Interchange is defined as the amount of each transaction paid to the card issuing bank. Each transaction clears through interchange on its own merits. This means that a swiped consumer credit card will clear at a one (lower cost) interchange level while a keyed (non-swiped) or e-commerce transaction will clear at another (higher cost) interchange level. There are currently over 400 different interchange categories. The Interchange fee depends upon the Interchange Qualification of each individual transaction. These fees are non-negotiable and are the same for every merchant who accepts Visa or MasterCard no matter how big or small.
Assessments are the amount of each transaction paid to either Visa or MasterCard. This is a fixed fee they earn on each transaction. Examples of assessment levels are:
- Visa Assessment is 0.11% + $0.0195 on each transaction.
- MasterCard Assessment is 0.11% + $0.0185 on each transaction
Tiered Pricing vs. Interchange Pricing
What is “Tiered Pricing” and why is “Interchange Pricing” better for me?
The vast majority of US merchants are priced on what is known as a Tiered pricing program. This means that a typical merchant will have a "Qualified" rate for their debit and credit transactions that clear at the best possible interchange levels, a "Partial Qualified" or "Mid Qualified" rate for their transactions that downgrade to a higher interchange level (usually for non swiped or Rewards / WorldCard transactions) and a "Non Qualified" rate for those transactions which clear at interchange levels not covered by the first two pricing levels.
Bundled into these Tiered rate levels are dozens of different interchange costs. Typically, one of these tiered rates is a lower more competitive rate while the other two tiers are much more expensive / less competitive rates.
These non-competitive rates are inflated with big margins above actual cost. As much as 50% or more of most merchants’ transactions will downgrade into these much higher rate categories. In fact, with the recent introduction by MasterCard in June 2007 of their Enhanced card interchange levels, the number of transactions that will downgrade is going to increase even more.
Most processors have publically acknowledged that the vast majority of their processing income is earned on these downgraded transactions. In fact, it has been publically acknowledged by the world’s largest processors that 90% of their merchant processing profitability is earned on their downgrade fees (Mid Qualified and Non Qualified rates).
By offering our merchants "Interchange" pricing, we eliminate the opportunity to overcharge for downgraded transactions. Our merchants pay true interchange on each transaction with a fixed % mark-up (based on monthly processing volume) and an authorization fee.
In our opinion, this option is in the merchant’s best interest. We have yet to find a merchant whose tiered pricing is not significantly more expensive than what is available via our Interchange pricing program (and we have reviewed thousands of statements).
Fax us a copy of your most recent processing statement and we will show you exactly prove how much we would have saved you had you processed those same transaction with us.
So what will my rate be with CCS?
Our pricing is known as Interchange Pass Thru or Interchange Plus pricing. It differs from tiered pricing in two distinct ways: It is much more efficient and therefore much less costly for the merchant AND it is much more complicated to understand. However, once you understand this pricing structure, you will certainly see why pricing in this fashion is in the merchant’s best interest.
There are 3 different components to our rates: 1] discount rate (%), 2] auth/per item fee (¢) and 3] Interchange. The first two components are easy to understand so we will dispense with them first and then elaborate on interchange:
1] Discount rate – the discount rate charged is the fee charged by the processor above wholesale cost (interchange). This fee is generally between 0.09% - 0.39% and is volume dependent. This means that on a $100 transaction, the processor will charge between 9¢ - 39¢ to cover all the costs and risk associated with processing a merchant’s transactions.
2] Auth / transaction fee – this fee is charged in order to cover the network who carries the transactions from the merchant to the processor.
3] Interchange – Interchange is by definition the amount earned by the card issuer on each transaction. It is also known an raw cost and is the same for every processor and every merchant in the country. Interchange makes up the vast majority of the cost component when running a transaction. There are currently over 400 different interchange levels and each transaction clear thru interchange on its own merits. This means that there is one interchange cost for a swiped Visa debit card and another interchange cost for a swiped Visa Rewards card (for example). There are also special interchange rates available for certain industries such as emerging markets, educational institutions, charitable organizations, small ticket merchants (under $15). Also, there are significantly lower interchange rates for check cards.
By passing interchange thru to our merchants on a direct basis, there is no way for the processor to mark up the “downgraded transactions such as Rewards cards or business cards by more than the actual interchange cost differential.
OK – now that you have absorbed the way our rates are structured, please answer the original question: “What is my rate from CCS going to be?”
As you can see, there is no easy way to answer this question. Since there are over 400 different interchange levels, there are potentially over 400 different rates. While that sounds daunting, the reality is that most merchants will see less than 10 different interchange levels for each card type in each month.
After talking to CCS, click on the calculator to estimate your potential savings.
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