Resolution 12-02-13 Authorizing a Contract with Wells Fargo …

Date: To: From: Subject:

February 22, 2012

Board of Directors

Neil McFarlane

RESOLUTION 12-02-13 OF THE TRI-COUNTY METROPOLITAN TRANSPORTATION DISTRICT OF OREGON (TRIMET) AUTHORIZING A CONTRACT WITH WELLS FARGO MERCHANT SERVICES TO PROVIDE MERCHANT SERVICES TO TRIMET

1. Issue or Purpose of Item.

The purpose of this item is to request that the TriMet Board of Directors ("Board") adopt a resolution authorizing the General Manager to execute a contract with Wells Fargo Merchant Services (WFMS) to provide merchant services to TriMet. The proposed contract would allow WFMS to continue as the acquiring financial institution for TriMet's payment card transactions.

2. Reason for Board Action.

Board authorization is required for all goods or services contracts obligating TriMet to pay in excess of $500,000.

3. Background.

TriMet accepts payment cards (credit and debit cards) as a form of payment at every sales channel. Annual payment card revenues are approximately $19 million generated from 2.7 million separate transactions.

TriMet's list of potential merchant services providers was governed by ORS 295. ORS 295 states that TriMet may only deposit its funds with banks listed on the State's Qualified Depositories for Public Funds (QDPF) list. Additionally, TriMet's Ticket Vending Machines require TriMet to choose a provider that uses the processor First Data. Of the providers on the State's QDPF list, only two have worked with First Data and were large enough to manage TriMet's transaction volume. Those banks were WFMS and Bank of America Merchant Services (BAMS). Both banks were asked to submit a proposal for TriMet's merchant services contract.

When analyzing the proposals submitted by the banks, TriMet considered not only pricing, but also the impact and costs of a potential conversion to a new vendor. Staff members from Finance, Procurement, IT and Operations were involved in determining which proposal would provide the highest value to TriMet.

The fees associated with the proposed merchant services contract can be broken down into four main categories:

? Authorization Fees: These are fees charged to TriMet for each payment card transaction, whether or not the transaction is successful. This is a fee paid to the merchant services provider. The competitive range for these fees, for a merchant with TriMet's transaction volume, is 3-4 cents per transaction. This equates to an estimated annual cost to TriMet of $80,000-$110,000.

? Chargeback Fees: This is a fee charged to TriMet by the merchant services provider for each chargeback. A chargeback is the result of a customer disputing the validity of a credit card transaction; for example when a card is used fraudulently. The competitive range for these fees is $5-$20 per chargeback, for an estimated annual cost to TriMet of $7,000-$30,000

? Service Fees: These are minor fees charged to TriMet for specific services such as special authorization for certain transactions (such as a credit transaction requiring phone authorization with the merchant provider). This is a fee paid to the merchant services provider. These fees vary widely based on the specific bank and transaction circumstances. The expected range for these fees would be $5,000-$10,000 annually.

? Interchange & Acquisition Fees: These are fees charged to TriMet for each successful transaction. These fees are collected by the merchant services provider but paid to the Payment Card Industry (PCI). These fees are not negotiable. They are a cost to every merchant associated with accepting payment cards as a form of payment. The PCI determines these fees, and fees are the same for every merchant. These fees vary based on the card type (Visa, MasterCard, Discover, American Express), and the amount and method of the transaction. Estimated interchange and acquisition fees for TriMet are approximately $750,000 annually.

The total pricing proposals from BAMS and WFMS, including all of the above components, were very similar. The pricing analysis assumed that Interchange and Acquisition Fees were equal for both banks. The contract term is for two years, with one additional year at TriMet's option.

In addition to pricing, TriMet Staff also analyzed the costs and risks associated with a potential conversion to a new provider (BAMS). TriMet Staff identified certain out-of-pocket PCI compliance related costs that would be incurred due to a conversion. With the conversion related PCI compliance costs taken into account, the banks' pricing proposals were effectively the same. TriMet Staff also identified several risk areas related to a potential conversion in their analysis.

The effectively equivalent pricing, as well as the risks associated with a potential conversion to BAMS led TriMet Staff to conclude that selection of WFMS provided the highest value to the agency. The total estimated value of the contract, including interchange and acquisition fees and assuming TriMet exercises the option for the third year, is $2,463,000.

4. Options.

The Board may opt not to approve the proposed contract with WFMS. However, the similar pricing as well as the risks and costs associated with a potential conversion, make continuing with WFMS a more efficient choice for TriMet.

5. Recommendation.

The General Manager recommends adoption of the Resolution.

BD/RVH/PC

RESOLUTION 12-02-13

RESOLUTION OF THE TRI-COUNTY METROPOLITAN TRANSPORTATION DISTRICT OF OREGON (TRIMET) AUTHORIZING A CONTRACT WITH WELLS FARGO MERCHANT SERVICES TO PROVIDE MERCHANT SERVICES TO TRIMET

WHEREAS, TriMet has authority under ORS 267.000 to enter into a two-year contract with one additional one-year option with Wells Fargo Merchant Services to provide merchant services to TriMet ("Contract"); and

WHEREAS, the total amount of the Contract shall exceed $500,000; and

WHEREAS, the TriMet Board of Directors (Board), by Resolution dated November 25, 2009, adopted a Statement of Policies requiring the Board to approve goods and services contracts obligating TriMet to pay in excess of $500,000;

NOW, THEREFORE, BE IT RESOLVED:

1. That the Contract shall be in conformance with applicable laws.

2. That the General Manager is authorized to execute the Contract.

Dated: February 22, 2012

Attest: Recording Secretary

Presiding Officer Approved as to Legal Sufficiency:

Legal Department

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