Understanding Interchange

Saturday, April 20, 2019

The pricing in the credit card processing world is complicated! So many terms and fees are bandied about that it is no wonder business owners are fed up with all things related to Merchant Services! In today's marketplace, percentage only options have gained a ton of ground because of the pricing and fee confusion our industry has created. This oversimplification has lead to many businesses being overcharged (again!!) for the service of credit card acceptance. Our goal during this blog is to explain the basis of all credit card processing fees: Interchange
(we will explain other industry terms, fees & processes in upcoming blog entries)

When you see this Bicycle bicycle_traffic please look for explanations as they relate to a Bicycle Shop.

Interchange reimbursement is the term used to describe a schedule of fees that are the underlying basis from which all credit card processing charges are determined. It's not one of the most exciting topics, but it's a crucial subject to understand if you don't want to overpay for credit card processing. Aside from being a source of headaches and confusion for many business people, interchange fees are the basis for credit card processing expenses. Think of them as the wholesale prices charged to process various types of credit card transactions.

bicycle_trafficIf you were selling bicycles, you might compare Interchange to the cost of all of the parts you need to put the bicycle together.

Interchange reimbursement fees are set by Visa and MasterCard, or more accurately, by their stakeholders - both Visa and MasterCard are public companies. Not surprisingly, banks that issue credit cards and merchant accounts are the main stakeholders in both companies, JPMorgan Chase being the current largest issuer. Being aware of the 'wholesale price' or 'Interchange', is critical to understanding the offers that are being made by credit card processing companies. Take the time to review the Interchange categories- they do change 2 times per year (once in April and once in October of each year) at a minimum.

bicycle_traffic Your Bicycle Shop could compare the Interchange Increases to the cost of bicycle parts increasing.

It is important to understand that the rates you pay for card transactions vary based on card type and how the credit cards are processed. The higher the risk for the transaction, the higher the cost of Interchange. Specialized cards also increase the Interchange category that is assessed for example, Rewards Cards carry higher Interchange rates than cards without rewards. Debit cards carry lower rates than credit cards and the debit card rates can be EVEN lower if they are issued by VERY LARGE institutions.

bicycle_traffic The Bicycle Shop owner may elect to use different brands or types of parts to produce the bicycles; thus changing the price of each individual bike.

The rates you pay as a business owner begin with Interchange. Additional rates & fees are then added to cover the costs associated with Capturing, Authorizing and Settling your transactions as well as other items including PCI & IRS Reporting costs.

bicycle_trafficThese additional fees could be compared to all the costs associated with putting the parts together to create your bicycle (costs of doing business, employee costs, etc) in order to make it ready for sale, including the markup for the shop owner (profit).

Being familiar with Interchange and the basics of credit card processing can help you discern fact from fiction in this complicated world of Credit Card Processing.

Would you like to take a look at the actual Interchange Charts?


Working with reputable processing companies, understanding the rate structure and being able to trust the company you work with are all important factors when selecting a processor; so you can take care of your business.

bicycle_trafficA consumer would not want to purchase a bicycle from a less than reputable Bicycle Shop who might have cut corners; producing a product that could be hazardous or unsafe to operate. The shop owner must educate his/her customers and they must include all of the costs before arriving at the retail price of the bicycle so they can realize a fair profit.

Cheri Perry 4/20/2019

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