Well, it's that time of year again. Typically in April and October of each year, Visa and MasterCard make adjustments to Interchange Rates. What's that you say, you don't know what Interchange Rates are? Shame on you for not understanding because you're paying it every time you take a credit card. Well, at least this April, there weren't any significant changes in rates, however, MasterCard came out with a whole bunch of new "categories" that could have an affect on you and your bottom line.
You see, as a merchant that accepts credit cards for the payment of goods or services, you are charged a Discount Rate by your service provider. This provider, or merchant services processor, pays card issuing banks an Interchange Rate and pays either Visa or MasterCard, an access and assessment fee. All of these figures represent their cost basis for providing this service to you. On top of all these fees, the processor adds their markup and presents it to you in the form of the Discount Rate.
For sake of discussion here let me give you a quick example. Currently, the Interchange Rate for a Visa Debit Card is.95% + $.20 (last time around, October of 2009 it was 1.03% + $.15). This is one of the few changes for April 2010. So, a $50 swiped debit card transaction would cost about $.67. This fee ultimately gets paid directly to the financial institution that issued the debit card. On top of that is a Visa Assessment fee of.0925% and total Access fees of about $.02. So, to cut to the bottom line here, the total "costs" is 1.0425% + $.22. Take a look at your most current statement and see what you're paying for swiped debit cards without capturing a pin number (that's a whole other ball game). If you're priced on 3 Tier pricing, it will be your Qualified Rate. If you're on a 4 Tier pricing, it's your 1st Tier. And, if you're on Cost Plus Pricing it will be a specific line item showing the total breakdown (or at least it should). The difference between these "costs" and your Discount Rate, is what your merchant services provider is making. Do you feel the markup is fair and just based on the services being rendered?
Unfortunately, many service providers seize this "time of year" as an opportunity to increase your rates too. Some providers, if the interchange rate changes aren't significant, will simply absorb the increase, especially for their larger merchants. Still others will make note in the "Important Information" section of your statement (either your March or April) of how much your specific rates are going up. Typically what happens is, the credit card processing company takes advantage by increasing your rates more than the actual increase itself. This, of course, adds more to their bottom line and takes more away from yours. They count on the fact that the greatest majority of merchants don't even know what interchange is or where to find them and actually verify the increases, so, they can just blame the "increase" on Visa and MasterCard. By the way, interchange rates on every card and transaction type is publicly available to anyone willing to take the time to look. If you don't know where to look, just contact me and I'll show you.
The problem with all of this is this....if you are priced on 3 Tier or 4 Tier pricing, your provider is more able to pass on more than actual increases or just generalize a couple small card or transaction type increases and increase all of your tier rates, even though there many have been no increases in those tiers. All the more reason to be prices on Cost Plus pricing, if you qualify, because it is all so transparent. If you aren't currently priced on Cost Plus, you need to get informed.
The bottom line here is that you need to do all you can do to become more thoroughly educated regarding this ever-increasing cost center in your business. You could ask your rep to sit down with you and go over your statement line by line and explain every charge to you. They won't likely be real anxious to be of any great assistance. Listen, your service provider doesn't want to tell you all this stuff. All they want to do is just provide the service and hope that you don't ask too many questions. I spent many years in this business and built a tremendous, loyal, customer base. It was accomplished by establishing mutually rewarding long-term relationships. I hope you have found this information to be helpful.
Michael Saum is a 61 year old semi-retired merchant services rep. I no longer solicit new business from merchants but have created a comprehensive eBook on the topic of credit card processing that will be an invaluable tool for any business owner that accepts credit cards for the payment of goods and services. You won't find this kind of information posted on any sites that are attempting to sell you their services....for obvious reasons. You can check it out for yourself by visiting my site at http://www.creditcardprocessingknowledge.com
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