What is interchange?
The term ‘interchange’ usually refers to a location where two things meet. In the credit card business, however, it is a term used to describe a fee paid between banks for the authorization of card transactions. It is mostly the fee the merchant’s bank pays to the customer’s bank.
With regards to a credit card transaction, the bank that produces the card in a transaction will subtract the interchange fee from what it pays the merchant’s bank handling credit or debit card transactions for that merchant. Then, the merchant’s bank pays the merchant the amount of the transaction minus the interchange fee.
It is a fact that banks do not make a substantial amount of money from interest charges and late fees from those valued customers who pay in full each month. Instead, they earn a profit on the interchange fee charged to the merchants.
It’s important to remember that merchants pay ‘merchant discounts’ to their financial institution, not interchange fees. There is a very distinct difference. Visa, for example, uses interchange reimbursement fees as transfer fees between financial institutions for stability and growth.
What about the ATM?
When it comes to ATM’s however, the card issuing bank pays the fee to the acquiring bank for maintenance of the machine.
Do they vary?
Indeed. In the US, the average fee is approximately two percent of the transaction value. In the last few years, however, these interchange fees have become a subject of controversy because they have an intricate pricing configuration. In fact, on June 8th, 2011, the announcement was made that the amendment to delay implementation of the Durbin Amendment that would cap these fees fell six short of the sixty needed to break a filibuster.
Then on June 29th, Wednesday, a final ruling was established by the Federal Reserve creating a sensible and proportional criteria for a debit interchange fee. Issuers are required to include two debit networks (non-affiliated). This is for the purpose of routing. Details are available at: Durbin Amendment.
Payment Processing Solutions for Every Business
Every business needs a payment process that is convenient, well structured and dependable. The right process will save you time, will be cost effective and will eliminate potential issues from occurring.
For Any Business
Whether your business is in retail, media, sports, health, etc., they can all benefit from credit card payment processing. This payment process is suitable for any business.
- Retail - Merchandise is purchased and sold from an established and fixed location.
- eCommerce - Used for buying and selling products and/or services via electronic systems, such as the Internet and other PC networks.
- Mail Orders / Telephone Orders - The main source of income for a merchant is provided through mail and telephone sales.
- Wireless - Wireless processing is utilized by merchants who operate their business remotely. A mobile business needs the ability to effectively process wireless payment transactions.
With the right service you will receive:
- Experience - The right payment processor will have the experience and know how to efffectively deal with and meet any need that may arise.
- Exceptional customer service - The right processing service will be available to answer any questions or concerns 24 hours a day, 7 days a week.
- Expert Chargeback Management - Working with the merchants to decrease the amount of chargeback conflicts and disputes, as well as supply adequate procedures for payment processing.
- Effective Fraud Prevention Tools - The right processor will effectively combat fraud. A good process will help to reduce fraudulent transactions from occurring. The processor will support systems including, MasterCard SecureCode, Verified by Visa, the Card Security Codes (CVV2, CVC 2, and CID) and the Address Verification Service (AVS).
Merchants must be diligent in their search for the appropriate payment processing solution for their business. The right processor will be able to suit your needs and will provide the most efficient solutions. The ideal processor will have a well maintained processing structure, will meet specific areas of expertise and will provide excellent rates.
If you would like to speak to a represenative at Maxx Merchants to discuss a customized solution specifically addressing your businesses unique needs please call (800)917-8026. Or shoot us a messaage on our contact us page.
Merchant account effective rate: what you pay to process credit cards
Merchant Account Effective Rate
Adding merchant services capabilities to any business can significantly boost its bottom line. Ease-of-doing business not only makes the shopping experience more favorable for consumers, but it can contribute to ongoing repeat business. One of the features to understand when either adding or updating your current merchant services account is the effective rate charged.
So, what exactly is this charge and how should it equate into the overall decision making process about which vendor to leverage for your business?
Effective Rate Basics
In simplest terms, the effective rate refers to the NET percentage of a business’s sales that will be charged for the ability to accept credit cards; credit card processing fees.
For example, if a business receives $15,000 in credit card sales in any given month, and their total processing expense is $450; its effective rate for that month was 3.1%. While this calculation is very basic and straight forward, there is another consideration to be aware of; the qualified discount rate.
If you are offered a qualified discount rate, which is very common and an excellent option to consider, this is the base fee rate to be assessed. Once surcharges and other merchant account fees are added back into the equation, you arrive at the net effective rate. When determining your fees, be sure to break them out individually so you can assess each one independently.
Calculating your Estimated Effective Rate
For established businesses, this calculation will be fairly simple; take your average monthly credit card sales x the effective rate from the merchant services provider, to arrive at your average monthly processing fee. Newly established businesses or businesses with inconsistent sales will have a slightly more difficult time arriving at this calculation. In these instances, factoring a higher monthly average than anticipated will make it easier for the business to budget costs.
While an effective rate is indeed a cost assessed, it is often a small price to pay for the end value offered to your customers and ultimately to your business for this added payment option.
Reducing ChargeBacks with Credit Card Best Practices
Chargebacks are an inevitable business dealing when it comes to businesses accepting credit card payments. It almost always consists of a client saying that he/she did not obtain items for which they paid. Reducing chargebacks can save a business time and money by implementing certain guidelines:
- Businesses should make sure that there is a refund/cancellation policy in place that ensures that the buyer has to agree before buying a product or service.
- A business should tell their buyers what name to expect to show up on their credit card statements. This could prevent not only this chargeback but also other down the line.
- Collecting CVV2 numbers during payment will help to reduce chargebacks because it will ensure that the person doing the buying has the actual card there in front of them.
- The use of an AVS, or, Address Verification service will allow businesses to further authenticate the validity of the cardholder.
- Businesses should make known to their customers the increased threat of fraud from developing nations. These nations and their practices are the cause of most chargebacks being contested.
- Businesses should also provide an excellent form of buyer support. Almost all disputed charges will be because of a poor, uneducated customer encounter. If the business supplies their consumers with high quality expertise and value, then the probabilities and risks of having a charge being disputed minimizes greatly.
Unless businesses continue to provide education and support to their consumers, charge-offs will continue to rise. The only deterrence is to provide an excellent source of customer service and ensure that the consumers themselves are prepared going into any purchase they make.
3 Ways the Durbin Amendment Can Help Your Business
The Durbin Amendment has been highly debated since it was added to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. There are however, a few ways that it can help people with their business. Listed here are three ways that merchants will benifit.
1) The Durbin Amendment and what it means to business
- Under the Durbin Amendment, card swipe fees will be regulated to a lower rate.
- Merchants will also be allowed to apply surcharges on purchases made with either credit or debit cards.
- In either of these cases, the swipe fee is detracted away from the consumer.
2) Businesses consumers will benefit
- It is speculated that consumers could see lower prices as a result of a swipe fee reform. A Fed Chairman has publicly said that he expects certain retailers in a competitive and low margin sector could drive down prices, while those in smaller competitive sectors may opt to pocket their savings. These are savings that could be noticable to consumers.
3) Merchants will benefit
- Proposed fees will cover the risk of fraud and other overhead charges and as of right now the fees a major source of profit margin for banks offering checking accounts. As a result, the competition between banks and other financial institutions is causing profits to be used to subsidize free premium services like surcharge free ATM's and no charge checking accounts. If the fees dropped to the proposed 7 to 12 cent charge, this would surely create a much larger transfer of wealth to the merchants from the card issuers.
The Durbin Amendment is not without its flaws and criticisms, but the advantages of such an amendment is much more prosperous to the consumers and businesses in the log run.