Interchange is the fee that credit card processors pay to card issuing banks and normally the lion’s share of merchant’s costs to process credit cards. The rates vary by card and how the card is accepted, in person or with the card not being present also called “standard” transactions. Rates are higher for rewards cards, business cards and card not present transactions.
What most businesses don’t realize is that they also vary by the type of business and your business volume. Here are some categories:
- Volume rates are lower for higher volume merchants (no surprise here)
- Petroleum (gas stations) get lower rates
- Charities get lower rates
- Grocery stores (50% + food sales) get lower rates
- Every day needs/spend get lower rates includes restaurants caterers, variety stores, taxi limo, reading material, laundry dry cleaning, beauty/barber shops, health and beauty spas, car washes, shoe repair.
These lower rates to not apply to card not present transactions or rewards card (non-qualified) but if you deal with the general public and accept credit cards face to face 50% of your transaction should be eligible (qualified).
The hard part is getting a fair rate that reflects these lower rates. The most popular pricing schemes called “Interchange Differential” and “Tiered” generally do not reflect the savings. The only way to make sure you get a fair rate reflecting these lower costs is to negotiate an “Interchange Plus/Cost Plus” pricing program. To be fair the “Plus” should be no more than about .15% for all transactions (average may be different for qualified and non-qualified transactions). As always bottom line costs can mount with other fees so be careful.