Credit Card Rates Are Complex, There Are No Single Rates
Merchant Credit Card Discount Rates have changed; no longer can a rate of 1.65% be considered a low cost rate. Visa & Mastercard have re-structured the card industry with the introduction of specialty cards, such as Visa Infinite, Cash Back, Premium, Preferred, Corporate, Aeroplan and other Points cards. Mastercard, more so than Visa, supports specialty cards, High Spend, Premium High Spend and World Cards. These cards cost the Banks that issue them more than a plain Visa or Mastercard. To support the extra cost, both organizations have added a “Downgrade” or “Surcharge” to transactions when these cards are used. In short, the merchant pays more to accept these cards.
Interchange – What is It and How Does It Effect You
Interchange is a fee established by Visa and Mastercard designed to assist Card Issuers (Banks, Trust Companies, etc.) in their credit card programs. Visa and Mastercard have set and mandated a Rate, (percentage of sale amount) that is paid to your customer’s credit card Bank on every transaction. Yes, merchants subsidize the Bank’s cost to issue credit cards and pay for points programs. Over the years, Banks have introduced many different types of cards designed to attract cardholders. Each Card Type has extra features such as Points, Rewards, 2-5% cash back, etc. as well special cards for businesses have been created. Visa and Mastercard have set a different Interchange Rate for each of these cards. Currently there over 40 different Interchange categories with costs ranging from 1.42% to 2.65%.
Visa and Mastercard also have set a second fee called “Card Brand or Assessment” fee which is a small percentage that is the revenue Visa and Mastercard earn from each transaction. Interchange and Card Brand fees are mandatory costs that all Processors must pay, there are no exceptions.
Processors add a markup to the Interchange rate in order to generate revenue and profit. Most processors charge a “Qualified” rate (Interchange rate plus an added percentage). Then an additional rate is added and charged as “Non-Qualified” rate, and finally another percentage is added called “Interchange Differential”.
Canmor Merchant Services simplifies and minimizes the rate charged to Merchants by using a simple Cost Plus pricing. We apply a small markup directly to each of the 40+ Interchange rates set by Visa and Mastercard. We do not add a second or third markup. The following charts show the Effective Rate you will pay for each Card Type class and the Total Effective Rate when cardholder usage patterns are applied.