Thank the moon and the stars for Wikipedia. The definition to literally everything can be found there. And it’s written in terms you can understand. Sometimes, however, those expertly written terms still don’t click in one’s head. Or they bring up terms that require more explanation. Need an example?
Take the term interchange fee. Wikipedia states that the “Interchange fee is a term used in the payment card industry to describe a fee paid between banks for the acceptance of card based transactions.”
It would be easy if the definition stopped there, but four paragraphs later, after reading about complex pricing structures, percentages and rates, you realize you could spend your entire day on Wikipedia – and, worse yet, if you are a merchant, you would ultimately learn that these fees are not in your control!
Let’s save a few hours of research and listen to what GoSmallBiz has put out there for us. The article, The Role of Interchange, written by Bluefin Payment Systems, explains that interchange is the fee that the card issuer or debit network charges the merchant to process a payment. The fee is designed to compensate banks for the risk and expense of processing the transaction. It is included in the transaction fee that your payment processor charges, and is set by the associations bases on card type, industry type, qualification elements and processing method used.
Well, that makes sense doesn’t it? But, as a merchant accepting credit/debit cards, you cannot control some of the factors that affect your total transaction fee, such as the type of card the consumer swipes. However, you can help minimize your interchange costs by:
- Swiping customer cards whenever possible (for a card-present transaction and thus a lower rate);
- Avoiding voice authorizations where possible;
- Performing daily settlements;
- Avoiding authorization and settlement amount mismatches;
- Employing methods that encourage your customers to contact you directly rather than disputing a transaction, which can help avoid charge-back fees;
- Capturing additional security information with Internet and/or phone transactions.