For businesses nowadays, accepting payment cards is non-negotiable. The process of a payment card transaction seems simple; a customer swipes, dips, or taps their card, receives approval, and easy as that, they are on their way with their newly purchased products or services. However, behind the scenes of this seemingly simple process, several participants are working to complete the transaction. Participants can include the cardholder, the merchant, payment card networks, issuing banks, and card acquirers, each of which can include a fee for their participation in the transaction. For corporations, who can see thousands or millions of transactions daily, the fees can quickly add up.

Determining The Interchange Fee 

The interchange fee is simply the fee the merchant pays to the cardholder’s issuing bank to accept a card payment. The portion taken out per transaction is determined based on the interchange category the transaction falls within. Categories are determined based on a variety of factors during the interchange qualification process. Merchants can influence or control some, but not all, of the factors used during this process.

Merchant Influenced Factors

The first factor merchants can influence is the processing method. Two common processing methods for credit card payments are card-present and card-not-present. The card-present method is when a merchant is able to read the customer’s card data electronically via swipe, dip, or tap. This process is referred to as an electronic draft or data capture. In the event the merchant cannot read the card data electronically, the information is entered manually and is considered a card-not-present processing method. Manual data entry can be done either by the merchant or the cardholder. An industry best practice is batching card-present and card-not-present transactions in a timely manner. Another factor merchants can influence is supplying complete and accurate transaction data during the qualification process. While the merchant category code (MCC) is not a factor merchants influence, it is important to ensure this data is coded correctly so the right processing charges are assessed. The MCC is the four-digit code assigned to a business.

Factors Rarely Influenced by the Merchant

Card type, such as debit or credit, card brand, specifically credit cards with cardholder rewards, and cardholders, for example, an individual, business, or corporation, all influence the category of the interchange. These are factors the merchant actively tries to influence but cannot fully control.  An example of a merchant trying to influence a customer’s type of payment is when a customer inserts their card at a grocery store and is immediately asked for a PIN. This is called PIN prompting.

How Redbridge Can Help

Over the past 20 years, Redbridge Debt & Treasury Advisory has helped corporations analyze and reduce these payment card fees. Knowledgeable in the evaluation of domestic and international fees, our team of experts continuously monitors the ever-changing world of electronic banking to deliver up-to-date and transparent advice to our clients. Read how we helped Europcar optimize their structure by pooling card transactions with a single service provider.  To read more on this topic check out our blogs. Contact us to learn more.

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