Merchant Services 101 and Electronic Payments Wells Fargo

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Merchant Services 101 and Electronic Payments _____________ Wells Fargo Bank Wholesale Merchant Solutions Rich

Merchant Services 101 and Electronic Payments _____________ Wells Fargo Bank Wholesale Merchant Solutions Rich Toomey VP, Wholesale Merchant Solutions Office: 336 -378 -4165 Richard. Toomey@wellsfargo. com © 2009 Wells Fargo Bank, N. A. All rights reserved. Internal use only.

Topics I. Merchant Services Basics II. Understanding & Managing Costs III. PCI Compliance IV.

Topics I. Merchant Services Basics II. Understanding & Managing Costs III. PCI Compliance IV. Payment Trends & Payment Gateways © 2009 Wells Fargo Bank, N. A. All rights reserved. Internal use only. 1

Processing Flow © 2009 Wells Fargo Bank, N. A. All rights reserved. Internal use

Processing Flow © 2009 Wells Fargo Bank, N. A. All rights reserved. Internal use only. 2

Payment Flow Buyer Payment Gateway Merchant Web Store Call Center Encrypted Transmission (SSL) §

Payment Flow Buyer Payment Gateway Merchant Web Store Call Center Encrypted Transmission (SSL) § API § Hosted Order Payment Gateway FDMS/ Processor Associations Issuing Bank Page § Virtual Terminal POS System § Payments § Compliance and Risk Management WF/ODFI ACH Network § Subscription Services § Machine Readable § Reconciliation Files § Web-based Reports © 2009 Wells Fargo Bank, N. A. All rights reserved. Internal use only. 3 RDFI

The Players & Their Roles © 2009 Wells Fargo Bank, N. A. All rights

The Players & Their Roles © 2009 Wells Fargo Bank, N. A. All rights reserved. Internal use only. 4

Gateway/Middleware © 2009 Wells Fargo Bank, N. A. All rights reserved. Internal use only.

Gateway/Middleware © 2009 Wells Fargo Bank, N. A. All rights reserved. Internal use only. 5

What Do Merchants Pay? Pricing Components § Discount rate Interchange – the largest portion

What Do Merchants Pay? Pricing Components § Discount rate Interchange – the largest portion of the discount rate, paid to the card Issuing banks Assessments – fees paid to the Card Associations (Visa/MC) Access Fees – fees paid to the Card Associations ( Visa/MC) Processing fees – paid to the merchant Acquiring bank § § § § Equipment/ Software/ Gateway fees Set up fees Monthly service and statement fees Non-Bank (i. e. AMEX) Authorization Fees Chargeback fees Compliance fees (i. e. PCI) Downgrade fees © 2009 Wells Fargo Bank, N. A. All rights reserved. Internal use only. 6

Merchant Services Pricing § Interchange Non-negotiable, determined by, paid to Card Issuer § Assessments

Merchant Services Pricing § Interchange Non-negotiable, determined by, paid to Card Issuer § Assessments Non-negotiable, determined by, paid to the Card Associations § Access Fee Non-negotiable, determined by, paid to the Card Associations § Processing / Discount Fee Negotiated with and paid to your Merchant Processor Reality Check – There are multiple pricing methods presented to merchants; many merchant processors bundle the above components which makes deciphering the cost basis impossible © 2009 Wells Fargo Bank, N. A. All rights reserved. Internal use only.

Interchange Schedule © 2009 Wells Fargo Bank, N. A. All rights reserved. Internal use

Interchange Schedule © 2009 Wells Fargo Bank, N. A. All rights reserved. Internal use only. 8

Pricing Strategies 1. Interchange Plus Acquiring banks pass through Assessments, Access Fees and Interchange

Pricing Strategies 1. Interchange Plus Acquiring banks pass through Assessments, Access Fees and Interchange to the merchant and add a per-item fee and/or percentage. Formula: Interchange + Assessments + Access Fees + Processing 2. Bundled Pricing ― Bundling of all of the price points into one rate, typically has 2 down grade categories. Example: Qualified Rate: 1. 90% + $0. 15 Mid-Qualified Rate: Non-Qualified Rate: 2. 65% + $0. 25 3. 45% + $0. 25 © 2009 Wells Fargo Bank, N. A. All rights reserved. Internal use only. 9

Interchange Plus (Pass-through) Example © 2009 Wells Fargo Bank, N. A. All rights reserved.

