What is Surcharging?

A Surcharge, which is also referred to as a checkout fee and sometimes called Cash Discounting, is a fee that is applied to a credit card transaction and passed on to the consumer. The purpose of a Surcharge is to pass the cost of the credit card transaction on to the consumer in a fully disclosed and compliant manner. Because retailers incur higher costs for accepting credit cards Surcharging has become a very popular method of offsetting those fees and encouraging customers to use debit cards or cash.

Some things to know

Chip technology has three major benefits over the older, magnetic strip technology.

1. Surcharging is for credit cards only, debit cards, which carry a much lower fee for acceptance, are not eligible for surcharging.
2. Some processors only support card-present surcharging and some can support both card present and card not present/e-commerce. Transparent can support both.
3. The surcharge amount is clearly disclosed on the invoice/receipt to the consumer and signage is required in retail locations.
4. Specific equipment is required for Surcharging. Transparent can offer this equipment free or can help you check if your equipment is compatible
5. The surcharge amount is clearly disclosed on the invoice/receipt to the consumer and signage is required in retail locations.Surcharging is generally accepted by consumers, especially in the past year with the stress that has been put on businesses


Merchants cannot be charged more than 4% for Surcharging, so be aware. Transparent charges 3.7%, click here for details on our Surcharging program.

To Speak to one of our Sales Representatives regarding Surcharging please fill out the form or call 1-833-519-9649. You can also sign up for Transparent Surcharging by clicking here . With Transparent there are no contracts, sign up fees, hidden fees, or cancellation fees.

What Happens If I’m Not EMV Ready By The October Deadline?

Starting October 1, 2015, liability for any fraudulent credit card charges default to the party in the payment process that is the least EMV compliant. Presently, if you process a payment on a fraudulent card, the bank absorbs the cost. But once the deadline passes requiring you to be EMV-compliant, your company assumes the liability for counterfeit and other fraud-related credit card transactions. In other words, if you, as the merchant, have not upgraded your POS terminals to a chip card reader able to interface with a chip-embedded credit card, you’re on the hook if someone makes a purchase at your place of business with a stolen or hacked chip card.

Credit card processing companies and the banking industry are referring to this as a “liability shift”. It’s meant to relieve them of the liabilities and costs that stem from the increase in credit card fraud. Especially in the United States. In Europe, where the combination of chip-embedded credit cards and compatible credit card terminals has been used for a number of years, studies indicate that credit card fraud has dropped. That’s good news for European merchants but not such good news for US merchants. Credit card theft is on the rise in the US because the older magnetic strip method of credit card authorization is easier to hack.

Chip technology has three major benefits over the older, magnetic strip technology.

  • 1. When processing a credit card payment, especially offline, EMV technology offers better security against fraud from counterfeit, lost, and stolen cards.

  • 2. The information stored on a chip is not as vulnerable to theft by criminals looking to steal cardholder information or reproduce counterfeit credit cards.

  • 3. By standardizing technology for processing credit card purchases, it will simplify purchasing in a global economy.

Because chip-embedded credit card technology has worked so well elsewhere, financial institutions have set the October 1st deadline for the transition to EMV technology in the US.

Some Merchants Won’t Be EMV Ready by October.

The major reason they give is because of the cost to upgrade to chip card POS terminals. But before you jump on that bandwagon, take a look at your existing POS terminals. If you replaced any of your terminals in the last five years, you probably replaced them with EMV-compatible terminals. The EMV technology is just not turned on yet. Contact your processor to learn how to get the EMV feature turned on.

The expected lifespan of a POS terminal that gets moderate to heavy use is around five years. Look around your place of business. Is it time to replace a few terminals now? If so, you can direct your customers with chip-embedded credit cards to check-outs equipped with EMV-compatible terminals and ease into total compliance gradually. But you can continue to use your present terminals because EMV cards will still have the magnetic stripe on the back. Just remember that if you use a non-EMV compliant terminal to process a chip card, the liability for fraud falls on you.

And some credit card processing companies are willing to replace your old POS terminal for free during this period of US EMV switchover, so check with a customer representative at your credit card processing company before making any purchasing decisions.

