The Ins and Outs of Interchange Fees

The Ins and Outs of Interchange Fees

As a small business owner in the world of credit card processing, the finer points of specific fees and topics can be extremely axing and interchange fees are certainly no exception.  However, while you generally don’t have to worry about 90% of the nitty gritty details when you are first delving into the realm of merchant accounts, if your business accepts credit or debit cards, it is in your best interest to get yourself very familiar with interchange fees.  The financial repercussions that befall the uninformed small business owner are just not worth the risk.  Here we will try and take you through a relatively in depth look at interchange fees to get you on your way to saving your business in the long term.

What is an interchange reimbursement and why does it matter?

To put it simply, interchange are a foundation upon which all credit card processing charges are built since all charges for credit card processing are determined by the schedule of fees set by the interchange reimbursement.  Even simpler, interchange fees are the wholesale prices that businesses are charged to process the myriad of credit card transactions that take place during day to day operations.  Set by the credit card companies, Visa, Mastercard, and American Express; these are the base rates that your merchant service provider will charge you, adding additional “points” or fees to cover their own operating expenses and to hit their revenue goals.

Anytime a customer uses their credit to pay for products or services rendered by your small business, your merchant bank must pay your customer’s issuing bank, that is the bank that backs their credit card,  a small percentage of the gross amount charged.  This percentage, the amount paid by the merchant bank to cardholder’s bank is the interchange fee.

The percentage charged, that is the cost of the interchange fee, is set by the card brand and can be change semiannually.  Both Visa and MasterCard are capable of updating their interchange reimbursement fees in April and October.  Thus, it is crucial that as a small business owner you stay on top of your fees and don’t just assume that they are what they are and will stay that way forever.

Although interchange fees used to be handled in backrooms, behind closed doors and hidden from the eyes of business owners, those dark days are over.  Both Visa and MasterCard post their complete interchange reimbursement fee schedules online at each of their respective websites.  Having invested so much into your small business, both time and money, it  is in your best interest to not only understand interchange fees but to stay up to date on them by checking both Visa’s and MasterCard’s websites in April and again in October.

At this point in the discussion it is imperative to tie interchange fees back to you, the small business owner.  Although you are never directly paying an interchange fee, it is reflected in your merchant discount, the reason why it is critical for you to understand how interchange fees work so you can ensure that your merchant account fees are competitively priced.

The merchant discount you pay to your merchant service provider includes association dues, network access charges, a few other assorted fees, and the interchange fees.  Although Visa and MasterCard both claim that the merchant does not pay interchange reimbursement fees, it should be clear that while technically true in that you do not pay those fees directly, you do pay them indirectly through your merchant discount.  Without a clear understanding of interchange fees a small business owner can be duped into paying a merchant discount fee that is higher than the current market dictates.

Understand interchange fees and you are one step closer to ensuring that you have the best merchant account contract for your small business.

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SMBReviews is committed to providing small and mid-sized business owners with the information and resources they need to select the best service or product for their company.

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