The Facts of Credit Card Processing
At Nexstar Payment Solutions, we set ourselves apart from the competition because we promote a pricing structure for credit card processing called “interchange plus”. In order to appreciate its benefits, it is important to understand how credit card processing works:
Visa and MasterCard are an organization or conglomerate of banks. These banks come together and decide what rates to charge on the types of credit cards being used in the marketplace. These rates are called interchange rates. The first factor in determining these rates is the type of credit card used in the transaction. For example, consumer credit cards, debit cards, rewards cards, corporate credit cards, etc. all have different interchange rates associated with them. An additional factor in determining the interchange rates is how credit card transactions are performed. For example, a card that is swiped through a machine, and a card whose number is manually keyed into a machine have different interchange rates associated with them. A final factor in determining the interchange rates is the type of business the merchant is operating. For example, a coffee shop and a utility business have different interchange rates associated with them.
With that said, there are 2 different pricing structures available for merchants. The first is called a “tiered” rate plan. If a merchant is setup on a tiered rate plan, every transaction defaults into one of three tiers, each with a rate set by the credit card processing company. The second is called an “interchange plus” rate plan. If the merchant is set up with interchange plus, the merchant pays a flat rate above the associated interchange rate for the specific type of credit card used in the transaction, the type of transaction that occurs (i.e. swiped or keyed), and the type of business being operated.
On a tiered rate plan, the merchant isn’t able to take advantage of the savings associated with the actual interchange rates that apply to each transaction. Every card accepted will default into one of three tiers, which is much less efficient. For example, coffee shops sell small ticket items and can qualify for a small ticket interchange rate which consists of a lower transaction fee and discount rate, which saves them money on a high number of transactions. In contrast, a utility company only pays a transaction fee, but no discount rate. If setup on a tiered rate, the coffee shop and the utility company would both pay a discount rate and a transaction fee for every transaction, which would add up to thousands of dollars per year in additional fees for both.
Large corporations have employed an interchange plus rate plan for many years and now it’s possible for smaller merchants. At Nexstar Payment Solutions, we would appreciate the opportunity to help your business begin to capitalize on it as well!
The Facts of Credit Card Processing
Information every business owner should know. Find out how the credit card industry operates.
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