Ask the Merchant Guru: What is Interchange? Are All Interchanges Created Equal?

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.