Visa CPS (Custom Payment Service) & Your Processing Fees

In order to understand CPS, you need to understand the fundamentals of interchange and interchange qualification. I’ll briefly cover them in this article.

If you’re interested in learning more, which I encourage, check out related articles on the topics of interchange and processor pricing models on CardFellow’s blog.

Note: As of summer 2023, Visa has eliminated (or merged / renamed) many of its CPS interchange categories. Be sure to check our individual CPS articles for specifics.

What is Visa CPS (Custom Payment Service) in Payment Processing?

CPS stands for Custom Payment Service, and refers to a Visa program that sets requirements for card transactions. Meeting requirements results in lower interchange processing fees. Unfortunately, describing the acronym is pretty much where the simplicity associated with Visa’s CPS ends.

I’m going to mention the term interchange a lot when describing Visa’s CPS because that’s really what CPS is – an interchange program. If you’re not familiar with interchange, take a moment to learn about it through our articles about interchange fees and credit card processing fees.

Even though it’s in the name, CPS really isn’t really a service. It’s better described as an interchange program. That’s probably why Visa refers to CPS as the “CPS program” 90% of the time.

The CPS program is meant to incentivize businesses to take steps to ensure cards are securely and properly authorized and settled for valid purchases. In other words, to ensure that cards are validated and processed securely.

To achieve this, Visa has created a set of rules that businesses must follow when processing certain types of transactions (card-present, card-not-present, etc.). If you follow these rules, you benefit by paying a lower interchange rate.

Parts to CPS

Think of CPS as two parts. The first part is a set of rules and criteria. The second part is a set of interchange rates and fees used to determine what to charge a business if it follows the rules and criteria.

If a business doesn’t follow the rules for the CPS program, its transactions will be charged at a higher interchange rate and fee.

For example, if a business keys in a transaction and follows the rules for CPS Card Not Present Debit, the transaction will qualify for (be charged at) an interchange rate and fee of 1.65% + $0.15. However, if the business does not follow the rules for CPS Card Not Present Debit the transaction may qualify for a downgrade interchange change category (such as Electronic Interchange Reimbursement Fee or “EIRF”), which carries a rate and fee of 1.75% + $0.20.

As you can see, the cost for not following CPS criteria in this example is an additional 0.05% and 5 cents per transaction.

Now that you have an idea of what CPS is and how it impacts processing cost, let’s look at whether following CPS will actually benefit your business, or your processor.

CPS and Cost: Who Benefits?

At CardFellow, we help business secure the most competitive credit card processing company by ensuring processors place quotes in our marketplace that abide by our strict rules.

If you used CardFellow to find a processor, you can rest assured that the reduction in interchange cost due to CPS qualification will be passed to your business because CardFellow requires your processor to use an interchange-plus pricing model.

However, if you did not use CardFellow’s marketplace to secure a credit card processor, then it’s very likely you won’t see any benefit from following CPS criteria. In fact, just the opposite will be true. Your processor will likely make greater profits at your expense. Here’s why.

Interchange

Interchange is the “wholesale” cost of credit card processing. It’s the amount of money that an issuing bank withholds when reimbursing an acquiring bank for a cardholder’s purchase.  And while a business doesn’t directly pay interchange, it indirectly pays it because the cost of interchange is ultimately passed to a business.

The question is whether a business’s processor passes the cost of interchange at actual cost, or veiled behind contrived rates of its own called qualified, mid-qualified, and non-qualified. (Note that Visa has started using “non-qualified” for one of its downgrade charges, which does muddy the waters as to whether the non-qual is coming from your processor or from Visa. However, in either case, it indicates you’re paying more than you could have.)

Businesses that use CardFellow to find a credit card processor always pay interchange at cost. Therefore, they will benefit from CPS qualification. Businesses that don’t use CardFellow to find a processor will likely pay a processor’s qualified, mid-qualified, or non-qualified rate, and the processor will pay interchange.

