What Is Interchange And How Does It Affect My Business?

If you're like most businesses and take credit cards

, chances are that you have come across a statement describing the rise in interchange fees and how that impacts the rates at which your business is processing credit cards. Interchange is simple. It is the rates at which Visa / MasterCard / Discover / Amex charge their resellers. So think of it like this: A reseller (credit card processor) will break even if they allow businesses to run the same rates that they are getting from the (card issuers). Since you cannot buy a merchant account directly with these card issuers, you need to buy from a reseller. These resellers ultimately do not dictate the changes in the fees. The changes happen usually once a quarter and sometimes every month. The rates are based on calculations of risk associated with the different card types that are offered to the public. Some cards carry more risk than others based on the risk profile that this card was issued and now the eventual loss that occurred as a result.

Still confused? No need to worry, just make sure that you get a copy of the interchange rates on your merchant services account and ask how much profit is being built in over the interchange price. Since this industry is overly complicated and really doesn't need to be, we are attempting to rectify this problem and shed light on the complexities so all can understand who have taken the brave step toward entrepreneurship. The Merchant Bill of Rights was established to help merchants understand their credit card transactions and that processing a credit card does not have to be so complicated. For instance, it is important to understand what fees are being charged and who is charging it.

So the card issuers dictate to the processors what the fees look like for that month based on the amount of cards that were stolen and used without the owners approval as well as a thorough risk assessment associated with the card. To make a little more complicated, the processors then take the rates and then have the choice to set up the account usually in 3 different ways. One, is 3 - tiered pricing where there are more or less 3 rate buckets that the transaction will fall into based upon the type of card is being processed. The account can also be set up on interchange plus, which means that the processor is only charging the merchant interchange + a percentage on top of interchange to justify the customer service required to maintain the account + all of the overhead related to processing a credit card transaction. Yet, a third way of setting up an account is to have a one rate quote that is a blend of all of the rates so that every card that runs through the machine is bucketed at the one rate + all of the associated fees with processing a credit card transaction such as authorization fees, batch closure fees, account fees, gateway and terminal supports fees etc..

Processing credit cards means to service merchant credit card transactions and therefore there is a lot more to understand about the nature of the industry than just high rates and more and more fees. The fees are handed down and so many processing companies such as CCMP www.creditcardmerchantprocessor.com have no choice but to pass these fees on to the merchant.

by: eric bernard

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