Traditionally small to mid sized businesses have been set up with what is called multi-tier pricing for their credit card processing. This system is usually set up with three tiers (qualified, mid-qualified, and non-qualifed.) Occassionally, if the business owner has negotiated well, there will be a fourth tier for qualified offline debit cards. While this system has worked well for many years, the increasing number of rewards and corporate cards being issued has made this type of pricing obsolete.
Visa and Mastercard have many different interchange categories for the multiple card types that are issued. Tier pricing takes a large number of these categories and lumps them into one of the three tier buckets available to the merchant. If the merchant only ever takes standard credit cards then this system will work well for them. Once they start to see more debit, rewards, and corporate cards being used in their place of business they will notice that their merchant services bill has increased dramatically. This is because many of these transactions are falling in to the mid or non qualified transaction categories.
Some of these cards are actually not that much more to process than a standard credit card, but the underwriting company for the merchant account needs to make sure that they are profiting on every transaction. They can ensure profit if they charge a large mark up for any transactions that are not qualified. So you may pay 2.9% for a mid qualified transaction and 3.5% for a non qualified transaction (These numbers can range much higher and lower.)
The fact is that some of the cards that fall into these categories may only cost an additional quarter of a percent to process. So the merchant may over pay by 1-2% to run certain card types. The business owner can avoid this if they are set up on interchange plus pricing.
What interchange plus pricing does is pass the true cost of running the card right through to the merchant. So the fees associated with that individual transaction will be put through at the lowest possible cost. The business owner pays a mark up at the end of the month based solely on their number of transactions and the sales dollar volume. (typically .25-.50% plus $.10-$.15 per trnasaction.)
This system will almost always prove to be a better deal than a three tier structure. Make sure to check your latest credit card processing statement to look for a high number of mid or non qualified transactions. If you see them, then setting up an interchange pluse pricing system may be the way to start saving your business money.
| About Author Gerald Kadish : |
|
Jerry Kadish and Capital Bankcard specialize in setting up gift and loyalty card programs and merchant services. We provide fully customized programs for all of our clients and help them use our products to promote their business. To find out more check us out at: http://www.capital-bankcard.com
| |
Article Source: http://www.bharatbhasha.net
Article Url: http://www.bharatbhasha.net/finance-and-business.php/61546
Article Added on Tuesday, May 29, 2007
| Other Articles by Gerald Kadish | |
•What Exactly Do The Numbers On The Front Of Your Credit Card Mean
Have you ever wondered what all of those numbers on the front of your credit card actually stand for? Here is the actual breakdown...
The first digit signifies the system that the card runs on: 3 - Travel/entertainment card (ie: American Express/Diners club) 4 - Visa 5 - Mastercard 6 - Discover Card
The actual card number also varies by the system. (For example, American Express cards start with 37, Diners club cards start with 38)
Visa: Numbers two through 6 are the bank number....
•How To Avoid The Latest Credit Card Scam Stealing Your Card Verification Code
This scam starts with a phone call usually at your home. The callers do not ask for your card number, they already have it. By understanding how the VISA & MasterCard Telephone Credit Card Scam works, you'll be better prepared to protect yourself or staff.
The scam works like this: Person calling says, This is (name), and I'm calling from the Security and Fraud Department at VISA.
My Badge number is 12457. Your card has been flagged for an unusual purchase pattern, and I'm calling to...
|
| |
