Credit Card Processing: Managing Interchange Fee and Rates

Credit Card Processing: Managing Interchange Fee and Rates

Credit Card Interchange Fees Explained

Merchants who accept credit cards can expect to pay a range of processing-related charges which is called interchange fee. But, what is interchange fee exactly? And, what steps can you take to reduce this charge within your business?

Acquiring bank pays to your customers’ credit card-issuing bank to process payments within your business. Your merchant account provider passes those charges to you. Established by the major card brands, interchange fees typically range from 1%-3%.

There is a number of factors that contribute to determine the interchange rate of a transaction.

Interchange fee will be higher if a lot of payments are processed over the phone. It’s difficult to verify the identity of the buyer with card-not-present transactions, it’s harder to verify the true identity of the buyer. To compensate for the higher risk, the card issuer may charge more for each purchase.

You are qualified to get lower interchange rate if you offer Level 2 or Level 3 credit card processing. This is a more secure payment options that can help in reducing fraud.

Interchange rate may go up to help the card issuer cover the cost of extra perks if your customers use reward cards.

If you’re a high-volume merchant, you can sometimes negotiate to get the interchange fees to go down. In cases where it’s impossible to lower the rate, you may be qualified for other types of advantages.

But, why pay any fees at all?

Won’t you keep a larger portion of each sale if you only accept cash and cheques? Not necessarily.

Benefits of Paying Interchange Fees

No merchant likes paying this fee but credit card processing offers several benefits over traditional forms of payment like cash and cheques. The ultimate benefit is COST!

Paper money is deceptively expensive. You or your employee can lose your paper money easily and if it got stolen, you’ll lose it forever. Yet, you also incur hidden costs every minute you spend counting, organizing, recording or depositing any of the cash that enters your business.

Manage cheques properly. This type of payment requires you to invest in paper, printers, postage, employee hours and frequent trips to the bank. Managing it has its hidden cost. Hence, credit card processing is quicker, more secure and cheaper — even with the factored-in interchange fee.

Moreover, a business can rises its revenue by accepting customer’s credit cards:

  1. If you happen to have a pop up store , hanging Visa, Mastercard and AMEX decals in your window can attract more customers.
  2. If you have an e-commerce store, credit card acceptance lets you connect with global customers
  3. If you are a payment service provider, accepting credit cards makes it convenient for your customers

If you have a business and thinking to add more payment options such as credit card, cash and internet banking you can contact us at MOLPay! We are happy to help you.