Q) What is Interchange? Are all Interchanges created equal?

A) True interchange is the cost Visa and MasterCard passes along to any company that processes their credit cards. Unlike the shrouded mystery of what makes up someone’s credit score, Interchange rates are published in the open twice per year. Anyone can look them up.

Just Google “Visa Interchange” or “MC Interchange” and you will see a very complex rate table that lists every fee associated to every type of card imaginable.

Next, look at your latest credit card processing invoice. Are you on Interchange based rate program or a tiered pricing program? If you are on a tiered program, you could be paying too much for credit card processing.

Interchange Programs

True Interchange programs are based upon the actual costs from this published table – plus a mark-up that you pay your provider. The mark-up is reasonable fee that you agree to in advance. In a restaurant, it is like the 18% tip on top of the food and drinks you ordered.

Tiered Programs

If you see Qualified/QUAL, midQualified/MQual and or NonQualified/NonQUAL on your statement – you are on a tiered program.

These codes stand for Qualified Discount Rate, Mid-Qualified Discount Rate and Non-Qualified Discount Rate respectively. Your statement might have many more of these types of rates listed. The Qualified Discount Rate is the best-possible rate you can enjoy, but it is often just a teaser rate — one that is offered for a limited time or only applies to certain types of credit cards.

Unfortunately, you can’t predict or demand that your clients use one type of card over another. The better a card is for the consumer, the more expensive it will be for you. Most of your transactions will likely be downgraded into one of the more expensive rates.

What About AMEX & Discover?

The same logic above also applies to Discover Card. American Express uses their own standard rates and these rates tend to be set in stone no matter who your credit card processor is. Buyer beware, some processing companies will add a mark up to the Amex rates.

For all cards, SWIPED transactions are less expensive than KEYED-IN transactions because they assume you are face-to-face with the cardholder and can ask for ID to insure the card isn’t stolen. Most Internet-based transactions qualify as Keyed-In, though demanding shoppers also enter the 3-digit codes on the back of their cards helps limit this risk.

Every disputed transaction will eventually come back to haunt both the credit card provider and the merchant. It takes time to investigate claims, refund money and catch criminals – so expect to share that burden.

Knowing what you’re actually paying the processor over interchange is the true sign of an educated merchant.

Q) Ugh! I hate contracts. Why are there so many hidden fees in credit card processor contracts?

A) Read any invoice from just about any vendor – your wireless provider, the cable company or your utilities and you’ll see them: fees. Often, they are hidden in plain sight as line items or as confusing “terms of service” changes.

Some fees are very reasonable — they cover the cost of doing business and your shared risk of processing stolen or bogus credit card numbers.

Annual fee. Monthly fee. Minimum fee. Access fee. Line charge. Start-up fee. Maintenance fee. Processing fee. Programming fee. Katherine McPhee. While some of these fees are imposed by state and local governments, others are pure and simple profit centers for the banks, the credit card companies, your broker and everyone in between.

Ask for an official “explanation of fees” before you sign your contract. Many of these can be negotiated away. By asking “why” you just might be able to X out some useless charges.

Q) If I find a better offer, should I break my current contract?

A) Do everything you can to prevent a messy divorce. There probably won’t be any church bells when you sign your credit card processing contract, but you should still read the fine print and look for the pre-nup. Some processors can charge “early termination fees” up to $1000. Others might amortize lost revenues into their “account cancellation fee.”

When I advise potential new clients about their options – this is the #1 reason I will suggest they stay where they are until their contract ends. In many cases, you can negotiate that this clause be removed while the bidder is still hungry for your business. The best way for someone to keep your business is to earn your business with great service, during the courtship and throughout the marriage.

Q) Does it make sense (and cents) to lease Card Swipe Electronics?

A) Not always!

Imagine that you move into an apartment that doesn’t have a refrigerator. You can either buy one for $1000, or the landlord will lease one to you for $30/month. If you’re only going to be in the apartment for a year, leasing is a very good deal. If you settle in, get cozy and stay for a decade, that $1000 fridge just cost you $3600.

The same logic applies to credit card processing equipment. Every gadget, cord and device you need to swipe and process credit card information at the checkout counter, or even on your iPad or iPhone, could be purchased or leased. Thankfully, the equipment does not cost that much. If you plan on being in business for more than a year, buy it, and when it burns out, replace it. It’s just that simple.

“FREE Equipment” is an equally loaded offer. Credit card processors will offer free equipment as an incentive to lock you into a long-term contract – usually at a higher rate. Free equipment is never free; they just amortize the cost of the equipment into the higher rates they offer you. If someone gives you an offer with “free equipment” ask to see your option without the equipment.

Someone has to pay for the equipment you use – and that person will always be you – upfront or over the long haul. Pay a fair price now and make a plan to eventually replace it. Your bottom line will thank you in the not-so-long run.

Q) One credit card processor is offering me rates WAY lower than everyone else? Is he trying to rip me off, or is everyone else?

A) Don’t let anyone — a bank or a credit card processing vendor — tease you with rates that are too good to be true.

There’s a reason you ignore those “low introductory rate” consumer credit card offers that come in the mail — you know they will eventually skyrocket. While an introductory consumer credit card rate usually lasts for a limited time, the variables for credit card processing are almost too numerous to count. When offered any rate, be sure to ask your processor:

1. What type of credit and debit cards does the offered rate apply to?
2. How long will this rate last?

Credit and Debit card accounts are attached to a multiple of incentive and reward programs designed to encourage consumers to keep spending on goods and services like yours.

Fulfilling those rewards – from “cash back” to “airline miles” costs money, so the credit card companies pass along most, if not all, of that cost to the merchants. Just because a store sells someone a loaf of bread for $1.00; the percentage of that dollar they pocket will vary based upon how the consumer pays. While “cash” is king, allowing the merchant to keep 100% of the sale, debit cards untied to a reward program come in a close second. These cards are usually the ones attached to the low rates dangled before your eyes. On the other end of the spectrum, credit cards tied to pricey rewards programs offer the highest rates, resulting in less money to line your pocket.

Bottom line, if you’re shopping for credit based upon the lowest rate, you’re playing a game you’re bound to lose.