Developments in the Payments Industry: What you Need to Know

By Jim Reed

Two recent events are affecting the U.S. payments market and changing how funds are accepted, processed, and received – the passage of the Durbin Amendment, and the introduction of plans to migrate to the EMV global standard for authenticating credit and debit card transactions. Government agencies that accept electronic payments for benefit disbursement or payment acceptance need to understand the changes and assess their best options.

Fixed Convenience Fees for Debit Card Transactions
The Durbin Amendment, part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, set a cap on interchange fees (a fee paid between banks for the acceptance of card-based transactions) charged to consumer and business debit cards issued by banks with $10 billion or more in assets. The rule, which was implemented in October 2011, drastically lowers the fee merchants are charged every time a customer pays with a debit card issued by a big bank.

Agencies that accept electronic card payments without assessing convenience fees to customers for one-time payments are experiencing lower acceptance costs, and agencies that charge convenience fees for card payments could see lower convenience fees assessed on debit card transactions, determined by the agency or the third-party payment provider that processes payments. Agencies should examine the convenience fee rates regularly and assess the need for charging a fixed dollar amount for debit card acceptance. Many agencies have found that a fixed convenience fee of less than $5 is sustainable, whether charged by their agency or a third-party payment provider. Working with a third-party payment provider, the states of Minnesota and Oregon have implemented a $3.75 fixed convenience fee for tax bill payments.

EMV Means Changes on the Horizon
The migration from magnetic stripes on payment cards to the EMV technology standard is rapidly changing the way people pay and receive funds in the United States. The industry continues to introduce new devices such as mobile and contactless payments, and new channels such as eCommerce and virtual wallets. Amid this evolving landscape is an opportunity for government agencies to improve both their operational efficiency and the payment experience they offer their customers.

EMV is the chip technology that is used in payments. It is like a miniature computer that sits inside a payment device and communicates with terminals. Using dynamic authentication (to provide protection against modification of data and cloning), EMV has greatly reduced fraud from counterfeit and lost and stolen cards. In addition to enhancing payment security, EMV gives the U.S. market the flexibility to reinvent, enhance, and customize the payment options available.

By April 19, 2013, all acquirers (financial institutions that accept or acquire card transactions from the banks that issue the cards) and payment service providers will have to be able to process any EMV transaction. As a result, issuers and acquirers are now improving their offerings to help merchants, including government agencies, upgrade their acceptance channels to meet the new EMV standard. This is an important infrastructure upgrade – similar to say, the shift from analog to digital – to create improved security and greater customer service.

For government agencies, EMV will mean less fraud and fewer data compromises, more interactivity, and more support for improvements, from the contactless smart cards (credit card-sized cards with embedded antenna and computer chip) increasingly being used by public transit agencies to payments made on the go from mobile devices. For governments, the changes will improve efficiency and save money. For constituents, the changes will increase convenience, security, and customer service when paying a bill or accessing electronic benefits on a card or through an ATM. Ultimately, this translates into increased confidence in government and deeper constituent relationships.

Government agencies are increasingly turning to electronic payments to distribute funds and accept payments, from income and property taxes to non-tax payments such as licenses, fines, or court fees. Electronic payments enhance security and create efficiencies by pushing paper checks and cash out of the system. They also provide increased flexibility and convenience to consumers who are looking for simpler and easier ways to pay and access their money.

Jim Reed is a senior account manager for MasterCard Worldwide. He can be contacted at


2012 Summer Conference Review

For the first time, the Maryland Government Finance Officers Association has sold out an entire year’s worth of conferences! This could not have been done without the continued support of our members and committees and thus a special thank you. On June 21-22, 2012, we hosted the summer conference at the Clarion Fontainebleau Hotel, which continues to be a favorite with its ocean location and Ocean City amenities.

 The conference started on the right foot with a superb reception held on Wednesday night at Fager’s Island hosted by M&T Bank.

 The conference started off with a pre-conference session from Keith Novak, CliftonLarsonAllen LLP, about GASB’s Sustainability Project and its effects on governments. Next, Patrick Fannon, MDGFOA President, gave his opening remarks and we proceeded into the morning session provided to us by Greg Conderacci, Senior Fellow at Business Learning Institute, on ethics. Our speaker took a different approach to ethics by teaching and showing us how we individually operate and function that leads us to the ethical decisions we make in both our jobs and lives.

 After networking and a great lunch provided by both M&T Bank and CliftonLarsonAllen LLP, we embarked on our final session of the day with speakers Ray Wacks, Budget Director with Howard County, and George Freyman, Assistant Director of the Revenue Admin Division Maryland Comptroller’s Office, speaking on how the State distributes local income taxes to Maryland’s local governments. Before concluding the day’s learning, the MDGFOA had its annual business meeting with the introduction of the new officers and board members as well as a raffle drawing.

  Later that evening, our group rejoined for a reception followed by dinner. The night concluded with an outstanding desert reception outside hosted by Bank of America Merrill Lynch.

 The following morning we met back with Craig S (Sandy) Saxer, Treasury Professional/Consultant with PNC, who spoke about streamlining payables and various technology options. Following this presentation, Karl Jacob, Senior Director for Standard and Poor’s Rating Services, updated our group on proposed changes to bonds secured by a general obligation and its background. Finally, Terry Fleming, Division of Risk Management for Montgomery County, gave a very witty look at the arena of risk management and the topics surrounding this area of focus.    

