Card brands, such as Visa, Mastercard, Discover, and American Express, regularly evaluate and update their interchange rates. These changes are announced twice a year, in the spring and fall. The next update is scheduled for April, and this blog aims to provide insights and guidance to help businesses prepare for potential impacts on their operations and revenue.

To ensure continuous profitability, independent software vendors (ISVs) and value-added resellers (VARs) must stay informed of the modifications card brands make to their interchange rates and fees. This knowledge enables ISVs and VARs to promptly notify their merchants of any discrepancies they may encounter in their billing statements and make appropriate adjustments to their pricing strategies, safeguarding the steady flow of profits for their merchant accounts.

Understanding Interchange Fees

Interchange fees are transaction fees paid by the merchant’s bank to the cardholder’s bank whenever a customer uses a credit or debit card for a purchase. These fees are set by card networks like Visa, Mastercard, Discover, and American Express, and vary based on factors like the type of transaction, card type, and merchant category. They cover costs associated with handling, fraud, bad debt, and the risk of payment approval.

Card brands routinely review and adjust these fees to reflect changes in the market and operational costs. As a result, these modifications can lead to fluctuations in processing costs for merchants, impacting their bottom line. It’s important for merchants to stay informed about these changes to manage their payment processing fees effectively.

The interchange fee is typically determined by the level of risk associated with a transaction. In general, transactions with a higher risk of fraud carry higher interchange rates.

Here are some major factors that affect the interchange fee:

• Card Type: Debit cards typically incur lower fees due to lower fraud risk, while credit cards, especially rewards or business ones, have higher fees.
• Transaction Method: Swiped or chip transactions are usually cheaper due to lower fraud risks compared to online or keyed-in methods.
• Merchant Category: Different industries, defined by Merchant Category Codes (MCC), can have varying rates.
• Cardholder: Different rates apply depending on whether the cardholder is an individual, business, government agency, or nonprofit, with government cards often having lower rates due to reduced risk.

Effective strategies for lowering interchange fees include:

1. Utilize an Address Verification System (AVS) to verify billing addresses, reducing fraud risk and potentially lowering interchange rates.
2. Settle transactions daily to avoid higher downgraded rates and customer disputes.
3. Promote debit card usage, which carries lower interchange fees than credit cards.
4. Minimize manual entry of card details to avoid higher processing rates associated with keyed-in transactions.

April 2024 Updates Overview

In April 2024, significant updates to interchange rates and fees by Visa and Mastercard will take effect, impacting merchants across all sectors. Here are some of the key changes:

• Visa is introducing a Commercial Assessment Fee of 0.01% for all U.S. Acquired POS volumes from transactions made with Visa Business Solutions Products.
• A High Integrity Risk Fee of $0.10 per card-not-present transaction and 0.10% of the card-not-present volume will be implemented for specific High-Risk MCC codes.
• The Visa Account Name Inquiry Fee will increase from $0.05 to $0.10 per inquiry.
• Mastercard will introduce a Mail Order/Telephone Order Fee of 0.015% on all U.S. cleared transactions defined as such.
• The Network Access and Brand Usage Fee (NABU) by Mastercard will be extended to non-domestic authorizations and transactions at $0.0295.
• Digital Enablement Pricing for card-not-present transactions greater than or equal to $1000 by Mastercard will increase to a fixed rate of $0.40.
• Dues & Assessments by Mastercard will be adjusted to 0.14% for transactions under $1000, and 0.15% for transactions $1000 and above.
• Visa introduces two new Processing Integrity Fees to address erroneous authorizations and force post transactions, set at $0.05 per transaction.
• Visa’s new CVV2 Pricing will apply at $0.002825 per Match/No Match result for card transactions, with specific exceptions detailed.

Impact on Merchants

To avoid confusion from changes in processing statements, merchants need to be well-informed about the variations in interchange rates and fees for accepting payments. As mentioned earlier, the rate charged by card brands is influenced by several factors. Merchants must recognize that these fees are beyond the control of processors. The payments partner should clarify any fluctuations and make sure the merchant takes all necessary measures to secure lower rates. 

Merchants who understand how interchange rates affect their payment processing costs can take steps to optimize their cost savings. Here are some specific examples of cost savings opportunities:

• Offering dual pricing: Merchants can also offer customers a cash price and a card price. This can help to reduce the number of credit card transactions that merchants process, which can save money on processing fees.
• Using a payment processor that offers transparent pricing: Merchants should also use a payment processor that offers transparent pricing. This means that merchants will know exactly how much they will pay in processing fees before they sign up for a service.
• Reviewing your processing statements regularly: Merchants should also review their processing statements regularly to identify any errors or unauthorized charges. By taking the time to understand how interchange rates affect their payment processing costs, merchants can take steps to optimize their cost savings.

Preparing for the Changes

As ISVs and VARs, you are uniquely positioned to guide your merchant clients through the shifting landscape of interchange rates and fees. The upcoming adjustments in April present an excellent opportunity to reinforce your value by:

• Sending personalized emails that detail the updates and their potential impacts, ensuring merchants feel informed and supported.
• Hosting webinars or online workshops to demystify the changes, fostering a community of education and support.
• Creating accessible content, like blog posts or guides, simplifies complex topics, making it easier for merchants to grasp the implications.
• Offering one-on-one consultations, providing bespoke advice that addresses specific concerns and strategies for each merchant.
• Enhancing your website with dedicated resources on interchange rate changes, establishing your platform as a go-to source for trusted information.
• Utilizing social media to quickly disseminate updates, keeping your community engaged and informed.
• Providing clear, actionable advice on how merchants can adapt to new rates and fees, empowering them to make strategic decisions.

