What is Interchange (Reminder)?
Interchange fees are charged to processors and businesses by issuing banks and card brands for the services they provide. You can look at them as the wholesale cost of accepting credit cards. Since these are fixed costs and Stax does not mark them up (you pay what we pay), there is little that can be done to reduce these fees.
However, there are some best practices that can keep them at a minimum. Downgrades, or when transactions don’t qualify for the lowest interchange rate, are what you want to avoid.
Surcharging is a fee that is automatically added to the bill or sale when a credit card is used for payment, to offset the cost of transaction fees, and is passed on to the customer. This means that you can process credit cards and pay 0% in transaction fees. Once enabled, you will be fully compliant in Surcharging requirements directly within Stax Pay.
Level 2 Processing (Enhanced Data Program)
If you qualify for Level 2 processing outlined by card brands; submitting enhanced data with your transaction information can lower your total fees (such as interchange) significantly. Level 2 processing, only applies to Commercial (corporate, business, purchasing) and Government cards. If you process a lot of these cards types in high volume amounts, you can benefit from the savings by including the enhanced data details with your qualifying transactions. Stax automatically applies the enhanced data requirements to accommodate these extra fields within our API and directly in Stax Pay. This can lower your total cost up to .50% of your total processing volume.
Automated Clearing House (ACH)
ACH is an electronic network that allows people to directly transfer funds between two bank accounts. ACH transactions are very secure and the least expensive payment method for merchants to accept. When all of your transactions are added up, this kind of cost reduction can have impressive effects on processing fees.
Merchant Category Code (MCC)
Every merchant is assigned a code based on their products and industry. These classifications are assigned based on criteria created by Visa, MasterCard, and the other card brands and are used to identify types of merchants, such as gas stations or doctor’s offices. Some categories of merchants, such as charities, are given lower interchange rates. It is important to make sure your business is classified correctly so that you are charged the appropriate interchange rates.
Swiped/Chipped vs. Typed
You get one interchange rate for swiping/chipping a card and a higher rate if you key in that same card number by hand - either because the card is not present or the magnetic strip is damaged. You should swipe all cards whenever possible.
Address Verification Services (AVS)
You can still save money even if you have to key in all of your card transactions. Using AVS will check the address provided at the time of sale against the address that the cardholder’s bank has on file. If the address does not match, you may have someone other than the true card owner in front of you. The best interchange rates are achieved by always using AVS on card not present transactions.
This one is a little surprising, but not settling your batch every day can lead to downgrades. In this case, your entire batch can be charged a higher interchange rate, not just a single transaction. Be sure to settle your batch each day or even better, set up a daily auto-settlement.
Authorization and settlement should match
Picture a restaurant where a sale is authorized for $20 and then settled for $25 after the $5 tip is added at the end of the night. This transaction will experience higher interchange fees for this mismatched transaction amount. Another example would be an order authorized for $100 and then settled for $115 after the shipping is calculated and added. Whenever possible, request authorization for the exact amount you will be charging.
We hope the best practices outlined here are able to save you even more money beyond Stax's already low fees. Please see the associated articles below for more information on these topics:
- What is Interchange?
- Best Practices for Card Acceptance
- Level 2 and Level 3 Processing
- PCI Non-Compliance Fee
Reducing interchange can be complex, but our dedicated Customer Success Team is available to guide you on how Stax offers a competitive advantage to continuously lower and eliminate interchange. CLICK HERE to contact Customer Success.