Going cashless has become a popular trend in recent years, with more and more businesses adopting digital payment systems. While cashless payments offer several benefits, such as convenience and increased security, they also come with some drawbacks that small businesses should be aware of before making the switch. In this article, we’ll explore the pros and cons of cashless payments for small businesses.

Pros of Cashless Payments for Small Businesses

1.            Convenience: Cashless payments eliminate the need for customers to carry cash, making transactions faster and more convenient. This is especially true for businesses that offer online or mobile payments, as customers can make purchases from anywhere at any time.

2.            Increased Security: Cashless payments reduce the risk of theft and fraud. Digital payments are encrypted and secure, and many payment processors offer fraud detection and prevention tools to help businesses protect against fraudulent transactions.

3.            Better Record Keeping: Cashless payments make it easier for businesses to keep track of transactions and manage their finances. Digital payment systems automatically record transactions and generate reports, making it easier to reconcile accounts and prepare financial statements.

4.            Improved Customer Experience: Cashless payments offer a more streamlined checkout process, reducing wait times and improving the overall customer experience. This can lead to increased customer satisfaction and loyalty.

Cons of Cashless Payments for Small Businesses

1.            Cost: Cashless payment systems often come with fees and transaction charges that can add up quickly. Small businesses with low transaction volumes may find it difficult to justify the cost of implementing a cashless payment system.

2.            Exclusion: Cashless payments can exclude customers who don’t have access to digital payment methods, such as credit or debit cards. This can be a problem for small businesses that serve low-income communities or elderly populations.

3.            Technical Issues: Cashless payment systems rely on technology, which can be prone to glitches and outages. If a payment system goes down, it can disrupt business operations and lead to lost sales.

4.            Cybersecurity Risks: Cashless payments can be vulnerable to cybersecurity threats, such as hacking and data breaches. Small businesses that handle sensitive customer data must take extra precautions to protect against these risks.

Conclusion

While going completely cashless offers several benefits for small businesses, it also comes with some drawbacks. Before making the switch to being completely cashless, small business owners should carefully consider their customers and how they might react to such a change.  While most of the cons can easily be outweighed, the customer experience should be the focus.  If going completely cashless is something you are thinking about, try posting signs around the business explaining to customers that you are considering it and asking for feedback prior to making any such change.  Take that feedback from customers and use that to help guide your decision.

In our previous article we were looked at calculating your effective rate and getting a baseline for current payments cost per dollar of processing volume. In this article we will cover things like average tickets and how they can have a profound effect on your processing costs and of course on your effective rate.

Lets start by diving into you average ticket. Each transaction through your merchant account is effected by two different costs, a discount fee based on the dollar volume and a flat transaction fee. The higher the dollar amount of each transaction the more your costs are effected by the discount rate. The lower the dollar amount of your transaction the more you costs are effected by the flat transaction fee. Basically the lower your average ticket the more important it is to focus on lowering your flat transactional fees.

Lets take a look at an example just looking at the interchange costs. This example will be on the higher end but it illustrates the point nicely. If your business has a $5.00 average ticket and you accept a regulated debit transaction the interchange fees on that are capped at 0.05% + $0.22 per transaction. That 0.05% discount fee is effectively $0.0025 in cost. That $0.22 transaction fee is effectively 4.40%.

If we then add on fees from your processor things get worse. If you processor is charging you 0.35% + $0.10, then your looking at an additional $0.0175 in discount fees plus the flat $0.10 transaction fee. That flat fee is effectively 2.00%.

Combine you are looking at a rate of 0.40% + $0.32 per transaction. You are basically paying $0.34 per transaction in this case, or 6.8%. Now take this same scenario but with a $7.00 average ticket. You would then be paying $0.348 per transaction or 4.97%. Expanding that ticket size to $25 the effective cost becomes $0.42 per transaction or 1.68%.

I know I just though a lot of numbers out there, so here is a chart that represent different ticket sizes vs those same rates.

There are a few things you can do with this information. If your average ticket is less than $12.00 then the most cost effective this you can do is increase your average ticket. Sure you could go try to get a couple cents off the processor per transaction which would help, but not nearly as much as increasing ticket sizes.