The dynamic nature of interchange fees requires more than just passive awareness; it demands proactive engagement and strategic planning. For ISVs and VARs, this is not just about sharing information but about being the architects of growth for your merchant clients. In this environment, your role transcends the technical aspects of payment processing to become a pivotal source of guidance and strategy.

With BOLD by your side, you have a partner that extends beyond the boundaries of traditional payment solutions. We are committed to navigating the complexities of the payment ecosystem together, ensuring that you, your merchants, and all stakeholders not only adjust to the changes but flourish. Our partnership is designed to empower you with:

• Insights into the latest interchange rate changes and what they mean for your merchants.
• Customized advice to help you optimize payment processing strategies, enhancing your value proposition.
• Support from a dedicated team that’s always on the forefront of payment industry trends and regulations.

The landscape of interchange rates is indeed complex, but with BOLD as your partner, the path to navigating these changes is clear. We empower you to transform these challenges into opportunities for innovation, growth, and enhanced service for your merchants. Step into the future of payment processing with confidence and strategic insight, knowing that BOLD is with you every step of the way, driving success not just for your business, but for the entire merchant community you support.

Together, let’s redefine what it means to be a strategic partner in the payment processing ecosystem, ensuring your journey and that of your merchants is not just successful but visionary and forward-looking.

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In today’s diverse and fast-paced business world, merchants across all industries face unique challenges and opportunities. The relentless pace of e-commerce, contactless payments, ever-changing customer demands… it can feel like your business is constantly playing catch-up. That’s where the right payment partner becomes more than just a transaction processor – they become the key to keeping your business thriving, not just surviving. For modern merchants, these rapid changes demand a partnership grounded in support, knowledge, and adaptability.

The New Era of Merchant Needs

The modern merchant’s environment is characterized by rapid changes in technology and consumer behavior. To thrive, businesses must align with a payment partner that offers more than transaction processing. A dedicated partner ensures compliance with regional security standards, offers personalized support to minimize downtime, and aids in the seamless operation of daily sales. This level of support is crucial for businesses to navigate the complexities of point-of-sale solutions, payment options, and operational management areas such as inventory, staff training, payroll, and loss prevention.

Shifts in Consumer Preferences

Consumer preferences are changing faster than ever. Some of the most notable shifts in consumer preferences include:

E-commerce Boom: More shoppers are going online. Merchants must offer a strong online store and seamless checkout to stay competitive.
Mobile payments Surge: Consumers want to pay with their phones in-store and online. Ensure your systems are compatible for convenience and satisfaction.
It’s All About Personalization: Collect customer data to understand preferences. Offer tailored experiences that build loyalty.
Sustainability Matters: Shoppers are increasingly eco-conscious. Businesses that reduce their footprint and offer sustainable options can stand out.

A significant shift in the e-commerce landscape is the rise of contactless payments and Buy Now, Pay Later (BNPL) services. It is estimated that global BNPL transactions will experience a substantial surge, with an expected increase of approximately 450 billion USD from 2021 to 2026. The pandemic accelerated the move towards mobile payments and payment consolidation, with consumers increasingly distancing themselves from traditional banking methods. The stable interest in BNPL options, fueled by the rise of e-commerce, signifies a lasting change in how consumers prefer to engage with financial services. To stay competitive, merchants need to adapt to consumer preferences by carefully evaluating the advantages and disadvantages of new payment options.

The Impact on Merchants

Changes in technology and shifts in consumer preferences significantly affect merchants’ daily operations by altering how they manage transactions, interact with customers, and maintain competitiveness in the market. Adapting to these changes requires updates to payment systems, staff training, and possibly an overhaul of customer service strategies to meet new consumer expectations. Failure to evolve with shifting preferences can lead to reduced customer satisfaction and potential loss of business. On the other hand, embracing new payment technologies can offer merchants benefits such as increased efficiency, enhanced customer experience, and access to broader markets.

Empowering Merchants with Expertise

Expert support from a payment partner empowers merchants to embrace innovation, enhance the customer experience, and drive business growth. Knowledgeable support staff and dedicated assistance are not just beneficial; they are essential components of a merchant’s success. This support extends beyond troubleshooting to include strategic advice on leveraging new payment technologies and understanding consumer trends.

Moving Forward with Confidence

How merchants can keep up with consumer behaviors:

• Be proactive: Don’t wait for consumer preferences to change. Be proactive and anticipate what changes are likely to happen in the future. This will give you a head start on developing new strategies to meet the needs of your customers.
• Be flexible: Things change quickly in the world of payments. Businesses need to be flexible and adaptable to keep up with the latest trends.
• Be customer-centric: Everything you do should be focused on meeting the needs of your customers. This means understanding their needs and preferences and developing products and services that meet those needs.
• Invest in technology: Technology can be a powerful tool for businesses that want to keep up with consumer behaviors. Invest in technology that can help you collect and analyze customer data, create personalized experiences, and improve your overall customer service.

Selecting the Right Payment Partner

Selecting a payment partner is a decision that impacts every facet of a merchant’s operations. The ideal partner offers a blend of technological expertise, market insights, and a commitment to the merchant’s success. This partnership enables merchants to view technological changes as opportunities, not obstacles, fostering a mindset of growth and adaptation.

BOLD Integrated Payments is the ideal payment partner for merchants looking to navigate the complexities of modern commerce. With a deep understanding of consumer behavior, a commitment to innovation, and a dedication to merchant success, BOLD provides the support, expertise, and technology merchants need to thrive in today’s competitive landscape.

Partner with BOLD and empower your merchants with the tools and support they need to succeed. Contact us today to learn more about how we can help you grow your business.

Are you ready to speak with a Payment Industry expert?