There are several fees associated with accepting credit card payments at your business, and the interchange rate should be one that every retailer is familiar with.
However, despite the major role these fees play in the retail business, interchange rates can often cause confusion, and many retailers don’t understand just how much it adds to their credit card processing fees, or how they are even calculated. This article aims to explain some of the confusion that surrounds these fees and details, as well as how to figure out your Visa interchange rates.
Interchange rates cover the cost of transfer fees between the merchant bank and the issuing bank or credit card companies. The interchange rates are unique to the individual card company, and Visa refers to them as Interchange reimbursement fees.
As a merchant, you won’t pay these fees directly, however, you will pay them in the form of a merchant discount. These charges are applied as a percentage of each sale plus a flat fee, which varies depending on multiple factors, including the nature of the transaction.
Typically, credit card fees can be charged at anything up to 3 per cent, while debit cards have a fee of around 1 per cent. Interchange rates have stayed consistent over recent years, however, it can be difficult to understand exactly how much you are paying per transaction as they usually get charged in bundles.
To add to the confusion, there are several variables that can influence your interchange rates so they won’t always stay at the same levels. As an example, changes in the cost of transferring money and the level of risk associated with your business can all affect how much you are charged. In addition, credit card companies alter their interchange rates at regular intervals. Visa does this in April and October every year.
Although the retailer loses a small fee per transaction, interchange rates offer good value to the business owner, and the small percentage a retailer pays is considered worth paying in exchange for the ability to accept credit cards. This is because of the boost this can give to your business through increased sales, and clearing times for card payments are quicker than checks, which helps to improve cash flow.
The three main purposes of interchange rates are:
There are numerous factors that influence your interchange rates. Such as:
As your interchange rate reduces the amount of profits you can make on each transaction, you might be interested in exploring ways on how you could reduce them: Here are some tips:
The examples below are based on Visa’s check card for debit transactions in April 2016:
So, on a typical transaction of $100 on an e commerce sale, a retailer would pay $1.77 as a basic interchange fee, however, as multiple factors are used to calculate the fee, additional charges can often be incurred.
For the latest prices, download the interchange fees from Visa so you have a clear picture of your basic transaction fees, or request the updated rates when they are released in April and October. If you want to get a clear understanding of how interchange rates work in practice, there is an online calculator where you can work out the fees yourself. It is available here.
Understanding your Visa interchange rates and what influences them will help you to get a clearer idea of the amount you are paying in credit card processing fees. Carefully monitor your fees for Visa interchange rates and if you feel you are paying too much, discuss the situation with your merchant services provider.