the system works and what you need to
do to get established.  What I don't have right now is the
who-takes-what income breakout.  The individuals I need to talk to
about that were not in today.  I'm hoping I'll have someone to talk to
tomorrow.

Hello -


Thanks for the very interesting question to research.  It took quite a
few twists and turns!  Please note: if you choose to rate this answer,
please ask for any necessary clarification/information before doing
so.  Thanks for your understanding.

Companies like Card Services and Nova Information Systems are
"middlemen" processing companies that have direct arrangements or
partnerships with the credit card companies they process for.  They
are on the closest tier to the credit card companies in terms of
revenue splitting.  To become like a Nova or Card Services, it entails
working directly with Visa, Mastercard, American Express and Discover
companies directly.
 
The credit card companies charge differing rates per transaction,
which ordinarily ranges in the 2-3% bracket (but can be lower based on
quantity), and differs based on the type of transaction and
risk-level.  For the case of Discover Card, for example, travel,
hospitality, dining, emerging markets, general retail, petroleum,
mail/telephone order, and Internet-based transactions are potential
examples, each carrying slight differences in fees.  The processing
companies can decide how they want to mark-up the transaction, but the
rep at Discover says, when you see transaction fees resembling the
format "2.9% + 30 cents", that 30 cents can often be what the credit
card processing company is taking for its processing fee.  It can be
more, and it can be less, and there may be some more mark-up built
into the percentage side as well.

The following is contact information as well as more specifics on how
the "big 4" credit card companies work:

Visa
====
Visa works with what are called "acquiring" or "member" banks.  These
are banks or financial institutions which are connected directly to
the Visa network.  A processing company cannot process with Visa
directly; they must transact through one of these member banks.  You
can contact Visa to get a list of participating member banks on their
network that you can choose to work through.

Contact information:
Visa corporate: 650-432-3200
  Example of a member bank:
  Wachovia
  704-374-6161 General Corporate 
  704-383-2039 x Vanessa Hilton (vendor relations)
  http://www.wachovia.com/inside/page/1,,136_332,00.html
  
  
Mastercard
==========
Mastercard works similarly to Visa, in that they also have a
member-bank network, but they also have the added provision for
processing companies to
transact directly through their network. 

Contact information:
  914-249-5717 x Connie Pollack
  914-249-6117 x Christine 


American Express
================
Processing companies are able to contract directly with American
Express.  An "external sales agent" (ESA) form must be filled out,
which is in turn forwarded to the appropriate department.

Contact information: 
  800-528-5200
  
 
Discover
========
Processing companies are able to contract directly with Discover.

Merchant Partnerships (work direct)
  262-694-3209 x Brian Campbell



Search Strategy/Sources:
  Visa - Anthony (operator #v82)

  Emily at Discover (Merchant Partnerships)

Excellent job jbf777-ga! Please send me your email address. I would
like to send you a more formal thank you note! My email is
mgaynor@redpaper.com

I'm very serious. If you don't send me your email address I will be
very upset! take care, Mike

Thanks again, 

Great job!

Glad you liked the answer -- thank you very much for the kind words
and generous tip!  If you have any questions, please feel free to ask.

Another bit of quick info- I used to be director of product
development for a processor- a company similar to Carservice
International.  If what you are mainly interested in doing is to lower
your merchant fees, your best bet is to shop your account around to
multiple processors/sales groups and see who offers you the best
pricing.  Be careful when you do this, as this industry is rife with
hidden fees.  Check carefully for things labeled "mid-qual" and
"non-qual" transactions- these are transactions where AVS (address
verification information) doesn't match, cards are from out of the
country, transactions are settled more than 24 hours after capture,
etc.  This is one of the biggest profit centers for these companies,
and it is not unusual for a merchant to pay more for these
transactions than for all of their regular transactions combined. 
Many processors or sales groups that do business with companies that
process on-line also acually prefer businesses that do very few
transactions- they make more money off of someone who doesn't make a
single transaction due to "minimums" that pad their profit margin.  As
such, they will be likely to hold firm on pricing even for high volume
merchants, since their risk is much greater on Internet transactions
than retail transactions.  As to the idea of becoming a processor-
unless you plan on selling merchant accounts, you will have a dificult
time finding a sponsoring bank.  It also usually requires posting a
large reserve account with the bank ($100,000+), so it's probably not
worth your time to try that route.  Feel free to ask any more
questions of me- I'm always glad to help people out.

-Matt