CREDIT CARD PYRAMID

BEATING THE PYRAMID OF CREDIT CARD RATES If you’re in business it’s imperative that you understand the structure of the part of the banking industry that sells credit cards. The reason is this: Knowing who the credit card players are – where they fit and what they do – will help you get the best credit card rates and to know how valid credit card offers are. There is a pyramid in the credit card industry, and knowing what level of the pyramid you’re facing can show you how to get the best credit card rates. At the top of credit card industry are the credit card companies themselves: Visa, MasterCard, Discover, and American Express. They set pricing for the variety of cards they offer. Rates for the cards they offer – credit cards, debit cards, rewards cards, gasoline cards, branded cards – all have different rates, called INTERCHANGE RATES. The big credit card companies offer their cards, and their rates, to 45 U.S. banks called Acquiring Banks. These famous-name banks represent the creme de la creme of the credit card industry: for instance, Bank of America, Capital One, Chase, Citi, Fifth, Third, Merrick, PNC, Wachovia, Wells Fargo, West America – and the one with which we work, Woodforest National Bank – those dozen names give you an idea how big the banks are. And not all banks serve every state. In Pennsylvania, where we are, FirstMerit Bank, Fulton Bank, M&T Bank and TD Banknorth are Acquiring Banks, but not national banks. All of these banks "acquire" their Interchange Rates from the credit card companies. Once they get their Interchange Rates, these banks either create sales forces called Independent Sales Organizations or they hire marketing companies to sell their credit card services. At each stage, the Interchange Rates get marked up to make a profit. But, keep in mind – that mark-up represents only a portion of their profit on credit cards. The real profit comes from the actual money in these card transactions, which the banks use for loans. This is called the "float" and it's the primary business of banks. The Independent Sales Organizations hire agents called Independent SalesAgents – another stage of the pyramid – to do the actual sales work of calling upon potential customers. The Independent SalesAgents also mark up the credit card rates to make their profit. It is these Independent Sales Agents who are calling you or visiting you to sell you credit card services. Besides the additions at each stage to the original Interchange Rates, lots of variables and additional costs get tacked on to the original Interchange Rates, such as transaction fees, monthly fees, PCI compliance fees, annual fees, minimum fees, and a host of others, providing the independent sales agents with a steady stream of residual income. It is there, and in the additional fees added to Interchange Fees (called Interchange Plus), that the competition rages in the credit card industry. But, when it comes to credit and debit cards, our company is different, and here’s why: In 2008, Walmart wanted to install banking services in its stores across the nation. It chose one of the big national banks that I mentioned above – Woodforest National Bank – to provide its bank services. Woodforest decided to let independent sales agents like us leap up the pyramid and deal directly with the credit card companies at the top. That means we can deal directly with Visa, MasterCard, American Express, and Discover. We now get the Interchange Rates directly from the top and control and keep down the mark-up for our customers, without those other intermediaries taking a share. That means we can beat any credit or debit card rate for our merchants. And we do!