Posted by Sharon Robb on Sat, Feb 27, 2010 @ 09:10 AM
And by chaos you know what I mean - the financial debacle in the US, right now. The Dow's up -but for how long? Lending is non-existent, bankers are still drawing some ah, unusual salaries and bonuses and now Barney Frank of the House Financial Services Committee says the issue of interchange fees is not on the 2010 agenda.
Arggghhhh. That's for my merchant friends. I can tell by the way they hang up when we call them to market our electronic payment services that they are confused about what we do....we don't make money on interchange. We do collect interchange fees for card issuing banks for each credit or debit card transaction run by our merchants. We PROCESS the transaction. Whew! just wanted to clarify... again.
If you're still confused about interchange revisit our blog on the issue -you're certainly not alone.
What is of concern is the rising cost of these fees - set by VISA and MasterCard and paid to the banks that issue their branded cards - for the merchants that pay them. Merchants and advocacy groups have been pushing for years for interchange fee regulation and caps - claiming the fees force them to raise the costs of their goods and services to the consumer. Maybe.
Unfortunately the issue is complex. Will the regulation of fees really mean a cost reduction on the consumer end of things? A November 2009 article in the New York Times examines the outcome of just such an act when the Australian government stepped up in 2003, cutting merchant fees in half. The results have been predictable - tough to sort through.
While merchants are paying less - it would seem sometimes the consumer is paying more - with less available credit, fewer or shrunken rewards programs (no!), higher annual credit card fees, and shorter time periods before the accumulation of interest on balances.
More bizarre is the unexpected surcharges by Australian retailers and merchants to the consumer that uses a credit card (not allowed currently by the card networks but with deregulation....) - and this after their own costs have been lowered. Not only are some merchants covering costs with the surcharges, some are making a profit. Now that's a fine how do you do!
Yes, US banks make billions from interchange fees. They have lobbied hard against government intervention and claim that the consumer will experience rising costs with credit card use and fewer benefits should the fees be capped or regulated. Again, maybe.
Of course last year keep in mind - a new trend developed that will no doubt ooze into 2010, maybe even beyond - record losses. In yet another NY Times article last year, Banks Brace for Credit Card Write Offs, authors Dash and Martin tout estimates of between 82.4 to 186 billion in overall losses for card issuing banks, as the US continues to shed jobs and with that, the ability of Americans to pay their credit card bills.
What to believe? What to do?
Only that at the very least, for 2010 anyway - interchange fees will remain intact - plan on it. Merchants should be aware of costs and educate themselves on how to implement cost saving processing methods. The credit card processing industry seems hell bent on ever increasing complexity.
To do this, you need an electronic payments professional you can count on, not entry level sales staff. That's just the way it is. ASK your provider...how long have you been in this industry? Review your methods and pricing, secure a professional relationship and focus on what you do best - you're own products and services.
Posted by Sharon Robb on Mon, Dec 14, 2009 @ 03:09 PM
So many numbers!
Remember we've defined interchange - simple. Then we moved on to interchange cost plus pricing - also referred to as "pass through" or even wholesale pricing. This model of pricing credit card transactions remember - passes on the true wholesale cost of the transaction to the merchant - you can see it. It would be like seeing how much that Dell computer cost Best Buy - now you know the markup. Pretty sweet.
Merchants seem to be troubled by the fact though, that Visa and MasterCard have upwards of 150 or more different interchange rates based on how the credit card is processed, risk, type of card, type of business, etc.
We ask you to keep in mind however, that certainly most merchants do not encounter this many different interchange rates on their monthly statement. In fact the average merchant may see only 8-10 different interchange rates on their typical monthly statement from their payment processor. Not all that different from a statement with tiered pricing - just less costly!
Very clear cut really. Very dependable. The most cost effective, transparent pricing model in the industry, recommended by merchant advocates everywhere.
Posted by Sharon Robb on Tue, Jun 02, 2009 @ 09:56 AM
A Simple Solution for a Costly Downgrade.
Merchants are constantly seeking ways to avoid expensive downgraded credit card transactions - natch. We all need to lower the cost of doing business. There's a variety of ways to keep costs down and this one is the easiest that I can think of.
Program your terminal to batch and settle transactions daily. Period.
If you check the host of merchant provider blogs across any and all search engines you'll see every 24 hrs - in some cases every 48 hrs. Processors and banks operate differently so we suggest leaving the guesswork out of it and daily batching for all merchants. In fact that's how XBS programs our client terminals. Terminals programmed to auto batch will only do so if there were transactions - so there will be no batch fee on transactionless days (let's hope there aren't too many of those!)
If the merchant does NOT batch as recommended by VISA/MasterCard - the result can be costly. In tiered pricing models the transaction typically downgrades to non-qualified - the most expensive transaction rate you can possibly pay. In interchange cost plus models (highly recommended by merchant advocates and XBS as the most cost effective pricing available to all merchants) the transaction goes to ERF (Electronic Interchange Reimbursement Fee) and the wholesale cost of the transaction rises.
Why the cost increase? Time is money folks. The longer the time between the transaction or purchase and your batching - the increased risk in fund collection. No kidding. What if your customer has a meal at your restaurant on May 31st and you batch out on June 3rd? What if the customer card expires on June 1? what if the customer loses the card and cancels it? how about your own cash flow - isn't that important? isn't improving cash flow one of the reasons you pursued card acceptance to begin with??
