The FALL 2009 ASSOCIATION INTERCHANGE COMPLIANCE GUIDE included over 100 changes, making it one of the larger updates in recent history. Merchants at the same time were switching suppliers with fever, however the new updates won’t really be felt until the November or December merchant statements are reviewed.

The fall rush to change suppliers is most likely a result of the multiple new Visa fees and the MasterCard brand usage fee added this year, which went into effect April-July. Requirements to qualify for specific interchange rates for International interchange programs are outlined. Many larger merchants will see rates approaching or over 3% when all fees are added, for foreign card transactions. For example, MasterCard
COMMERCIAL DATA RATE II = 2.25 %( US Location w/Global Corporate Acquirer Program Support Fee .55%) . (Non US Issued Cards Only.)

Additionally, as previously reported, new requirements are in effect to qualify for certain B2B credit card transactions. B2B Merchants can expect to see effective rates rising above 3% in the card not present environment.

WORLD ELITE RESTAURANT = 2.20% + $.10
HIGH VALUE RESTAURANT = 2.20% + $.10
ELECTRONIC PAYMENT ACCOUNT DATA RATE I = 2.65% + $.10
ELECTRONIC PAYMENT ACCCOUNT DATA RATE II = 2.40% + $.10

The changes this fall continue to expand the need for merchants to work with processors who provide the following:
- Transparent reporting so the merchant can clearly identify interchange rates qualified for.
- Interchange management- interchange continues to grow more complicated and merchants who best control costs will have a payment processor who helps them with interchange management.
- Flexible Technology to manage interchange- this is probably the single biggest growth area in the payment processing industry as merchants need to get away from static systems and move to smart technology with least cost routing solution.

Are there special credit card processing rates for non-profits?

Yes, there are special rates for non-profits. Specifically, there are special INTERCHANGE RATES. In order to qualify for them, you must be on a price plan that enables you to take advantage of them. We call this wholesale or interchange plus pricing. Typically we offer this for merchant accounts processing more than $1 M annually. Interchange plus is what large companies such as Home Depot or Barnes and Nobel pay. It always includes a % of the transaction, a per item fee, Visa/MasterCard dues and assessments, and a merchant discount. Over 95% of your costs are in the % of the transaction, so that is the area that must be controlled or MANAGED.

The most meaningful way to lower your costs is to hit levels of interchange with a lower rate. We can get your non-profit into a program where you’ll hit interchange rates lower than what most retail accounts pay, that is a lower % per transaction. Some of your transactions such as visa rewards cards will process at the same as for profit companies. However some transactions will process at a lower rate, usually at 20 basis points or .2% lower than the lowest rate for profit companies.

In my experience, most non-profits have not been offered these special interchange rates. You can save $2000-$10,000 per million dollars in donations just on this one item. National non-profits typically save 25-50% by implementing my recommendations and services. Which is easier? Finding a donor to give you $100,000 + every year, or calling me one time and saving that much on your expenses every year?

Here’s how you can check to see if you are getting the best rates for your non-profit.

First Look at your merchant statement. Go to the section, usually the last page or two, which shows INTERCHANGE COSTS. Do you have this section? If not, you are not on a price plan that lets you participate in the program.

Second. If you have the interchange cost section, you’ll see things like VISA RETAIL DEBIT, COMMERCIAL DATA RATE 2 ETC. Do you have one that says EMERGING MARKETS OR EMG MKT? If you do not see this category on any of your past statements, you are not participating in the program.

Both conditions are required whether you are accepting donations online or swiping cards for event registrations and auctions.
If you answered no to either question, and your non-profit is processing at least $1 million annually, please call and I will help you keep more donor dollars to use for your organization programs.

Would you like a PDF presentation with actual examples of what to look for on your merchant statement? Call the hotline 954-942-0483 and we will send it to you.

How do I determine my merchant tier? What is my merchant level? Can I get lower rates with a different merchant level? What are level 4 PCI Compliance requirements? Merchants are rightfully confused about their merchant level, especially small businesses because many times I have heard a smaller company say. “We renegotiated our rate. Our processor told us our volume has grown so they moved us up to the next level.”

I’ve never actually encountered a company that met the criteria for ‘lower rates’ based on qualifying for a new level. See the threshold level chart. This is where the confusion starts.

As you can see, only the largest companies qualify for special lower interchange rates and it is based on VOLUME meeting a specific threshold level. What happens is the salesperson makes up a story to retain the account, or the merchant processor has their own internal criteria that they use to ‘qualify’ a merchant for different rate levels they use. These are not directly tied to interchange, but rather directly tied to the merchant processor profits.

What most merchants need to be concerned about is what level they are required to meet for PCI Compliance because most of them will never qualify for lower interchange tiers. PCI Compliance transaction volumes do not correlate to Visa interchange threshold levels.

