There are three components that make up the credit card processing fees that a business pays.

  • Interchange – Non-negotiable – This is the value Visa/MC/Discover has assigned to every different card type based on the way it is processed.  This portion of the rate paid goes to the issuing bank of the debit/credit cards.  This information is public and can be found at www.visa.com and www.mastercard.com.
  • Assessment Fees – Non-negotiable – This portion of the rate paid goes to Visa/MC/Discover as the Card Associations.  This is where Visa/MC/Discover make money as businesses in the credit card processing industry.  This information isn’t found as easily as Interchange, but your processing company should share that with you.  This is also part of interchange cost…an uncontrollable, non-negotiable cost.
  • Processing Fees – Negotiable – This is the portion of the program that varies from company to company.  This is where the credit card processing company makes its revenue on a merchant.  There is a percentage added on above Interchange and Assessment Fees for the processing company to provide their services.
Interchange Plus pricing is by far the most efficient way for a business to process credit/debit card transactions.  It breaks out all of the “true costs” charged by the processor, and eliminates the ability for any rate manipulation by the processing company.  It also allows you to receive the full benefits of the Durbin Amendment legislation.  The Durbin Amendment drastically reduced the cost of certain types of debit card transactions that come through your business.

There are two different pricing strategies used when setting up a merchant account for a business.


  • Unbundled.  Unbundled pricing is actually Interchange Plus pricing which was just explained.  We are unbundling each of the different factors that make up the total rate paid.
  • Bundled.  Bundled pricing occurs when the processing company takes all of the different rates charged by Visa/MC/Discover, adds the Assessment Fees and their Processing Fees and groups everything together.  They then offer a “Bundled” or “Tiered” program where you as the merchant may be offered only 3 or 4 different rates for all of the different types of cards that come through your business. You may see things on your statement such as Qualified, Mid-Qualified, or Non-Qualified, or Rates 1, 2, 3 or 4.  Very often in a bundled program the processing company may be offering a competitive “Qualified” discount rate for your typical consumer credit cards, but then inflates every other category to make up for being somewhat competitive on the “Qualified” transactions.

A lot of credit card processing companies use “Bundled” pricing because it is more lucrative for them.  They make more money because they can hide their processing costs in many of the rates charged to the merchant.

Unbundled or Interchange Plus pricing is better for the merchant.  It offers complete disclosure.  When set up properly on an Interchange Plus program, a merchant could actually audit the rates charged on the statement to the public information on Visa/MC websites.

 


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