This also helps you identify where to not waste your time if you are going to be negotiating with a processor. If you average ticket is $30+ your costs are going to mainly originate from the discount fees. If you have to eat an extra penny per transaction to get 0.10% off your discount rate then you are coming out ahead by doing that vs paying 0.10% more and saving the penny.

Next article we will take a look at transaction types and how those will effect your processing fees.

If you are looking for the short answer:

If you are processing less than $3k per month in volume you should be using a payment aggregator like Stripe, Paypal, or Square. If you are processing more than $3k per month you are generally better off with your own underwritten merchant account from a traditional payment processor. The more you process the better off you normally will be with a traditional processor. That said if you have a low average ticket, something under $8.00 you need to pay close attention to any per-item transaction fees like authorization fees. The lower your average ticket is then the more important it is.

This is the longer answer, however, it will be worth the time:

We are going to break this down into multiple posts as it’s going to get quite long. In this post we are going to touch on some information you will want to get ready and have at hand. In future posts, we will go over using your effective rate as a comparison tool and then into additional aspects of your processing that can affect the overall cost. Finally, we will go over some possible changes you can make to help lower your payment costs.

Quick Intro:

There are many different articles out there that go over how to tell if you are paying too much for payment processing. While they have some good rules of thumb I feel there is a better way to cover this topic. Most articles are geared toward generalities, mainly because there are an absolute ton of variables that can affect your processing costs. What we are going to do is break down how you can assess your own business and develop a baseline that you can use to compare against. We will also include some generalities as examples, but the idea here is to make sure you have the tools to better understand the cost of your payment.

Let’s get some data together:

To start we are going to need some data about your business, some things you will know, but others you may have to look up. You are better off starting with a recent past month that is as close to an average month as you can find. Once you choose a month to focus on, let’s make sure you get some key data to have at hand.

You will want to have your monthly processing volume, the total number of transactions, and your total processing fees for that month. If you have a merchant processing statement from that month you should have everything we need. If you do not you can review your bank account and batch reports to compile this data. The bank account should show any fees that were debited from your account throughout the month. Keep in mind that merchant accounts bill behind, so if you are focused on the month of June any month-end fees will have been billed to you around the 3rd of July. The batch reports should give you the information to be able to calculate your total sales volume and the number of transactions. You can also compare the batch reports to the bank deposits to see if any fees are being taken out of your batches before they are deposited.

Having acquired that data we should go ahead and calculate your average ticket by dividing your total sales volume by your total transaction count. For example: if you processed $10,500 over 315 transactions your average ticket is $33.33 Then we also need to calculate your effective rate by taking your total processing fees for the month and dividing them by your total sales volume. Continuing our example if you paid $238.35 in fees for processing $10,500 in volume then your effective rate came out to 2.27%. An effective rate is a nice tool because it accounts for all your merchant processing fees including both transactional and fixed monthly costs.

For now, we are going to focus on the effective rate. Hold on to that other data for our next articles on the topic.

Digging into Effective rates:

Now you have an effective rate, there are many different things we could do. First I would recommend doing that calculation for additional months and not all of those down. Maybe get the effective rate on your highest and lowest volume months.

Then we start window shopping. You can pull up the rates from aggregators online by searching for their rates. You can review their rate table and find the way you would be accepting cards through them. Our example business is a retail store that is able to accept 99% of its transactions as EMV or Contactless. If we find that the card’s present rate from that aggregator is 2.89% + $0.10 per transaction with no monthly fees then it starts to be very apparent that our effective 2.27% looks pretty good. On the other hand, if you are a card present business and your effective rate is 3.21% an aggregator starts looking better. That said the additional $0.10 per transaction may offset any savings, but we will have to get into that when we cover the average ticket in an upcoming article.

This is just the starting point, so look for the following few articles to continue breaking down your rates. I recommend calculating your effective rate for a few months and keep monitoring it. We are trying to get a solid understanding of your baseline and how different monthly volumes affect your effective rate.

Your Effective rate is a great tool for you to use to make comparisons between time and processors. While it’s an important foundational tool, there is a lot more to cover. In our next article, we are going to cover comparing your existing statement to another processor quote. The article after that will cover things like average tickets and how they can have a profound effect on your processing costs and of course on your effective rate. Until then if you need assistance understanding your statement we are always here to help. We review merchant statements all the time and have people on staff just to help with processing statements from all processors. Yes, we are probably going to send you our side-by-side breakdown, but there is no pressure to sign up. If the numbers interest you then we are willing to have that talk as well.

