How Our Rates Are Determined

HOW DO WE DETERMINE OUR RATES?

Here are the basics.  There are published interchange rates from Visa and MasterCard.  This means all companies providing card processing services start in the same place.  Credit card processing providers will price using cost-plus or what we call ‘tiered’ pricing.  There are three classifications of a transaction; Qualified, Mid-Qualified, and Non-Qualified.  If you are priced with tiered pricing, all of the 300+ interchange types and classifications are put into ‘buckets’.  One bucket for Qualified, one for Mid, and on for Non.  This can work for or against you.  Given the wide variance of rates, you may have a transaction that is, cost-wise, an inexpensive transaction. However, that interchange classification may be in a Mid-Qualified bucket which bumps your cost up to the mid qualified rate.

EXAMPLE: Let’s say you run a transaction for $100.  The actual interchange cost is 1.75+.10.  This means the interchange cost would be $1.85.  You’re provider has this particular interchange card type placed in the mid-qualified bucket.  Here’s how the numbers will shake out:

Tiered: Your qualified rate is set at 2.30 + .10, mid-qualified is 3.10+.10, and non-qualified is 3.70.  That interchange cost on that transaction is $3.20.

Cost-Plus: You have cost-plus 60 basis points + .10 as your rate.  So you add the base rate, 1.85+.10, to the 60 + .10 basis points, and your interchange cost for the same transaction is 2.45+.20, or $2.65.

We prefer to price our merchants with cost-plus pricing.  Since there are SO many interchange types, we know our merchants are not paying more than they should for transaction processing.

A variety of things factor in to determining the rates we charge:

Risk: Is the business on the higher risk side, or lower risk side?  For instance, a restaurant carries less risk than a company doing mail order transactions because the card holder is actually there and the transaction goes through with a full swipe and signature at the point of sale.

Previous Processing: We look at previous processing trends and whether the business tends to get more of one type of card than another.  Such as rewards cards, business cards, check cards, etc.  Business cards have a higher rate from Visa and MasterCard than a checkcard does.  So if the business takes primarily business cards, we take that into consideration as well.

Volume: We look at the volume of transactions.  We can haggle a bit with a high-volume merchant because it is cheaper for us.  If we have someone doing 10 transactions a month vs. someone doing 10,000 transactions per month, the cost to have that account on the books is less compared to the other.  High volume or low volume, we still offer the best rates we can possibly afford so we can offer those savings to you.  You’re expense is lower, we make a little, and we grow together.  It’s win-win!

You can view the published rates here:

Visa:  http://usa.visa.com/download/merchants/october-2010-visa-usa-interchange-rate-sheet.pdf

MasterCard:   http://www.mastercard.com/us/merchant/pdf/MasterCard_Interchange_Rates_and_Criteria.pdf