Can You Afford Not To Be EMV-Compliant By The October Deadline?

No, you really can’t. Christmas, the biggest shopping season of the year, comes right on the heels of the October compliance deadline. With increased sales comes an increase in the likelihood that some of your customers will pay for their purchases with a stolen credit card. Is it worth the risk to be on the wrong side of the liability shift that comes with non-compliance?

Besides the issue of “who’s liable?”, being EMV compliant does have some other major benefits. To encourage compliance, Visa announced that merchants who generate 75% or more of their sales from EMV-compatible terminals will no longer have to annually validate their PCI compliance. This fee can come in the form of an annual fee of $100+ per year or it can be charged as a monthly fee of $5.95 up to $19.95 per month.

And merchants who have installed EMV-compliant terminals will also receive relief from PCI audits, fines, and fees in the event of a hacking incident. These fees include forensic costs, card replacement, and other costs that have in the past been charged to the card issuing bank but will now be the responsibility of any merchant who is not EMV compliant. These costs can add up and quickly swamp a small business.

So what’s the moral of this story: Don’t be penny wise and pound foolish! Review your options and weigh all the facts carefully. How many new terminals do you really need? Is that cost outweighed by the benefits being offered to you to be in compliance with EMV standards? And once you have calculated those numbers, consider the bigger picture. Can you afford the liability risk that comes with non-compliance? It’s your choice, but isn’t the choice clear?

What Is A Qualified Processing Rate?

A qualified processing rate, sometimes referred to as the swipe rate, is one classification of rates a merchant is charged to process a credit card transaction. This rate is part of a three-tiered fee model most offered by the credit card processing industry. The other rates are referred to as mid-qualified and non-qualified. From this terminology, you get an idea of how this fee model is structured.

What is a qualified processing rate? Well, a qualified processing rate for your credit card processing is the rate most often quoted from providers, because it is the lowest of the three rates in the pricing structure. All merchant credit card processing rates are based on interchange rate and fee schedules that are published on the credit card websites. This interchange rate is passed through to the merchant and any other fees charged by the provider are added on top of this fixed fee. The total of these fees is conveyed as a percentage charged per transaction and this becomes your rate for processing a credit card, though there are other pricing structures available such as a fixed monthly rate. A low processing rate can be tempting, but before you sign on the dotted line of any provider contract, you need to understand that there are strict requirements you must follow for a credit card transaction to qualify for this lowest of rates.

What Kind Of Credit Cards Qualify For The Qualified Processing Rate?

Each credit card brand has its own set of rules and provisions governing their rates, but generally speaking only basic credit cards and certain debit card transactions meet the qualifications for a qualified processing rate. That leaves out a large portion of credit cards that are offered to consumers. Credit cards that have a rewards program, corporate or business cards and a number of other types of credit cards do not qualify for this lowest transaction rate.

Conditions For a Qualified Processing Rate Transaction

Besides the type of credit card used, there are other limitations and restrictions on how the credit card transaction is processed to warrant the qualified processing rate:

– It must be a card present transaction. In other words, the card must be swiped at your point of purchase terminal so the information on the card’s magnetic stripe can be read and transmitted to the issuing bank for authorization. Hence the term “swipe rate”!

– Your customer must sign the sales receipt.

– The date and authorized transaction amount must be correct.

– The transaction must be batched and settled within the time frame fixed by your credit card processing provider.

There are other conditions that apply as well. Your type of business plays an important part in determining if your transactions are eligible for the low, advertised qualified processing rate. For example, high risk businesses, include gambling websites and casinos, businesses that offer adult entertainment and/merchandise, and travel reservations and booking services, that accept credit card payments tend to have a higher risk of refund requests and credit card fraud. If you own or operate a high risk business, you may be offered a tiered structure with a “qualified processing rate” but you can expect to find that your qualified rate will be higher than the rates offered to other businesses.

