Interchange can be complicated to understand. Simply put merchant services interchange is the cost that issuing companies like Visa, MasterCard and Discover charge merchant service providers to process credit cards.
Each card that is issued to a consumer or business falls under one of the above brands. Each brand has multiple different types of cards. Some examples would be debit, rewards, corporate, standard and the list goes on and on. There are 100's of different card types and each one of these categories of cards carries its own cost based on interchange that ranges from 0.05% + $0.22 up to 2.95% + $0.10.
How Do Processing Companies Make Money?
There are a few different ways a credit card processing company charges a merchant to process credit cards. To keep it simple we will look at two common examples.
- Tiered Based Pricing - This type of pricing group's cards in to several different categories based on their interchange cost. Each group of cards would fall in to Qualified, Mid-Qualified or a Non-Qualified grouping. Since individual card types carry different costs the only variable is the amount that the processing company makes off of the transaction. The statement you would get from your company if you have this type of pricing would be simple with only 3 rates. The downfall is thought that you would be paying excessive fees for many of the cards you accept.
- Interchange Bases Pricing - This type of pricing does not group the individual card types. You would pay a fixed amount above the actual cost for each card you accept. The fixed amount that you are charged above cost depends on the volume you process and the amount of transactions and could be anywhere from 0.00% on up. The statement on the other hand with this type of pricing would be much more detailed and could look confusing. This is due to each of the many card types being outlined at cost. Even though it looks a lot less simple than the tiered pricing you only pay a fixed amount above cost.
Credit card processing statements can be so confusing and often have hidden fees that are missed by an untrained eye. It is best no matter what type pricing you have now to send your statement to a professional merchant services company to have it analyzed. I am constantly looking at statements of companies that thought they had a decent deal to find there are hidden costs that could be cut saving them money month after month.
If you have any questions or would like me to prepare a savings analysis for your company feel free to contact me at 800.51.TOTAL / 800.518.6825. Or you can complete a custom quote request and attach your credit card processing statement HERE.
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ReplyDeleteMuhammad Shoaid said, "I read that debit cards are the more favored payment method over credit cards.I was surprised when I read that debit cards are the more favored payment method over credit cards.good tips..." followed by links. Please do not post links.
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