By Credit card interchange fees are the cost merchants pay to accept credit card payments. It is crucial when starting a business because paying too much money in processing fees can ruin your financial bottom line.
This article will help you understand interchange fees, how they affect you, and strategies to avoid the pitfalls of high interchange fees.
Interchange Fees: How Does it Work
For retail operations, interchange fees are the fees charged by the card scheme (e.g., MasterCard, Visa, etc.) for processing transactions made using plastic cards, including credit cards and debit cards.
The scheme collects the transaction fee from the merchant at the time of authorization then passes it onto the cardholder’s issuing bank for collection, which then remits the amount to the scheme.
Interchange Fees: How Much is It?
Interchange costs for credit card payments are approximately 1.81 percent of the transaction amount. Debit card rates are lower, around 0.3 percent.
Interchange costs, on the other hand, vary depending on the card issuer, transaction type, and sector/industry. Your fees may be significantly higher if processors perceive your industry as high risk, with a high probability of suspicious transactions or chargebacks.
Tips to Reduce Interchange Fees
Because these charges can prove costly to a business, it’s okay to reduce the amount you spend on interchange.
Follow these tips:
- Don’t take credit card payments. Stick to cash or checks. It is the only way to avoid interchange costs.
- Ask buyers to use debits cards. Interchange charges for debit cards are cheaper than the rate for credit cards.
- Leverage address verification services (AVS). AVS lowers the likelihood of fraud. Merchants who verify addresses might get cheaper interchange charges from Visa and Mastercard.
- Settle payments ASAP. The longer it takes to settle payments after authorization, the higher the interchange rate.
Lastly, add customer support data in all transactions. You can minimize chargebacks by providing as much support data as possible on buyers’ statements. That way, they can reach out, fix problems and help you evade costly chargebacks.
Author Bio:- Payment industry guru Taylor Cole is a passionate payments expert who understands the complex world of best merchant accounts. He also writes non-fiction on subjects ranging from personal finance to stocks to cryptopay. He enjoys eating pie with ice cream on his backyard porch, as should all right-thinking people.
