How to Manage Merchant Processing Costs

October 22, 2012

As mentioned in my last blog the Interchange rate system is the basis for all transaction costs assessed by the Major Card Companies, M/C, Visa, Discover & Amex. Of the 4 Amex bases their rates on the type of business you have, not on the type of Amex card you have taken in payment. The other Card companies base their cost on the type of card you have taken from your client. For instance a card type known as CPS Retail charges 1.54% plus 10 cents plus dues and assessments of .0011. This represents the Interchange cost assessed by the Card Companies for processing a transaction based on that card type. It is not what your final cost will be. Your final cost is based on this plus what your processor (middleman) charges.

My recommendation would be to only accept a pricing program that is based on an Interchange plus cost basis. This at least gives you the opportunity to secure the best rates based on the card type mix your business takes. So for instance in the example above if your processor was charging you 25 basis points plus 20 cents per transaction to process a transaction on your behalf, the final cost of the above transaction would be 1.79% plus 30 cents plus dues and assessments of .0011.

The reason that this pricing program is more attractive than what the industry terms a Tiered program or some derivation thereof is that it specifically addresses the card mix you take at your business. You may take more debit cards than credit cards or more retail credit cards than commercial or corporate cards, all of which carry different rates.

Next time I will discuss more about the Interchange system and making sure that your business is always getting the opportunity for the best rate.

Until then “Have a prosperous day”.

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