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BusinessGro Complete - Card Processing

Interchange Plus Explained


What if you got off work today and on the way home you stopped at the grocery store to pick up some ground beef, corn, and hamburger buns for a cookout you are having over the weekend? When you walk through the door you instantly know something is wrong. Everything is grouped into 3 sections of the store and each section has a price. There is one section and price for meat, one for fruits and vegetables and one for bread. It doesn’t matter if you want hot dog buns or a birthday cake – it’s all one price. On the one hand, this is a very simple way to shop, but on the other everything is priced at the level of a decorated birthday cake!! What kind of insanity is this?!


In a nutshell that is tiered pricing for credit card processing!

Over 400 different qualifications levels are grouped into 3-4 buckets or “tiers,” and you are charged a rate for each tier.


What if there was a way to stop this madness in its tracks, and ensure that when rates go down (it does happen, believe it or not) you get to take advantage?


What if there was a billing system that gave you enough detail to know what you were paying for?


What if your processor offered these benefits?


THEY DO! They just don’t offer them to smaller businesses.

The truth is that every processor that offers tiered rates also has the ability to offer the detailed billing known as Interchange Plus. Interchange is how the processor knows which transactions go into which tier and how to price it to their advantage. Interchange Plus makes it impossible to hide fees. This is why all the really large businesses have been using this method since the first credit card was run through a knuckle buster.


Let’s look into detail at some of this pricing:

Let’s take the example of a rewards card. These are the airline mileage cards, the cash back cards; any card that rewards the customer for using it. The actual surcharge for this card from Visa is 0.14%. Obviously this is very small – only 14 cents on a $100 transaction. Under Interchange Plus this is the markup the merchant would pay for this transaction. Under a three tier billing system (qualified, mid-qualified, non-qualified) rewards cards fall into the ‘mid-qualified’ category. This category typically carries a surcharge of 0.40% to 0.50% depending on the processor. So as a merchant you pay 3 to 4 times as much surcharge under a tiered billing system than under Interchange Plus!


With a tier-based system, simply entering the wrong zip code for a transaction can cause that transaction to move from qualified to non-qualified. This downgrade will cost merchants anywhere from 1%-1.5% extra. The worst part is you will have no idea that there was a problem, much less what caused the problem.


Let me ask you a question: as a carpet cleaner could you reduce every job you do into just three prices?


Everything from studio apartments to 20 room mansions reduced to just three totals? Upholstery cleaning and rug cleaning would be grouped in with cleaning stairs or cleaning the lobby of a commercial building if you had tiered billing. If you have tiered billing your processor wants you to believe that grouping your charges into 3-5 categories when there are as many as 400 is a benefit to you.

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