Credit Card Interchange Rates: What You Need to Know
EDITOR’S NOTE: This article was originally written in early March 2021, when the news of interchange rate hikes first broke. However, towards the end of the month, Visa and Mastercard reversed their decision and announced that they will be postponing their rate increases for another year.
“Visa is committed to maintaining stability in our payments system and will not make any future rate changes in the U.S. for another year while the economy recovers,” the company said to Bloomberg.
Mastercard expressed similar views. In a statement, the company said: “Mindful that some merchants are still facing unprecedented circumstances, we are delaying our previously announced interchange adjustments.”
We’ve updated the post to reflect these developments. Below, you’ll find some action steps on what you can do in the future, if and when credit card companies increase their rates.
How much of an increase can you expect in 2022?
The short answer: it depends. Interchange rate calculations are complex and take into account a number of factors, including card types, industries, methods of payment, and more.
With Visa, the highest rate generally used to be about 2.95% and in the future, it will likely be 3.15%. As a ballpark though, you can expect a net increase of around 15% (possibly more).
As a simple example, let say a customer spends $1,000 at your business using a B2B card. With the old rates, you’d be paying around $25 for that transaction. With the new rates, your cost will increase to $31.50.
What can you do when credit card companies raise their rates?
An increase in interchange fees can put a dent in your profitability, so it’s important to take immediate steps to save on payment processing costs.
Consider the following.
1. Use a payment processor with the right pricing model
If you’re using a payment processor that implements tiered pricing or interchange-plus, you could lower your rates by switching to a merchant services provider that uses membership pricing instead.
Tiered and interchange-plus processors take a percentage off rates sales, which means as your transaction amounts increase, so will their fees. So when interchange rates go up in April, your business will see even higher transaction costs.
Sidenote: If you’re currently using a processor that implements tiered pricing, keep an eye out for a notification from them that they are increasing “Qualified or Non-Qualified fees”. Processors generally have to give notice when they are raising their own fees, and tiered plans will all have to go up to account for the increasing interchange fees.
Processors that use membership pricing, like the one we implement at Payment Depot, works differently from interchange-plus and tiered pricing. Unlike traditional payment processors, we don’t take a cut out of your sales. You only pay for interchange fees on each transaction, and you won’t have to worry about additional markups.
Think of it as paying wholesale rates on credit card fees. Payment Depot simply charges you a flat membership fee, allowing you to lower your processing fees.
Merchants using Payment Depot save an average of $400 a month, and in today’s business landscape, this can go a long way in helping you stay profitable.
2. Use a gateway that can get level 2 and level 3
Credit card transactions can be categorized into different data levels — Level 1, Level 2, and Level 3. Each level requires a certain amount of information to qualify transactions, and the higher the level is, the more details it requires. But here’s the kicker: the higher the data level, the lower the interchange rate is.
B2B businesses can qualify for Level 2 and 3 data processing, so if you serve other businesses you should consider implementing higher data levels for your transactions.
You can do this by using payment gateways like PayTrace, which automatically fills the data fields required to comply with Level 2 and Level 3 payment processing.
PayTrace can also be programmed to identify which cards qualify for Level 2 and Level 3 interchange savings, as not all credit card associations offer the same rates, and some have different policies for businesses to qualify.
Optimizing this process and automatically collecting the correct data through the use of gateway tech platforms ensures that you remain compliant and qualified, setting you up to saving time and money.
Pro tip: If you’re using Payment Depot, talk to us about our integration with PayTrace and we’ll help you get up and running.
3. Consider programs that may qualify you for lower interchange rates
See if your business qualifies for programs that can get you lower interchange rates. One example is Visa CPS.
Short for Custom Payment Service, Visa CPS requires merchants to follow certain criteria to access lower interchange rates. For Card Not Present transactions, these criteria include things like:
- The transaction must be conducted over the phone or by mail
- There should be one settlement transaction per authorization
- It must comply with Visa International Operating Regulations
- Auth must be settled within 2 days of product shipment
- The customer must be provided with additional information
- AVS must be used
As you can see, there are additional hoops to jump through, so it takes a fair amount of work. However, if you’re able to save a substantial amount in payment processing and you feel the effort is worth it, consider looking into programs like Visa CPS.
Final words
Like taxes, interchange fees are unavoidable if you accept credit card payments. It can be disheartening to see a hike in your rates but fret not. Know that there are steps you can take to minimize your fees and keep more of your profits.
At Payment Depot, our mission is to help merchants access lower credit card fees. We do this by giving you access to wholesale payment processing rates and by being completely transparent with our pricing.
