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Biz Tip: Cut credit card processing fees with 'interchange plus'

Biz Tip: Cut credit card processing fees with 'interchange plus'

(Credit and Money Matters) Permanent link

Hey, business owners, are you spending too much to swipe a customer's credit card? One possible way to whittle down those processing fees is to switch from tiered pricing, which most merchants use, to "interchange plus."

cashierUntil recently, only big businesses could get this form of pricing. But now little guys and newbies can request it. According to, making the change cansave you as much as 25 percent each month!

"Interchange is the set of rules that define how much of a cut the issuing bank (the bank that issued the customers’ credit card, big issuing banks include Capital One and MBNA) gets to keep from the credit card transaction," explains, a comparison-shopping site for processing services. Its blog includes a diagram of how interchange works.

The pricing of each transaction is calculated on several factors including the type of card, where it was used and the circumstances of the transaction. Credit card processors typically group those transactions into categories, or tiers, with different rates. TransFC warns that with tiered pricing, merchant account providers can take advantage of the fact that you can't compare their pricing and play tricks such as "marking up the downgrades" and "inconsistent buckets."

MerchantCouncil says, "Take a look at your credit card processing statements. If you see charges for 'qualified,' 'mid-qualified' or 'non-qualified transactions,' you're processing credit cards on a tiered merchant account pricing model."

Interchange plus is different in that the merchant account provider passes through whatever they are charged plus a flat-fee markup for their services.

Interchange rates apparently used to be secret, but you can you can get the full scoop at the Visa and Mastercard Web sites. Knowing these rates gives you an edge during price negotiations.

On a related note, the U.S. Government Accountability Office is studying the feasibility of regulating interchange fees; its report is likely to be released Nov. 20.

BusinessWeek reported last month that retailers have spent years and millions of dollars lobbying for tighter rules on interchange fees. The article states, "The Merchant Payments Coalition, a retail lobbying group, claims consumers and merchants spent $48 billion on interchange fees last year. The group estimates that the figure has tripled since 2001 and is built into the cost of every product. The credit-card industry counters that rising fees simply reflect the explosion of credit-card use — which roughly tripled for Visa cards, to $1.5 trillion, from 1998 to 2007."

If all this seems too much to think about right now, consider this: Something as simple as cleaning the magnetic strip reader on your machine can save you money, too.

"In order to get the lowest possible rate processing rate, the credit card machine must be able to read all of the data from the card's magnetic strip. If the machine's card reader is dirty, it may not be able to read all of the data properly or at all. The transaction may still be approved, but it will be charged at a higher interchange rate," says

Posted by Kristin Alexander All Consuming Blog Moderator at 11/05/2009 02:41:01 PM | 

Understand how much it will cost to begin accepting cards at your business.
Posted by: nevada merchant accounts ( Email ) at 11/11/2009 5:03 AM

Merchant accounts are marketed to merchants by two basic methods: either directly by the processor or sponsoring bank, or by an authorized agent for the bank and additionally directly registered with both Visa and MasterCard.
Posted by: visa credit card processing ( Email ) at 11/17/2009 4:12 AM

Yes, Interchange Plus is a great way for a merchant to save money. This is not the same as "cost plus". If a processor offers you "cost plus" it will be a markup above his cost which will usually be higher than pure interchange.
Posted by: Dan Palmer ( Email ) at 12/29/2009 11:21 AM

Depending on the way you process a tier rate may be a better option as it really depends on the type of card you typically process and getting the best rates for the credit card type (i.e. reward vs regular card). What's even more important perhaps is watching out for fine print and hidden fees and contracts you can never get out of.
Posted by: merchant services texas ( Email ) at 3/25/2010 3:06 AM

Merchant accounts are presented to merchants by two basis approaches : either directly by the processor or sponsoring bank, or by an authorized agent for the bank and additionally directly registered with both Visa and MasterCard.
Posted by: Greg ( Email ) at 6/14/2011 10:06 AM

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