The interchange fees summary report by federal reserve of Kansas City in 2005 examines trends in interchange fees, including credit cards and debit cards. What is the economic rationale for interchange fees? What opinions do participants in the payment system have about interchange? What role, if any, should central banks and other public institutions play in establishing or overseeing interchange fees?

The conference included people from all sides of the equation, including industry, banking, and government. The report includes an overview of the interchange system, how it works, and who gets what money. Key sections include:
- A four party card payment system
- Economic analysis of interchange fees
- Network issuer, acquirer, and merchant perspectives
- antitrust and regulatory perspectives
- panel of central bankers
Text includes discussion on pin debit and many important issues.

The summary concludes the need for intervention in the credit and debit card markets was hotly contested and finding a common ground will be difficult. There was agreement more transparency will be beneficial to participants and in the public interest.

Interchange Fees in Credit and Debit Markets Summary of Federal Reserve Bank of Kansas City Conference (PDF download)

Pin debit refers to a credit card transaction in which the buyer enters their 4 digit personal identification number (PIN) into a merchant terminal in lieu of a signature, when using a debit card.

Debit cards are usually associated with a checking account, but may also be a savings account. Regardless of the account, the card will ALWAYS have the DEBIT symbol on the front of the card. Newer cards usually have a holographic Debit symbol.

With PIN DEBIT the merchant pays a fee to the debit network instead of Visa & MasterCard interchange. This fee is under $1.00 per transaction, usually around $0.50 and the fees vary by debit network.

With SIGNATURE DEBIT, Visa & MasterCard have different interchange rates for debit card usage. With very few exceptions, such as processing greater than $420 million annually in debit or for supermarkets, the lowest rate for debit card interchange, which all payment processors pass on to merchants, is 1.03% plus $0.15 per transaction. More details are available by checking the latest interchange rates.

Pin-based debit transaction merchant fees include:
1. Per transaction charge from your Credit Card Processing services company.
2. Debit network charge (Debit Network Acquirer Fee). This fee varies depending upon your region of the country and the network that the cardmember’s issuing bank belongs to. The region determines which debit network the individual transaction will clear through.

Debit network acquirer fee examples:
Interlink Retail $0.175 + .75% (max of $0.525)
NYCE Retail Std $0.1375 + .65% (max of $0.6875)
Pulse (Includes Tyme) 0.16 + .65% (max of $0.71)
STAR (Includes MAC, Cash Station & Honor) $0.1625 + .65% (max of $0.6425)

Pin debit is best used if your average transaction is over $25. That’s generally a good break even point as to whether it’s cheaper to process via pin debit or signature debit.

Video message about the high cost of rewards cards also includes information about three tiered pricing and interchange rates. A partial merchant statement is shown to demonstrate what the best rates and price plans look like on a merchant statement.

Have interchange fees risen dramatically over the years? In reality interchange fees have risen very slowly, however, your credit card processing costs may have risen dramatically. That’s because years ago there was less competition in the industry, and few options for reducing pricing.

Key reasons why your credit card processing costs may have risen dramatically:

1. You have a price plan that does not allow you to access the many different levels of interchange. ie your price plan may have a qualified, mid-qualified, non-qualified rate, or something similar. When additional interchange categories are added, they may have all been automatically put into your non-qualified pricing, the most expensive. The most simplistic way to determine if you MIGHT have a problem is to look at your statement. If your statement has text like the image below, that’s OK if you are a small business, processing $5000-$10,000 per month. If you are processing $50,000 or more per month, then this is certainly not the right price plan for your business.

2. You are set up wrong- this could be terminal programming, improper account set-up at the processor, or other factors that have the same resulting affect. You are not processing at the least cost possible for the type of card presented and transaction type initiated. This is nearly impossible for a merchant to figure out since you would have to have specific industry knowledge as well as access to specific reporting to help you identify there is a problem.

3. The cashiers are making mistakes. This takes three things needed to identify this probem and correct it. First, you need the right price plan and set up per the above items. Second, you need a basic understanding of interchange qualification. Third, you need detailed reporting so that you can recognize the problem areas.

The long term solution is a processing partner who will give you the right pricing plan, the right tools, and the training to help you permanently manage your credit card processing costs. They are few and far between, but if you qualify, we can probably help you.

Visa & MasterCard both announced changes for October 2008, with B2B companies again likely to feel the biggest negative impact.

Interchange Rate Changes

Corporate Card Level II Data Rate + 0.05%
Business Card Level II Data Rate + 0.05%
Purchasing Card Level II Data Rate + 0.05%
Commercial Card Retail – Corporate – 0.10%
Commercial Card Retail – Purchasing + 0.10%
Purchasing Card – Card Not Present + 0.15%
Purchasing Card Electronic +0.20%
Corporate Card Electronic + 0.05%
Corporate Card Standard + 0.25%

See more about Fall 2008 interchange updates here.