Forum Moderators: buckworks
What a mess - after our standard discount and costs per transaction, there is this really messy section of our statement that lays out all of our "interchange fees". Last month these totalled almost $2k. Of course each fee is abbreviated so cryptically that you must call an 800 number and sit on hold for 30 minutes to have it deciphered. Well there is a reason for this - that is because they don't want you to understand just what they are doing to you.
We are getting charged interchange fees in 3 areas (well more than that, but these are the main ones) 1. premium cards 2. corporate cards and 3. international cards. Of course when the customer puts his platinum preferred visa with miles and 2% interest into my checkout page, I have no way to know that I am the one who is paying for all of his nice little perks - that's right, according to the agreement which we all sign, we must accept all visa and mastercards if we accept any - what a great move for the card issuers, give away a bunch of stuff and charge the merchants for it - sounds kind of like the chargeback game, eh?
You can also switch to something like PayPal's new merchant-account-like service which (I believe) has flat rate transactions.
Seems like a good time to revisit all of this will be right after the holiday season.
These increased charges that you are experiencing are a result of the VISA and MasterCard Interchange Qualification Matrix. VISA and MasterCard collectively have a large number of different interchange increases. There are two main reasons why your charges will downgrade (fall into a higher interchange qualification):
1.) The type of card that you accept -
Corporate credit cards, rewards credit cards, government cards, and more will all downgrade to a higher qualification bracket.
2.) The way you charge a card -
VISA is specifically tough in this area because they require all card-not-present merchants, such as all online merchants, to use (and match) the address verification service (AVS) in order for a merchant to qualify a transaction. Of course, this is assuming that the card in not inherently downgraded like those mentioned above.
There are two main pricing schemes and structures that most merchant accounts follow.
The first is a tiered-grid pricing system following a qualified, mid-qualified, and non-qualified rate system where a merchant service provider (MSP) will dictate where each card type and method of card charges will fall.
The second is called interchange-plus, or enhanced reduced recovery/reduction (ERR). This method is most advantageous to the merchant, but requires a substantial processing volume before most providers will consider offering it because it has a lower residual profit flow. Judging by your fees, it sounds like this is the type of account that you should have. If you don't have it now - get it.
NOTES:
You must accept all card types - You are correct in saying that acquiring banks want to offer rewards but expect the merchants to pay for them. You are also correct when you said that you must accept all card types without knowing the type of card that you are accepting. But......
SOLUTIONS:
Call You Merchant Service Provider frequently - The electronic bank card industry is very competitive and your MSP does not want to lose your business. Call them tomorrow and let them know that you're bank in the market - they will lower your rates.
Watch You Statements - VISA/MasterCard bylaws dictate the MSPs must and acquiring banks must notify merchants 30 days in advance of any changes to their account. These notices are posted on the first page of your merchant service statement. Read these notices EVERY month and call your provider about any changes. More often than not you will be able to lessen or avoid rate increases depending on the originating factor for the increase (whether it is an interchange increase or the MSP looking for more residuals).
Ask Your Provider How You Cards Are Qualifying - (This is my favorite, and only applies to tiered account set ups). You merchant service provider (depending on their agreement with the processor/acquiring/member bank may have control over how different card types and methods are charged on your account. Theoretically, a merchant service provider can advertise a 1% rate and then build a grid that downgrades almost every transaction that you run.
Call you MSP and ask how your pricing grid is set up, then ask to have more cards qualified or you will look elsewhere.NOTE: Sales personnel may not understand what you are asking because they often have no control over grid structure. You may need to talk to an administrative person.
I have much more information on the topic. Sticky me for a link... too much to write.
[edited by: lorax at 2:49 pm (utc) on Nov. 17, 2005]
[edit reason] fixed formatting [/edit]
