Merchant Direct Processing

Interchange Fees Explained and How to Optimize Them

Before understanding how to optimize interchange fees, we need to understand what interchange is, and how the system of transaction qualifications work.

What is Interchange?

Interchange is the cost you pay to run credit cards at your company and is determined by the card brands, Visa, MasterCard, Discover and American Express. An interchange charge is a fee that goes to a purchaser’s card-issuing bank (like Citi, Chase or Capital One) every time they make a purchase on their card. Importantly, it’s a fee that lands with the merchant to pay, not the customer.

Interchange rates vary from purchase to purchase because the card issuer must make an assessment about the risk of fraud each purchase carries. This assessment can depend on a huge number of variables, including your business model, the type of transaction, and the amount of data included in the payment details.

Simply put, to a card issuer like Citi, the more data it has about a card transaction, the lower the risk that transaction carries. It’s a complex and frankly confusing system but it can significantly affect your bottom line.

Are you ready to optimize your company's B2B interchange?

    Payment Processing Levels 1, 2 and 3

    There are hundreds of interchange categories (we warned you it’s complex) but these can be classed within three levels:


    Benefits of Level 2 and 3 B2B Payments

    For You – In exchange for receiving a greater amount of data about the transactions, the card-issuer lowers the rate of interchange fees, reducing your cost of accepting payments and improving your bottom line.

    For Your Clients – By providing a greater amount of detail about the transaction, it will allow your customer to have more effective purchase management and reporting. They may also qualify for additional benefits from the card brands or issuer.

    Who Needs Interchange Optimization?

    Any business making transactions with other businesses or government bodies is subject to interchange charges. And unless the additional Level 2 and Level 3 data has been obtained for each purchase, all these business transactions will be charged at the higher Level 1 rate, even when they could be eligible for the lower interchange rates.

    The process of optimizing your interchange rates – and by optimizing, we mean reducing the fees you pay for accepting a payment – is complicated and confusing. And the banks have no incentive to make it any easier for you. They’re content taking your higher-rate fees even if you didn’t need to pay them. In fact, they’ll happily encourage their customers to spend more using their reward cards: the more transactions are made on card, the more money they’ll make from interchange fees.

    Visa and Mastercard Interchange Rates

    $1,037.61 Monthly Savings

    We are an industrial lighting company and have reduced our payment acceptance fees by over $1,000 per month by using Merchant Direct's Interchange Optimization Tool!

    Kathy Wilson, Accounting Manager
    AFX, Inc.

    Shopkeepers Toolbox

    Kathy Wilson, Accounting Manager
    AFX, Inc.

    We are an industrial lighting company and have reduced our payment acceptance fees by over $1,000 per month by using Merchant Direct's Interchange Optimization Tool!
    Shopkeepers Toolbox

    How Can an Interchange Optimization Tool Increase Your Profits?

    So, as a merchant, if you want to increase your profits without raising prices (who doesn’t?), the first thing to do is to optimize your interchange rates. But, it’s complicated. And time-consuming. That’s why you need a merchant account provider to decipher exactly which transactions could be charged at the lower Level 2 or Level 3 rates.

    Merchant Direct provides an interchange optimization tool that automatically assesses each of your business transactions and identifies the ones that qualify for discounts. Our software enables you to obtain additional information from your customers, and then it automatically populates Level 2 and 3 data to reduce the amount of interchange fees you are charged on transactions.

    Over the course of a year reducing the fees you pay can add up, giving you significantly more profit from the same level of sales.

    Reduce payment fees by qualifying for Level 2 and Level 3 Interchange. We can mаkе this process еаѕу for уоur business. Cаll uѕ today to lеаrn hоw!