If you own a small business, you’re probably always looking for ways to increase your profits. One way you may be able to do this is by implementing a credit card surcharge. But what exactly is a credit card surcharge, and is it legal? Let’s take a look.

What is a Credit Card Surcharge?

A credit card surcharge is an additional fee that businesses can charge customers who use a credit card for payment. This fee is generally passed on to the customer by the merchant processor, and it covers the costs associated with processing credit card payments. For example, if you own a small business and you charge a 3.50% credit card surcharge, and someone pays for their purchase with a credit card that has a balance of $100, they will be charged an additional $3.50 at checkout.

Are Credit Card Surcharges Legal?

The short answer is yes, credit card surcharges are legal in most cases. However, there are some exceptions. For example, American Express prohibits merchants from adding a surcharge to American Express transactions. Additionally, some states have laws that restrict or prohibit surcharges, so it’s important to check the laws in your state before implementing one.

Should You Implement a Credit Card Surcharge?

There’s no easy answer to this question. Ultimately, you’ll need to weigh the pros and cons to decide if a credit card surcharge is right for your business. Some things you’ll want to consider include:

– Whether your customers are likely to be receptive to a surcharge

– The average transaction amount at your business

– The costs associated with processing credit card payments

– Any state or local laws that apply to your business

– Whether implementing a surcharge will help you increase your profits

Conclusion:

Implementing a credit card surcharge can be a great way to boost your profits as a small business owner. However, there are some things you’ll need to take into consideration before making the decision to do so. Be sure to weigh the pros and cons carefully and consult with an attorney if necessary to ensure that you’re in compliance with all applicable laws.

Gift cards are a popular holiday gift and for good reason. They’re easy to buy, easy to wrap, and they let the recipient choose their own present. But did you know that gift cards can also be a great marketing tool for small businesses? Keep reading to learn more about the benefits of offering gift cards to your customers.

• Increased foot traffic. One of the most obvious benefits of offering gift cards is that they can help bring new customers into your store. If someone receives a gift card to your business as a present, they’ll likely visit the store to spend it at some point. And while they’re there, they may decide to pick up a few other items as well. This is especially true if you offer a discount on future purchases when a customer spends their gift card.
  
• Improved customer retention. Gift cards can also help you keep existing customers coming back to your business. If a customer enjoys their experience at your store and likes the products you sell, they’re more likely to return in the future if they have a gift card to use. Additionally, if you offer loyalty rewards or discounts for future purchases when customers use a gift card, this can further encourage them to come back and shop with you again.
  
• Higher average order value. When customers have a gift card to spend, they tend to spend more money per transaction than they would if they were paying with cash or credit. This is because people generally feel like they need to “get their money’s worth” when using a gift card, so they’ll add extra items to their purchase. Additionally, since gift cards can be used toward sales items or clearance items, customers may be more likely to take advantage of these deals when they have a gift card to use.

• Boosted sales during slow periods. Offering gift cards can also help increase sales during slow periods, such as right after the holidays or during the summer months. Customers who receive gifts cards but don’t have time to use them right away will eventually come into your store to redeem them, which can help give your business a much-needed sales boost during these slower times of the year.

As you can see, there are many benefits that come along with offering gift cards to your customers. If you’re not currently selling them, it may be something worth considering for your business! Not only can gift cards help boost sales during slow periods and bring new customers into your store, but they can also improve customer retention and enhance brand awareness for your company. So what are you waiting for? Start selling those gift cards today!
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The seasonal ramp-up is about to begin and for many businesses that means opening for the first time in months, or even expanding operations for seasonal events. If you are a seasonal business or looking to expand your existing business for trade shows and events over the coming months now is the time to start getting prepared. It seems that every year there are many businesses caught off guard by the rapidly approaching sales cycle, so we wanted to put out a reminder to get your payments system tested and operational before its crunch time.

Where to start:

We recommend that you start doing these things at least 2 weeks before you plan to start processing. Finding out that you have payment issues a few days before an event may not be enough time for an adequate resolution. If you find out that your account has been closed due to inactivity, or that a payment device has decided it’s taken its last transaction, you want to have extra time.