Interchange Plus (Pass-through) Example © 2009 Wells Fargo Bank, N. A. All rights reserved. Internal use only. 10

Bundled Example © 2009 Wells Fargo Bank, N. A. All rights reserved. Internal use

Bundled Example © 2009 Wells Fargo Bank, N. A. All rights reserved. Internal use only. 11

The Cost Pie © 2009 Wells Fargo Bank, N. A. All rights reserved. Internal

The Cost Pie © 2009 Wells Fargo Bank, N. A. All rights reserved. Internal use only. 12

Determining Interchange Rates 1. MCC Codes 2. Transaction Type (Card Present, Card Not Present)

Determining Interchange Rates 1. MCC Codes 2. Transaction Type (Card Present, Card Not Present) 3. Transaction Amount (Large Ticket vs. Small Ticket) 4. Card Type (Consumer, Commercial, Purchasing) 5. Product Type (Utilities, Fuel, Taxes, Government etc. ) © 2009 Wells Fargo Bank, N. A. All rights reserved. Internal use only. 13

Managing Interchange Put procedures and solutions in place to qualify for “optimal” interchange rates

Managing Interchange Put procedures and solutions in place to qualify for “optimal” interchange rates Must be priced on Interchange Plus (Pass-through) Level II and Level III for Commercial/Purchase cards Ensure employees are trained on the proper way to enter a transaction (i. e. Address Verification for telephone payments) Register for Card Association programs where appropriate (i. e. Large Ticket Program) © 2009 Wells Fargo Bank, N. A. All rights reserved. Internal use only. 14

Level III Data Visa Minimum Level III requirements input by merchant Item Commodity Code

Level III Data Visa Minimum Level III requirements input by merchant Item Commodity Code Item Description Product Code Item Quantity Item Unit of Measure Item Freight/Shipping Amount Duty Amount Unit Cost © 2009 Wells Fargo Bank, N. A. All rights reserved. Internal use only. 15

Durbin Amendment As part of Financial Regulatory Reform, US Congress has approved the Durbin

Durbin Amendment As part of Financial Regulatory Reform, US Congress has approved the Durbin Amendment. 1. Cap on Interchange costs associated with Debit Card transactions (both Signature Based and Pin. Debit) 2. Last week the Senate approved to NOT delay the implementation of the debit card cap. 3. Initial cap has been pegged between $0. 07 and $0. 12 4. Potentially create significant reduction in card processing costs, for Merchant’s that accept high percentage of “debit” cards © 2009 Wells Fargo Bank, N. A. All rights reserved. Internal use only. 16

PCI Compliance © 2009 Wells Fargo Bank, N. A. All rights reserved. Internal use

PCI Compliance © 2009 Wells Fargo Bank, N. A. All rights reserved. Internal use only. 17

PCI Compliance § Payment Card Industry Data Security Standard (PCIDSS) A common set of

PCI Compliance § Payment Card Industry Data Security Standard (PCIDSS) A common set of industry tools and measurements to help ensure the safe handling of sensitive information. Developed and managed by the PCI Security Standards Council § Applies to all merchants and third party service providers that: Store/Process/Transmit Card Holder Data Develop/ Sell Payment Applications © 2009 Wells Fargo Bank, N. A. All rights reserved. Internal use only.

Enforcement Structure VISA Master. Card Amex Discover PCI Standards Council PCI Data Security Standard

Enforcement Structure VISA Master. Card Amex Discover PCI Standards Council PCI Data Security Standard (PCIDSS) VISA CISP DISCOVER DISC Master. Card SDP Merchant Payment Solutions (Acquirer) Merchants © 2009 Wells Fargo Bank, N. A. All rights reserved. Internal use only. JCB

PCI DSS Validation Requirements Per Visa and Master. Card Compliance Classification Level Annual submission

PCI DSS Validation Requirements Per Visa and Master. Card Compliance Classification Level Annual submission of compliant PCI DSS Report on Compliance Level 1 >6 MM annual transactions (All Transaction Types) Level 2 1 MM to 6 MM annual transactions (All Transaction Types) For 2010 calendar year Level 3 20 K to 1 MM annual transactions (ecommerce only) Level 4 (recommended) < 20 K e-commerce < 1 MM annual transactions © 2009 Wells Fargo Bank, N. A. All rights reserved. Internal use only. Annual submission of PCI DSS Self Assessment Questionnaire (SAQ) Quarterly Net work Scan

Top Targets Industries Non-traditional targets made up more than 50% of the 2009 cases.

