The world of payments and payment processing can be a murky and confusing one. Most merchants are confused by ‘interchange’ settlement and its impact on the fees that they pay to accept credit and debit card payments. The card associations – Visa, MasterCard and Discover – assess other fees (assessments and dues) in addition to interchange to cover the costs of maintaining their system infrastructure and payment networks. Interchange is simply the fees paid by the merchant’s bank to the issuing bank, but also represents a large portion of the merchant costs for transactions.
Interchange will not be the same for each and every transaction that takes place though. The Interchange is determined on a VARIOUS criteria – risk factor (merchant industry), the type of card that is used (AMEX, DISCOVER, VISA OR MASTERCARD) and the way the card is accepted (card present or card not present).
Adding to the complexity, there are additional costs – almost like paying a ‘toll.’ These ‘additional’ fees are tacked onto the cost of interchange. These ancillary fees could be associated with using a card ‘gateway’ to connect to a merchant processor. If a merchant uses an ISO as their merchant provider, that ISO needs to make money as well. This means ISO’s will typically charge higher transactional fees on top of interchange, and can also charge ADDTIONAL fees embedded in the services i.e. – Customer Service/Statement Fees, or a PCI Compliance Fee. Often times these fees are purely for profit to the ISO.
Many small business merchants are too busy to try and sort out what might be being charged by their processor today. When looking at most monthly merchant statements, reporting and calculations are cumbersome and confusing – even for a processing experts that understand this landscape. Many merchants have no bearing on what their true ‘effective’ rate they are paying is for card transactions.
As more and more consumers are trending towards cards for purchases, these merchant costs will continue to rise. Fortunately, there are opportunities to partner with companies specializing in merchant card costs and able to help suggest possible alternatives in the marketplace. Larger merchants tend to benefit from the services that a merchant consultant can provide, small to mid-size businesses could be benefactors of this as well.