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Chapter 13 - Interchange

Interchange. When I first entered the bank card space I was asked a million times ‘What’s your rate?’. Today the same questions are asked by a merchant base completely in the dark as to how fees are assessed.  Which brings us back to interchange - the core fees which constitute the majority of the fee assessed to the merchant.

ISSUING AND ACQUIRING BANKS

Everyone uses plastic to make purchases. However it may surprise you to know current credit card processing can trace its roots back thousands of years. Did cave men use credit cards? From the fields of the gold rush to the company store, our journey ends in the banking structure of today.

WHAT IS INTERCHANGE?

There are only two types of people in the processing word. Those who use credit cards and those who accept them. Many times one person can be both! We will take a look at the needs, concerns and issues of each, and see how one influences the other.

TIERED AND COST PLUS PRICING MODELS

Our final topic of conversation is in introduction to how payment cards are processed. We will track the dollars from consumer to merchant, and demystify the process. Thus armed, you will better understand the value which you will bring to the merchant, from both a financial and service perspective.

iProcess - Knowing the Payment Industry

Section 5 - Working with Interchange

You are what you repeatedly do. Excellence is not an event - it is a habit
- Aristotle

What variables determine the interchange fees?

Interchange is established by the associations and the exact reasoning behind the values are based upon risk and return. The ‘risk’ of a fraudulent transaction is weighed against the monetary ‘return’ realized by the transaction. This is all I will say regarding the process of establishing the fee values. Rather, let’s look at things from what is important to a customer and shed some light on interchange and why one merchant may be charged different interchange rates versus the next merchant.

Interchange is determined by three factors: MCC, Card types, and how the sale (transaction) occurred. Each of these is a key variable which has a direct impact on the interchange assigned to a sale.

MCC – (Merchant Category Code) Every business is ‘classified’ and falls within a specific MCC segment, with every classification having a four-digit identification number. (I have included the MCC listing in the back of the book in the appendices area).

Card Types – Visa, Master Card, Discover, etc. ....

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iProcess - Sell Payment Processing Like a Pro!