Online professional resource provider Proformative has long been a key source of useful information, ranging from how-to guides for various business-related topics to informative webinars covering everything you might ever need to know about business. Now they’ve released a wonderful webinar titled “Manage the Cost of Debit & Credit Card Payments” that helps businesses deal with the often frustrating costs associated with debit and credit card merchant fees.
The webinar is taken from a longer seminar about debit and credit card costs but focuses primarily on merchant fees. The talk is given by presenter Anand Goel, founder of Optimized Payments Consulting. OPC is an organization dedicated to helping businesses manage the costs of payment processing and reduce unnecessary fees. Anand is something of a phenomenon in the world of payment processing, and his consulting firm has been a major force in the industry.
Anand highlights how the processing costs associated with credit and debit card payments have been steadily rising for over 10 years. He discusses some of the implications, both long-term and day-to-day, for companies looking to manage those costs and improve their bottom line. He provides some strategies for approaching this task while keeping customers happy and satisfied with the services your
Interchange is the basic price that card networks like Visa or Mastercard charge for each credit or debit card transaction. This charge is sent to the bank that issued the card. The example that Anand uses is as follows— if you were to use a Citibank Visa credit card at a department store for a $100 purchase, the interchange rate might be $1.61, which will be sent to Citibank as the issuer of the credit card.
Issuers and banks like interchange because it provides a significant amount of guaranteed revenue. Credit cards can make money on interest, but if payments are made within the three or four weeks allotted, no interest is accrued. Interchange pays for the cost of handling money for both banks and issuers.
Competition Among Issuers
Anand also addresses the competition that exists between card issuer networks, which results in interesting and sometimes frustrating circumstances for those left to dealing with the fallout. Card producers like Visa and MasterCard want banks to give out their branded cards, so they incentivize banks by creating ever-changing and increasing rates and price points for various tables.
In a strange way, the competition between card issuers actually increases interchange rates as card issuers try to create higher and more attractive rates that appeal to banks that issue their branded cards.
While all of this is going on, card networks are also constantly trying to diversify and go after new markets to take advantage of, like telecomm and education. To attract these new industries, card networks will use new lower rates. As a result, pricing models become increasingly complicated based on these new rates.
Another factor to consider is your individual industry—there are distinct sets of interchange rates for airlines, restaurants, T&E merchants, business-to-business merchants, regular retailers, e-commerce, etc. Each one comes with its own set of interchange rates and rules for credit and debit interactions to contend with.
Types of Cards
To make matters even more complex, not all Visa cards are the same, or even MasterCards. Various types include traditional cards, rewards cards, corporate cards, and more. Each of these types comes with its own set of interchange rates, making things even more complicated.
Method of Entry
Anand also details how the method of card use affects interchange rates as well. Transactions where the card information is keyed in usually lead to higher interchange rates than swiped cards, because keyed transactions come with more inherent risk involved.
The last critical factor that Anand addresses is the need to be compliant to regulations. For example, he outlines how retailers are required to settle all transactions that are authorized over the course of a business day. Any failure to settle by the end of that day will result in penalties and fees which add up over time. It’s critical to manage those fees effectively and settle efficiently.
Anand ultimately concludes that while many organizations undervalue the importance of having a plan in place to manage debit and credit fees for their business, those that take the steps necessary to get ahead of the game and get organized are rewarded with less cost and increased profits.