If your business is seasonal and your processor supports seasonal closures, or you fully close your account at the end of your season, you will want to touch base with your provider and make sure your account is seasonally opened and ready for transactions.

Once you believe your account to be ready to process then it’s time to test the specific devices that you will be using for events and seasonal expansion. The idea is to test not only if the device works, but also your and your employee’s understanding of the device so you can work out any issues ahead of game time.

Device Testing:

We recommend powering up your devices and connecting them at your business or home and processing a few test transactions and a couple of batches. It’s important to not just run a few sales and a batch and then call it a day. Run a couple of sales, process a void, then settle. Then start again with a couple of sales and process a return, then settle. You want to keep these under $1.00 per transaction. Personally, I prefer to start with a $0.01 transaction and increase that transaction by $0.01 on each additional sale. I know it will cost you a dollar or two in testing, but better to spend a couple of dollars confirming everything now, than scrambling at the last minute.

Next is testing your ability to connect your device to different networks whether that’s your own network, wireless hot spot, phone network, or a connection provided by a venue. Setting up at an event or prepping for a seasonal rush is exciting yet nerve-racking and is generally enough to deal with on its own. You don’t want to be calling tech support on top of everything else you will be handling.

You will want to confirm with any venue what connectivity options are available and make sure your device supports at least one of those options. When at an event I always recommend getting an ethernet drop if they give you the option and your device supports ethernet. I know sometimes the venues charge ridiculous rates for a data drop, however, I have seen it time and time again when a venue overloads a WiFi network, and some devices are just not able to process.

Once you know what connectivity option(s) you have, you need to make sure you understand how to set your devices to communicate on each of those options. Again, a couple of weeks before the event is the best time to contact tech support and confirm what connectivity options your devices have and learn how to quickly and effectively switch between connectivity options.

Ethernet and/or WiFi Devices:

Ethernet is normally the easiest as you just plug a cable into your device. That said, if your device normally operates on Wifi, you need to know how to switch between the two connection types as needed. You should practice connecting to different WiFi and Ethernet networks, so that you are not trying to figure it out while at an event. This is a small thing that catches many merchants off guard every year. At the office their device is plugged into ethernet, then they get to an event and can’t figure out how to connect to WiFi or vice versa. Having this down will prevent a lot of trouble for you.

Dial-up only Devices:

It’s time for a new device. Dial-up is a handy backup to other connectivity types. Dial-up has its own unique sets of issues and is arguably the worst possible connection. I know a few hundred dollars can be a lot for a new device, but it could be the difference between a successful show and a complete failure.

That said, if you are short on time and you have to go with a dial-only device, confirm what settings your device will need to communicate. Some venues will require your device to dial a 9 before the phone number to reach an outside line. Some venues may have other requirements that you need to know prior to the event how to have your terminal configured so it works when you arrive.

Cellular Devices:

For merchants using a cellular device, go to the venue and make sure your device works at the venue prior to the event if at all possible. If you can get inside the venue and get to where your booth is before testing, that is ideal. Keep in mind that cellular networks can get congested when you have a ton of people in one area, so if the venue offers some other form of data connection we recommend taking them up on that offer. You want additional communication options available to you if the cell networks get congested. You will also need to know how to change your terminal from Celluar to WiFi or Ethernet before going to the event. If you don’t know how to do that, call tech support prior to going to the event and practice changing that setting in the terminal so you know what to do if the need arises.

Backup Plan:

Have a backup plan or two or three. Things are going to come up, terminals are going to die, and cell networks are going to be overloaded. You can’t plan for every possibility but that doesn’t mean you shouldn’t be planning at all. Keep in mind most any processor would love to help you plan prior to being at an event, so take your ideas to your processor if you need help implementing them. Below are a few backup plan ideas.

Have a second terminal or device that is ready to process.

A backup device won’t fix communication issues, but it can save you if your terminal goes down. It doesn’t have to be a new device, if you have an older device just laying around ask your processor if it can be set up as a backup.

Establish an account with an additional processor.

This comes back down to options. Setting up a secondary processing platform can be a game changer. Don’t feel like you need to set up with two full-service processors. If you are a full-service customer that’s great, but there are many other services you can have at the ready that don’t cost you much or anything monthly to have ready. PayPal, Venmo, Cash App, Square, etc. are all great options. Even if you use one of those vendors as a primary vendor, set up a second one as a backup.

