Credit Card Processing - Understanding Some of the Terms Used
When talking to a Merchant Service Provider you need to understand certain terms and concepts in order to understand the "lingo" associated with accepting credit cards in your business.
"Interchange" - this is just a fancy name for the price Mastercard and Visa set as the cost of using a credit card under their brand name.
When you want to accept credit cards in your business you can't directly set up an account with MasterCard or Visa.
You have to go to a Merchant Service Provider who has been accepted by them to process credit card transactions through their system.
More complicated than that, but that's it in a nutshell.
Every type of credit card is assigned a different Interchange rate, even if they are all a MasterCard or Visa card.
For example, a Business credit card is priced differently than a consumer credit card, and ones that give miles as a reward are priced differently than a card that gives points as a reward or cash-back cards, and so on.
There are many, many different Interchange rates based on the type of card.
And your industry is also taken into account due to risk factors.
And the markup on each is different from each Merchant Service Provider based on their cost of processing and other factors.
This is the Tiered Structure, which most business owners have as their pricing.
It's nearly impossible to really understand if you're not in the business and allows for more profit to be made on different types of card transactions.
An Interchange pricing structure, on the other hand, works directly off of the Interchange rates and adds a flat percentage to the Interchange rate.
Much more transparent and easier to see what you are being charged.
So when someone claims a rate "as low as 1.
64%" they are quoting the lowest possible rate in a complex structure - a consumer credit card that offers no rewards of any kind, for example.
Now the likelihood that you will get many of those used to pay you is highly unlikely.
So it's really just a "teaser rate.
" And it's important to understand the term "Key entered transactions" - manually entered into the terminal.
Either because you don't have the card, e.
g.
, you got an online, mail or telephone order OR because the card you swiped didn't read - ever been in line where they keep trying to swipe someone's credit card but it doesn't work? Then they have to resort to manually keying in the number which results in a higher rate for the transaction to the store.
This is just very basic information..
as I said, it's a very complicated industry and I'm just touching on certain points here.
So, to sum up, Interchange fees are collected and paid to the card Issuing Bank.
Interchange is the single largest component of your merchant discount rate pricing.
All banks and merchant processing companies operate from the exact same Interchange.
Knowledge is power when negotiating your rates.
"Interchange" - this is just a fancy name for the price Mastercard and Visa set as the cost of using a credit card under their brand name.
When you want to accept credit cards in your business you can't directly set up an account with MasterCard or Visa.
You have to go to a Merchant Service Provider who has been accepted by them to process credit card transactions through their system.
More complicated than that, but that's it in a nutshell.
Every type of credit card is assigned a different Interchange rate, even if they are all a MasterCard or Visa card.
For example, a Business credit card is priced differently than a consumer credit card, and ones that give miles as a reward are priced differently than a card that gives points as a reward or cash-back cards, and so on.
There are many, many different Interchange rates based on the type of card.
And your industry is also taken into account due to risk factors.
And the markup on each is different from each Merchant Service Provider based on their cost of processing and other factors.
This is the Tiered Structure, which most business owners have as their pricing.
It's nearly impossible to really understand if you're not in the business and allows for more profit to be made on different types of card transactions.
An Interchange pricing structure, on the other hand, works directly off of the Interchange rates and adds a flat percentage to the Interchange rate.
Much more transparent and easier to see what you are being charged.
So when someone claims a rate "as low as 1.
64%" they are quoting the lowest possible rate in a complex structure - a consumer credit card that offers no rewards of any kind, for example.
Now the likelihood that you will get many of those used to pay you is highly unlikely.
So it's really just a "teaser rate.
" And it's important to understand the term "Key entered transactions" - manually entered into the terminal.
Either because you don't have the card, e.
g.
, you got an online, mail or telephone order OR because the card you swiped didn't read - ever been in line where they keep trying to swipe someone's credit card but it doesn't work? Then they have to resort to manually keying in the number which results in a higher rate for the transaction to the store.
This is just very basic information..
as I said, it's a very complicated industry and I'm just touching on certain points here.
So, to sum up, Interchange fees are collected and paid to the card Issuing Bank.
Interchange is the single largest component of your merchant discount rate pricing.
All banks and merchant processing companies operate from the exact same Interchange.
Knowledge is power when negotiating your rates.