Top Targets Industries Non-traditional targets made up more than 50% of the 2009 cases. © 2009 Wells Fargo Bank, N. A. All rights reserved. Internal use only.

Investigative Conclusions Types of Data at Risk Payment Card Data is a target for

Investigative Conclusions Types of Data at Risk Payment Card Data is a target for criminals looking to turn data into cash quickly. © 2009 Wells Fargo Bank, N. A. All rights reserved. Internal use only.

Investigative Conclusions Types of Target Assets While many POS vendors have patched their systems

Investigative Conclusions Types of Target Assets While many POS vendors have patched their systems to support security controls, many companies are still running very old software. © 2009 Wells Fargo Bank, N. A. All rights reserved. Internal use only.

Wholesale Merchant Solutions Electronic Payment Trends & Payment Gateways © 2009 Wells Fargo Bank,

Wholesale Merchant Solutions Electronic Payment Trends & Payment Gateways © 2009 Wells Fargo Bank, N. A. All rights reserved. Internal use only.

Electronic Payment Growth • Dramatic increase in EPayments • Dramatic decrease in use of

Electronic Payment Growth • Dramatic increase in EPayments • Dramatic decrease in use of paper © 2009 Wells Fargo Bank, N. A. All rights reserved. Internal use only.

Card Payment Growth © 2009 Wells Fargo Bank, N. A. All rights reserved. Internal

Card Payment Growth © 2009 Wells Fargo Bank, N. A. All rights reserved. Internal use only.

Questions to Ask 1. Are we offering multiple payment options? 2. Are we driving

Questions to Ask 1. Are we offering multiple payment options? 2. Are we driving payers to our website? 3. Are we PCI Compliant and reducing the possibility of data theft? 4. How soon are our funds available? Next Business Day? 5. How are we posting card payments to our AR system? 6. Are we using the tools available to reduce Days Outstanding? © 2009 Wells Fargo Bank, N. A. All rights reserved. Internal use only.

® Wells Fargo Payment Gateway service *Single platform *Multiple integration and payment options 2009

® Wells Fargo Payment Gateway service *Single platform *Multiple integration and payment options 2009 Fargo Wells Fargo Bank, rightsreserved. Member © 2009 © Wells Bank, N. A. All rights Internal. FDIC. use only. 28

Payment Options & Funding Next business day funds availability for card and e. Check

Payment Options & Funding Next business day funds availability for card and e. Check transactions Visa Master. Card e. Check (ACH) debits and credits American Express Discover © 2009 Wells Fargo Bank, N. A. All rights reserved. Internal use only. Pay. Pal Express Checkout

Virtual Terminal (VT) Simple to use Virtual Terminal capabilities allow transaction processing from any

Virtual Terminal (VT) Simple to use Virtual Terminal capabilities allow transaction processing from any PC with Internet access § Multi-level User Access § Credit Card or electronic check/ACH payments § Create payment profiles § Print or email receipt capabilities Source: Javelin Research Strategy 2008 © 2009 Wells Fargo Bank, N. A. All rights reserved. Internal use only.

Web Payments Hosted Order Page (HOP) Simple way to accept payments online. Commercial card

Web Payments Hosted Order Page (HOP) Simple way to accept payments online. Commercial card usage is § estimated to continue to § Customize the grow by as much as 25% in theand coming content theyears. look of the Hosted Order Page § Supports Secure Storage and recurring billing © 2009 Wells Fargo Bank, N. A. All rights reserved. Internal use only. 31

Secure Storage / Tokenization © 2009 Wells Fargo Bank, N. A. All rights reserved.

Secure Storage / Tokenization © 2009 Wells Fargo Bank, N. A. All rights reserved. Internal use only. 32

Automatic Posting / Enhanced Reporting § Reports available online, CSV export or XML (

Automatic Posting / Enhanced Reporting § Reports available online, CSV export or XML ( for system to system integration) § Enhanced “matched reporting” § Unique Order ID § Chargebacks & Retrievals § Interchange © 2009 Wells Fargo Bank, N. A. All rights reserved. Internal use only. 33

Wholesale Merchant Solutions Questions? © 2009 Wells Fargo Bank, N. A. All rights reserved.

Wholesale Merchant Solutions Questions? © 2009 Wells Fargo Bank, N. A. All rights reserved. Internal use only.