“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

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