Merchant knowledge of the significance of timely batching to transaction costs in credit card processing and/or a trusted provider is all that is required to avoid these downgrades.
We educate our merchants AND provide cost effective terminal programming at no charge for our clients - maybe you just need XBS?
Posted by Sharon Robb on Wed, Mar 11, 2009 @ 07:09 AM
Merchants are the big winners on the interchange cost plus pricing model because it provides price transparency. But what exactly IS interchange cost plus?
Remember we have defined interchange and the basic tiered pricing model that most small to mid size businesses have been placed on for years by their merchant account providers. Keep in mind also, that until just a few years ago - VISA and MasterCard did not publish interchange rates for merchants to see.
With the wholesale cost of each and every type of transaction (some 150 to 200) now public information, as well as the assessments added on by bankcard (VISA and MasterCard) - all businesses can expect or demand - a cost plus pricing option.
Interchange plus or "pass through pricing" has three components -
- Interchange - is the wholesale cost of a transaction. These rates change several times a year but are always published on both the VISA and MasterCard websites. In addition XBS always provides the most up to date pricing on it's site for the most common interchange categories.
- Assessments - the very small percentage of the transaction that goes directly to VISA and Mastercard. Only .000925 for VISA and .00095 for MC - about 9 cents per $100. This pricing is fixed for ALL merchants in the USA.
- Delivery and Risk - above interchange and assessments - this is the flat rate charged by your merchant account provider for all costs and services including initial setup, ongoing maintenance and communications, the latest technology, fraud protection, risk recording, fund transfer, underwriting, etc.
Now the merchant can see the exact cost of each and every transaction and knows exactly what is being paid the provider for delivery and risk - a cost that never changes. The wholesale cost or interchange rate, which often goes up just incrementally with a downgrade - depending on transaction type - is passed on directly to the merchant and EACH transaction is processed at the lowest possible rate/cost.
In your tiered model - transaction costs often "swing" a little more wildly when downgraded depending on what rates your provider gave you for mid and non qualified transactions. While processing methods and strategies can work to reduce downgrades in tiered pricing - it will never reduce costs to interchange cost plus levels. Food for thought.
Posted by Sharon Robb on Tue, Mar 03, 2009 @ 07:43 AM
Some of you have asked us about the interchange cost plus pricing we recommend - and if it's so great, WHY then are we still offering tiered plans.? GREAT question.
First be sure and revisit our interchange defined blog and recognize - we only scraped the surface here. Let's be honest - some folks just don't want to know, can't bear the depth of the topic (we feel the same way) or can't/won't give us the time required to vet the whole thing - bigger problems I guess. It only takes 15 minutes of interchange talk before the merchants eyes glaze over (10 for me).
That being said - we don't walk away from merchants who don't want to change. The tiered pricing plan was developed to decrease the complexity of interchange - though in reality it created a loophole for providers to make a substantial profit on the often downgraded transactions. We provide this option paired with merchant application entry and terminal programming that will still provide the merchant the best opportunity to process at qualified rates.
Posted by Sharon Robb on Wed, Feb 18, 2009 @ 08:17 AM
The discount rate.
A discount rate is a percentage of the total transaction amount (the sale) which the processor charges the merchant to process the credit card transaction.
The most popular merchant pricing model used today, is tiered pricing. In this model - the merchant is typically given three rates - a qualified rate (the best rate possible for any transaction), the mid-qualified rate and the non-qualified rate.
Your qualified discount rate is the rate your processor or provider grabbed your attention with. This is the rate that blasts out at you when you google for merchant accounts. It's flaunted in headlines like "best price" guarantee and guaranteed "lowest rates" - or "rates as low as"...
These qualified discounts rates are often, actually pretty darn good rates (often, not always). Unfortunately statistics show, as does your processing statement, it is not the rate you process the majority of your transactions at. (reread that last statement please). Some might call it a teaser rate - but we won't go that far. You know, the processor has to make money somewhere, and if you jumped on the FREE merchant account with the FREE terminal and the lowest rate in the industry guaranteed - you might want to take note.
The larger issue in this pricing model - is the "other rates" - the mid and non-qualified rates, which are higher. When a transaction is processed at one of these higher rates, it is considered "downgraded".
These rates are important because as we noted, today the majority of transactions are indeed downgraded. They could be keyed transactions, reward cards, commercial cards, etc - all of which do not process at the "qualified discount rate". Mid and non-qualified rates in fact - can be set to process at 10, 15, and 20 TIMES higher than the actual increase in the wholesale cost to the processor. This can be a huge area of profit for the service providers. This makes that great qualified discount rate sort of a moot point.
Transactions processed at the qualified discount rate typically are swiped standard (non-rewards) credit and debit cards that the merchant batches out within 24 hrs. of the transaction.
All three rates should be listed on your contract. Sometimes mid to non-qualified rates are listed as a range because it's impossible for even your merchant account provider to know how the transaction will process exactly.
There is another, lesser provided pricing method known as interchange cost plus that XBS recommends because mid and non-qualified transactions do not process at such wildly increased costs. In fact, the only cost increase passed along to the merchant is the true and actual wholesale cost increase - substantially lower.
It makes for an awfully tough presentation though when merchants have been trained to focus on the qualified discount rate alone - and we'll touch upon it thoroughly in future blogs.