Best Practices for Merchants to Get The Lowest Rates Possible.
Overview
When you settle your transactions each day, National Transaction’s network routes them to the respective Card Associations (Visa, MasterCard, Discover) and debit networks through Interchange. Every transaction is assigned an Interchange category based on card type (credit, debit, rewards, purchasing) industry type (retail, e-commerce, etc) and qualification elements (swiped card, key entered, etc).
What is Interchange?
Interchange is the system where transactions are submitted for payment from the Acquirer or Merchant Processor to the Card Issuer or Debit Network. The Card Associations and Debit Networks establish the rules and manage the Interchange of all transactions.
Interchange also represents the fees paid by the merchant acquirer to the Card Issuer — Fees depend upon the Interchange Qualification that is assigned to each transaction by the associations for processing transactions. These fees are paid at the time the transaction is exchanged and vary based on processing method utilized. For example, it is significantly more expensive to process a hand-keyed transaction than a card-swiped transaction.
How can I make certain my transactions qualify at the best rate?
Interchange and Card Association fees vary in amount based on industry type, the degree to which cards are authorized, and the timeliness of remitting a sale for payment. There are several rates that may apply to your transactions, depending on your method of processing each transaction. When setting rate qualification criteria, the card associations consider the card product used in the transaction, how the transaction data is entered into the terminal, the time of settlement versus time of authorization.
Card Brand Fees
VISA and MasterCard have introduced card ‘Brand Usage’ fees for accessing their processing networks. Effective July 1, VISA will implement fees related to network authorization access, as well as penalties for mis-use of authorization services. These fees will be grouped together and reflected on your statement as ‘Card Association Fees’. The fees can be minimized and penalties can be avoided by following best practices at the point of sale.
While most authorization and clearing transactions are processed correctly, those that are not can impact a cardholder’s open to buy, cause confusion at the point of sale, and impair the effectiveness of automated risk and processing intelligence systems. Recent revisions to the card associations’ Operating Regulations support correct processing behavior to help maintain payment system quality and integrity and reduce potential negative impacts. Fee assessment will be based on effectively matching authorizations to clearing/settlement items.
Beginning in July 2009, you may see a new ‘Card Association Fees’ category on your statements. This fee will be assessed on authorization requests, and may include punitive fees intended to stop what VISA considers ‘abuse’ of the authorization services.
Abuse is generally described in two areas:
Authorizations that are not accompanied by a settlement record. Note that the use of a low-value authorization to test the validity of the card is the most common problem.
Forcing or settling a transaction without an authorization.
In order to minimize the fees, merchants are encouraged to follow these best practices:
Limit one authorization for each settled transaction.
To verify cardholder account status, perform a zero value account verification transaction instead of $1.00 authorization transaction.
Don’t force the settlement of any transactions without a valid authorization.
Void authorizations within your outstanding batches if they are not going to be settled.
There can be exceptions to the simplified best practices outlined above. Lodging and MO/TO businesses often require more than one authorization in the course of ordinary card acceptance. Contact customer service if you need further explanation or assistance.
What is a downgrade?
Card Associations quote the lowest interchange rate for a transaction, assuming that a number of requirements (which vary according to the card type, the type of business accepting the card payment, and the transaction channel) are met. If one or more of these requirements are not met, the transaction is categorized at a more expensive interchange level. This is referred to as a “downgrade.”
What are some common situations that cause downgrades?
You make a significant number of transactions by keypad entry rather than swiping cards through a POS device.
Your business model changed since setting up your merchant account, and now you offer different products and services, or provide your customers more ways to pay for orders.
Your business operates in an industry where card payments were uncommon in the past but are growing.
You request transaction authorizations over the telephone (“voice authorization”).
You routinely settle transactions more than 24 hours after they are authorized.
Transaction authorization and settlement amounts frequently differ.
A significant portion of your customers pay with business, commercial or purchasing cards (cards issued in their business’ name), but you don’t capture Levels II and III data (detailed payment information) for these transactions.
You have Card-Not-Present transactions, such as payments taken over the Internet or by phone or mail