An Interchange Plus Pricing Structure Can Greatly Reduce Your Credit Card Processing And Merchant Account Fees.
Traditionally small to mid sized merchants have been set up with what is called multi-tier pricing for their credit card processing. This system is usually set up with three tiers (qualified, mid-qualified, and non-qualifed.) Occassionally, if the business owner has negotiated well, there will be a fourth tier for qualified offline debit cards. In this case offline debit actually means debit cards without a pin number used. While this system has worked well for many years, the increasing number of rewards and corporate cards being issued has made this type of pricing obsolete for some merchants.
Visa, Discover and Mastercard have over 450 different interchange categories for the multiple card types that are issued. Tier pricing takes a large number of these categories and lumps them into one of the three tier buckets available to the merchant. If the merchant only takes standard credit cards then this system will work well for them. Once they start to see more debit, rewards, and corporate cards being used they will notice that their merchant services bill may have increased dramatically. This is because many of these transactions are falling in to the mid or non qualified transaction categories.
Some of these cards are actually not that much more to process than a standard credit card, but the processing company for the merchant account needs to make sure that they are profiting on every transaction. They can ensure profit if they charge a large mark up for any transactions that are not qualified. So you may pay an additional 3.0% for a mid qualified transaction and 3.5% for a non qualified transaction (These numbers can range much higher and lower.) Some processors will charge 3.0% for non qualified fees plus their markup then advertise that their rate is only .50% or whatev they offer you.
What interchange plus pricing does is pass the true cost of running the card right through to the merchant. So the fees associated with that individual transaction will be put through at the lowest possible cost plus the processor’s profit. A merchant typically pays .25-.50% plus $.10-$.15 per trnasaction) on top of the interchange fees.
There are some red flags a merchant needs to watch out for because they are not inchange actual interchange fees such as:
No CVV/CVV2 Match
Daily Batch Fee
An interchange plus set up can save some merchants quite a bit on their processing as long as the cards they are taking qualifies and the processor doesn’t add a bunch of “other” fees.
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