Credit Card Interchange Rates to Get More Confusing for Merchants In April 2005

New Jersey, Feb. 16, 2005 - Interchange rates are going to change, but the new change is going to confuse you.  Looking through the past couple of years in the merchant acquirer industry, we have seen several rate hikes that have driven up the cost of merchant accounts considerably.  In a year period of time between 2003 and 2004 there were 4 such rate hikes by Visa and MasterCard, which made it difficult for our company to explain to our merchants that we do not control the pricing structure of the interchange and transaction fees.  This coming April we are in for another interchange shift, but this one is going to be confusing.

Looking through the new structures, there will be several different pricing tiers that take effect.  Most confusing of them all, is the type of card your customer presents to you.  It may have the Visa logo on it, but based upon the program that the customer is enrolled in, will make a difference on the rate the merchant will pay for that transaction.  The following is an excerpt from the acquirers leading industry magazine:

"Things are about to get very complicated. This April will bring a lot
of interchange rate changes, including new card type categories
based on the cards customers carry in their wallets:
a traditional card, a regular rewards card or a premium
rewards card. Imagine a merchant's confusion when
the exact same sale to three different customers, all paying
in a card-swipe environment, results in three
different fees." The Green Sheets, Feb 2005.

So what does this mean for you, the merchant?  Well, the primary concern should be that you are not paying extremely high rates for accepting cards with rewards programs.  Merchant Services Providers, in some instances, to build a higher profit margin in the account, may quote you the lowest rate on a retail swipe environment merchant account, but make sure you get all the rates, including the keyed-in rate.  Now, keep in mind that rates are going to go up, but try to find what the average is. 

If you get a quote that is too low, it's probably too good to be true.  Rates on merchant accounts are somewhat regulated by Visa and MasterCard in the sense that there is a minimum, and the banks that approve applications for processing are also regulated.  Banks will look at the application and make sure that a fair profit margin is built into the processing, otherwise it is not worth it for them to accept the account.  Remember, Visa and MasterCard and the banks are in business to make money.  They do not want to take all of your profits, but they do want to make some money off the account.

Also, if you read our article on "Basics of a Merchant Account", you will see that a couple of basis points here and there is not going to make that much of a difference when looking at your account.  The difference between 1.70% and 1.71% on a $40,000.00 per month account is only $4.00.  However, now that rates are going to change for the type of card you accept, it might be worth looking into a little further.

If the interchange rates are of major concern to you, you may want to consider accepting debit cards at your place of business.  Debit cards, even though there is a higher cost for equipment, will allow you to accept bank cards at a lower rate.  The lower rate, turns into a greater profit margin on your sale, but try not to alienate your customers that want to pay strictly by credit card.

Higher interchange rates correlate to a higher cost of goods sold, so you may have to adjust your pricing to compensate for the additional charges, the other alternative is to keep your current pricing and accept the lower profit margin.

The basic thing to keep in mind is to really assess what it is that keeps your customers coming back, and how best to serve your clientele.  Examine your business, take an introspective look at the way your business operates, and based upon sound judgment, adjust your electronic payment processing to accommodate the changes.  But remember, that whether your customers pay by cash or by credit card, you must charge the same price on your goods, if you give them a discount by paying cash, Visa and MasterCard can terminate yoru merchant services, and it's almost impossible to get taken off that blacklist once you are on it.

A merchant services professional should crunch the numbers to see how they can save you money, and know exactly how your business operates.  If they're not willing to do the math, go to another provider and keep moving down the list until you find someone that is willing to do the work for you.  That's what they are paid for, and that is their job, why ask for anything less.

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