Qualified Transactions for Internet Merchants

Credit card transactions for internet merchants are considered to be non-present card transactions. Makes sense, right? When your customer purchases through your on-line store or site, there is no way to swipe his or her credit card to verify the cardholder’s information from the magnetic stripe on the back. Most credit card providers consider the mid-qualified processing rate as the internet merchant’s qualified processing rate. For an on-line credit card transaction to qualify for this rate, the following minimum conditions must be met:

– Input the cardholder’s information including the information necessary for AVS (Address Verification Service) to validate the cardholder and authorize the transaction.

– The shipping date must be within 7 calendar days of the authorization code date.

– The settled transaction must equal the authorized amount, including taxes and shipping (for example, no tip can be added after the transaction is authorized).

– The transaction must be batched and settled within the time frame fixed by your credit card processing provider.

With this type of transaction, as with other qualified transactions, the card being charged cannot be a rewards or corporate card.

The list of conditions and qualifications for meeting the qualified processing rate is very specific and most providers fail to mention that usually only 50% or less of your credit card transactions will actually qualify for this low rate. So be careful when choosing a credit card processor. Be sure to compare the mid-qualified and non-qualified rates in any tiered fee structure because an advertised low qualified processing rate will not adequately represent your credit card processing costs.

What Is A Tiered Pricing Structure?

Tiered pricing structure, sometimes referred to as bundled pricing, is a type of rate structure used by credit card processors. A tiered pricing structure usually has three levels of transactions: qualified, mid-qualified and non-qualified transactions and each processor set their own fees for each level. These fees are in addition to interchange rates which are the basis of all transaction fees.

There are hundreds of different interchange rates. Credit card processing providers came up with this tiered pricing structure so these hundreds of interchange rates can be sorted into manageable – and billable – categories. Because a tiered pricing structure is tied so closely to interchange rates, the myth is that the credit card associations set the standards for what is a qualified, mid-qualified or non-qualified transaction. But that’s not the case at all.

Interchange rates are fixed by the credit card associations. They’re the same for every merchant. It’s the credit card processors who came up with the terminology qualified, mid-qualified and non-qualified, and they determine where a merchant’s credit card transaction falls among these qualification tiers.

In other words, there’s no such thing as a qualified, mid-qualified or non-qualified interchange rate. There are only qualified, mid-qualified and non-qualified transactions. Likewise, there’s no such thing as a qualified, mid-qualified or non-qualified credit card type. That classification is also decided by each individual credit card processor.

So now you get the picture Credit card processors use a tiered pricing structure as a way to group together the dozens of interchange fees into manageable categories. The processor charges a different service rate for qualified, mid-qualified and non-qualified transactions. So although the credit card processors have no control over what interchange rate is charged for a transaction, they do have control of the pricing tier it’s assigned to, which determines the fee they add to the interchange rate for their services.

Tiered Pricing…Good For The Processor, Not So Good For You.

Because each credit card processor has control of what transaction goes into what qualification rate, it makes it difficult to do a price comparison between providers. One provider may choose to place a certain transaction in the qualified or lowest rate tier, while another processor has the option of placing that same transaction in the mid-qualified tier, which incurs a higher fee.

Most processors advertise their lowest or qualified rate. Their offer might look good on the surface, but they fail to tell you that 50% or less of your transactions will actually settle under their qualified rate. That’s why it is very important to look at the whole picture when reviewing quotes from credit card processors. One processor may have a lower qualified, but their mid-qualified and non-qualified rates may actually be higher. So you chose the processor with the lower rate, but they route more of your transactions into the mid- and non-qualified tiers and before you know it you are paying more for your credit card transactions than you might have if you had gone with the processor with the higher base rate, but more reasonable upper tier rates.

But even if you carefully compare all the rates in the different offers you receive the arbitrary way processors decide which transaction falls under which rate category makes it hard to know what process to sign with.

In fact, most industry experts believe that if your company is using a tiered pricing structure to process your credit card transactions you are paying too much. There are other rate structures, like Interchange Plus or a fixed monthly rate that can save you money on your processing fees. Take the time to review your credit card statement and if you are presently paying for tiered pricing you could probably cut your credit card processing cuts dramatically.

What Is The Difference Between Debit Cards and Credit Cards?

