Interchange Rate Comparisons 2006-2010

Just last week, I was contacted by a merchant that had received notification of substantial increases in their rates. The processor claimed that it was due to “adjustments in interchange rates from Visa and MasterCard”. They were going to see an increase of .30% + $.10 in their Non-Qualified transactions, even though there was nothing like that reflected in the new Interchange levels.
I thought it might make an interesting topic to take a look back at credit card processing Interchange Rates. Since we just had an adjustment to rates in April, I decided to go back to April 2006 for some comparisons. As you might imagine, there are hundreds of different rates based on the card or transaction type. Rather than make this an extremely lengthy, and boring, article, I simply chose to focus on a few of the most common type transactions. So, let’s take a look:

Visa CPS Retail Credit: This is for a plain old generic Visa card (with no perks or Rewards attached) that is swiped thru your credit card terminal. This still represents quite a chunk of credit card sales for most merchants. If you’re on a Three Tier Pricing, this will typically show up in your Qualified rate category. If you’re on Four Tier Pricing, it is Tier 2. If you are on Cost-Plus or Interchange-Plus pricing, it will show up as a separate line item as CPS Retail Credit. In April 2006, the Interchange Rate was 1.54% + $.10 and is still the same as of the new Interchange Rates in April 2010. How have your Qualified, or Tier 2 rates been affected in that time frame?Visa

CPS Rewards 1: Rewards cards pay the card holder some form or reward in the form of cash back or bonus points. You, as the merchant, have the privilege of accepting these cards and paying more for them. In a sense, you are paying the customer, indirectly, to shop with you. As a Three Tier merchant, these will typically be Mid-Qualified and as a Four Tier Merchant as the third tier. And, of course, as a Cost-Plus merchant, they will show up as their own line item. Interchange Rate was 1.65% + $.10 in April 2006 and is the same today. How have your Mid-Qualified or Tier Three rates been affected in that time frame?

Visa CPS 2: Simply, this Visa Rewards card pays a larger reward to the card holder and, you got it, you get to pay more to accept it. Some processors will put this into your Mid-Qualified or third tier category, however, some will slam you by putting it into your Non-Qualified or fourth tier. I know of one processor that “reclassified” Rewards 2 transactions in July 2008 (in between typical Interchange Rate adjustments) and took them from Mid-Qual to Non-Qual and Third Tier to Fourth Tier…EVEN THOUGH THERE WAS NO RATE INCREASE. That represents an immediate increase in their bottom line and a subsequent decrease in yours. Why do you think they did that? You’ve seen the ads all over the place for “enhanced-double rewards” type cards. More and more consumers are getting them, and using them in your business. Interchange was 1.90% + $.10 in April 2006 and went up to 1.95% + $.10 in October 2008 and remains the same today. How have your rates been affected in the past four years in this category?

Visa CPS Key-Entered: Now this doesn’t typically represent a bunch of transactions for most brick and mortar type businesses but still warrants attention. April 2006 showed an Interchange Rate of 1.85% + $.10 but, in April 2009, it was reduced (that’s right, I said reduced) to 1.80% + $.10 and remains the same. These will be classified Mid-Qualified or Tier Three by most processors. How much did your provider reduce your rates on these types trnsactions?

MC Merit III: Here again, this is a generic MC swiped thru your POS system. It was 1.64% + $.10 in April 2006 but, in either April or October of 2007, they came all the way down to 1.58% + $.10 which is where it remains today. These are Qualified or Tier Two transactions. I believe the substantial drop was to come more in line with where the Visa rates were. I'll bet your rates weren't reduced, were they?

MC Key-Entered: April 2006 showed 1.95% + $.10 and also in October 2006, it dropped .06% to 1.89% + $.10 where it remains today. Here again, these will be Mid-Qual or Tier Three, typically. And of course, your processor reduced your rates....didn't they?

I know this may seem to be a lot of rambling but the point I want to make
is this. As you can see from these basic illustrations, there hasn’t been much in the way of overall increases over the past four years. Have your rates remained the same or have you experienced increases (like the merchant that contacted me), or “reclassifications”? Do you even know? Unfortunately, many merchants rarely look at their statements in great detail much less compare them to previous months or years to look for changes. You should definitely look at your statements each month and…COMPARE!

Let me ask you this now. In October 2007 when MasterCard lowered their rates on some of their cards, did your processor lower your rates? Nah, that never (or should I say, rarely) happens. If you’re priced on any kind of tier system, you likely didn’t see any kind of reduction in your rates. However, if you were on Cost-Plus pricing, which is the most transparent form of pricing, the reduction would have automatically been applied.

At MY WEBSITE, you’ll find unbiased SOLUTIONS to all your credit card processing questions and concerns. This blog, also provides timely and relative tips on an on-going basis that you will find helpful. As always, thanks for reading and please pass this article on to other business owners in your circle of influence.

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