“Interchange” is a term used in the bank card industry to describe the charges set by credit card companies like Visa and MasterCard, which used to be associations but are now publicly traded companies. These charges are paid by the merchant who accepts the card and are paid to the bank that issued the card, less fees paid to the credit card companies for the use of their payment network.

In addition to Interchange, there are some additional fees that are much smaller fees charged by the “acquiring bank.” This is the company that processes the transaction for the merchant. They are called the “acquirer” because they have responsibility for signing up the business to accept credit cards.

You should know that some companies that refer to themselves as “processors” are really just independent sales offices (an ISO) for an acquiring bank. Others that refer to themselves as a processor truly are, like Integrity Payment Systems. They do far more, to include fraud control, risk underwriting, handling of chargebacks on behalf of the merchant, technical support, customer service, reporting for the merchant, programming and deployment of credit card machines (terminals), collect and pay out the interchange fees, and in the case of Integrity Payment Systems, they even do the settlement of the merchant’s funds into their merchant account.

What very few people understand is that there are around 200 different Interchange fees being levied, and that 200 doesn’t include the Discover Network, nor American Express. It’s a very complicated pricing system. In brief, the amount charged a merchant depends upon what type of card is used and the circumstances surrounding the use of that card. My personal opinion is that the charges being levied will eventually also depend upon the individual using the card… there is already movement in that direction.

The acquiring bank has the right to lump those 200 charges into whatever groupings they want. Historically they have chosen 3 “buckets” to put these charges into: the “Qualified” bucket, the “Mid-Qualified” bucket and the “Non-Qualified” bucket. Qualified charges have the lowest fees, with Mid being higher and Non-Qualified higher yet. But the key is, the processor can put whichever Interchange charges they want into any bucket they want.

“So what” you may ask? Well, that makes it possible for a processor to quote a really, really low Qualified rate, yet make even more money. They simply take some Interchange charges typically found in the qualified bucket and put them into the Mid or Non bucket. Yet, because Interchange is so complicated, business owners almost always ask the same question, “what’s your rate?” They end up paying more than needed.

At Integrity Payment Systems we advocate that a merchant should look at their total cost of processing. Rate doesn’t matter! At the end of the day it only matters how much they pay for the privilege of accepting credit card payments. If you have questions, you can visit our website (http://www.integritypaymentsystems.com/)for more information about credit card processors and the products and services they can offer.
Bill Buchanan

 


Comments

Dee

Mon, 04 May 2009 13:49:28

<a href=""http://www.merchantserviceprovider.org/"" title=""cheap credit card machines"">This company</a> has many different options at affordable prices.

 

Armando

Wed, 13 May 2009 15:55:05

I would like to know how a processor that provides an online gateway for cc payments can determine what type of interchange the buyer belongs. Lets say, you own a virtual store that only sells in the internet. How it is the interchange determined?

 

Home loan

Fri, 04 Sep 2009 05:10:29

Interchanged between the bank and the merchant depends on how much the bank will require the merchant to pay fees. That's why merchants are always eager to sell his product using credit card. Because of the fee that he needs to pay. That's why merchant also choose w/c credit card they accept.

 

credit card

Mon, 07 Sep 2009 06:38:39

our technology is really is way up ahead. Just to think of it how would paypal earn money as a third party vendor. Really amazing. All you need to provide is your email address and after that you have your money or you have your goods.

 

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Thu, 22 Oct 2009 19:55:06

I own a credit card but I just found out about these things when I read this post. i then did some research so that I can better understand credit card terms.

 

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jessicap

Wed, 28 Apr 2010 01:53:45

hi all,
This is interesting.I own a credit card but I just found out about these things when I read this post. i then did some research so that I can better understand credit card terms.I like this post.
****************
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http://www.creditcardbest.net

Fri, 21 May 2010 01:21:25

Interchange fee is a term used in the payment card industry to describe a fee that a merchant’s bank (the “acquiring bank”) pays a customer’s bank (the “issuing bank”) when merchants accept cards using card networks such as Visa and MasterCard for purchases. In a credit card transaction, the card-issuing bank in a payment transaction deducts the interchange fee from the amount it pays the acquiring bank that handles a credit or debit card transaction for a merchant. The acquiring bank then pays the merchant the amount of the transaction minus both the interchange fee and an additional, usually smaller fee for the acquiring bank or ISO, which is often referred to as a discount rate, an add-on rate, or passthru.

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http://www.creditcardbest.net

Fri, 21 May 2010 01:22:58

nterchange is a series of rates in different categories- there are 100’s of different rates.

- Visa and MasterCard establish the rates and standards for interchange. Interchange standards are the same for every business.

Interchange is typically updated twice per year- Spring and Fall.
All Acquiring Member Banks and their credit card processing service providers are subject to Interchange Banking fees.

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jandy

Sat, 03 Jul 2010 01:38:13

Very interesting. I don't know about other merchant services, but my Credit Card Merchant works great.

 



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