Over the two previous articles, I’ve discussed benefiting from interchange, or more specifically, how through the power of knowledge, a small merchant could fully comprehend the rates they are being quoted, negotiate those rates, understand the best rate structure to utilize, and process transactions in methods where the majority of them fall in the lowest interchange tier.
In part one, we took a look at the definition of interchange and how you as a small merchant could keep up on all of the interchange wholesale price charts as they are released in April and October of every year. In part two, we took a look at the six different rate structures which included the most transparent structure (interchange plus pricing) as well as five bundled rate structures which lack true pricing transparency. In this final edition, I will provide more information on interchange plus pricing (the most transparent rate structure) by going into how your business can be structured in such a way to qualify for the lowest interchange pricing, as well as information on how certain industries receive special interchange pricing structures.
If you are a Card Present merchant, make sure to batch out every night so that all of your transactions can remain at the lowest interchange pricing tier. If you are using a stand-alone terminal such as a landline or wireless terminal, just setup the system to auto-batch at a particular time during the day.
If you are in the electric, gas, water, or sanitary services industries, you can receive a flat 45 – 75 cent interchange pricing for all Visa and MasterCard consumer credit and debit card transactions. The 45 – 75 cent pricing will range depending on if the card is a prepaid, debit or credit card. For your business cards, they will be at a flat $1.50 pricing.
SERVICE STATIONS AND AUTOMATED FUEL DISPENSERS
If you are in the service station industry, you can receive interchange pricing that’s as low as 0.70% – 0.80% and 15 cents – 17 cents for the transaction.
If you are in the supermarket industry, you can receive interchange pricing that’s as low as a flat 30 cents for the transaction.
LEVEL 2 AND LEVEL 3 PROCESSING
If you are in the business-to-business (B2B) or business-to-government (B2G) sectors, you can benefit from Level 2 and Level 3 processing which is just to process B2B and B2G transactions in such a way as to reveal more information on the transactions in particular. Doing so would qualify your operations for lower interchange costs which can be 0.25% to – 1% lower than the regular interchange categories in some cases. Whether the transaction is Level 2 or Level 3 depends upon how much information you include in relation to the transaction during the checkout process.
Level 2 Data would usually include the following:
- Date of the transaction
- Total amount of the transaction
- The amount of tax and tax identification
- The merchant’s name, state code, zip code, and customer code.
Level 3 Data would usually include the following:
- All fields from Level 2 above
- Invoice number
- Order number
- Item product and commodity codes
- Item description and quantity
- Item unit of measure
- Item extended amount
- Ship from postal code
- Destination postal code
- Freight and duty amounts
Most stand-alone terminals will not be able to fulfill the functions of Level 2 and Level 3, thus, most merchants will need to utilize a virtual terminal. The virtual terminal will cost anywhere from $5 – $20 per month, but will also have all fields needed to enter in details on the B2B/B2G transactions you receive and qualify for much lower interchange related costs.
A NOTE ON ADDITIONAL SWIPE FEES
While this series has mainly discussed interchange related costs and the mark-up that MSPs make to interchange for revenue, there are also additional fees that you could find on your merchant statement. These include the obvious such as batch fees, statement fees, annual fees, and PCI compliance fees, but there may also be dues and assessment fees which are paid directly to the Card Brands in return for the MSP using their brands in the marketplace. However, similar to interchange base costs, MSPs don’t pay these costs themselves, they usually pass them onto you as the merchant so you can cover the costs. Here are some of the dues and assessments that you might see on your statement; note that not all of these dues and assessments will be charged as they depend upon your current processing activity:
From Visa you might see the following: General assessment fee, fixed acquirer network fee, settlement network access fee, acquirer processing fee, misuse of authorization fee, zero floor limit fee, integrity fee, kilobyte access fee, and/or an international assessment fee.
From MasterCard you might see the following: General assessment fee, NABU fee, acquirer fee, enablement fee, kilobyte access fee, border assessment fee, and/or an account inquiry fee.
From Discover Acquiring you might see the following: General assessment fee, network authorization fee, transmission fee, data usage fee, and/or an international assessment fee.
From American Express Opt Blue you might see the following: General assessment fee, transaction surcharges and/or an international assessment fee.
THE FINAL WORD
I hope that you have enjoyed this series in relation to benefiting from interchange. The purpose of this series was to explain the pricing matrix of the bankcard processing industry in full to equip you (the merchant) with the knowledge and power to negotiate your processing costs with prospective MSPs.
While one could categorize interchange as a “hidden tax”, the reality is that there is indeed a service being offered by the banking system that needs to be paid for. Big box retailers lobby through associations like the NACS to reduce their specific interchange related processing costs, however, smaller merchants lack the lobbying power to receive the same level of cost reduction.
We’ve all heard the famous quote from Francis Bacon of “knowledge is power”, but I agree with Dale Carnegie in that, “knowledge isn’t power until it is applied”. I hope that you take the information presented within this series and apply it to your business to truly achieve processing cost transparency and negotiation power in the marketplace.