Before we get into the changes, let’s make sure everyone understands what the term “interchange” (IC) means. IC is the true cost of a credit card transaction. Essentially, IC is what the card brands (Mastercard, Visa, Discover and American Express) charge processors for the different credit cards in circulation.
Two factors drive the IC—the “risk” associated with the transaction and the “richness” of the rewards program. While there is nothing merchants can do about the rewards piece, leveraging technology enables companies to minimize the risk side of the equation and subsequently qualify for the lowest IC rates possible on each transaction.
Traditionally, these fees have been evaluated twice a year (April and October) but with the pandemic in 2020, the card brands decided to wait until April 2021 to implement new fees/changes.
Important to note: This is Visa’s largest rate increase in a decade.
The majority of these increases will impact business cards, commercial cards, purchasing cards and predominately card-not-present (CNP) transactions. So, how will this impact the wholesale/B2B community?
So much depends on how the merchant processes transactions. For example, if a merchant passes Level 2 and/or Level 3 data on all applicable transactions, a large percentage of the increases can be avoided. Level 2/3 data specifi cally refers to Mastercard and Visa commercial cards.
Also, Visa is offering lower rates on consumer CNP transactions to merchants who tokenize credit card data. Tokenization is the process of protecting sensitive data by replacing it with an algorithmically generated number called a “token.” This is relevant in the B2B community because many wholesalers allow their customers to pay open account balances using a credit card, and it’s not unusual to do business with a sole proprietor who uses a consumer card versus a commercial one.
To minimize these impacts, businesses should leverage technology to protect data (i.e., tokenization) and self-populate the additional fields needed to qualify for Level 2 and/or Level 3 rates.
There are a handful of platforms that can provide businesses with tokenization and IC optimization including CardPointe, which hundreds of IMARK members use. Businesses can use the technology for point-to-point encryption (the highest level of security possible on a credit card transaction) as well as IC optimization, which is the ability to self-populate the additional fields to secure the lowest rates on all applicable transactions.
How does the technology self-populate the additional fields to obtain the lowest rate possible? Within the 16-digit card number, there is a bank identifi er number (BIN), which enables the technology to identify the specifi c type of card and if it qualifi es for Level 2/3 data. By passing Level 2/3 data, merchants can lower the IC from 10% to more than 40%, depending on the type of card.
By using the CardPointe platform, companies can maximize their margins on the IC portion of their bill, which is important since 80% to 90% of the fees are derived from the IC.
After minimizing the upcoming increases, businesses should review their statements for additional rate increases from their processors. It is very common for processors to introduce their increases to coincide with the card brand increases. In some cases, there have been up to three increases in a single statement message. The good news is that most processors have a clause that enables businesses to cancel their existing agreements, with no early termination fees, in the event of a proposed increase.
Have the person reconciling each statement read all of the verbiage (because processors must disclose any changes at least 30 days before they take effect). Once a merchant has processed transactions using the “new” rate structure for 30 days, that merchant is deemed to have accepted them and they become part of the existing agreement.
Have someone, other than an existing processor, analyze the existing setup at least once a year, to get an unbiased account review.
No one can control the card brands, but merchants can leverage technology to level the playing fi eld on certain transactions and ultimately keep costs as low as possible.
To learn more about CardPointe, check out the courses available on IMARK University.