What are these interest charges I see on my credit card processing report?
There are two methods which a merchant processor charges interest on credit cards:
1) Three tier plus basis points
2) Interchange rates plus basis points
There exist some 200 odd types of Visa/MasterCard credit cards which are issued by banks. An example of different types of Visa cards would be a Visa Gold Card compared with a Visa Rewards Card or a Frequent Flier mile Visa Card. The way customers earn their points on these cards is by purchasing products from merchants. It is actually the merchant processing these cards that is paying for the customer’s points.
In the three tier system, a merchant processing company lumps together cards into three different categories, Qualified, Mid-Qualified, and Non-Qualified. Qualified cards will all be processed at some rate for example 2.2%, while Mid-Qualified cards will be processed at 2.79% and Non-Qualified cards processed at 3.19%. The numbers are just an example here to illustrate the point that Qualified cards are processed at lower rates than Mid-Qualified and Non-Qualified. In addition to the percentage which each card is charged, there is usually an additional fee tacked onto each card processed which usually amounts to around $0.20 a transaction.
In an interchange system, the merchant processing company charges the merchant the exact rate for each individual card (click here for Visa rates – click here for MasterCard rates) of credit card rates click here) set by Visa/MasterCard. In addition to this rate the processing company charges the merchant additional basis points and a transaction fee. One basis points amounts to 1/100 of a percent. For example a customer swipes a Visa card which is charged at a 1.5% rate by Visa. If the merchant is paying 20 basis points and $0.20 a transaction then the rate for that card will be 1.70% plus $0.20 a transaction.
Typically a good interchange program with a merchant processing company beats a three tier program as merchants save a lot of money on cards that are processed at lower rates. This also depends though on the type of industry and the type of clientele the merchant has. It may be the case that the majority of a merchant’s customers in a particular location use a credit card that falls under the Qualified category and the rates are exceptional.
It is worth it for merchants to investigate what they are paying in fees with their merchant processor. A funding specialist or a representative of the merchant processing company can help the merchant with this.
For a list of the best merchant processing companies click here!