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