We know credit card processing interchange fees are as exciting as a root canal. But as a business owner, paying too much can be just as painful. Which of these rate structures are you using? Are you keeping the most revenue possible?
At Arrow Payments, we simplify complicated payment processing fees. Our focus is advocating for our client’s best interests. Here we explain the hidden nuances between Flat, Tiered, and Interchange Plus Rates…
What are Credit Card Interchange Fees?
Interchange Rates are the fees paid to the credit card companies for every transaction regardless of who your processor is. These rates are determined by a few factors:
Card type (debit/consumer/rewards/corporate/purchasing)
The amount of the transaction being charged
Whether the card is swiped (card present) or typed in (card not present)
Type of business (grocery/restaurant/non-profit/etc).
How much does Visa/MC/Amex/Discover charge for each transaction?
Twice a year, the credit card brands come out with their schedules of fees and categories for each transaction. Visa, Mastercard, Discover, and American Express call these Interchange Rates and set their own rules for how transactions are categorized and their associated fees. Currently, there are 500+ categories of Interchange Rates! Here are links to the Interchange Rates for Visa & MasterCard. Similar to being faced with 500 flavors of ice cream, how do you know which one is meant for you?
So what credit card processing fees are you paying?
Do you know how many processing rates there are? Over 500! Why is that? Because debit cards draw money directly from a person’s bank account and credit cards have different rewards. So there are lower risks of processing debit cards, and the credit card companies must cover the costs of offering credit card benefits.
A majority of the rates are determined by the CPS or the Custom Payment Service. The CPS sets custom rates for each transaction and gives you the opportunity to get lower processing fees by ensuring that credit and debit cards are validated and processed as securely as possible.
Do you have Flat Rate Pricing?
When choosing a credit card processing company to handle your transactions, a few “features” might stand out. Many processing companies like Stripe, Square, Braintree, Intuit Quickbooks, and even PayPal offer Flat Rate pricing charging 2.9% or more plus $.30 per transaction. This might sound like an easy solution, but it can end up costing you more than you should be charged per transaction. This is especially true if you process a lot of debit cards.
With Flat Rate credit card processing, the processor charges the same rate for all transactions which is typically set much higher than the Interchange Rates. The processor then keeps the difference between the flat rate they charge you and the Interchange Rates charged by the credit card companies. Does that seem fair? No way, Jose.
Do you have Tiered Rate Pricing?
Most established businesses are on tiered pricing. This structure provides a few different transaction rates that are unclear and expensive when compared to interchange pricing. Basically, under tiered pricing, the credit card processor decides what tier each transaction will qualify for. These tiers dictate the rate you will be charged for each transaction. The problem with tiered pricing is that the tiers are arbitrarily set by the processor.
Many processors advertise an artificially low “Qualified Tier” as a teaser rate to get your attention. But many of your transactions will not “qualify” for that tier. The processors will also add hidden fees on top of the tiered pricing. So you think you are getting a great rate, but it is difficult to figure out which transactions will end up in which tier.
This also makes it impossible to avoid paying unnecessary fees. When you receive your statement, the total fees are much higher than the low teaser rate you thought you were getting. The tiers set by the processor are completely unregulated and have nothing to do with what Visa, MasterCard, Amex, or Discover charge for their Interchange Fees.
Therefore, Tiered Pricing is not the best option. What’s left, you say? How can you possibly streamline this complexity AND keep the maximum amount of revenue and profits in your business?
The solution is Interchange Plus Credit Card Processing Fees
With Interchange Plus, you pay the same fees the credit card companies charge plus a small percentage. As an example, Arrow Payments typically charges 0.3% on top of the Interchange Rates depending on the credit card processing services, training, PCI compliance, and merchant support a client needs. Companies that process higher volumes of revenue can sometimes qualify for lower pricing. We also recommend automated technology to make sure every transaction is optimized for the lowest interchange fees possible.
As a result, your transaction fees are calculated on their actual cost rather than arbitrary rates set by the processor. With Interchange Plus, you can seriously cut down on fees compared to Flat Rate or Tiered Rate credit card processing.
Traditionally, Interchange Plus pricing has only been available to businesses that have larger volumes or higher amounts of credit card sales. However, the market is becoming more competitive, and smaller businesses can now qualify for Interchange Plus pricing.
Finally, credit card processing fees that make sense AND keep the most profits in your pocket!