Interchange Explained

May 22, 2018

Interchange fees, which account for the majority of the processing costs on a merchant’s monthly statement, can be a mystery. Interchange rates are established by the card brands (Visa, MasterCard and Discover) and reflect the underlying costs of a credit card sale.

Let’s say a customer makes a credit card purchase of $50 at the grocery store. The bank that issued the credit card (issuing bank) then funds the $50 to the grocery store before they can collect the money from the customer. Interchange rates refer to fees paid by the merchant’s bank (acquiring bank) to the issuing bank for this service.

What Affects a Merchant’s Interchange Costs

The interchange rate for a transaction depends on the interchange category for which it qualifies. Interchange rates will always have two components: a percentage fee for the volume of the sale and a per-transaction fee.

A number of factors are used to determine the interchange rate, some of which you have some control over and some, you do not.

Factors merchants can influence include:

  • Processing method: In general, card-present interchange categories carry smaller fees than card-not-present categories
  • Transaction data: Proper and complete transaction data (i.e. correctly and completely filling out all the data fields) is especially important for merchants who process card-not-present transaction. This also applies to government and corporate cards.
  • Merchant Category Code: Specific interchange categories exist for businesses that fall under certain MCC designations.

Factors merchants cannnot control over include:

  • Card type: Separate interchange categories exist for credit and debit card transactions
  • Card brand: Reward cards typically carry higher interchange fees than non-reward cards because the card-issuing bank has additional costs to recoup, such as rewards, points or airline miles
  • Card owner: Cards issued to individuals, businesses, corporations and municipal agencies all qualify for varying interchange rates.

In addition to interchange fees, there are other fees that the card brands assess for the right to use their networks and systems. These card association fees can be difficult to keep track of and are based on many factors.

Does Interchange Change?

While the card brands can update interchange rates and fees at any time throughout the year, they typically do so in April and October. Here is a summary of April’s interchange modifications.

  • Effective April 1, 2018, Visa modified their Fixed Acquirer Network Fee (FANF) rates for certain monthly sales volume tiers for Card Not Present Volume, Fast Food Restaurants and Unattended Terminals. Monthly Visa sales volume in excess of $200,000 was affected.
  • MasterCard revised the pricing structure for the Acquirer Brand Volume Fee on signature debit transactions, as well as consumer and commercial credit volume less than $1,000.
  • Discover introduced new international fee programs for consumer and commercial cards.
  • Discover modified Fee Descriptors for certain fee programs.

 

 


What to Avoid When Searching for a Credit Card Processor

April 11, 2018

Finding the best credit card processing company for your business can be an adventure — and not always the best kind. Here are some pitfalls to avoid when performing your search.

Long-Term Contracts and/or Early Termination Fees

Be wary of processors asking you to sign a long-term contract with early termination fees. It’s common in the industry to find contracts of up to five years in length, and some processors have an auto-renewal clause.

In addition, there are processors who don’t charge a flat early termination fee but calculate the amount using a method referred to as “liquidated damages.” With liquidated damages, you’ll be charged the amount in revenue that your processor determines it will lose due to you closing your account. For example, if you have a three-year contract, and you cancel after one year, you will pay a cancellation fee equal to two years worth of processing costs.

Long-Term Non Cancellable Equipment Leases

Leasing versus purchasing a credit card terminal can seem like an affordable option, but lessee beware. Often times, these long-term lease agreements cannot be cancelled, which means that you are the hook for monthly payments for the entire duration of the lease term — even if you switch processors or stop accepting cards altogether .

Unexpected Rate Increases

Don’t fall for the classic “bait and switch.” Processors will quote aritifically low rates only then to raise them a few months later. Always read the Terms and Conditions to ensure that the processing company does not reserve the right to raise your rates.

Confusing Pricing and Statements

Credit card processors employ a few different pricing methods. One in particular — tiered pricing — can lead to confusing, hard-to-understand statements and unexpected higher rates.

With this pricing model, transactions are lumped into “rate buckets,” such as qualified, mid-qualified and non-qualified. Usually the processor advertises the rate associated with the qualified bucket because it is the lowest. What often happens, however, is that a large amount of the merchant’s transactions are downgraded and consequently charged at a higher rate.

Hidden Fees

The devil is in the details. Ask for an outline of all the extra monthly and annual fees you will be charged. Make sure that the rate they quote takes into account all of those fees. Take the time to reach through the Terms and Conditions to ensure that what you’re being promised is what you’re going to receive.

In essence, credit card processors are in the “trust” business. You trust them to safely process your credit card receipts for a fair price. By doing some homework, you can help ensure that you find the best processor for your business and its unique needs.

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Merchant Guide: 10 Essential Tips for Preventing Chargebacks

March 14, 2018

A chargeback – also called a reversal – is the return of credit card funds that were used to make a purchase to the cardholder. A chargeback occurs when a customer makes a refund request through their credit card’s issuing bank.

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Most chargeback situations arise at the time the transaction is completed. Possible reasons for chargebacks include:

  • Unauthorized use of a credit card (stolen card)
  • Product or service not being received
  • Customer dissatisfaction with a product or service
  • “Friendly fraud” or the result of a consumers filing an illegitimate chargeback

Every business wants to keep their chargeback expenses to a minimum. Here are our top tips on doing so.

