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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