Published On: June 7, 2021

Businesses need to maximize every opportunity to control overhead costs of all types, including on charges related to payment processing known as interchange fees. Here, we explain what interchange fees are & how you can save money by obtaining more affordable payment processing rates.

It’s important to understand all the different elements that go into calculating costs for services that businesses rely on to operate efficiently. This knowledge helps the key decision makers within the business choose service providers that are able to offer the greatest combination of benefits and advantages for every dollar, thereby maximizing the return on the investments that the business makes.

This is particularly relevant when it comes to selecting a payment processing solution, as there can be great opportunities for a business to save money on interchange fees & payment processing services by choosing the right merchant services provider. Over the long term, selecting the payment partner that aligns best with your business will have a significant impact on profitability.

So, what should you know about payment processing service rates? Let’s start by looking at exactly what interchange fees are, and how they work.

What Are Interchange Fees?

Each time money moves from one location to another, whether it be physically or electronically, there are costs associated with the process. For example, special payment equipment and technology is needed to process the transaction, and security systems are needed to prevent fraud. Of course, there are many other elements that go into making payment processing work, but you get the idea. Accepting multiple different types of payments, verifying authenticity, moving money to and from accounts, converting currency, and making the entire process smooth and seamless is a lot more complicated behind the scenes than it may seem when you chip or tap your card while making a purchase.

In order to achieve all the necessary steps along the transaction pathway between a business and a customer, and ensure that it takes place quickly, conveniently, and securely for all parties involved, credit card issuers (Interac, VISA, Mastercard, and AmEx) establish a small fee charged on each transaction, known as an interchange fee. The interchange fee covers the cost of the process of moving money.

How Are Interchange & Interac Fees Calculated?

Credit card interchange fees are calculated using a percentage value, and applied to each transaction that is processed for a business. These rates are calculated based on a wide range of factors and criteria, such as the brand of card (Visa vs. MC, etc.), card type (points/rewards card vs. classic card, etc.), the size of the business, the industry the business operates in, the dollar amount of a typical transaction, and so on. As such, interchange rates for one business could be very different from those of other businesses based on the criteria of those various factors.

In addition, one of the most important elements of interchange rate calculation is risk. For example, payment methods that are more secure and carry a lower level of risk, such as card-present chip-and-pin cards, will likely have a lower interchange rate applied to them when compared to online or card-not-present transactions. Because of this, many businesses find there is a strong incentive to equip their operations with modern payment processing systems so that they can offer customers the advantage of greater security, while simultaneously saving on transactional interchange fees.

Interac fees for debit card payments are more straightforward and easier to understand: such fees are billed per transaction.

Why Do Interchange Rates Change Over Time?

However, even when all these things are taken into consideration and an interchange rate is calculated, it does not remain permanently fixed. Interchange rates can fluctuate over time in correlation to other influencing economic factors. Currency exchange rates, economic stability, and bank lending interest rates are all examples of factors that can cause interchange fees to increase or decrease over the course of time. Credit card issuers such as VISA and MasterCard may revise their interchange rates several times a year to account for these types of shifts in market conditions.

What Are the Average Credit Card Processing Fees?

 Because there are so many different variables that are used to calculate interchange rates, credit card issuers and payment processing providers simplify things by offering a base percentage interchange rate that is applied to the dollar amount of each purchase. Although this base rate can change for different businesses based on the factors we discussed earlier, in general the average interchange rate in North America comes out to be about 1.76%. However, it’s important to always keep in mind that this average value shouldn’t be taken as a set-in-stone guarantee for all businesses, as there are many instances where the rates will surely be different.

Nevertheless, the cost of interchange rates is certainly well worth it, as the ability to accept a wide range of payment methods allows businesses to offer customers the convenience and security they have come to demand from a payment processing system. From the perspective of the merchant, a 2% interchange rate simply boils down to the cost of doing business.

How Can I Get the Lowest Online Payment Processing Fees?

