Where does all the money go for your credit card processing costs?

We’ve answered this before. Most of it goes to the banks. In a few moments, you’ll read about their blatant promotions to make more money at your expense.

If you process a transaction at the best interchange qualification, they make a little money. If you process a transaction that downgrades to a higher interchange qualification, they make more money. In fact, the worse you qualify, the more money they make.

This is a key reason why banks may not be the best choice for your credit card processing. With their inherent conflict of interest, do you trust your bank to help you hit the best interchange? You can influence your interchange qualification. It’s complicated. It’s more than what customers can do, it’s up to professionals like us to not only spot problem areas, but to take the corrective actions to fix the underlying causes- either behind the scenes, through programming changes or by contacting you and providing tips for staff.

Today I received a direct mail piece from a bank. The promotion rewards me for SIGNATURE BASED gold debit mastercard purchases. Pin based debit transactions are ineligible. That’s right. The bank is strongly encouraging consumers not to enter their pin number. They make lots of money that way.

How can you combat this kind of promotion and encourage pin based debit?
1. Do you have a pin pad? Consumer oriented businesses processing $1M annually, will almost always benefit. Call us for a free analysis.
2. Are you processing $1,000,000+ per MONTH (all card type transactions), please call me regarding new technology that will dramatically lower your debit processing costs.

Interchange Banking Fees:
- Interchange is a series of rates in different categories- there are 100’s of different rates.

- Visa and MasterCard establish the rates and standards for interchange. Interchange standards are the same for every business. *

- Interchange is typically updated twice per year- Spring and Fall.

- All Acquiring Member Banks and their credit card processing service providers are subject to Interchange Banking fees.

More simply put, your merchant processor pays interchange fees on your behalf to the customer’s bank to compensate them for the underwriting, funding and billing of your customer.

Let’s say you have a Bank of America Business Check Card issued by Visa. You go shopping at your local grocery store and buy stuff. The store pays their merchant processor various fees out of the money collected. The merchant processor pays Interchange Fees to Bank of America. The merchant processor will collect these fees in one of two ways:
- The merchant processor will list interchange fees for you on your statement
- The merchant processor will include the fees within other charges on your statement.

Interchange fees are designed to compensate Visa/MC Card Issuing Member Banks for the risk associated with the transaction. Why? The merchant gets their money right within days, but the bank that issued the card has to wait 30 days or longer.
- A debit card has very little risk because the money comes out of the shoppers bank account right away.
- A standard credit card, maybe issued by your bank, has a bit more risk so the interchange is higher.
- A reward cards (about 65% of cards outstanding) has even more risk. They tend to have higher credit limits and there is the payout of the goodies due. What if a person collects on the goodies, but doesn’t pay their bill?
- A business credit card has even higher risk. The business failure rate in our country is high.

* Aside from a few special categories by business type, there are some special categories for large volume processing (>$300M/yr) but other than that, basically everyone has the opportunity to qualify for the same interchange rates.

The risk assessments above are purely opinion, not based on published data.