Major card brands like Visa and MasterCard announce their adjustments to interchange fees in April and October. When merchants take a look at their credit card statements, they may only see that the total cost of processing has gone up. Because the markups on credit card processing fees are based on the published interchange rates, your cost of processing can go up or down depending on how the major credit card associations have altered their rate schedules.
Because adjustments are made to hundreds of different card types and acceptance scenarios, it isn’t always easy to say that rates are going to rise or fall unless you understand the most commonly accepted cards at your place of business. For example, if you operate a hotel you may get more mileage and rewards cards for reservations, so a few basis points up or down on a transaction may impact your profitability in that category, whereas an auto shop might not see the same effect.
To give you an idea of the type of factors involved in pricing, Visa and MasterCard have pricing categories based around check cards, debit cards, commercial cards, corporate and business cards, as well as government purchasing cards. Fees are different based on whether the card is swiped in or keyed in. There are different classifications for retailers and restaurants. Definitions like “corporate” and “business” may contrast with “purchasing” when rates are assessed. As a merchant, you or your cashier usually just swipes whatever card comes across the counter, and it would be very rude to ask your customer to use a generic card instead of one that offers mileage, rewards, or cash back.
The fees, dues, and assessments levied by card associations get divvied up among the various banks and processors involved in the transaction. Per-transaction fees of a few cents also may get adjusted periodically. While the Durbin Amendment offered some relief to merchants when it comes to debit cards, the credit card environment is still more open to higher pricing, owing to the nature of these transactions and the greater rate of fraud where a PIN number is not used.
For most merchants, the best way to get a handle on interchange pricing is to control the way cards are accepted. Transactions swiped through a POS or terminal are cheaper than ones keyed in manually. Collection of AVS information makes transactions more secure. Companies that can add Level II and Level III features to their data collection see even lower rates, but this is unusual for most retailers. Although some processors claim that they can provide “at cost” pricing, markups are necessary to cover overhead and customer service functions. Often salespeople may quote ultra low numbers (like 0.07%) which represent the markup over interchange on PIN debit transactions, while you are more likely to pay somewhere in the 2-3% range for an average transaction on their overall plan.
At Dependable Solutions, we work with our customers to get the lowest markups over interchange rates that are available for their business models. Our exclusive Low Risk Portfolio is based around companies with a lower instance of chargebacks and fraud, so we work to negotiate smaller markups over cost. Because the “ground floor” of interchange pricing is universal, no processor can legitimately offer you rates that are less than the amount quoted unless money is being collected elsewhere. No matter whether rates go up or down, or new categories are added, you can still get competitive pricing on your card processing.