A processor’s non-qualified rate is always the highest. Thus, the processor actually makes more money when a business’s transactions do not qualify for Visa’s CPS program.

For example…

Let’s say that a business is being charged a qualified rate of 2.25% + $0.10 and a non-qualified rate of 3.75% and $0.10. If this business submits a transaction that qualifies for CPS Card Not Present the interchange rate and fee will be 1.80% + $10. The processor will (usually) consider this transaction qualified, so the markup will be 0.45% (2.25% – 1.80%).

However, if the business does not meet criteria for CPS Card Not Present the interchange rate and fee may be 2.30% + $0.10. The processor will consider this transaction non-qualified, so the markup becomes 1.45% (3.75% – 2.30%).

The processor more than doubles its markup by not helping a business lower its interchange cost by qualifying for Visa’s CPS program.

Custom Payment Service (CPS) Retail / CPS Retail

Note that while Visa has previously had a CPS categories that applied to credit cards, its current interchange schedule only lists CPS for debit and for prepaid transactions. The specific categories below only apply to debit and prepaid cards.

Businesses must follow the criteria below in order to qualify transactions for Visa’s CPS Retail program:

• Customer and card are physically present
• Card is swiped and a signature is obtained
• Authorization is settled (batched) within 24 hours
• The amount for which a card is authorized must match the settlement amount unless your business is classified as one of the merchant category codes (MCC) listed below. If it’s not, a transaction will not qualify for CPS if the settlement amount differs from the authorization amount:
  • Taxicab & Limousines (MCC 4121)
  • Bars & Taverns (MCC 5813)
  • Beauty & Barber Shops (MCC 7230)
  • Health & Beauty Spas (MCC 7298)

Custom Payment Service (CPS) Card Not Present

Businesses must follow the criteria below in order to qualify transactions for Visa’s CPS Card Not Present program. In addition to reading the information below, check out Visa’s document on CPS Card Not Present.

• Transaction is conducted by mail or over the phone. The customer or the card are not present during the transaction
• One settlement transaction per authorization
• Transactions must be authorized and approved according to the Visa International Operating Regulations, which is a huge document, so the gist of transaction authorization is:
  • Settlement amount must be within 15% of the authorized amount with any difference comprised of shipping and sales tax
  • Obtained seven calendar days or less before merchandise is shipped
• An authorization must be settled within 2 days of merchandise being shipped
• The customer must be provided with an order number plus a way to contact the business. That can include:
  • Telephone number
  • URL
  • Email address
• Address Verification Service (AVS) must be used, which requires passing the customer’s five-digit billing zip code with the authorization

Custom Payment Service (CPS) eCommerce Basic and eCommerce Preferred Retail

There are two CPS categories associated with eCommerce called CPS eCommerce Basic and CPS eCommerce Preferred Retail. The criteria below lists the requirements for CPS eCommerce Basic.

• Neither the card or the cardholder are present, so a signature or card imprint is not obtained
• The transaction is processed in and through a secure Internet environment
• A valid approval code is issue for the authorization
• The authorization and settlement amount match
• Transaction data includes an order number and the business’s customer service phone number
• Address verification (AVS) is performing by passing the customer’s five-digit billing zip code
• Authorizations are settled within 24-hours of product shipment
• Lodging, car rental, or passenger transport businesses are not eligible for CPS eCommerce Basic. Specific interchange categories exist for these business types.

ECommerce Preferred Retail is more involved, and requires use of the Verified by Visa fraud prevention tool.

More information on the two programs and the differences between them can be found in Visa’s document about Custom Payment Service (CPS).

Transactions Not Eligible for CPS

In March 2017, Visa announced a new fee for “staged” digital wallet transactions (purchases in which the digital wallet doesn’t pass along card information to the issuer/card networks) and stated that such transactions are not eligible for CPS interchange rates. Instead, staged digital wallets will be charged at the higher “standard” interchange rate.

Read more: Visa’s Staged Digital Wallet Fee.