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the Fine Print
What Determines your Discount Rate?
The Bottom Line on Merchant Rates
There are three primary cost factors to consider:
All merchant processing companies operate from the exact
same Interchange, Dues, Assessment and Access fee cost. These fees are set
by the card companies and consist of a percentage rate plus
a per-item transaction fee.
Interchange fees are paid by the merchant acquiring bank to the cardholder's issuing bank for processing a transaction through the system. Interchange pricing consists of a percentage rate plus
a per-item transaction fee and comprises the single largest component
of your rate. Interchange pricing depends on your industry category, the method by which you accept the card and the card product you accept. Interchange levels today cover specific industry
accepted methods and
risk. For example, card present merchants pay less than
"card not present" merchants. Corporate cards carry
than consumer cards due in part to corporate demands
for more detailed reporting levels. Transactions not settled for
in a timely manner carry higher Interchange to cover
manual processing or increased chargeback liability. Foreign cards
fees to cover currency conversion. There are special Interchange
for emerging markets like quick service restaurants (fast
food), utility billing (gas, electric, water, cable), purchasing
cards, and more.
Front-end processing networks charge communication fees for
delivering an authorization message as well as transmission of
settlement. These companies primarily use special dial-up 800
free lines, of high speed connections to perform this service,
and this communication cost adds expense
to each transaction. Regardless of the network or who owns it, there
are fees to operate and keep this technology up 24x7x365 processing
Back-end processing expenses include statement reporting
and mailing cost, ACH (automated clearing house) funding
to the merchant's business checking account, merchant account maintenance
and customer service.
It is important to remember that the difference between rate and
actual merchant cost can be significant especially with a pricing
weighted toward fees. Unlike other industries, where sales
volume drives price, in the credit card industry the average transaction
the merchant pricing. The reason is there are more resources and therefore
fees associated with processing transactions than there are for simply
"We are the biggest" seems to be many companies number
one claim when selling merchant services. The implied benefit is that
they have better cost to pass along. But now that you understand what
factors drive price, you can see through this marketing hype.
"I am the bank" or "I am the processor" is another
often used claim. Again, same price structures listed above, but often
these organizations have higher fixed costs in overhead, salaries and
fancy literature and greater pressure
from their stockholders and board to increase stock price performance
by increasing rates.
Work with Vantage and let us help you manage your Interchange qualifications
and set your price structure to make the most of cost factors everyone
must pass along to you if they are going to remain a viable company
with quality service and support.