If you are with a full-service merchant provider for improved pricing, then yes sales you run on your backup system are probably going to cost you more. That said it’s better to spend a little more on each transaction to get through an event than to miss out on opportunities.

The more connectivity options the better:

It was stated earlier, but make sure you have as many connectivity options as possible. One overlooked option that can work with WiFi and sometimes with Ethernet devices is a wireless hotspot. Most smartphones today can act as a wireless hotspot. If the venue’s network goes down, switch your terminal over to your phone’s wireless hotspot.

You can also go to your wireless carrier a purchase a dedicated wireless hotspot.

Seasonal Recap:

Seasonal business comes down to preparation, and while you won’t ever be prepared for everything, you can certainly set yourself up for success. When it comes to your payment systems you need to remember 4 main things. 1. Confirm your account is in good standing and that your device(s) are performing properly. 2. Make sure you know how to switch between communication modes and networks. 3. Know what communication options will be available at an event. 4. Always have some backup plans.

Our next blog entry is our annual fraud prevention tips to remind businesses what they can do to protect themselves from the few bad actors out there who like to take advantage of the holiday rush.

We hope you all have a successful and joyous holiday season.

ACH Debit? Just hear me out.

I understand that most businesses don’t accept checks or any sort of bank drafting as payments right now. That said with its affordability I think it’s an option to be aware of. If you can work it into your payment options you can see a sizeable drop in your total processing costs when compared to credit cards.

For retail brick-and-motor stores this may not be a fit, however, I have seen several companies come up with unique ways of using ACH Debits. One such store offers a monthly payment option to their top customers, allowing them to run a tab at the store. Similarly, I have seen small independent gas stations offer this option to near buy businesses to allow those businesses to pay monthly for the fuel costs of their fleet. I am not recommending you offer monthly payment options to your customers, I am just using the above as one creative idea that works for a few businesses.

There are certainly businesses that ACH would be an easy fit for. Any business that invoices their customers can easily add ACH as an option for their customers. Any business with recurring payments can quickly and easily add recurring ACH as a payment option.

Even we use recurring ACH to offer same-as-cash payment options to our merchant base when they are purchasing point-of-sale equipment.

ACH Debit is a cost-effective tool in your payments tool chest. If you get creative with it you might find ways to use it to lower your overall payment costs while providing your customers with additional options.

What can I do with ACH Debit?

You can debit your customer’s bank accounts. These can be one-time or recurring payments of any length. You can also store your customer’s bank records securely in your account so you don’t have to ask for payment details for future transactions. You can even send invoices to customers and allow them to pay that invoice by ACH directly from the invoice.

How Inexpensive?

Depending on what options you want available you are looking at a monthly cost of between $10.00 and $25.00. From there processing fees are probably around 1.00% + $0.30 per transaction. Even lower in many cases. Compare that to your credit card fees.

What do I need to look out for?

You are going to have to figure out if and how this could fit into your business. For some that is going to be easy and obvious for others, it also just might not be a fit.

You also have to realize that processing bank-to-bank transactions are not the same as a credit card payment. There are different rules, they may be differences in funding times, and there will be differences in dispute resolutions. That is something we can go over in detail prior to the setup process.

There are also add-on services that can make you check or ACH service cost more than credit cards. For instance, processing using a Guarantee service may be cost-prohibitive. Guarantee is where the processor guarantees the funds on any check they approve and will handle the collection of checks that do not clear. As you can imagine this service can get costly.

You also need to be aware of other potential fees like Returned Items Fees, Reversal Fees, and Settlement Fees. These are generally flat transaction fees like $0.30 per occurrence. These fees are small but should be clearly outlined in any agreement.

Conclusion

ACH Debit has an intriguing price point, and the setup is quite easy. If it’s a good fit for your business then you should really look into adding this payment option especially if you can move at least $1000 per month in volume to ACH.

Did you know that generally speaking most of your credit card processing fees go to the bank that issued your customer’s credit card? Some of your fees go to the systems and platforms that help you process those payments. Finally, another portion of those fees goes directly to the card brands, like Visa and MasterCard. Most businesses receive their monthly statement and never realize where their fees are going or why.

