Credit Card Processing & Controlling Costs

February 10, 2015

© 2014 Wells Fargo Bank, N.A. All rights reserved. Member FDIC.

Paul Uher

SVP, Regional Sales Manager

Topics

Card processing 101

Trends in the consumer bill payment space

Innovation focused on bill payment & mobile

2

3

Different Fee TypesHigh Level Summary

Service Fee Convenience Fee Surcharge (New)

Convenience Fees •Additional charge to customer

for “convenience “of paying via alternate channel (online ). • Must be applied to all payment

types: CC, Debit, ACH• Principal and Fee combined in

one transaction. • VISA: Fee is fixed / flat rate

with cap; MC: Fixed or Variable

Ex: Monthly Parking payment- Parking Fee = $100- Convenience Fee = $2.00Total cost to Customer = $102 online

• Targeted late 2013 for WFPG

Service Fees• VISA Term (MC uses:

Convenience Fees)• Applies to Govt /

Educ segment MCCs only• Covers 3rd party costs to

process transaction • Principal and Fee must be sent

as two separate transactions.• Debit permitted • May be applied to all payment

channels: Card Present, MOTO, Online, F2F accepting VISA• Fee permitted to be variable• Targeted Q3 2013 for WFPG

Surcharge• Optional Merchant program,

all MCCs, similar to Conv Fee• All payment channels• Applies on CC only• Principal and Surcharge

combined in one transaction• New consumer disclosure reqs• Cap of 4%• 10 states prohibit Surcharging• No timing at this point for

support on WFPG

4

Merchant cannot assess bothService / Convenience Fees and Surcharges

Merchant 101 - 4 components of cost

4

NetworksAssessment Fees

VS - .11%MC - .105%DS - .105%

Network Access Fees

VS - $.0195MC - $.0185DS - $.0185

Issuing Bank

450+ Interchange Rates/Categories

ex. 2.95% + $.10Interchange gets

paid to issuing bank. Wells Fargo

can help you manage this cost.

ProcessorService charge fee

required to authorize, settle, fund and

service your account.

ex. IC + .30%IC – Interchange rate charged by issuing

bank.30% - service charge

fee charged by WF5% 90% 5%

5

What is the 4th component?

6

Reduce cost,

complexity and risk POS Web

IVR Mobile

ERP MOTO

Single integration for multiple

channels

Consolidated reporting

Common Goals

Source: United States Federal Trade Commission, Consumer Sentinel Network July 12th, 2014

Credit card fraud continues to grow

37%incurred by merchants mainly at point of sale from counterfeit cards

$399 average amount of loss

10% of all Americans have been a victim of credit card fraud

7

2013 2014

Recent data breaches (# accounts compromised)

In the last year, millions of accounts have been compromised

Target Corp. 40 million

November

Home Depot 56 million

September

Neiman-Marcus 1 million

October

Source: need attribute here8

Eurocard

MasterCard

Visa

The time for change has come – and the deadline is October 15, 2015

Has reduced “card present fraud” by 84% in Europe1

Liability for counterfeit card transactions will shift to merchants not supporting new EMV standards

1Visa and EMVCo studies 9

An EMV card has embedded chip with encrypted information

Transmitted when in close proximity of EMV reader

Nearly impossible to counterfeit

10

Fraud Management Decision Manager

Protect e-commerce profits with fraud protection tools Evaluate transactions in real-time

Develop a comprehensive fraud protection strategy

Spend less time on manual reviews

TransArmor

Securely process credit card data with tokenization

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Layer 1EMV

Chip technology adds security at the exact time the card is being authenticated by the terminal (card present only)

Layer 2Encryption

Secures transaction data as it is sent for authorization

Layer 3Tokenization

Tokenization replaces sensitive payment card transaction data in the merchant environment

TransArmor solution

In the meantime, Mobile Wallet is changing the way people pay

Near

Field

Communication

Only a small percent of merchants have upgraded to NFC terminals

The growth potential is large

12

How Mobile Wallet works

* * * *Enter

Password

...choose pay method

...hold close to NFC reader

...data transfers

Mobile wallet

13

All data and transmissions are

encrypted

Smart phones can be password protected,

GPS located and disabled if lost

or stolen

17263748484946*********

This technology increases security…

14

****

…reduces fraud risk…

EMV and NFC transactions can enforce additional security if PIN entry is used

Apple Pay integrates fingerprint biometrics as other manufacturers work to add voice and face recognition

15

Consumer Behavior is Changing

16

2012 2015E

$36

$130

U.S. mobile payments(Billion $)

>50%CAGR

16% of smartphone

owners have made

a mobile bill payment

One Billion

smart phones sold in 2013

Half of all e-bills

were delivered via abiller website or mobile app

Nearly

50% of businesses plan

to optimize their mobile

commerce site

Sources: First Data, Carlisle & Gallagher Consulting Group, Square, Intuit, internal analysis

With SmartPhones being the catalyst

of Smart Phone users have enabled a Mobile Wallet application20%

iPhone iTunes account owners are now Apple Pay™ eligible800MApple Pay enabled devices projected in use in U.S. by end of decade

70M

of installed credit card terminals are currently NFC compatibleand yet… 2%

Sources:Apple statistics: www.theverge.com/2014/9/9/6084211/apple-pay-iphone-6-nfc-mobile-payment  Other statistics: www.businessinsider.com/two-in-five-americans-will-use-mobile-wallets-by-2017-2014-1

Mobile bill pay is exploding

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Mobile bill pay more than doubled from 2012 to 2013.

16% of households paid a bill with their smartphone in 2013, compared to 8% in 2012

Source: Mobile bill payment surge, Fiserv, February 2014. 18

Last minute payment

Not near computer

Easy to do

Saves time

Anytime access

Convenience

29%

30%

46%

49%

55%

70%

Why consumers use mobile to pay bills

Quick Response (QR) codes

2D barcodes read by smartphones or tablets

Codes are printed on paper bills

Bill recipients use smart phone apps to “read” codes

Can redirect to biller’s homepage, biller’s bill payment

site, or a bank’s online banking site

Most popular amongst 25-44 year olds (55% of scans)

Utilized by various billers and bill aggregators

19Source: DST Output 2012

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Technology for the Next Generation

IBM 5100 portable computer

55 lbs.

.000064 GB

$20,000

Apple iPhone 6

6 oz.

128 GB

$500

Over the years…

1978 2014

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Some things have undergone massive change

Uses for Mobile apps and payments

Parks & Rec payments and gift cards

Tax payment collection by field agents or installment

payments

DMV appointment scheduling and payment

Parking & citation payments

Hearing scheduling

Hunting and fishing permit purchases

Utility payments

22Source: DST Output 2012

Thank You

Paul Uher

SVP and Regional Sales Manager

Treasury Management

704.383.4149| paul.uher@wellsfargo.com

© 2014 Wells Fargo Bank, N.A. All rights reserved. For public use.23