How credit card processing charges are levied and how a business can reduce their costs in processing credit card transactions were some of the topics discussed during a recent NACM teleconference. "The Evolution of Credit Cards in B2B Transactions," was the title of the session conducted by Robert Day, Fifth Third Bank Processing Solutions Officer and Commercial Merchant Analyst.
Day pointed out that there are essentially three major parties in a credit card transaction that make money from credit card transactions. There is the issuer of the card, an acquirer or processor—of which Fifth Third Bank is an example—and the interchange or network, such as Visa and MasterCard. As far as what party is making the most money on credit card transactions, Day said, "A good chunk of money is going back to the bank." The most variable aspect of the fees involved in such transactions is involved in the network or interchange. "You need to manage the interchange," Day said. In an example of a $50 Visa charge, Day said that the interchange represented 92% of the cost of the transaction. Depending on the level of information provided by the merchant or selling business in a credit card transaction, credit card transactions are classified as level I, II or III. The more detail provided in the transactions the higher the classification. The higher classifications are charged lower fees. "It’s more important now than ever to be at level III," Day said.
Day also advised to be prepared for rule changes to be implemented by MasterCard and Visa on April 13. "There’s going to be 11 new interchange categories," he said. "We still don’t know the details of how the card types will play out. You’ve got to make sure you’re set up to handle the situation." Day noted that it’s important the processor or acquirer you choose is diligent in trying to drive your interchange costs down. "You need somebody who’s going to be proactive to make sure the interchange is working for you. You must get a processor who explains the interchange fees. It’s the processor’s responsibility to get you a lower rate." He noted that some processors do not break out the fees so it’s difficult to determine the rates being applied to the transactions. There are also statements that are misleading, making it difficult to compare what other processors are charging for the same types of credit card transactions. "You have to be cautious with statements that do not list all the interchange fees." He also warned against processors that quote low rates for transaction types the merchant will rarely have, which will result in the actual rates being much higher than the quoted rates. For example, the processor may quote a rate involving transactions where the cardholder is present and signs a receipt even though most of the merchant’s transactions will be of a different and more costly type.
Source: Tom Diana, NACM staff writer and Robert Day, Fifth Third Bank