 The MDGFOA looks forward to seeing you all at the fan favorite Fall Conference at the Turf Valley Resort in Ellicott City on October 26, 2012. Could this be the 5th sold out conference? Please ensure your attendance by registering now!

Pension Shift-Four-year rollout preferred to O’Malley’s proposal / Daniel Leaderman, Staff Writer

County officials say a revised proposal to gradually shift part of the cost of teacher pensions from the state to counties is better than the original plan to do it all at once, but has lots of room for improvement.

“It’s definitely a better approach than what was initially proposed,” said Thomas Himler, Prince George’s County’s deputy chief administrative officer for budget, finance and administration. He added there still were some outstanding concerns about proposed offsets to the costs.

The Senate Budget and Taxation Committee voted Thursday to approve a plan to phase in the shift across four years. Gov. Martin O’Malley’s proposed fiscal 2013 budget, released in January, sought to cut a $1.1 billion structural deficit in half, in part by shifting about $240 million of the $946 million total cost of teacher pensions to counties.

The plan was denounced by many county leaders, who said their jurisdictions would not be able to absorb the additional cost.

Currently, the state pays the entire cost of the pensions, while the counties foot the Social Security costs.

Under the committee’s plan, the cost to county school boards would be $68.3 million in fiscal 2013 and $254.8 million by fiscal 2016. The costs would be offset in part by state aid, including the closing of a loophole in the state’s recordation tax, expected to generate $39 million in revenue.

Such a measure might generate revenue in the short term, but ultimately wasn’t sustainable, Himler said.

Himler’s concerns were echoed by Craig Whiteford, Cecil County’s budget manager, who said although the committee plan was an improvement on the governor’s budget, those affected by the modified recordation tax likely would find a way around it.

Himler said he was pleased with some of the other proposed offsets from the state, such as disparity grants, where additional state funds are given to jurisdictions with low income tax yields, and police aid.

Montgomery County leaders are concerned county governments effectively would be responsible for the entire “normal cost” of pensions. The normal costs are the retirement costs of active employees, not including unfunded liabilities, according to budget documents.

In a joint letter to the Montgomery’s General Assembly delegation, County Council President Roger Berliner (D-Dist. 1) of Potomac and County Executive Isiah Leggett (D) said that cost should be shared evenly between the local governments and the school boards as a “modest incentive” for school boards to control pension costs. The county governments should pay their half directly to the state, according to the letter.

But on the whole, the committee’s plan is more palatable than the governor’s, said Francis Jack Russell (D), president of the St. Mary’s Board of County Commissioners.

“Do we like it? No. But we’re going to deal with it,” Russell said.

House Republicans release alternative budget

-Released by The Daily Record

ANNAPOLIS — The Maryland House Republican caucus wants to cut an additional $511 million from Gov. Martin O’Malley’s budget plan.

The caucus held a news conference to discuss some of its budget ideas on Tuesday in Annapolis.

Del. Tony McConkey, R-Anne Arundel, says the caucus plan would cut the Geographic Cost of Education Index. The GCEI, which helps parts of the state where schooling costs more, takes up about $129 million in the governor’s budget proposal.

The GOP’s plan also would avoid a split of teacher pensions with the counties. The state currently picks up the entire tab.

McConkey says Republicans will try to get their proposals into the budget through amendments in committee and on the House floor.

Discussion on Effects of Proposed Pension Shift TODAY!

Projecting that a proposed shift of Maryland teacher pension costs could threaten vital county services, the Montgomery County Council will have a panel discussion Tuesday to learn the extent of the potential damage.

Representatives of Montgomery College, the Montgomery County Board of Education, United Food and Commercial Workers Local 1994/Municipal and County Government Employee Organization, the Montgomery County Education Association, Friends of the Library and others will discuss with the council the effects of Gov. Martin O’Malley’s proposed shift at the end of the council’s morning session, tentatively scheduled for 10:30 a.m.

Montgomery County faces a shortfall for its fiscal 2013 operating budget of $135 million — the latest in a string of gaps the county has closed totaling more than $2 billion — and initial forecasts show the pension shift costing Montgomery $47 million in fiscal 2013.

“If we now have to absorb another large burden from the state, there will be real damage to all our vital services — our schools, college, police, fire and rescue, safety net, libraries, parks, housing, transportation, recreation, and many others,” the council said in a statement last week.

As part of his proposed budget for the coming fiscal year, O’Malley (D) is seeking an arrangement in which the state and local jurisdictions each would pay half the cost of teachers’ pensions and Social Security, a move that would shift a net of $239 million onto local governments in the coming year. In fiscal 2011, the State Retirement and Pension System reported about 128,300 teachers in the retirement and pension system. The state pays 100 percent of teacher pension costs, which have doubled in the past five years to about $1 billion.

Following the session, representatives of about eight groups are expected to have a press conference to pledge their organizations’ support in urging the General Assembly to stop the shift.


The “Stop the Shift” Coalition has launched a social media campaign to keep Maryland residents informed on the group’s advocacy to stop the Governor’s proposed pension shift. The coalition is a group of elected officials, school officials and educators, state and county employees, community activists and Maryland taxpayers who are concerned about the state of Maryland’s future.

As reported by Conduit Street