Let’s start with the banks that issue credit cards. There is an underlying cost that issuers charge processors for moving money called Interchange. In the simplest terms interchange is a matrix of more than 800 card and charge type combinations each possibly having different rates. Those rates range from 0.05% + $0.21 to 3.25% & $0.10 per transaction. This pricing is the same for all processors industry-wide and is normally adjusted twice per year. Interchange makes up the vast majority of all transactional costs for processors and merchants. For a more complete explanation of interchange check out our What is Interchange blog post.

Likely the second highest set of costs to a merchant are the fees from the processor. While these fees seem like they go with just one single entity that is not always the case. There are generally multiple platforms involved in the authorization and settlement portions of a transaction as well as those systems assisting in the transaction process. Each system, even if it’s owned by the same company, takes a small part of each transaction. What’s left after Interchange, platform fees, and card brand costs is what the processor retains. Then that money is often split between multiple entities, however, for this example, we are going to consider them all as just the processor.

Finally, we get to the card brand fees, which are mostly covered in the interchange tables however they are considered separate by people in the industry since there are potentialy other fees that are not included and because depending on an accounts setup these fees may be passed through or eaten by the processor. These fees are likely to be the smallest portion of the processing costs that a merchant will experience. While these fees are relatively small they still make up a decent portion of your processing fees. In some cases, a processor might have these fees bundled into your cost so they are not displayed on your monthly statement however they are factored into your cost as a merchant.

Those are the basics of where your money is going when you pay processing fees. Many merchants assume that their processor has the most control over lowering their cost, and in a way they are correct. The processor seems to have control over what the merchants’ costs are. That said there are things merchants can do in a lot of cases to reduce their processing fees without even contacting their processor. Check out our article on how to lower fees without contacting your payment processor. Do keep in mind that flat rates and some tiered structures may prevent you from receiving the maximum potential savings. For more information on processor fees, you might want to take a look at our article on how to tell if your processing fees are out of control.

At its heart PCI requirements are a set of standards designed to make sure all companies in the payment chain are handling cardholder data in a secure environment. Having a structured requirement like PCI can feel like a burden to many small businesses however it pails in comparison to the burden of operating in a world without it. PCI was once explained to me as something that can’t make a business completely secure, however, it will assist businesses to take small incremental steps in securing their businesses. Sure a business might get through the Self Assessment Questionaire the first year and still not have implemented most of the best practices, however, if they implement a few each year they are going to be big strides over time.

At the time I thought that was a fair point, however, the person telling me worked for the company getting paid to handle compliance. That said over the years we have seen our customer base become much savvier about securing their customer’s data. Sure there are still questions in the Self Assessment Questionnaire(SAQ) that seem to stump everyone, but the fact they get stumped means they are thinking about the questions. People who blindly guess at answers don’t tend to get stumped.

Over the years PCI has prevented fraud, which is something you can’t really quantify. I know for many PCI seems like a pain, but have a breach as a small business and see how your customers respond to it… See how burdensome your payment processing becomes with fines and additional requirements. Most businesses don’t realize that PCI has likely already prevented an issue in their business. Maybe you can find a merchant who claims to have never done PCI and they don’t know a thing about it, but I bet you can still find ways that PCI has helped that merchant. From changes made in computer network hardware, the merchant’s own payment device(s), how the other businesses in the area operate, and of course, changes made at the processor level.

To this day I am still not thrilled about the PCI process. The SAQs are generally to long, some questions incomprehensible, and the vulnerability scan is way outside the scope of many merchants. I wish all of those things would change for the better, however, looking back on PCI since it originally came out in late 2004 I have to say even as complicated as it is, it seems to have done a lot of good.

If you are one of the businesses that gave up on trying to complete your PCI, I recommend you give it another go. PCI support as improved industry-wide and the benefits over time greatly outway the hour or two of annoyance. I agree it’s definitely not as good as it could be for small businesses, but it still beats the alternative.

If you have a merchant account then you have likely heard the term interchange, but many don’t quite understand what it is, how it works, and why it matters. We are going to generally cover the basics of interchange so everyone has a basic understanding of what it is and how it works. First, let’s start off simple.

