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Credit Card Interchange Rates Explained

When a business accepts credit card payments they can expect to pay a range of processing-related charges. For most businesses, however, the "wholesale" or interchange rate represents the lion’s share of their processing expenses.

So what are interchange rates, and what steps can you take to manage or reduce these fees within your business?

Acquiring bank pays to your customers’ credit card-issuing bank to process payments within your business. Your merchant account provider passes those charges to you. Established by the major card brands, interchange fees typically range from 1-3 percent.

A number of factors determine the interchange rate on a transaction.

  • If you process a lot of payments over the phone, you may end up paying a slightly higher interchange fee. With card-not-present transactions, it’s harder to verify the true identity of the buyer. To compensate for this higher risk, the card issuers (Visa, MasterCard and Discover) charge a slightly higher interchange rates on those transactions.
  • If your merchant account is setup for Level 2 and Level 3 credit card processing, you will qualify for lower interchange rates on signature and commercial credit card transactions. This is because this more secure payment option helps to reduce the risk of fraud.
  • If your customers use reward cards, the rate may go up to help the card issuer cover the cost of the extra perks that are attached to the card.
  • If you’re a high-volume merchant, you can sometimes negotiate the interchange fee down. In cases where it’s impossible to lower the rate, you may qualify for other types of perks.

So you may be thinking... why pay any fees at all?

Won’t I keep a larger portion of each sale if I only accept cash and check payments?

Not necessarily!

The ‘Hidden’ Advantages of Paying Interchange Fees

Although no merchant enjoys paying this fee, credit card processing offers several distinct advantages over traditional forms of payment like cash and checks.

Ironically, the biggest advantage is cost.

Paper money is deceptively expensive. Once lost or stolen, that money is gone forever. Yet, you also incur hidden costs every minute you spend counting, organizing, recording or depositing any of the cash that enters your business.

The same is true with checks. To properly manage this payment option, you have to invest in paper, printers, postage, employee hours and frequent trips to the bank. Altogether, each paper check entering your system results in as much as $20 in hidden costs.

By contrast, credit card processing is faster, more secure and cheaper — even with the factored-in costs.

Moreover, accepting credit cards has been proven to attract new customers and boost revenue:

  • If you operate a brick-and-mortar store, hanging Visa, MasterCard, Discover and AMEX decals in your window can attract a lot more foot traffic.
  • If you run an e-commerce store, credit card acceptance lets you connect with customers all over the globe.
  • If you are a service provider, accepting credit cards makes it convenient for your clientele.

Learn More About Credit Card Interchange Rates

If you’re thinking about accepting credit card payments at your place of business, or if you would like to know more about reducing your monthly processing costs for your existing merchant account, please contact us.

We will answer any questions that you have about interchange and credit card processing fees, and we will explain how you can keep your processing related charges as low as possible each month.

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