Are interchange fees rising dramatically?

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.

nova credit card processing rates

Costco offers a discount credit card processing solution with it’s partner Nova Information Systems.
nova credit card processing rates

Is this a good deal? It really depends on the merchant, their volume and their business set-up. Read the fine print – “Rates listed are for qualified transactions. Reward cards process at a higher rate. ”
What’s a qualified transaction? For the merchant agreement that I reviewed, it is defined as a transaction for a check card ie a debit card. Debit cards have a debit card symbol on them. For most businesses, check cards represent 1-25% of their credit card transactions. That means, the majority of cards presented will not be qualified transactions.

50%-65% of cards presented at consumer retail operations are REWARDS CARDS. This means you need to find out what your rate will be for these as it is likely to be your most common card. If you look at the Costco web site, and most other sites, you do not find out this information until after you complete a ‘pre-application’. The APPLY NOW form almost always includes a disclaimer that the information you are providing is for information only, it is not really an application, because additional information is needed that is not requested in the online forms.

What is the rewards card rate? This can vary depending on your price plan, but with the Nova credit card processing solution, it is a fixed rate, that changes only when there are interchange rate changes.

The Retail and MOTO rates for Costco Members in 2007* were:

Retail / Restaurant:
Qualified 1.64% + $0.20
Qualified Rewards 1.78% + $0.20
Partial Qualified 2.83% + $0.31
Non-Qualified 3.35% + $0.31

Mail/Telephone Order (MOTO) / Internet Accounts:
Qualified 1.99% + $0.27
Partial Qualified N/A
Non-Qualified 3.36% + $0.31

$20.00 Monthly minimum in fees
$.59 Debit transactions
2 Year contract / $95.00 early termination fee

* These rates may since have increased with interchange rate increases.

Based on the information above, the typical transaction for merchants will be 3.36%, since most consumers use Rewards Credit Cards. I’ve seen new businesses paying 4-7% for credit card processing. The Costco deal brings certainty to pricing for start-ups and is certainly lower than some other solutions.

This article should help give you the information needed to compare deals with 3 tiered pricing- qualified, partial qualified (or mid-qualified) and non-qualified. It’s important to get the definitions for each tier, because it may vary by processor.

An established business processing more than $500,000 per year, may benefit from a different type of price plan, one that gives more than 3 price levels.