For the merchant, it boils down to two things:

1. The cards are processed differently.
2. They have different fees.

Based on just these two points, the winner would be debit cards, because the overall fee for a simple, debit card transaction is less than the processing fees for a credit card transaction. In 2011, as part of an economic regulatory reform that affects almost every one of the nation’s financial services industries, congress passed the Durbin Amendment, limiting the maximum amount of interchange fee an issuing bank can charge a merchants for processing a debit card transaction. Authored by Illinois Senator Dick Durbin to resolve the long-time conflict between card issuers and merchants over the high cost of credit card interchange fees, this new regulation reduces the original fee of 44 cents per debit card transaction to a maximum interchange fee for a debit card transaction of 21 cents.

What is the difference between debit cards and credit cards? For example, let’s say your rate to process credit card transactions is 2.0%. Yes, that’s high, but hey, for our example, it’s easier to do the math! If your customer makes a $100 purchase and pays for it by credit card, you’ll pay your processing company $2.00 in interchange and transaction fees. But if your customer pays with a debit card, you pay only 44 cents per transaction. It may seem this only amounts to a small savings on each sale. But multiply that by hundreds, or thousands of dollars in sales, and you can see why merchants prefer debit cards to credit cards. However, nothing is ever quite that simple, is it, so let’s move on.

How To Process a Debit Card To Get The Best Rates

There are two basic ways to use a debit card:

1. Online Debit or PIN Debit:
Each bank that issues debit cards is associated with one or more payment networks. When a customer uses a debit card to pay for a purchase, he selects debit on the payment terminal, swipes his card and enters his PIN (Personal Identification Number) on a separate, securely encrypted PIN pad. This information is transmitted through a secure payment network directly to your customer’s bank. The PIN provided by your customer acts to authorize the transaction. If there is enough money to cover the purchase amount in the customer’s account, the transaction is approved. This process only takes a few seconds and the transaction is complete. This debit transaction has a single transaction charge and the lowest fraud risk.

2. Offline Debit or Signature Debit:
Debit cards that display a credit card brand logo, like MasterCard or Visa, can also be processed like a credit card. When no PIN pad is available, or for on-line purchases, the debit card transaction is routed through the card brand’s network, but the funds are still deducted from the cardholder’s checking or savings account. With a debit card-present transaction, the card is verified from the magnetic stripe on the card and your customer signs a receipt the same way he would if he used a credit card. Online transactions are verified against the address from the billing information.

What’s The Downside to Processing Online Debit Transactions?

Remember that secure encrypted PIN pad we mentioned earlier? Every payment terminal must have a PIN pad to process online or PIN debit transactions. Not only will you have the initial cost of the pads, but each processor uses a unique encryption. If they update their security encryption, all your pads will have to be updated as well. And if you change processors, your PIN pads may have to be replaced. For a large retail operation, this cost could run into the thousands. But with more and more consumers choosing to use their debit cards instead of paying interest on credit cards, most retailers will agree that the savings and security far outweighs any equipment cost.

So maybe next time you ask your customer, “Will that be credit or debit”, you should really ask “Do you wish to pay for your purchase with a credit card, or with your debit card as an online transaction or with your debit card as an offline transaction?” Hmmm, that’s a mouthful, but think of the money you could save if you asked. There is quite a difference between debit cards and credit cards.

How Do I Understand The Interchange Fee Schedule for MasterCard?

MasterCard’s interchange fee is the fee paid by your bank to your customer’s bank for their part in the process of transacting a credit card payment. Each credit card brand sets their own interchange and this fixed amount is paid by your credit card processor out of the fee you pay them. It sounds simple. This fixed rate makes up a portion of the percentage you pay per transaction for each credit card you process.

That’s the basic formula, yes, but it doesn’t present the complete picture. Although the term “interchange” appears on the surface to mean one rate, that’s not the case at all. Interchange is actually an extensive list of fees determined by what kind of credit card is being used for payment, how it’s being presented for payment, and where it’s being presented for payment. MasterCard, as well as all the other credit cards brands disclose their interchange rates and operating rules as long with interchange fee schedule for MasterCard on their websites and it’s important to understand the criteria necessary to meet each rate.

