October 2010 Visa and MC Interchange Rate Changes

Well, it's that time of year again when Visa and MasterCard make adjustments to their Interchange Rates. Typically, these adjustments take place in the spring and the fall, usually in April and October. If you're unfamiliar with what Interchange Rates are, let me present what Visa identifies them as on their website:

"Visa uses interchange reimbursement fees as transfer fees between financial institutions to balance and grow the payment system for the benefit of all participants. Merchants do not pay interchange reimbursement fees; merchants pay "merchant discount" to their financial institution. This is an important distinction, because merchants buy a variety of processing services from financial institutions; all of these services may be included in their merchant discount rate, which is typically a percentage rate per transaction."

Now, as you can see, they also call them "interchange reimbursement fees". Let me break it down for you a bit more clearly. You, as the merchant, pay your credit card processing provider, the acquirer, a Discount rate. This Discount rate is what you see quoted on your statements in various ways which, in many cases leads to your ultimate confusion....by design. This rate was either negotiated by you with your provider or was more than likely provided as a comparison to what you may have had with a previous provider. The Discount rate that you pay represents a markup above what the Interchange Rate is which is where your processor (the acquirer) make their profit for providing the service to you. In turn, the acquirer pays the interchange reimbursement fees to the card issuing entity and those fees are utilized for the "benefit of all participants" as indicated above.

So, these fees are for numerous things like the cost to issuing banks of issuing cards, maintaining accounts, sending statements, monitoring transactions for authorization, collecting payments from card holders, etc, etc. These fees are also used for paying rewards to those card holders that have such cards. You, in turn, pay higher rates for accepting these cards and therefore, in a way, are paying your customers for shopping with you. With the huge and ever increasing numbers of these types of cards ("What's in your wallet? ") in existence these days, you better know what you're paying for the privilege of accepting them.

As of this writing, we know there will be adjustments and, in fact, your provider may have already notified you on your September statement of just how much they will be increasing your rates, effective with your October processing month. Neither Visa or MasterCard has posted the October rates yet, however. So, what I would recommend that you do, RIGHT NOW is to go the VISA SITE and the MASTERCARD SITE find, and download the April Interchange Rates. Then, in a couple weeks, go back to these sites or even sign up for their RSS feed so you will be notified, and get the October rates when they become available. Do the comparisons to see where the actual increases were, compare them to what you're paying and see where you stand. I'd say, you should then probably get with your rep (if you can locate them) or Customer Care and get a total rate review of your account.

If you've read any of my articles in the past, you know that I am a strong advocate of becoming more thoroughly educated on credit card processing. It is an ever-increasing cost center in your business and it's crucial that you are fully aware of what your costs are and if there is anything that can be done to reduce them.

Thanks for reading and if you have found this article to be helpful, please pass it along to others that you know could benefit from it. I wish you continued, prosperous endeavors in your business.

You should be aware of this

     Well, it's been a couple months since I posted last. As you can see from the picture, I've been quite busy. My family and I spent two months in Costa Rica so my mind was elsewhere. However, this business that I'm in (merchant services) is in the blood and I have never really strayed too far away from the pulse of what's going on in this industry.

     As one that's always been concerned about long-term relationships with my merchants, I feel compelled to bring up areas of concern that I feel you should be aware of. You're probably aware of the new credit card laws that went into effect in February. Well, along with that, many card issuers have increased interest rates and consequently, many card holders have reduced their spending. So, the card issuers are coming up with some programs to encourage consumer spending, once again.

     There are some that believe that the economy is starting to show some signs of recovering from our most recent sluggish past. Many of the credit card issuers are now ramping up their rewards programs. Some are offering double reward points on purchases in general. Still others are offering more frequent flyer miles for each $1 spent. You may also see that some card companies are offering increased points or "rewards" for purchases at "partner" merchants. No matter what their doing, the bottom line is that these new purchases will affect your bottom line.

     Here's what to look for on your end. First, if you're priced on a three tier pricing structure, thes "rewards" type cards fall into your Mid-Qualified or Non-Qualified category. There are numerous types of rewards cards offered by Visa and MasterCard so, you need to call your provider and ask them point blank, which level these rewards cards clear in. Honestly, the processor can, at their will, determine which category to put each card type in and if you aren't informed thoroughly, you're needlessly giving up profits. I know of a processor, that not long ago, informed their merchants (you know, in that little paragraph or two on the first page of the monthly statement that nobody seems to read) that they were "reclassifying" Visa Rewards 2 cards and moving them from Mid-Qualified to Non-Qualified (at rates that are, at a minimum, 1% higher). If you're on a four tier pricing model, these reward cards will be in either Tier 3 or Tier 4....make sure you ask where your transactions are priced.

     Now, if you're in a Cost-Plus pricing model, you don't need to worry about being priced in a "bucket" where you don't need to be. All of these rewards cards will, by their very nature, simply be routed to the proper category and pricing. The bottom line is that if the credit card issuers ploy to increase rewards to their card holders, encourages them to spend more, then you reap the benefits of increased business. You simply want to make sure you absolutely know what you're paying for these transactions. After all, who is most interested in the profits and viability of your business....you or your merchant account provider?

     Being in business these days is tough enough as it is. Anything you can do to cut your costs and, subsequently, increase your profits is a good thing to do. With that in mind, knowledge is king and the kind of knowledge that I offer to you, is typically not offered up by the majority of credit card processing reps. So, if you want to really stack the cards in your favor, GET EDUCATED. I have prepared a 40 page eBook on the topic and will give you the A-Z's of how the credit card processing industry works and how it affects you. Take a spin on over to my website and check it out for yourself. I'm confident that you won't be disappointed.