How to Optimize Your Interchange to Lower Your Transaction Costs
As payment methods change, businesses will need to react more rapidly, which makes interchange efficiency even more necessary. Merchants pay card-issuing banks interchange fees to handle credit and debit card transactions. These fees can have a big effect on a business’s bottom line. These fees may not seem like much, but for sellers who do a lot of business, they can add up quickly. That’s why improving exchange can save you a lot of money in the long run.
This blog post will explain what transfer fees are and why efficiency is important. It will also give you useful advice on how to lower transaction costs for your business.
What Are Interchange Fees?
Visa, Mastercard, American Express, and Discover are just a few of the card networks that set interchange fees. The merchant’s bank (also called the purchasing bank) pays these fees to the cardholder’s bank (also called the issuing bank) every time a transaction happens. Fees usually include a set fee and a portion of the transaction amount.
The intention of these fees is to cover the costs of handling transactions, protecting against scams, and managing credit risk. But the framework and amount of these fees change based on a number of things, such as:
Different kinds of cards (debit vs. credit, rewards vs. standard)
- Industry category of the merchant (MCC code)
- Method of transaction (card-present vs. card-not-present)
- Timing and completeness of transaction data
Why is Interchange Optimization important?
Even small changes in exchange rates can have a big effect on how much it costs to process transactions every month. For instance, if you handle $100,000 in card transfers every month, a 0.2% drop in interchange can save you $200 every month, or $2,400 a year.
Optimizing exchange is more than just lowering fees; it also means making changes to your payment processing plan to make it more efficient, lower risk, and follow network rules.
“In markets where retailers pass interchange fees directly to consumers through card surcharges, low processing is a real competitive advantage according to Gareth Boyd, Head of Growth at the credit card comparison website CreditCardCompare.com.au. “Businesses that optimize their interchange can either avoid surcharging altogether or keep those fees minimal, which helps attract and retain customers who increasingly factor payment costs into their purchasing decisions.”
How to Get the Most Out of Interchange Fees
1. Use Data Processing Levels 2 and 3
If your business does business with other businesses or with people, you might want to offer Level 2 and Level 3 info during exchanges. This has extra details like the tax amount, the transaction number, a description of the thing, and a customer code. Giving this information to card networks helps them figure out if the transaction is a low-risk one, which can lead to lower exchange rates. Check with your payment company to see if they accept Level 2/3 data, and if you can, set up an automated way to collect data.
2. Validate Authorized Card Transactions
When the card is present (like when you pay in a store), the transfer fee is generally less than when the card is not present (like when you order something over the phone or online). There is less risk with them. Promoting chip or mobile payments over manual entries should always be your goal. Use new devices that are compatible with EMV.
3. Check and update the Merchant Category Code (MCC)
It depends on your MCC how much the exchange rate changes. Some types of businesses, like organizations and non-profits, may be able to get lower exchange fees. Check that your business is in the right category. Check your MCC with your processor and make changes if necessary.
4. Submit your transactions right away
If you are late sending in a transaction, you might have to pay downgrade fees, which means that the transaction doesn’t get the best exchange rate. Do a daily batch and settle deals. A lot of computers let you do this all by themselves.
5. Try to Prevent Keyed-In Transactions
When you can Keyed-in or manually typed transactions are subject to higher interchange fees because of the increased risk they provide. When you pay someone in person, use a card reader or computer. Add safe, tokenized methods that act like a card is present for virtual payments.
6. Use Online Address Verification Services
Another thing AVS does is compare the billing address the user gives them with the address the giving bank has on file. This makes it harder for scams to happen and can get deals better rates. All internet and phone purchases should go through AVS.
7. Choose the Right Payment Processor
Not all processors are created equal. Based on the type of transactions you make, some are better able to help you get the best exchange rates. Look at more than one processor and find out what features they have for optimizing exchange. Find one that focuses in the same thing you do.
