Category Archives: Interchange
Merchant account settlements refer to the money that is deducted from a merchant’s bank account to cover the costs of processing credit cards. These costs include interchange (which is set by card associations) and the provider fees. The majority of processing fees stem from interchange. To find the current interchange fee schedule simply visit the card associations websites.
There are two types of merchant account settlements, daily and monthly. Not all merchant account providers offer a choice, so when researching a new merchant account provider be sure to ask when they deduct their fees. Here is a quick glance at the two.
Merchant account fees are deducted on a daily basis from the gross processing volume. For example: if you processed a transaction for $10 than.25 cents would be deducted at the end of the day. This is based on a discount rate of 2.5%.
Merchant account fees are deducted on a monthly basis from the gross processing volume. For example: if you processed $1000 worth of transactions in one month, $25 would be deducted at the end of the month. This is based on a discount rate of 2.5%.
The major difference between daily and monthly settlements is paying for processing fees as they occur, or all at once in a lump sum. Monthly settlements enable merchants to hold on to their gross processing revenue longer which can help with cash flow. While daily merchants prefer to “pay as they go” to avoid one major deduction at the end of the month.
For more information on merchant accounts, next day funding, or settlements visit www.paymentmax.com.
Two common questions I receive are: what are merchant account basis points? And why do merchant account providers use the basis point system?
Basis points are simply the percentage of a sale that a merchant pays their merchant services provider to process credit cards, or the discount rate. Basis points are expressed as 1/100th of 1%, or 0.01%. For example, a business with a basis point of 149 has a discount rate of 1.49%. Or, a basis point of 34 would equal 0.34%.
Merchant account providers use the basis point system when referring to the discount rate because it gives a whole number representation, instead of using fractions and decimals. It is much easier to communicate with whole numbers versus fractions of a percentage.
Merchants must also remember that with a tiered merchant account, the first tier will always have the most basis points, followed by the mid-qualified and non-qualified tiers. The second and third tier basis points will represent the surcharge, plus the first tier qualified rate. For example, the qualified rate (first tier) may have a basis point of 159, or 1.59%, followed by a mid-qualified surcharge of 35, or .35%, and a non-qualified surcharge of 100, or 1%.
New debit card legislation will have the federal government policing the interchange rates charged to merchants for their customers debit card transactions. While the specifics of the new law are being worked out, here is what merchants can expect.
1. Merchants could set a $10 debit card transaction minimum.
2. Merchants would be allowed to offer cash discounts for use of cash over a debit card.
3. Government debit cards and reloadable pre-paid cards would be exempt.
4. Banks with over $10 billion would be subject to the fee oversight.
5. Fees would have to be reasonable and proportional to processing costs. The Feds have 9 months (after the bill was signed into law) to figure this out.
With over 1.6 trillion dollars in total debit card purchases in 2009, this new legislation is sure to have an impact on all parties involved, large and small. Whether the impact will benefit the consumer is yet to be seen. Some are speculating that the cap on “swipe” fees will only benefit the big retailers like Wal-Mart and Target, while consumers end up fitting the bill with less bank services, and minimum transaction amounts.
There is quite a bit of speculation on just how low the Federal Reserve is going to adjust debit interchange fees. Some analysts are estimating the reduction in debit usage fees could cost banks around 5 million dollars in lost revenue. Lost revenue that is most likely going to be made up by charging consumers for banking services. Services that were once free.
According to Paymentsource.com, the Fed will announce debit interchange rates that are 25% to 75% lower than current levels. They must draft regulations within 9 months of the bill being signed into law. The new debit interchange rates would become effective 12 months after the bill is signed. Visa and MasterCard network transaction fees will not be directly regulated by the Fed.