Changes are automatically saved. Reset Settings

How to Minimize
The Upcoming Interchange Increases

The changes were initially slated for April 2020, but card brands decided to push them off initially to 2021 and eventually to 2022 due to the pandemic.

Before we get into the changes, let’s ensure everyone understands what the term Interchange (IC) means. IC is the actual cost of a credit card transaction. Essentially, what the associations (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. We can’t do anything about the rewards piece. Still, leveraging technology will enable companies to minimize the risk side of the equation and qualify businesses for the lowest IC rates possible on each transaction.

IC is evaluated twice a year (April and October) and specific categories are adjusted based on the risk/loss associated with a particular industry and/or type of card.

The majority of these increases will impact business cards, commercial cards, purchasing cards and predominately card-not-present (CNP) transactions. So, how will this affect the wholesaler or B2B community?

So much of this depends on how the merchant processes transactions. For example, if you pass Level 2 and/or Level 3 data on all applicable transactions, you can avoid a large percentage of these increases. Level 2/3 data refers explicitly to Mastercard and Visa commercial cards.

Visa offers lower rates on consumer CNP transactions, provided you are tokenizing the credit card data. Tokenization is the process of protecting sensitive data by replacing it with an algorithmically generated number called a token. Tokenization is relevant 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, it will be imperative that businesses 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.

Although a handful of platforms can provide businesses tokenization and IC optimization, we will highlight CardPointe, since hundreds of IMARK members/locations use it.

CardPointe is our proprietary platform that offers businesses point-to-point encryption (the highest level of security possible on a credit card transaction) and IC optimization, which is the ability to self-populate those additional fields to secure the lowest rates on all applicable transactions.

How does the technology self-populate these additional fields? The answer is there is a Bank Identifier Number (BIN) within the 16-digit card number. The BIN enables our technology to identify the specific card type. If it qualifies for Level 2/3 data, CardPointe self-populates the required fields to obtain the lowest possible rate.

By passing Level 2/3 data, merchants can lower the IC from 10% to more than 40% depending on the card type. In short, we are taking money away from Mastercard and Visa and shifting it to our clients’ operating accounts. As you might imagine, we have yet to find a business that has an issue with that.

By using the CardPointe platform, companies ensure they maximize their margins on the IC portion of their bill, which is important since 80% to 90% of your fees are derived from the IC.

Now that you know how to minimize these upcoming increases, it will be important for businesses to review their statements for additional rate increases from their processors. Unfortunately, it is very common for processors to introduce their increases to coincide with the card brand increases. As a result, we have seen up to three increases in a single statement message in some cases. The good news is 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.

The ultimate recommendation is to have the person reconciling your statement read all verbiage on your statements because processors must disclose any changes at least 30 days before they take effect. Once you have processed with the “new” rate structure for 30 days, you have deemed to accept them, and they become part of your existing agreement.

We also strongly encourage businesses to have someone other than their existing processor analyze their current setup at least once a year for an unbiased review of their account.

None of us can control the card brands, but we can leverage technology to level the playing field on certain transactions and ultimately keep costs as low as possible.

If you’d like to find out more about CardPointe, check out our courses on IMARK University.