Understanding Interchange and How It Impacts Your Processing Rates

By Collin Sullivan, National Accounts Manager, AVATAS Payment Solutions

As I’ve mentioned in previous articles, credit card processing can be complex, and one of the most confusing aspects of the whole industry is interchange fees. Continue reading to get a quick primer on what interchange is, as well as some tips to help ensure that you are paying the lowest interchange rate possible.

To start, let’s define interchange. Simply put, interchange is the wholesale percentage that Visa and MasterCard charge for authorization and settlement of any credit card transaction. For example, if a customer spends $100 using their Visa card, the merchant pays a percentage of this for taking the card. To keep it easy, let’s just say it is 4%. That would mean that on the $100 transaction the merchant is paying $4.00. Of that, around $3.20 (~80%) goes to the issuing bank. The remaining $0.80 is divided up among the other parties in the transaction with about $0.34 of that going to the Visa.

The interchange rate is the rate that the merchant pays to the issuing bank and the amount that goes to Visa–in the hypothetical, $3.54 or 3.54%.

On a broader level, interchange is the foundation that defines the entire cost structure of the credit card payments industry. It is set by the credit card networks (Visa/MasterCard), and is the same regardless of which processor you use. However, these 125 different interchange categories can be changed by the credit card networks up to 6 times a year.

So how are these 125 categories defined? There are generally 3 different factors that influence the Interchange rate that you pay. These factors include:

  • Industry: Depending on the industry, the rates change. A few industry examples include, utility (oil and gas included in this), retail, internet, and gas stations.
  • Type of card: The rate changes depending on whether your customer uses a debit card, rewards card, fleet card, corporate card or something else. Generally speaking, debit cards tend to have the lowest rates while rewards cards have higher rates.
  • Type of transaction: Rates change depending on transaction type—whether the card is swiped, keyed, entered via website or something else.


So now that we are all starting from the same point, what are some of the things that you can do to make sure you are paying the lowest rate?

First and most importantly, make sure you are set up correctly. Generally speaking, processors can set you up as either tiered pricing or interchange plus. In the oil and gas space, it is particularly important to make sure you are set up as “interchange plus”—this is not only required to get special utility industry rates, but it also ensures that you are not paying more than absolutely required by the card. If you see anything on your monthly processing statement that says “Qual,” “Non-Qual” or “Mid,” it means you are set up on tiered pricing and are likely paying more than you need to.

Next, while interchange rates are standard across the industry, they are NOT standard across card brands. This means that if you can get your customers to switch to paying with certain card brands, you will generally pay less. For example, the rates you pay to accept MasterCard and Discover credit cards are less than what you will pay if your customer uses a Visa credit card.

So how can you encourage your customers to pay using a lower rate card? Here are a few tips that can help:

  • Train your customer service staff to first ask for a MasterCard or Discover when setting up an account.
  • Use your regular touch points to convert customers. You are probably communicating with them every month when you send them a statement. Don’t let that opportunity go to waste. Create and use material that encourages MasterCard or Discover use.
  • Partner with a processor that has the marketing assets, expertise and relationships to help. For example, AVATAS has a number of out-of-the-box assets that are available to our customers and partners with MasterCard to create turnkey conversion campaigns.

Another thing to consider is how you accept credit cards. And while nothing is completely clear cut, as a general rule, the more you can do to reduce the risk for fraudulent transactions, the better your rate will be. For example, if a customer calls in with a credit card and you also take and input the billing address, zip code and the CVV/CSC, you will likely pay less than if you just take their name and account number.

My last piece of advice is to work with your processor. They should do more for you than just process credit card transactions. They should understand the oil and gas space, know how to get you the lowest rate, and be open to advising you on how best to train your customer service team and prepare the material to convert customers to lower cost cards.

If you have any more questions or would like to learn more, please feel free to contact me at info@avataspayments.com.


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