Spring Cleaning

Spring is here and your garden plants aren’t the only thing growing. Your credit card fees for processing will most likely be increasing because February and March is time for the industry interchange and assessment increases. Twice a year, in October and February, the credit card issuers and card brands roll out their increases that they will be collecting on every credit card transaction. For the issuers, these increases will be to the interchange rates and to the card brands these increases will be to assessments and various other regulatory fees.

These increases are passed on to the credit card processors like ourselves who in turn have no choice but to pass on these increases to the merchants who process through us. As the credit card processors or acquirer cost go up, they must pass on the cost to their customers as any business would do. But the fact is that many processors don’t simply pass on the increased cost, they will actually use the interchange increases as an excuse to raise the processor rates many times over this rising cost.

An interchange increases usually represent just a few basis points (1 basis point = 10 cents on $1,000 of processing volume) but many processors will increase the rates 10 – 15 and even 25 basis points on qualified and non-qualified transactions. Processors will also increase the transaction fee as well along with increasing the processing rate. So, for many merchants who aren’t watching closely, they will end up paying much larger increases. These increases will be usually communicated to the merchant on the February and March billing statements.

So, I want to tell you two ways to make sure you aren’t paying too much now.

The first way is to go to a cost-plus pricing system for your processing. A cost-plus program basically takes whatever interchange and assessments rates the card brands decide on and pass it on to you with a processing fee on top. The processing fee on top is usually between 15 and 30 basis points along with a 7 to 10 cent per transaction fee. The range is normally based on your processing volume and this is probably the fairest and safest way to set up your account. We have published articles before on this way of processing and you can look at them here.

So, when the card brands and issuers change the interchange costs, these increases are simply passed on to the merchant with no additional mark up. Once in a while you might see a processor trying to sneak in with an increase on the cost-plus merchant set up, but it really isn’t very often. It’s very important that you read your statement messages in order to catch any increases to your rates.

The second way of not paying too much for your processing cost is simply to have a rate check up every 2 to 3 years. This is especially important if you are on a 3, 4, or other tiered processing setup. What happens in this industry is twice a year these interchange increases happen and your processor or sales office increases your rates to cover this increase in cost.

You may end up with rates that are significantly out of touch with your initial quoted rate or the current rates being offered. Because these interchange increases are on specific interchange categories (e.g. such as a keyed in rewards card), the processor must make educated estimates on how this increase will affect their entire portfolio of customers.

This is very hard to estimate when you have thousands of different merchants. In the end, they will often increase everything across the board to make sure their costs are covered. This is why it is important more so if you are on a tiered system, to have your rates reviewed every 3 years. It’s very simple to do, just print out your latest statement and ask for a review from someone like ourselves.