Simple Explanation:

Interchange defines what card issuing banks charge payment processors for moving funds. It is set across the payments industry so all payment providers have the same interchange costs. It is also the prevailing cost to payment providers when looking at transactional expenses. Rates and fees merchants pay may not explicitly state the interchange cost however it is baked into the fees charged to merchants when processing payments.

Let’s dig in some more:

Interchange is best represented as a matrix and is made up of more than 800 different card types and card type combinations. Each combination may have its own rate generally speaking between 0.05% + $0.21 to 3.25% + $0.10 per transaction.

Card types refer to not only the band the card is associated with, like Visa or MasterCard, but also include it is credit or debit, or what program the card is associated with. MasterCard World Elite and MasterCard Business World Elite are two different card types and their transactions may be processed at different interchange costs.

Charge types refer to the different factors involved when running a particular transaction. There are many factors that can come into play, the most basic being, if a transaction was keyed in or processed via EMV, or if address verification was attempted. That said it could include the type of business processing the card as well as how old the authorization was before it settled. You can imagine where this could get very complicated. For example, you could take the same card twice and the interchange cost on that transaction could be different each time just due to differences in how you had to accept that card. Or two different businesses could accept the same card the same way and end up with different interchange rates. Couple that with all of the different card types and you end up with a mess of combinations.

There are some interchange combinations that do not appear at first glance to fit into the rate range mentioned above. For example, GSA Large Ticket has an interchange rate of 1.20% + $39.00 that said it’s a very specific type of government transaction, and while a $39 transaction fee seems crazy you have to note that it only applies to sales over $5,900 which is equivalent to 0.66% on top of the 1.20%.

Costs Trickle Down:

What many merchants seem to miss is that the interchange costs trickle down. It doesn’t matter what pricing structure a merchant has, the interchange fees are covered by the merchant. Sure you may have a flat percentage fee for EMV transactions, but rest assured interchange was already calculated in. Also if a large enough group of merchants is doing things that cause the effective interchange cost to increase enough the payment provider will just adjust the pricing accordingly. At the end of the day, it’s in everyone’s best interest to process payments effectively as reasonably possible.

If you can accept payments in person EMV and NFC-based transactions are going to get you started down the most cost-effective road. Make sure you are settling your transactions at the end of each day, as authorization that has aged over 24 hours may result in a higher interchange cost.

If you are eCommerce or a business that keys all of its sales you will want to make sure you are using address verification and CVV.

In addition, make sure your processor is doing what it can to help you lower your interchange costs. Some processing systems, like our own, look at the transaction data to see if it can provide additional information at the time of settlement to shift transactions into a lower-cost interchange category. For some merchants, this can generate significant savings.

Interchange Padding

While the interchange tables are the same for all processors the cost to the merchant isn’t always the same. Some payment providers use a technique that many refer to as interchange padding. This questionable practice is used to make the fees charged by the processor appear smaller. Basically, the processor makes it look like they are passing interchange costs directly to the merchant, but in reality, they are inflating those costs on the merchant’s statement. To the merchant, it looks like they are paying true interchange when they are not. This is most commonly seen on interchange plus, or cost plus, fee structures. While it is somewhat rare to run into this these days it still happens.

In order to see if there is interchange padding on your account, you have to look up each card and charge type you were billed for and compare it against the current interchange table.

If you find discrepancies its worth a call to your processor to ask about it. It could be you are not looking at the correct card and charge type. This is common as the merchant statements generally use vague descriptions of the charge type which can make things difficult to look up. If you find the processor is padding interchange I would recommend shopping around.

Keep in mind this is generally not something your sales agent would have control of and may not even realize is going on. If you have an agent you have been working with it’s a good idea to point these practices out to them. At the end of the day, most agents don’t want to be associated with such practices, and bringing it to their attention will help them in the long run. Plus if you have a good agent you have been working with they likely will be able to assist you in shopping around.

Visa and MasterCard’s Interchange Tables

The interchange tables are published publicly for everyone to see. Here are the most recent Visa and MasterCard tables I was able to find with a quick web search.

https://www.mastercard.us/content/dam/public/mastercardcom/na/us/en/documents/merchant-rates-2022-2023-apr22-2022.pdf

https://usa.visa.com/content/dam/VCOM/download/merchants/visa-usa-interchange-reimbursement-fees.pdf