WHAT IS INTERCHANGE
If you are a merchant accepting credit cards, you are probably familiar with the term ‘interchange’. What you may not know are the details of how and why these rates can vary so much. We want you to understand this so you will know how it impacts your business, and make sure you are taking advantage of every available tool to get the lowest rate possible.
As of October 2010, there are over 300 interchange rates. Why so many? There are so many rates because Visa and MasterCard do not have one set rate that applies to every industry or every sale made. Rates vary based on how the card information is provided, the type of card used, and the kind of transaction. For example, a rewards card will have a higher rate than a basic card. Mail order or phone transactions have higher rates than transactions that are face-to-face and the card is physically present at the time of the transaction.
There are three fundamental actions that impact the rate you’re paying: Are you swiping the card or key entering the card information? Are you using Address Verification Services (AVS) on keyed transactions? Are you settling your credit card batch on a daily basis?
How you handle these three scenarios will affect your chances of qualifying for the best rate and avoid being “downgraded.” When a transaction is downgraded, it means you pay a higher interchange rate because certain qualification criteria were not met. Every time a transaction moves further away from the requirements of the lowest rate, and closer to the possibility of fraud, the transaction is downgraded, and you pay more for interchange.
Here’s an example of how interchange costs can vary based on the way the transaction is processed:
|Scenario||Visa Interchange Rate||What You Pay for Interchange|
|Card swiped at terminal; transactions settled daily||1.54 percent + 10 cents||$1.64|
|Key-entered at terminal, using AVS; transactions settled daily||1.80 percent + 10 cents||$1.90|
|Key-entered at terminal, not using AVS; transactions settled daily||2.30 percent + 10 cents||$2.40|
|Card swiped at terminal; transactions settled monthly||2.70 percent + 10 cents||$2.80|
Just by making a few changes, you see how much money you can save on every transaction. Don’t pay more for interchange than you should. Keep that money in YOUR pocket and in YOUR business!