If you are a seller, interchange fees comprise a bulk of the fees that you have to pay when consumers use their cards at your establishment. The merchant bank, also known as the acquiring bank, pays the fees to the customer’s bank or the issuing bank.
Merchants have to pay this fee for granting their customers the privilege of using credit and debit cards at their establishment as such ease of payment increases their sales. The interchange fees comprise 70%-90% of the various charges that a merchant pays to credit card networks.
Read on more to get a clear understanding of the credit card processing fee.
- What Are The Various Types Of Fees That Are Involved With Credit Cards?
There are three aspects of the fee while using a credit card:
- The payment provider charges the processing fee for each transaction.
- The card scheme fee is charged by the card schemes when you use their network.
- The customer’s bank charges the interchange fee. This fee is charged based on the type of transaction, your business location, and the business model you follow. It can be quite complex. With expert guidance, you can bring down the interchange fee costs as well.
- What Is the Fee Structure?
The interchange fee structure depends on the kind of card you are using, whether it is a pre-paid card, commercial debit card, consumer debit, or credit card. The structure might also vary according to currency fluctuations. It is more for bigger businesses that use CNP transactions.
- How Transparent Is The Process?
With so many variables in place, it can be difficult for you to decipher on your own exactly how much you are paying for the interchange fees. Conventional transactions lacked transparency, and smaller businesses, which did not have the power to negotiate, were often coerced into paying the full amount.
Large establishments negotiated for settlements at lower rates. You might face the same problem from time to time, though things are much better now, with detailed statements sent to you from the card companies.
There are standardized methods in place, and professionals can help you understand fee caps and understand fee breakdowns.
- Is Local Acquiring A Better Choice?
If your transactions are processed locally, then you have to pay lower interchange fees. It is also easier to comply with local regulations. Some choose to opt for blended pricing instead, which is the average processing cost with a fixed markup.
You should opt for this method only when the amount you have to pay is lower than the Interchange++ system. With blended pricing, you have to pay the same rate with every transaction, but you’ll have no idea what you are being charged for.
- What Are the Incentive Rates?
You can also use some incentives when you are paying the fees. It depends on the type of business you have. In countries like the USA and Australia, Visa and MasterCard have lower rates for entities associated with charities, utility providers, streaming services, and travel agents. This significantly lowers the annual expenses that you have to pay as a part of your fees.
Even if you are a merchant establishment, there are always some ways of lowering the rates to benefit from the incentives. A professional will be able to give you a thorough idea about the details involved.
The interchange rates are very dynamic because they depend on several external factors. Keeping track of the rates can be tough when you would rather take care of your business.
Expert merchant service providers will keep track of the changes for you, and their team is adept at monitoring regulations that can affect your expenditure. You will get detailed results of how and why you are being charged and how you can bring down the charges. Your savings will be directed to your account, and any questions you might have about interchange fees will be answered.
Byron Simpson is a qualified business/finance writer expert in investment, debt, credit cards, Passive income, financial updates. He advises in his blog finance cent.