September 1st, 2017
INTERCHANGE OPTIMIZATION is a buzzphrase that's sometimes difficult to fully grasp, but very important to understand. Our Chief Business Development Officer, Angelo Grecco, spent some time with George Peabody from Glenbrook’s Payments on Fire podcast to discuss interchange, what it is and why it matters on an episode called “Where and Why Interchange Optimization Works.”
Before you listen to the interview, it might be helpful to know exactly what the term “interchange” means in the payments industry.
Interchange rates or pricing, in short, are the fees that merchants must pay to a credit card processor (like CardConnect) in order to accept credit cards from customers. The fees are set by card associations (like Visa) and card-issuing banks (like Wells Fargo).
There are more than 300 interchange cost structures out there and each can vary based on what kind of merchant you are, how big your business is, and what kind of credit card acceptance occurs at you company (card-present vs card-not-present transactions, or both).
Interchange optimization is the implementation of best practices to find the most ideal interchange rates for your company, in order to maximize your business's credit card processing savings.
Interchange pricing, in most cases, is not negotiable, so there are generally two ways to go about setting your rate with your credit card processing company: flat rate pricing and interchange plus pricing. While flat rate pricing is appealing for its simplicity and standardization, it doesn’t necessarily mean it’s the cheaper choice. As Angelo states in his interview, if you’re a large merchant, you’ll most likely want to move forward with an interchange plus pricing contract because it will ensure that every transaction has the right rate applied based on a more complex algorithm, so you can see better savings (AKA interchange optimization).
Angelo continues to explain that one of the most common beneficiaries of interchange optimization are companies with a focus on B2B services, who are likely using corporate cards or purchasing cards (also known as P-cards) to support their company’s purchasing needs. Cards like those are tied to the capture of Level II and III data during transactions, which can directly impact the interchange rates. While most merchants collect Level I data with each customer transaction (like basic billing information), Level II and III data goes a bit further for larger companies and requires information like customer codes, PO numbers, Tax IDs and sales tax. Having that richer data can help to lower interchange rates. Fortunately, the capture of Level II data, in particular, has become more common in the marketplace over the years as a result of the supporting technology available today.
To learn more about interchange optimization and hear some important insights from Angelo, check out the full interview from Payments on Fire.
Angelo brings more than 15 years of industry experience to CardConnect. Before his days at CardConnect, he worked as Vice President of Operations at Allied Merchant Services, controlling the day-to-day needs of the company’s agents and merchants. He then went on to found Allied Bancard. Angelo is a graduate of Indiana University with a degree in Business Management.
If you’d like to talk to us about how you can best optimize your interchange rates, you can always connect with us here, or leave a comment below!
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