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.

Visa and MasterCard recently announced revised interchange adjustments for Fall 2008. Effective October 3, 2008, all qualifying merchants will be subject to the following revisions:
Visa Revisions Effective October 3. 2008
Visa Fuel Merchants Rate Changes - Effective October 3, Visa will institute one consolidated interchange rate affecting all consumer credit products for Merchant Clearing Codes (MCC) 5541 and 5542. This applies to all consumer credit including Rewards, Signature and Signature Preferred.

Visa Automated Fuel Dispenser Partial Authorization (AFD) Requirements – AFD merchant software providers must now support the ability to receive partial authorization approval amounts, in authorization messages, for all Visa transactions. Merchants should be aware that authorization requests failing to meet this criteria will be assessed an additional fee of $0.01 per transaction, which will be passed through to the merchant.

Visa Commercial Rate Modifications - Effective October 3, Visa will introduce new rate changes resulting in potential impact to all merchant segments. Relevant updates include an increase to Commercial Product Level II and Standard transactions, modifications to Commercial Card Retail and Card-Not-Present (CNP) transactions and an increase to Commercial Electronic transactions. There are no changes to Commercial Product Level III transactions to announce at this time.

New Visa Debt Repayment Fee Program – Visa is introducing a new interchange fee and rate program for domestic debt repayment transactions applicable only to collectible consumer debt on auto loans, credit card payments, mortgage payments and student loans. The qualifying rate will be 0.35% + $0.50 and merchant registration is required. Eligible merchants must be prepared to submit the bill payment indicator, bill payment processing code and the existing debt indicator. Acquirers must register eligible merchants with Visa.

New Visa CPS/Debit Tax Payment Fee – Visa will implement a new interchange rate program for Visa consumer debit transactions submitted by acquirers from a participating tax authority or third-party service provider accepting payments on behalf of the tax authority. Merchant registration is required and eligibility standards do apply.

Visa GSA Government to Government (G2G) Modifications – Visa is introducing a new G2G program and revised interchange rates for government merchants accepting government cards. Qualified Merchants will now be eligible for the interchange rate of 1.65% + $0.10. Merchant registration is required to participate in this program.

Visa GSA Purchasing Card/Large Ticket Modifications – Visa will now allow GSA Purchasing Card and GSA Fleet Card transactions accepted at non Travel and Entertainment (T&E) merchant locations to be eligible for Level Ml interchange. Level II and Level III Commercial Data will continue to be required to qualify for this category.

MasterCard Revisions Effective October 3. 2008
MasterCard Revised Standards for Transaction Presentment Time – Effective October 3, MasterCard is reducing the current first presentment time frame of 30 days to a maximum of seven calendar days from the original transaction date.
MasterCard Revised Standards for Quick Payment Service (QPS) Program – MasterCard will require that all transactions, including QPS, be authorized for optimum interchange qualification in order to meet chargeback requirements.

MasterCard Fleet Merchant Data Quality Modifications – MasterCard will implement additional industry interchange data requirements for fuel transactions supporting fuel addendum detail. As a result, relevant data will be subject to Fleet Data Quality Edits and must be present in transactions to avoid downgrades. This pertains to valid values for fleet transactions including Motor Fuel Product Code, Motor Fuel Unit Price, Motor Fuel Unit of Measure, Motor Fuel Quantity, Motor Fuel Sale Amount, and Driver Number/ID Number.

Specific new interchanges rates affecting B2B.

CLICK THESE LINKS TO DOWNLOAD CURRENT  interchange rates:
Visa interchange rates
MasterCard interchange rates

Recent alert from Chase Paymentech for Tier 4 Retail merchants (less than $450M in Interlink sales/ 13 M transactions):
Interlink Network = $.75% + $.15 (no cap), switch fee $.04
Pulse network- added new small ticket category- registration is required to receive this rate

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Customers process most transactions using the Visa/Mastercard Interchange system which includes a % of transaction sale, plus per transaction fee for most businesses. The debit network works outside of interchange. Most businesses access this network by installing a PIN PAD attachment to their terminals. The debit network enables merchants to process most transactions for a FLAT PER TRANSACTION FEE instead of a PERCENTAGE FEE. If you do not have a pin pad or do not know if you are taking advantage of the lower cost debit network, CALL NOW.

One of the biggest problems facing businesses that are primarily B2B is paying high rates for card not present transactions. But why? The chart below shows an interchange comparison between card swiped and card not present for business credit cards, the mostly costly of Visa cards you are likely to encounter. The difference is 20 basis points or .20%. However most companies pay 50-100 basis points difference for non-swiped transactions.

The difference between what you pay and what the cost is, is all profit to the processor. There are several factors that will affect your actual rate, almost all of them relating back to ‘qualified transactions’. What’s a qualified transaction? While the term is identified in the interchange rate tables, for any business that does not have ‘pass through interchange’, what it means varies company to company. Please see past articles for more details about that.

What can you do to reduce your B2B credit card processing costs?
One of the simplest and most effective solutions is to have an account with a VIRTUAL TERMINAL. With a virtual terminal, the business will login to a secure web site and enter the credit card transaction information. You will also be able to access reporting and transaction history, if you are authorized to do so. For example, you can create limited access to the virtual terminal for sales staff, and then allow more robust access for the bookkeeping staff. You’re in control.

Are all virtual terminals alike? NO!
For example, we frequently recommend a robust solution for certain retailers that is completely inappropriate for B2B companies. Why? Because the data that is passed through varies from one virtual terminal solution to the other. It is essential that in a B2B environment to not only set up the account correctly with the proper coding (determined by your processor when your account is opened and extremely critical!!), but to also collect specific data and pass that through the processing system.

For example, an ecommerce store collects all the business contact information including name, address, phone, Credit card number, CVV, exp date etc. But the processor is not equipped to accept all that information. It only takes a few of the fields. WHAM! Instant downgrade to a costlier interchange rate, because Visa has specific rules about what data it wants to allow the ‘best rate’ for that type of credit card. On the surface, it looks as if you’ve done everything correctly. But in the back-end, the merchant is unaware that all their data is not being passed through. All they see is high credit card processing costs.

The same scenario occurs with virtual terminals. Make sure your salesperson has a thorough understanding of how interchange works and the special needs of business to business companies like yours.

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.

VISA INTERCHANGE HIGHLIGHTS
Retail Swipe Debit 1.03% + $.15
Hotel Swipe 1.58%+ $.10
Key Entered Credit 1.85-2.25%+ $.10
Internet 1.85%+ $.10
Signature B2B Card 2.1%+ $.10
Rewards 2 1.90%+ $.10
Restaurant 1.19%+ $.10

The above categories are some of the most common interchange rate qualification buckets that our target market encounters.

As a reminder, merchant costs are composed of:
Interchange (above)
dues and assessments ($.0925)
transaction fees sometimes called network fees- another hard cost for authorization, settlement, and capture per transaction $.08-$.10
Merchant Discount