Understanding how interchange affects your business’s credit card processing rates is the single most important thing you should know. Interchange credit card processing is the least expensive way to process credit cards.
Interchange represents the wholesale price of accepting credit cards. The credit card issuing banks and credit card associations sell interchange rates as wholesale to the processing community. The processing community then marks up interchange in order to make a profit. So, understanding how that markup is determined can improve your ability to negotiate the very best rates available for your business type.
What is Interchange?
Interchange is network of interconnected financial institutions / banks. Every single bank that issues credit cards to consumers is connected to the interchange network. Connection to the interchange network ensures that the account associated with credit card the bank issues can be accessed by Visa, Master Card, Discover etc. Account access is necessary for money verification (approval) and money collection (settlement).
The credit card issuing banks and the credit card associations control interchange. As a group they determine the fee paid to access the interchange network. The fees are broken down into no less than 185 categories based on the industry of the merchant, how the transaction is being captured and what type of credit card is being used. These fees represent the wholesale rate for accepting credit cards. The amount above interchange that your business pays to process credit cards tells you if your pricing is good, bad or horrible.
Would you like to know if you are overpaying the wholesale interchange rate?