You’ve heard it before:
…in this world, nothing is certain except death and taxes.
Benjamin Franklin
If you’re a merchant accepting credit and debit card payments, you’ve got a third thing that will always remain – interchange.
Of your entire processing bill, about 80-90% of it is something called interchange – the amount of money that the bank that issues the credit card gets.
You can’t get rid of it – it’s like matter. Matter cannot be created or destroyed. Interchange cannot be destroyed either. Rather than the Law of Conservation of Mass, it’s the Law of Interchange Finality :)
So what can you do?
Every merchant, acquirer, gateway, and processor has the same set of interchange rates. This means that going to a new provider won’t really move the needle.
When it comes to interchange, we have two options:
- Offset interchange to another party
- Add data to the transaction to move the transaction into a different interchange category
Let’s explore in more detail.
Offset Interchange to Another Party
Every time you’ve paid your property taxes, brought a load to the dump/landfill, or paid your sales tax or other government fees you’ve seen the option to pay with credit either online or at the office window. Typically, when dealing with the government, you get charged anywhere from 2.5% to 4% to use your card. This is called a surcharge. Like everything in life, the government has its own rules and they can surcharge all cards. You, sadly, cannot surcharge a debit card and still be in compliance with the card brands.
That said, you can offset a huge portion of your costs of accepting credit cards. My clients in this environment pay a max of 1.5% to accept payment via invoice on this program. Not bad right?
Add Data to the Transaction aka Interchange Optimization
If you don’t want to share your cost of processing with your customer, there is still a way to reduce the cost of interchange. You add data, like lots of it, to the transaction itself. The more information embedded in that authorization request, the cheaper your rate will be with several different card types – mainly credit cards issued to businesses.
How much can you save?
Consider this example $500 transaction:
- Corporate Purchasing Card Data Rate I is 2.95% plus 10¢ – total interchange cost is $14.85
- Corporate Purchasing Card Data Rate III is 1.9% plus 10¢ – total interchange cost is $9.60
- Savings on the same transaction amount, same card, same customer is $5.25
- Do that 100 times per month or more and now you’re cooking with gas
How to do interchange optimization?
This is the tricky part. You need 3 things to benefit from interchange optimization
- Your business needs to be coded properly in an eligible Merchant Category Code with Visa and MasterCard
You would think that this would be automatic, but I can’t tell you how many waste management businesses I have seen coded as miscellaneous office supplies or even furniture rental. You can have the nicest port-a-potty around, but I’m still not putting it in my living room for game night. Your MCC code is what makes you eligible for interchange optimization and it was up to your merchant services salesperson to work with their underwriting team to set you up correctly. If you’re not sure what your MCC code is, shoot me a message and I can pop into my Visa database and double check it for you. - You need equipment capable of passing lots of information in a transaction
If you’re working off a countertop terminal and don’t have any kind of computer interface, you’re going to need to upgrade your environment. That comes with some awesome benefits though – storing cards on file, securely sending payment requests, text to pay, and all sorts of other goodies. I do a 30 minute detailed walkthrough with each of my new clients and they’re experts by the end. - You need to enter the data
This is the hardest part for those not using the gold star software. If you manually enter all of the info you need to send to Visa/MC, you’re going to be keying in 21 data fields – everything from tax amount to invoice number to item commodity code (tap here for a full list). Did you audibly groan yet? Don’t worry, there are better ways! My team uses our Advanced Payment Gateway (APG). It automates all this info so you always get the most advantageous interchange rate available!
