How do I get the best credit card rates with the least effort?
Your payment processor should be working hard to get you the best rates possible. This includes ensuring that the data transmitted to the Associations is properly conditioned for optimal Interchange qualification. When Interchange isn’t optimized...then your processor, gateway or some third party could be introducing errors into the system, ERRORS THAT COST YOU MONEY!!! For merchants processing less than $3 million monthly in bankcard volume, the
simplicity and peace-of-mind of IP Pay’s Flat Rate Program outweighs the costs of manually managing Interchange Optimization.
Merchant Discount Rate
The Merchant Discount Rate consists of the fees merchants are charged for processing bank card sales drafts and crediting the funds to the merchant’s account. Interchange comprises approximately 70-90% of the Merchant Discount Rate and represents the fees paid to the card-issuing banks in exchange for the service of underwriting and providing credit cards.
IP Pay’s “Optimized” Flat Rate Billing
This discount is the easiest to understand because it is presented as a single consolidated discount rate. The provides merchants a FLAT percentage-of-sale discount giving the merchant the benefits of Interchange Optimization without the risk and added fees of Interchange Downgrades & Surcharges. Merchants operating under this model are charged a pure percentage-of-sale discount.
Cost-Plus Billing
A form of payment processing billing that has gained popularity in recent years is the “pass-through” or “cost-plus” method. In this scenario, the processor reports all of the components of Merchant Discount Rate as separate fee areas and there is no notion of a discount. Interchange fees and Assessments are reported in the same format as the Associations’ published rates. Processor fees are billed and reported to the merchant as agreed upon between the parties. In this way, it is perfectly clear to the merchant what is being paid and to whom the fees are being paid to.
Example – MasterCard Corporate Cards
|
$100 Transaction |
IP Pay “Optimized” Fee[1] |
“Cost Plus” Fee[2] |
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|
Merchant Fee |
IP Pay Profit |
Merchant Fee |
Processor Profit |
|
|
Commercial Standard IC = 2.95% & $0.10 / transaction |
$2.60 |
-$0.55 |
$3.55 |
$0.40 |
|
Commercial Data Rate 1 IC = 2.65% & $0.10 / transaction |
$2.60 |
-$0.25 |
$3.25 |
$0.40 |
|
Commercial Data Rate 2 IC = 2.32% & $0.10 / transaction |
$2.60 |
$0.09 |
$2.92 |
$0.40 |
|
Commercial Data Rate 3 IC = 1.75% & $0.10 / transaction |
$2.60 |
$0.66 |
$2.35 |
$0.40 |
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Optimizing Interchange is a complex subject that requires a lot of expertise from BOTH the merchant and Payment Processor. As stated above, in a cost-plus model, the merchant takes on the responsibility of providing oversight of transaction detail and managing its processing vendor.
Requirements for optimizing Interchange with respect to MasterCard Business Category Cards are illustrated below.
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|
|
|
|
|
Commercial Standard |
2.95% |
$0.10 |
N/A |
|
Commercial Data Rate 1 |
2.65% |
$0.10 |
Level I Enhanced Data
|
|
Commercial Data Rate 2 |
2.32% |
$0.10 |
Level II Enhanced Data
|
|
Commercial Data Rate 3 |
1.75% |
$0.10 |
Level III Enhanced Data
|
As shown above, proper qualification can reduce Interchange Fees in excess of 40%.
Between Visa and MasterCard alone, there are over 350 published Interchange Rates in existence.While a detailed dissertation on optimizing each and every Interchange category is beyond the scope of this document, it’s easy to conclude that Interchange Optimization requires a serious commitment from the merchant combined with a relationship with a Payment Processor with the ability to identify and deliver the optimal acceptance solution.
