“The lion share of what operators have to pay in their fees is interchange fees,” says Todd Giblette, vice president of business development for Merchant Warehouse, a credit card processing software provider. “That’s the fee that’s expressed as a percentage and a per-item fee set by Visa and MasterCard through a number of different factors.”
Like most financial agreements, the fees an operator pays the card companies depend on the risk each transaction poses to the system. For example, when a customer swipes the card himself, the rate is lower than when a cashier has to key in the card number by hand. With more than 250 ways to complete a transaction, interchange fees have become increasingly complex over the years.
To solve some of the confusion over varying interchange fees, Giblette urges operators to learn as much as possible about the transactions in their store and the interchange fees collected by the processors. “Processors typically try to keep merchants in the dark about how to best qualify their interchange,” Giblette says. He explains that processors, the companies in charge of collecting the fees for the credit card companies, often tack on their own additional charges for certain types of purchases. Merchant Warehouse’s interchange management system BINSmart helps operators keep fees to a minimum by prompting customers according to the transaction type and running the purchase at the cheapest rate—rather than relying on blanket percentages for all transactions.
Ian Drysdale, senior vice president, market development for RBS WorldPay, a processing company, says operators should shop around for processors with the lowest cost and fastest processing time. “The most up-to-date processors can accept transactions past midnight on Monday—even Pacific time—and have the money in the operator’s account, earning interest and paying bills, on Tuesday.
To reduce processing fees, Drysdale suggests operators get rid of the extra phone line used for their fax machine and card terminal. “Since your processor will not have to pay for the dial cost, the transaction fee is often far less,” Drysdale says. “You can then process via DSL or broadband via cable or satellite on your main line.”