Interchange fees are a common part of the cost associated with a merchant services provider who will help you accept credit cards. Interchange rates play a major role in credit card processing fees. They determine the amount that you pay for every payment method. Small business owners need to know what interchange is, and how it functions. You can better prepare for or protect yourself from it when you make business decisions that could impact your margins.
What should small business owners know about interbank fees? Interchange rates can be confusing to small businesses, as they often have a lot of questions. This article will help you better understand interchange rates so that you know what to expect when you accept credit card payments.
What is the Interchange Fee?
Interchange fees are a percentage that is charged by credit card companies and banks for the processing of payments on each transaction. These fees will be deducted from your total purchase amount, so you’ll receive less money than the customer paid. The exchange rate varies by network, card type, and many other factors. Scroll down to learn more about these fees and how they work.
What Is an Exchange Rate?
The exchange rate varies depending on the type of card used, as well as other factors. Small business owners can find them frustrating. Interchange rates are calculated so that every time a credit card is used to pay for a transaction, the merchant must pay a fee. This fee usually ranges between 1-2% on the total amount of the transaction. Scroll down to learn what small businesses need to know about these sneaky fees!
What Are Some of the Most Common Interchange Fees?
The exchange rates may vary from one network to another. They can vary from 1-2%, but not always. If you are not careful, interchange rates will quickly reduce your profits. It’s important to know what kind of credit card was used in order to determine the interchange rate. Scroll down to find out more!
What Is the Average Rate of Interchange for Visa and Mastercard Cards?
The interchange rate varies depending on the type of card used. However, Visa and MasterCard have an average interchange rate between 1 to 2%.
What are the Interchange Fees for Businesses?
The exchange rate is usually between 1-2% but can be higher.
A merchant is charged an interchange fee when a customer pays for their purchase using their credit card. This fee usually ranges between 1-2% on the total amount of the transaction. What are the various interchange rates for each network of credit cards? The amount of the interchange fee charged to merchants depends on what type of card was used. Merchant processors have three ways to quote interchange fees. Some costs are the same for all processors, while others are completely up to the processor. Below are 3 different types of fees that you may encounter.
What Is Flat-Rate Fees?
You may receive a flat-rate fee structure. Most businesses pay a flat-rate interchange. Most businesses pay a flat rate of 2.95% to aggregators like Paypal, Stripe, and Square. You pay the same fee for any card swiped. Then they can charge additional fees. You may have to pay Stripe 2.9% + $0.30 per card swiped if you want to process payments.
What Is a Fee Structure With Tiers?
If you have a tiered fee structure, each transaction is priced according to one of three tiers based on the type and brand of card being used. The cost of accepting different cards can vary widely because there are many interchange levels. Merchant service providers are grouping cards of different types into three categories to simplify the pricing. Different tiers will apply to cards such as rewards cards, standard-issue cards, and debit cards.
If you choose a fee structure with different tiers and your client pays by debit card, then you’ll be charged at the lowest level. If they pay using a reward card, you’ll be charged the highest fees. The structure of these structures is heavily dependent on the processor or merchant services provider. Shop around to compare rates before you make a decision.
What is Surcharging
This could be a huge savings for smaller businesses, or those who process smaller transactions. This is the fee structure you use when you pass all credit card processing costs to your clients. You would add a surcharge of between 3 and 5% to all transactions. This means that paying with cash would result in a discount. Some states do not allow surcharges, so be sure to follow your local laws.
What Is Interchange Plus?
A merchant service provider will charge you an interchange-plus fee if they add a percentage to your interchange costs. This extra fee is, in essence, their profit. Profits are split between the merchant services provider, their processor, and other stakeholders. They might say, for example, that if someone pays using a Visa Debit Card, they’ll charge you 0.2% more than interchange. If the interchange is 1,2%, you’ll be charged 1.4%.
Flat Rate vs. Interchange-Plus Fees (Pros & Cons)
It’s not hard to understand why Interchange-plus has become a very popular model of interchange pricing. You know exactly what you’ll have to pay upfront, so it provides convenience and transparency. It can be hard for business owners because there are many variables that affect the final price.
The Advantages of Using Interchange Plus
Interchange-plus has the biggest advantage of allowing you to pay the rate applicable to your card. This fee structure ensures that you do not pay too much for cards that fall into certain categories. The major disadvantage of interchange-plus, however, is that, while it might seem cheaper, the fees are often quite high. While you may like the idea of paying only interchange plus 2% on a transaction, it could end up costing more than 4%. Merchants are often enticed by the number after interchange without realizing that they pay both fees. Merchant service providers who are misleading will not state clearly what the interchange rate is, so you must ask.
Common Questions About Interchange Fees
Answers to common questions regarding interchange fees
Why Are Interchange Rates Necessary?
Card processing companies need to charge interchange fees in order to earn money. These fees cover the costs of processing cards, making them accessible to customers, etc.
Are Interchange Fees Negotiable?
Yes and no. The interchange fees have already been negotiated between card brands and banks. They cannot be changed. You can, and should, negotiate interchange-plus charges with your processor or MSP. Take advantage of this. Often, processors try to win your business by giving you the lowest rate.
What Is the Exchange Rate by Country?
The exchange rate varies depending on where you are. If you live in the United States for example, your exchange fee will be between 1-2%. In Peru, the interchange fee would be around 3.5%.
Who pays the Interchange Fees?
When a customer uses a credit card to pay for something, the money is usually split between the merchant services provider, their processor and any other stakeholder. If you choose an interchange-plus model, and your customer pays with a Visa Debit Card, you could be charged 1.2% more than the interchange rate. If your card’s interchange rate is 1,2%, you would be charged 2.4% for the transaction.
This is the entire profit of your processor. This profit is used to pay for services like customer service and software development, which allows them to offer their services. They will also use this money to offset any losses that the account has incurred (i.e. chargebacks).
Final Thoughts
Small business owners can have a lot of trouble with exchange fees. Many merchants are unaware of these additional charges, which can quickly add up. Contact your merchant service providers today if you are unsure of your current interchange rate. You can get the information that you need for free and they may even be able to help you reduce your rates.
Consider switching providers Like Exzact Busines Solutions if you are not satisfied with the interchange rates you currently receive. Before signing a contract, will make sure that the new MSP offers transparent pricing and has low costs. You can also try to negotiate a lower rate with your current provider. Many business owners use this option to save money.
Interchange fees aren’t the only costs of running a business. Accepting credit cards will always come with some cost, but by planning ahead and knowing these hidden costs, you can save money in the long run.
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