As is with everything, knowledge is power. And when you are a small business owner, having knowledge about the wholesale costs of credit card processing gives you the very power you need to avoid paying too much in credit card processing fees. This wholesale cost is called interchange.
Interchange cost is set by Visa and Mastercard and is the cost that is the bottom level at which merchant account providers can write your rates. If they write your rates any lower than this cost, they essentially lose money on your account. Any thing above interchange equals a profit from your account.
Even experienced merchant level salesmen are, for the most part, unable to understand or even explain exactly what interchange or interchange pricing is. The reason for this is that each transaction can very by classification depending on the card type, i.e. a rewards card or corporate card and also varies by the type of business that merchant is. This is very confusing to the average person to say the least.
So instead of trying to break down all the different rates for each scenario, let me just make a recommendation in regards to getting the most out of this new found knowledge of yours.
Tell your merchant account provider that you want interchange plus pricing. This means that you want every transaction to be at cost, plus a percentage added on top of it. .20% is a competitive amount that still allows you to have a great deal on your fees and still allow the processor to make some money on it. If you are a larger business that does maybe $75,000.00 a year or more, .10% would be more beneficial to you and still agreeable to the processor since your higher volume will compensate for the lower percentage.
Remember, knowledge is power and I hope this post gives you enough power to keep as much cash in your pocket as possible.
