An eBay for Card Processing Seeks to Cut Costs for Merchants

With merchants looking to cut processing costs and clarify the pricing they pay for card acceptance, a Web site that lets merchants take bids from acquirers is generating between eight and 10 deals a month for at least some of the qualified processors using it. Chicago-based Transparent Financial Services LLC, which launched its TransFS site last year (Digital Transactions News, Sept. 8, 2008) and took it commercial in March, now has eight processors making what it calls “binding” bids to merchants that enter information about themselves on the site. Sean Harper, chief executive of TransFS and founder of the site, says it is intended to be selective in the acquirers it lets participate. The number might grow, he says, but not significantly. “Eight is a good amount of choice but not a confusing amount of choice,” he says. “I don't think we'll ever have 200.” The deals generated by the auctions, he says, are meant to supplement the business processors are picking up elsewhere. “We don't expect to be their only source of business,” he says. But for merchants looking for card-acceptance services, the site does expect to cut costs through competitive bidding. A year ago, a merchant survey TransFS conducted in advance of launching its site indicated widespread dissatisfaction with both pricing and service from acquirers. Merchant sentiment hasn't changed, Harper says. Irking them in particular, he says, are new fees many acquirers are now tacking on to monthly statements, such as charges to cover costs of compliance with the Payment Card Industry data-security standard (PCI) and a pass-through for fees Visa Inc. and MasterCard Inc. hiked earlier this year for network access. MasterCard's fee is 1.85 cents per transaction. Visa's is 1.95 cents. Both fees are up from 0.50 cents. These new charges “are causing frustration for merchants,” says Harper, who says he and his staff talk to “thousands” of merchants each week. Adil Moussa, an analyst at Aite Group LLC, a Boston-based research firm, agrees the new fees are exacerbating merchant anger at acceptance pricing after years of rising interchange rates. “One common fee is [for] PCI,” he says. “Some are pretty high.” To help control costs and present directly comparable bids, TransFS requires processors to submit interchange-plus pricing and to waive any cancelation fees. With interchange-plus pricing, bids are presented with a clearly stated markup over the percentage-based and fixed fees laid out in the interchange tables established and published by the card networks. “If you're not the kind of processor that wants to do that, you really shouldn't be on our marketplace,” says Harper. When a deal is clinched, the processor pays a fee of 5 basis points to TransFS. There is no charge to merchants. “Everyone gets the same deal,” says Harper. “A lot of processors have indicated they could pay us more, but we've steered clear of that.” Moussa says TransFS's online marketplace could help small merchants, but might not meet the needs of larger retailers and those with special needs. And while the requirement of interchange-plus pricing could allow merchants to avoid deals offering bundled pricing that doesn't represent what they would actually pay, the marketplace could also favor processors that don't disclose all of their fees, Moussa says. “Those that are open [about all fees] end up losing in this type of environment,” he notes. Still, interchange-plus pricing helps merchants compare bids directly so they can be clear about which one really cuts their costs. “There is demand for that,” Moussa says. Harper says TransFS will shortly introduce a second feature that will allow merchants to search for processors by various criteria and also comment on those they've had experience with. The company already has more than 800 processors in its database. “It's designed to be the Yelp of credit card processing,” says Harper, referring to the online marketplace that lets customers rate and comment on stores and service providers where they've done business.