Interchange Optimization: The Key to Slashing Credit Card Processing Fees

August 11, 2021 Amanda Sherry

It’s no surprise companies with thin margins push for check or cash payments—given that card processing fees average about 2%. Yet, many businesses and most consumers prefer to pay with credit and debit cards. Proactively offering that option and making it easy are great ways to strengthen customer relationships. 

To help our Dynamics 365 customers balance the benefits with the costs of card transaction fees, we recently formed a strategic partnership with Versapay. They offer a unique technology called interchange optimization that enables you to decrease your credit card processing fees significantly.  

 

Many Players Get a Piece of the Card Transaction Pie 

Understanding how Versapay works starts with knowing how the card transaction system fee structure breaks down. ‏‏‎Each time you accept a credit card payment, the transaction is handled by several entities, each taking a percentage of the payment: 

  • Payment gateway service that connects your PoS system to the card network 

  • Payment processor executing the approval of the transaction 

  • Bank that issued the customer’s credit card 

  • Card brand (Visa, Mastercard, American Express, Discover) 

 

The card network service that brings all these components together also takes a cut. But it’s the interchange fees charged by the issuing banks that account for most of the cost—approximately 80% of the total fee charged on card transactions. Lowering that interchange fee is the best way to cut your transaction costs. 

 

How Interchange Fees Work 

Interchange rates are decided by the card brands and are regularly updated. Each card brand sets its rates differently, amounting to over 300 different levels of interchange fees among all the card networks. 

Many factors impact the interchange transaction fee including these three major influencers: 

  • Card Type – Credit cards are considered higher risk than debit cards with PINs, so they have higher rates. Rewards cards have higher rates to pay for the perks their users enjoy. 

  • Processing Method – How a credit card is processed (swiped, keyed, chipped) dictates the risk of the transaction. A chip card or one accompanied by a signature at a PoS carries less risk than a card-not-present purchase. 

  • Type of Data Provided – Sending additional details about transactions helps card issuers know if a transaction is less risky and can enable transactions to qualify for a lower interchange rate. This usually pertains to purchases by businesses and can include data such as purchase order numbers and item SKUs. 

 

Your customers likely control the card type. And the environment of the purchase typically dictates the processing method (in-person or online). But you can control the type of data you send with each transaction—depending on the payment processor you work with. Fine-tuning the data provided along with transactions can qualify you for lower interchange rates. That’s called interchange optimization. 

 

The Magic of Interchange Optimization 

Given that interchange rates represent the largest portion of your card processing fees, reducing those fees will have the biggest impact on your overall card transaction costs. The more data you provide about transactions, the better, and that’s where Versapay integrated with a Microsoft Dynamics 365 ERP solution can help.  

The integration automatically sends selected data along with each transaction. For example, the Versapay solution can automatically bring in information from Dynamics 365 such as customer invoice numbers, the number of items purchased, sales tax, and customer codes. This enables you to qualify for lower interchange rates.  

If your customers are primarily businesses, and you process payments with high dollar amounts, then a solution like Versapay that offers integrated payments with Dynamics 365—and brings in that extra data into each transaction—is a natural fit. Many businesses that use Versapay save up to 40% on the cost of card acceptance fees. 

With these savings, it becomes more practical to promote your acceptance of card payments.  
And compared to waiting for checks to come in through the mail or ACH, the card transaction approach improves your order-to-cash timelines as your customer payment times shrink. 

 

To learn more about interchange optimization, register for one of our upcoming webinars:  

About the Author

Amanda Sherry

As Director of Marketing at Western Computer, Amanda Sherry brings a wealth of knowledge from her nine-year tenure in the Microsoft Dynamics space. A seasoned professional who has worked extensively on the partner side, Amanda offers insights into Microsoft Dynamics applications' transformative impact on businesses.

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