  1. When a cardholder disputes a transaction, the issuing bank may request the merchant to provide copies of receipts and other paperwork related to the sale. Always respond to these requests.
  2. Do not a complete a transaction if the authorization request was declined. Do not repeat authorization for payments that are declined.
  3. Make sure your billing descriptor is accurate. Often a customer will initiate a chargeback because the business name on the statement is unfamiliar and doesn’t match your DBA.
  4. Clearly communicate your contact information, as well as return, refund, cancellation and shipping policies.
  5. If a customer is ordering online, promptly send a receipt via email.
  6. Settle and deposit your sales receipts with your merchant bank in a timely manner.
  7. If a customer request cancellation of a recurring transaction, such as a membership or service, always respond to the request and cancel the transaction as specified by the customer.
  8. Be accurate and clear about your product and service to prevent any customer misunderstandings.
  9. Ship merchandise before depositing and transaction.

If a product or service is going to be delayed, advise the cardholder the option of a different product or service or canceling the transaction all together.


Little-Known Secrets of Credit Card Numbers

February 13, 2018

The string of digits on the front of your debit or credit card might look random, but they’re actually telling a story. While each card brand (Visa, MasterCard, American Express, Discover) has a slightly different formula, here’s an overview of what the numbers signify.

A bank identification number (BIN) is the initial four to six numbers that appear on a credit card. BINs help ensure that transactions are routed through the proper card network and financial institution so that the transaction can be authorized.

The four most common credit cards in the US are Visa, MasterCard, Discover and American Express. Their starting BINs are as follows:

  • Visa: 4
  • MasterCard: 51-55, 2221-2720 (New)
  • Discover: 6011, 622126-622925, 644-649, 65
  • American Express: 34, 37

Numbers following the BIN signify everything from the currency being used, card type, bank processing the transaction and cardholder account number. The final digit is referred to as a check digit, which is a random number used to protect against errors and fraud.

The Luhn Formula

This low-tech formula can show whether a credit card number is valid. Try it for yourself.

  1. Enter your credit card number
  2. Double every other number, starting with the second number from the right. Write those digits under your original card number. Cross out any number you doubled.
  3. Look at the new line of numbers. If a number has two digits, add those together. Again, write those numbers down in a new row, and cross out the ones added together.
  4. Add together all numbers that are not crossed out.
  5. Is the sum’s last digit a zero? If not, the credit card number is not valid.

It’s important to note that the Luhn formula was designed to detect accidental data entry errors and not as a defense against fraud. And, it’s a pretty cool party trick.


Innovative Visa Wearables Make It Simple to Pay and Play at Winter Olympics

February 13, 2018

Spectators and fans of the 2018 PyeongChang Olympic Winter Games can pay for food, souvenirs and other goods and services with just the touch of a glove (or sticker and commemorative pin). Visa teamed up with South Korean retailer, Lotte, to manufacture wearables that make it possible to tap and pay at more than 1,000 contactless-enabled terminals throughout the various Olympic venues.

Available wearables include four custom-designed lapel pins, gloves and thin, flexible payment-enabled stickers that adhere to hats, bags, jackets and other items. Items were available ahead of time at various venues and during the Games at Olympic Winter Games superstores and Visa vending machines.

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The Basics of Chargebacks

December 21, 2017

No business owner likes to talk about them, but they happen to everyone — chargebacks. Simply put, a “chargeback” provides an issuer with a way to return a disputed transaction.

Copy requests and chargebacks

When a cardholder disputes a transaction, the issuer may request the cardholder to provide a written explanation of the problem and the acquirer (merchant bank) to provide a copy of the related sales transaction receipt. This is called a copy request (or retrieval request), and if you receive one, it’s very important to provide the information being requested.

After receiving this documentation, the next step is to determine whether a chargeback situation exists. In the case of chargeback the dollar value (financial liability) of a transaction is reversed. For merchants, this can be particularly costly, as you may lose both the dollar amount of the transaction and the related merchandise.

What triggers a chargeback?

Chargebacks arise for many reasons, including customer disputes, authorization issues and unfulfilled copy requests. Many chargebacks arise from easily avoidable mistakes and omissions — so the more you know about proper procedures, the better. Of course, chargebacks are not always the result of something merchants did or did not do; sometimes errors are made by acquirers, card issuers and cardholders.

Chargeback cycle

Most chargebacks begin when a cardholder reports a problem to their card issuer. Here’s a quick look of the lifecycle of a chargeback in a customer-initiated dispute situation.

Lifecycle of a ChargebackOMEGA Processing’s customer service will reach out to our merchants when we receive notice of a pending chargeback to help resolve the issue.


What’s New With OptBlue?

November 20, 2017

OptBlue, the small business card acceptance solution from American Express, has undergone some recent enhancements. Here’s a look at why there’s never been a better time for your business to accept American Express.

  • New pricing and policy changes have been made to Government, Education and Hospital industries so it’s easier to enable more merchants on OptBlue.
  • Disputes policies were updated to maintain fairness and transparency. In the first three months the new policies were in effect, disputes were down 11%, and merchants saved over $5MM in chargebacks.
  • OptBlue wholesale fees for small restaurants transactions were reduced

Want to know more about OptBlue and its rates and fees? This short video provides an excellent overview.