Merchant Account Interchange Rates: Learning the Fundamentals

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Merchant accounts are becoming a necessity for companies running high-risk online businesses like online gaming, software, online lotteries, shopping store, and many more. And if you want to improve your profit, then you must consider the Interchange rates.

Interchange Rates work through a series of relationships: the actual fee is paid by an acquiring bank (the merchant bank) to an issuing bank (the customer’s bank). Each fee is set by the appropriate credit card network and can be negotiated directly with your merchant account provider. And for online gaming merchants, it is necessary to minimize that fee to make profits.

The dual-sided system created by this relationship benefits customers, businesses, and the card networks alike. Working off of the basic principle that more buyers equal more sellers, the card networks that support a high number of cardholders is more valuable to a merchant. In turn, a merchant who accepts a wide range of cards is beneficial to multiple card networks rather than one species. In these relationships, however, lie a few common misconceptions that leave many people in the dark with what rate they will be paying.

Credit card networks do not function as one unit; companies like MasterCard and Visa are separate and therefore negotiate different Interchange Rates. While these networks set the fees you will never negotiate your Interchange Rate directly with MasterCard or Visa. Instead, the relationship existing between yourself, your merchant account provider, and the card network means you discuss your rate with your merchant account provider.

Seeing a change between Interchange Rates throughout the day is not limited to customers using different cards. The Interchange Rate refers to the largest portion of your fees accessed with credit card acceptance. In simpler terms, the size of the transaction influences the size of the Interchange Rate. Smaller transactions have smaller rates while larger transactions have larger rates.

Determining Factors

High-risk business holders, like an online gaming merchant account holder, must know that many factors work into consideration of your Interchange Rate. The industry you are involved in, the types of cards you accept, the size of your business, and how the transactions will be processed all reflect on your rate.

Within a card network like MasterCard or Visa, multiple types of cards are distributed: personal, business, and debit. Each card poses a different security risk. The Interchange Rate reflects a level of insurance for a merchant’s acceptance of cards- providing incentives like a reward card or cashback.

The type of business you run can greatly affect how large your Interchange Rate is. Between each industry existing today, there is a disparity in profits. In setting the Interchange Rate card networks analyze your profit margin to determine what fee will encourage credit card use without hurting the business.

The size of your business also weighs heavily on the Interchange Rate you will receive. Card networks set a minimum number of transactions; if you are below that set you may qualify for a lower exchange rate.

The security of your business is a major concern for the card networks. How you choose to accept payments can lead to a higher risk of fraud. Businesses that use physical terminal swiping are more appealing than those that rely on Internet transactions. The card networks use the Interchange Rate as a type of insurance for themselves, the more secure your business is the more likely it is you will get a better rate.

There are some additional things to take note of if you want to achieve the lowest Interchange Rate possible. First, you should talk with your merchant account provider to make sure the Interchange passes through pricing, do not settle on this. When dealing with customers try to encourage debit card use.

Debit cards are a more secure transaction, which in turn means a lower rate. Check to make sure your merchant category code is correct. Always use the most recent payment technology and bundle transactions to keep your business safe. Calculate your real rate on a regular basis and consider whether or not it would be more economical to switch to a different card acceptance provider.

Educating yourself on what Interchange Rates mean and how they affect your small business with the help you get the lowest possible rate for your business. Remember to always update your information; with technology constantly advancing, new rules, new pricing, and new terms can mean a better deal on your Interchange Rate.

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