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“Interchange fee” is a term used in the payment card industry to describe a fee that a merchant’s bank (the “acquiring bank”) pays a customer’s bank (the “issuing bank”) when merchants accept cards using card networks, such as Visa and MasterCard, for purchases. Although Visa and MasterCard determine Interchange rates, the fees are not retained by them. They only act as intermediaries between the members on either end of the transaction.

In nature we have the cycle of life – in card processing we have the life of a transaction. It is important to understand where the fees come from and know who all the players are.

• The process starts with the consumer making a purchase via a terminal or website.
• The merchant’s terminal transmits the transaction, via DSL or phone line, to the acquiring bank.
• The acquiring bank routes the transaction to a processor, and then to the card associations via Visa’s system (VisaNet) or MasterCard’s system (INET).
• The association’s system requests an approval from the issuing bank.
• The issuing bank sends back a response. If the card is approved, an authorization code is sent back to the association. The association sends the code to the acquiring bank, and then to the merchants terminal.

Continue reading "How Are Your Card Processing Fees Assessed?"

Our economy is in a downturn and many financial institutions are tightening up guidelines and raising fees. These days even acquiring banks are cracking down on various business types. No company wants to take on a possible financial loss. There are merchant services providers out there that specialize in high risk business, but you have to be prepared to provide all the information that is requested.

Merchants may be required to provide the following:

• Two years of tax returns for the guarantor
• Six months of processing statements. If you have not processed before, you will be required to provide six months of bank statements
• If you are an internet based account, you will need to make sure you have a clearly visible return policy
• It helps to have a tangible product – I once had a loan restructuring company create a package with a welcome letter and question kit to send to all his customers once they purchased his services.

Continue reading "Is Your Merchant Account Considered High Risk?"

There are many third party processors out there that benefit when the Bank Card Associations (Visa and MasterCard) raise their rates. They look at this as an opportunity to make an additional profit from their merchants. Merchant services providers get to decide how they will pass the various increases and decreases through to the merchant. More often it is the increases that get passed on, and not the decreases. New Visa Interchange rates, MasterCard Interchange rates, and other processor Interchange rate schedules are typically published by the Bank Card Associations in April and October.

Since there are many different processing categories for Interchange rates, they can be confusing to most merchants. Merchants pay higher or lower rates depending on, but not limited to, whether or not it was a rewards card, purchase card, or debit card. Rates can also be assessed based on your SIC code and how often you batch your terminal.

Continue reading "How Rising Interchange Rates Can Affect Your Business"

I frequently get calls from merchants who say they were quoted one rate, but claim different rates are showing up on their statements. Unfortunately, merchants can experience a rate increase or surcharge because of the type of card your customers are using, such as sky miles cards and rewards cards. Another cause of increased processing costs is transactions being processed incorrectly by the merchant. How can merchants avoid being charged these surcharges and still qualify for the best rate possible?

First, it is important to understand the different types of transactions that can occur when running a credit card sale:

Continue reading "What are Non-Qualified Transactions and How Can Merchants Avoid Them?"

Over a month ago, on June 5, 2008, Senator Dick Durbin (D-IL) introduced legislation aimed at helping merchants with the rising costs of interchange fees. His bill is S. 3086 Credit Card Fair Fee Act of 2008. But, did you know that another bill with the same title was introduced by House Representatives John Conyers (D-MI) and Chris Cannon (R-UT) on March 6th of this year as H.R. 5546? Why are both the House and the Senate pursuing these bills?

Without sounding too obvious, the current credit crunch many are facing particularly affects merchants who are dealing with the rising cost of goods and services. The latter includes interchange fees. The two bills in Congress address the need for merchants to be able to negotiate the interchange fees they pay to credit card companies. Some of the debate in Congress calls interchange fees “hidden fees” that must be brought out into public focus.

While Congress is in summer session, I want to begin a series that will:

1. Shed light on what interchange fees are,
2. Talk about the history of these fees, and
3. Follow these two bills through the legislative process.

Do you understand what interchange fees are and how they affect not only you as merchants but your customers as well? As I begin this series, I want to hear from you about interchange fees. What questions can I answer for you?

Drop us a line. We look forward to hearing from you.

Even if you manage to keep your chargebacks below the 1/2 – 1% threshold, any chargeback claims – whether remedied or not – take up precious time researching what happened. I’m sure there are other ways you’d rather spend your time (like focusing on new sales). Continue reading "Preventing Chargebacks"

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