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What is interchange? An Explanation.

Posted by Alex Neir on Tue, September 27, 2011 @ 12:21 PM
What is Interchange

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.

Tags: Interchange Fees, What is interchange, Durbin Amendment

3 Ways the Durbin Amendment Can Help Your Business

Posted by Alex Neir on Tue, September 06, 2011 @ 01:57 PM
Durbin Amendment

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.

Tags: Interchange Fees, Credit Card Processing Denver, Durbin Amendment

What the Durbin Amendment Means to Your Merchant Account

Posted by Alex Neir on Tue, July 26, 2011 @ 12:37 PM
Durbin Amendment

What the Durbin Amendment Means to Your Merchant Account

The Durbin Amendment is new legislation that reduces the interchange fees associated with debit card processing. According to the Federal Government, which uses a transaction amount of $38 as an average, the cost of processing a debit transaction will be reduced by nearly 50%.

So, the cost of processing a debit card transaction is being cut in half, this is great news for businesses accepting credit cards, right?

Well, not necessarily.

In order for a business to benefit from the reduced processing rates the business must be on an interchange plus pricing structure. With interchange plus pricing the actual cost (interchange) associated with each credit card transaction is passed directly to the business. With tiered pricing or ERR pricing the cost of the credit card transaction is fixed at a specific tier. So, when the interchange fees are lower for a debit transaction, but the tier price remains the same there is no savings associated with the transaction. However, the margin the processor is collecting has gone up.

So, the Durbin Amendment has reduced the cost associated with accepting credit cards for merchants or businesses that have interchange plus pricing. If you would like to benefit from the Durbin Amendment you need interchange plus pricing. Find out how to get interchange plus pricing! 

Tags: Interchange Fees, Credit Card Processing Denver, Durbin Amendment