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Interchange fees and assessments



Visa and MasterCard transactions are driven by an “interchange”-based system

What follows is an abbreviated description of the three main costs every Member Service Provider (MSP) and or Acquiring Member Bank is subject to.

  1. Interchange Banking Fees: Acquiring Member Banks and their credit card processing service providers are subject to Interchange Banking fees. These fees are compiled of over 180 “Interchange categories” and are set by Visa/MC. Most processing companies bundle these 180+ categories into Qualified, Mid-Qualified, and Non-Qualified rates. Interchange Banking fees are uniform across the industry and are designed to compensate Visa/MC Card Issuing Member Banks for the risk associated with the transaction. Interchange Banking fees are (by far) a credit card processing company’s largest expense.
    Twice a year (April and October) Visa and MasterCard decide whether or not to modify the existing “Interchange Rate Structure.” ALL credit card processing companies reserve the right to pass any rate increases on to their clients. Unfortunately, many credit card processing companies take opportunities like this to hike rates across the board instead of just maintaining their original markup on your account.

  2. Dues and Assessments: Like Interchange Banking Fees, all Acquiring Banks and their credit card processing service providers are subject to Dues and Assessments. Dues and Assessments are set by Visa/MC and are uniform (the same for every processor) across the industry. Currently Visa Dues and Assessments are 0.0925% (0.000925) and MasterCard Dues and Assessments are 0.095% (0.00095). Dues and Assessment are paid by Acquiring Banks directly to Visa and MasterCard.

  3. Authorization Fees: The third significant fee every credit card processing company is subject to is the fee associated with physically routing your transaction through one or many of the various credit card processing networks. The processing networks house huge servers and are responsible for authorizing (validating) credit cards in real-time and transmitting data back and fourth between banks and merchants. Transaction Fees vary slightly amongst credit card processing companies and generally range between $0.08 and $0.15 per transaction.

  4. Interchange by Transaction Type or Medium
    The most basic distinctions made by transaction type or medium are whether or not the transaction was electronically authorized and captured.  Credit card transactions occur within either a card-present or a card-not-present environment.  Card-present transactions are face-to-face transactions where the merchant has the ability to look at the card.  Interchange for card-not-present transactions are priced at a premium relative to card-present transactions.

    Card-not-present transactions involve cardholders providing their card number and other information over the phone, Internet, fax, or mail.  Card-not-present transactions are generally higher risk transactions (i.e., higher chargeback rates) because they are more likely to be fraudulent.

    For both Visa and MasterCard there are a number of card-not-present rates.  Visa for example, has the following card not present rates:

    * Card-not-present – rate applies to non-ecommerce card-not-present transactions such as telephone or mail order.
    * E-commerce Basic – applies to e-commerce transactions that are not authenticated via Verified by Visa
    * E-commerce Preferred – applies to e-commerce transactions for which the merchant attempts to authenticate via Verified by Visa

  5. Transaction Qualification
    Interchange pricing is also based on a transaction “qualifying” for a rate.  Transaction qualification is determined by how the transactions is authorized and settled (i.e., the information that is transmitted, timeliness, authorization parameters, etc). Both Visa and MasterCard have systems whereby a transaction has an optimal qualifying rate, or the best rate possible for that transaction type, and also sub-optimal or more expensive rate categories.  If a transaction fails to qualify for the best rate, it is downgraded to a lower rate.  Qualification criteria generally include (but are not limited to):

    * Magnetic stripe read (as opposed to the card number being key-entered)
    * One unique and matching authorization obtained per settlement transaction
    * Transaction settles within a certain time after authorization
    * Transaction is coded correctly including the merchant’s SIC code and other transaction descriptors

    If these criteria are not met, the transaction qualifies for a different and generally less favorable rate.  The most common reasons for transaction downgrades include key-entry at the point of sale and failure to settle within one day of obtaining an authorization (merchants fail to batch and send their transactions to their acquirer).

    To further your understanding of the credit card processing industry we suggest that you contact one of our payment experts to discuss the important factors your business should consider when evaluating a service provider.

    Call us now at 1(877) 729 6778 to speak with a MuniCommerce payment consultant
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