What to Know About Processing Fees and Interchange Optimization

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Most merchants know they need to be able to accept cards nowadays to make a transaction. However, most don’t really think they have a choice when it comes to the fees that come with processing the transaction. There’s good news actually, for business-to-business merchants, in particular. Depending on a few factors, there’s hope that interchange optimization can get the best rates every time you swipe a customer’s card. We’ll discuss exactly what interchange is and how to get those best rates below.

Interchange is the cost the merchant incurs to accept credit cards at their business. Generally, these costs are non-negotiable. Interchange fees cover the costs and risks associated with processing payments, like protection from chargebacks and fraud. Payment processors don’t generate revenue from these fees. Those fees are actually paid directly to the card-issuing banks.


Check out this payment processing guide to get a sense of where those fees go.

There are hundreds of interchange cost structures based on a merchant’s industry, card type, payment acceptance environment, and transaction size. Each time a transaction is made, it is assigned an interchange category that determines the rate. Many things can factor into interchange rates and sometimes a transaction won’t qualify for the category it should, costing the merchant a more expensive rate. There are ways to make sure you get the best rate as a merchant, through interchange optimization.

How to lower interchange credit card fees

If you aren’t a business-to-business merchant and don’t qualify for interchange optimization, you can still make sure you put yourself in the best spot to get the best credit card interchange rates selling to consumers.

First, ensure employees follow all prompts when manually keying in transactions to the point-of-sale system. Don’t skip any prompts even though it might be tempting to speed up a transaction. Be sure to capture AVS (address verification service) and all other prompts. This will aid in getting you the lowest interchange rate possible. If prompts are missed, expect higher rates.

Another way to reduce interchange fees is to settle batches within 24 hours. This will help you obtain the lowest possible rates. Settling batches late (after 24-48 hours) will result in higher interchange rates.

Interchange optimization and merchants that benefit

Interchange optimization is the usage of best processing habits to qualify a merchant for the lowest rate possible for every transaction. If you are a business-to-business or business-to-government merchant, you could be able to benefit most from interchange optimization in payment processing and pay a lower rate when the card is swiped.

Interchange optimization means obtaining the best rate for B2B and B2G purchases by giving extra detail about each transaction. This is because these businesses usually accept purchasing cards (“P-cards”), which capture Level II and Level III data when collecting additional data at the point of sale. The average merchant collects Level I data when processing a payment (like a customer’s basic billing information), however, Level II and Level III data give more information about the transaction like customer codes, PO numbers and tax IDs. In giving out this additional data (Level II and Level III data) the threat of fraud diminishes and helps to optimize a merchant’s interchange rates. Credit card associations incentivize merchants to provide this extra data with cost savings.

In recent years, business cards have become more commonplace in retail, thus making interchange optimization even more important for any business accepting credit cards.

Benefits of Level II and Level III interchange optimization

Passing Level II and III data presents a variety of merchant-specific benefits. Merchants can enjoy lower interchange costs from card brands, which in turn produces a lower overall effective rate. However, it’s important to note that these savings are meaningless if your credit card processing is priced with a flat rate, popularized by companies like Square and Stripe.

Sure, there are times when a flat rate is useful -- it’s extremely easy to understand the processing cost for any transactions -- but the only way a business will realize the advantages of Interchange Optimization at CardConnect is if you’re given Interchange Pricing Plus.

Interchange Pricing Plus (or interchange plus rates) must be used to benefit from interchange optimization. It has a negotiable component to it (as opposed to flat rate or bundled pricing) if you qualify allowing for interchange optimization. The interchange rate still holds the same from the credit card company but the markup amount can be different. Working with specialists in interchange optimization can help businesses realize massive savings.

Keep in mind for your business to benefit from Level II and III interchange optimization, your business needs to process transactions through a third-party gateway that supports Level II and Level III processing. It is important to note that there are platform-specific requirements that dictate if a merchant can benefit from Level III interchange optimization.

  • The card accepted must be business, corporate purchasing cards
  • Line item detail must be passed for every transaction
  • Merchant must process transactions via a third-party gateway that supports Level III processing

CardConnect’s Gateway supports these requirements and because our CardPointe platform runs through the CardConnect Gateway, the full suite supports them as well. That includes the CardPointe Virtual Terminal, the CardPointe Mobile app, our retail terminal or any integration using our Gateway API. CardPointe actually automatically passes that required line-item information required for Level III transaction rates.

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