How interchange impacts credit card processing

Interchange Fees are the biggest cost of your credit card processing

– Interchange Fees are 65%-90% of your total cost of accepting Visa & MasterCard, depending on your price program

– Twice a year (April and October) Visa and MasterCard decide whether or not to modify their respective Interchange Rate Structures. In my experience, that means twice a year there are changes to the system. The changes can be in rates, categories, or qualification for the rates or categories.

– Everybody pays Interchange. It shows up on your statement in one of these 3 ways:
1. A section called

    Summary of Interchange fees

. All of your transactions will be listed with the various interchange qualification categories and rates. These are hard costs that are ‘passed through’ to you without any mark-up from your payment processor. Variations of the wording probably means that it is not interchange ‘pass through’. The easiest way to check is to look for Visa Debit 1.03% or CPS Retail 1.54%.
2. A section called Interchange Qualification. This lists the various interchange qualification categories, but the rate is not actual interchange. The data is still very useful.
3. The cost is baked into your other fees. Your costs are probably listed as qualified, non-qualified or something similar. Usually this means you are on a 2-tier or 3 tier price plan. If you can’t see your interchange qualification YOU HAVE NO CONTROL and are not in a position of strength to manage your processing costs. If you are a small business it doesn’t really matter (because your fees are so low overall you wouldn’t save much money) and you are not likely to get a different plan.

Sometimes the Interchange updates result in lower cost interchange qualification opportunities and sometimes higher costs. People I talk to most frequently cite the negative consequences, but there have actually been some positive changes for some businesses.

Most merchants believe they have rates locked in but they do not!

ALL credit card processing companies reserve the right to pass any rate increases on to their clients. It’s in the fine print of your contract and it should be there, because this is a hard cost out of their control.

How do interchange rate changes impact you?

1. Unfortunately, many credit card processing companies take advantage of the opportunity and increase rates across the board instead of just maintaining their original merchant discount. There may have been a couple of interchange updates, but what you see is a big increase overall. This is one of the main reasons businesses get fed up with their current processor and start looking elsewhere. If you have a tiered price plan, this is more likely to happen to you.

2. If you have pass-through pricing and GOOD INTERCHANGE QUALIFICATION, then the impact could be minimal since it is would only hit a couple of items. However, if the changes are for rates that you are hitting frequently, then you need to analyze it. ( We do that for our customers.)
Is there anything that can be done to mitigate the frequency of hitting that rate? You can’t change the fact that people are using more rewards cards. If that rate goes up you pay more. You can usually change the fact that you are getting downgrades. For example, there is more than one rate for rewards cards. Are you hitting the best or the worst rate for that type of card?