Another important term to know is an “interchange plus” rate – a combination of an interchange rate set up by Visa, Mastercard, or AmEx, and an additional percentage charged by a bank or independent selling organization (ISO) for payment processing through their POS terminals, deposits to your merchant account, technical support, customer service, same-day onsite swap service for POS terminal replacements, etc. Think of “interchange plus” rate as similar to mortgage interest rate: in case of mortgage, there is a prime rate, and another percentage that lenders charge for their services.

While “interchange plus” fees are an essential part of any business’ operating costs, there are some strategies and tactics that a business can employ in order to help minimize these costs while still retaining the comprehensive functionality they require in transaction processing.

For example, some merchant service providers will be able to offer slightly different rates to certain types of businesses if they are determined to have the lowest level of perceived risk across all the various considerations. This is to say, a business who chooses to invest in the most up-to-date payment processing solution with advanced fraud protection will likely be able to secure a lower “interchange plus” rate than a business that is using an older or less secure transaction system.

Furthermore, some merchant services providers (MSPs) specialize in serving certain industry verticals or are able to offer customized payment processing solutions that result in greater efficiencies and increased transaction volume. This may allow the specialized MSP to offer a slightly lower “interchange plus” rate for the business than other MSPs may be able to do, decreasing the overall cost of transaction processing for the client and helping them boost profitability. For this reason, it’s important to shop around and conduct a thorough evaluation of different payment processing companies in order to choose the one that offers the best combination of service and low rates for your particular business.

In addition, you’ll also need to take into consideration the cost of installation, setup and configuration of any payment processing solution for your business, the price range of which can vary drastically based on the needs of the business and the scope of the application. For example, an online e-commerce payment processing integration will undoubtedly have significantly lower setup & installation costs than a nationwide retailer in need of a complete in-store point-of-sale solution in every location. However, just like some MSPs are often able to provide lower rates for businesses that fit their areas of specialization, they may also deliver installation and setup costs that are more affordable than other competing payment processors.

On another note, it is also possible that you may be able to secure a setup fee credit MSPs offer as limited time promotions or a special discount, which can be used to help to save money on the initial setup costs of your payment processing system. When you’re looking to implementing a payment processing system for your business, be sure to ask what incentives or offers are available that can be used as a setup fee credit with your MSP.

What Can I Do If I’m Not Sure I’m Getting the Best “Interchange Plus” Rates?

If you’re starting to question whether or not your business is currently paying too much for payment processing, it’s probably a good time to obtain a cost comparison analysis. This information will bring to light the potential savings your business can achieve by changing to a different payment solution or merchant services provider that can bring down your “interchange plus” rates and increase your business’ profitability.

To start the process of receiving a cost savings comparison for your business, contact MONEXgroup today and our team of payment processing specialists will be glad to crunch the numbers for you. You’ll see quite quickly how your bottom line could improve by investing in a more secure, more efficient payment processing solution. Plus, your customers will benefit from the added convenience and security of a modern payment system, and that will certainly have a positive impact on their experience and satisfaction each and every time they do business with you.

Whether you’re looking for a flexible and portable mobile POS terminal, a powerful in-store payment system, or an online payment integration that can be accessed from any connected device, MONEXgroup has the technology you need and the 24/7/365 customer service and expert technical support to help grow your business and accelerate your success. Contact us today to get started!

Author: Layal Scheirich, Head of Sales at MONEXgroup
Bio: With 18 years of experience in payment processing and merchant services, Layal has seen in-store POS technology evolve from its humble beginnings to contactless, unattended, mobile and online alternatives. Today, Layal is an inspiration to the MONEXgroup’s team and a go-to source of information related to payment processing. She is enthusiastic to share her knowledge with audiences interested in cutting-edge technologies available today, such as unattended payment for self-serve kiosks, e-commerce online payment gateways, virtual terminals, and contactless and mobile payment solutions.
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