8. Maintain and review exchange reports
A lot of companies don’t look over their interchange fees and records on a frequent basis. You can’t tell where you might be overpaying if you don’t keep track of it. Set up to look over your processing accounts every month or every three months. With your provider’s help, look at and find drop prompts.
9. Educate Employees on Industry Standards
Fees can go up if workers don’t handle transactions properly. Such as not collecting AVS data or not utilizing the chip reader. Make sure your team knows how important it is to handle payments correctly. Regular training lessons can help keep mistakes from being too expensive.
10. Investigate the Interchange Plus Price Plan
This clear price approach keeps the processor’s markup separate from the real interchange fee. You can see where your money is going better. If your price is based on a flat rate, ask to switch to interchange-plus and see the difference.
Advanced Strategies for Interchange Optimization
Even though the tips above are a good start for lowering transfer fees, there are more complex methods that businesses can use to even lower their payment processing costs.
Encourage the Use of Lower-Cost Payment Methods
There are different fees for each method of payment. For example, interchange fees for debit cards are usually cheaper than interchange fees for credit cards, especially for cards with rewards schemes. Businesses can lower their handling costs by getting customers to use debit cards or other payment methods like ACH transfers. If you want a more streamlined approach, consider integrating marketplace payment solutions, which can centralize and optimize your payment processing while reducing costs. If you have a large-scale business that offers loyalty transactions, you can also hire an e-wallet app development company to help you with a native payment method that your customers can use to minimize the cost of payment.
Use Surcharging When Authorized
Businesses can add an extra fee to credit card transactions in some places to cover the costs of processing them. This can give customers a reason to choose cheaper ways to pay. However, it’s necessary to make sure that surcharging doesn’t break any state laws or card network rules.
Use technologies for security and tokenization
Putting money into advanced security measures like point-to-point encryption and tokenization can make card transfers safer. Businesses may be able to get lower exchange rates by lowering the risk they see. These technologies also keep private customer information safe, which builds trust and safety. Additionally, adopting emerging technologies like secure digital contracts based on blockchain can further enhance transaction integrity and eliminate third-party risks, making your financial infrastructure even more resilient.
Use smart routes for payments
Some payment companies offer smart routing options that send transfers through the networks that cost the least. These systems can pick the best way by looking at things like the type of card used and the amount of the transaction. This could lower exchange fees.
Review Your Statements for Payment
If you look over your processing bills on a regular basis, you might find hidden fees or trends that cause your costs to go up. Companies can lower their costs by changing how they do things when they know where and why certain activities cost more.
Stay Informed About Regulatory Changes
Amendment in the U.S. can have a big effect on transfer fees. Businesses can quickly change their plans to take advantage of new rules or avoid possible problems if they stay up to date on these kinds of changes.
Communicate with financial institutions
Card networks decide on exchange fees, but payment companies can change the amount of extra money they charge. Businesses, especially those that do a lot of transactions, should prioritize client communication and talk to their processors about getting better terms and lower costs generally.
Inform Customers About Available Payment Methods
Being open and honest with customers about the payment methods they prefer can affect their decisions. For example, if you offer small discounts for debit cards or cash payments, customers will be less likely to use credit cards, which saves the business money.
Check the chargeback rates
When there are a lot of chargebacks, fees and even fines can go up. Strong fraud spotting and customer service can cut down on chargebacks, which can help keep the processing relationship strong and possibly lower costs. Understanding the causes of chargeback fraud can help you implement more effective prevention strategies
Wrapping It Up
Exchange fees are a normal part of using a credit card, but they don’t have to be an unavoidable cost. Businesses can handle and lower these costs by using both basic and advanced strategies. Reviewing handling methods on a regular basis, keeping up with changes in the industry, and using technology can help save a lot of money and make payment processes run more smoothly.
Don’t forget that every percentage point you save on handling fees helps your bottom line. First, look at how you currently handle payments and figure out where these methods can be used to get the best financial results.