Types of Credit Cards

Classifications for credit cards include: basic credit and debit cards, rewards cards, corporate or business cards and international cards. Within each category, there’s a breakdown of what the interchange rate will be for each credit card type. Categories in basic credit cards, debit cards, rewards cards, company cards, commercial cards, international cards, and more.

Payment Options

Credit card payment transactions break down into two basic categories: card present transactions and card not present transactions. Interchange rates for each category are broken down again to cover options such as whether the card is swiped, if the information on the magnetic stripe can be verified, if the information is input by hand, if the information that is input by hand is verifiable, if the transaction is batched and settled according to terms and conditions, and interchange fee schedule for MasterCard, etc.

Credit Card Purchases

Last, but not least, interchange rates are affected by where you shop and what items or services you purchase. Let’s take a look at how these distinctions affect your MasterCard interchange rates.

Let’s say you’re the owner/operator of a hometown pharmacy. Mrs. Smith comes in and purchases $25.00 worth of necessities and presents her basic MasterCard for payment. For this credit card transaction you will pay 1.58% + .10 or $0.50 in interchange fees.

But when Mrs. Jones gets to the register, she presents her MasterCard rewards card to make the same $25.00 purchase and you pay 1.73% +.10 or the equivalent of $0.54 in interchange fees.

Now Mr. Young comes in and purchases a few supplies for his office and uses his company’s basic business MasterCard to pay for his $25.00 worth of items. His $25.00 purchase will cost you 2.65% + .10 or $0.76 in interchange fees.

Then Mr. Thomas comes in and buys $25.00 worth of items and uses his basic debit card and you pay 0.05% + 0.22 or $0.23 in interchange fees.

So you’re thinking, what’s the big deal? The difference between the transactions ranges from a few cents to a little over $0.50. It doesn’t amount to much for your $25.00 sale. But imagine how those cents add up on a whole day’s worth of sales!

Conditions of The Sale

So now you have a basic understanding of how the type of credit card affects the interchange rate you pay for each credit card transaction. But the type of card is not the only aspect of the transaction that affects your rate. To qualify for each interchange rate, for each different type of credit card, used in different transaction scenarios, there are specific requirements that must be met, as listed on the MasterCard website. For instance, to get the 1.58% + .10 on Mrs. Smith’s transaction:

1. It must be a card present transaction, swiped at your point of sale terminal so the information from the magnetic stripe on the back of the card can be verified.
2. The purchase amount must be authorized and approved.
3. And the transaction must be batched and settled within the allowed time limit.

If you do not meet the interchange fee schedule for MasterCard for a specific rate, the transaction can no longer be considered for that rate and will be bumped to the next interchange rate for that type of card in that type of transaction.

Confused? Don’t be. MasterCard offers a comprehensive list of interchange fees on their website. Each type of card, used at each type of business, and processed in all the different ways possible are broken down in detail. But if you’re still confused, a basic understanding of the steps you need to take to meet the requirements for each rate will help you maintain control over how much you pay out in MasterCard interchange fees.

What Is Interchange Plus Pricing?

Interchange plus pricing is a credit card transaction pricing structure that includes a fixed markup by the credit card processor added to the interchange fees charged by the credit card brand associations.

Let’s break interchange plus pricing down to its two main components: Interchange Rates and the “Plus”.

Interchange Fees

Basically an interchange fee is the portion of a credit card sale transaction that’s paid by the merchant’s acquiring bank to the card issuer’s bank for their services. Interchange fees are set by the credit card brands (MasterCard, Visa, etc.) and they vary depending on several factors. A credit card that offers rewards may have a higher interchange fee than a standard credit card. And credit cards have higher fees than a debit card, considerably higher in most cases. Rates also vary depending on what services or products the merchant sells, and whether the card was presented in person at the time of the sale or if the purchase was made on-line. These fees are detailed on the credit card brand websites and they are the same for all merchants. As the merchant, you do not pay these fees directly; they are included in the fee structure you negotiate with your credit card processing company.

Now For the “Plus”

A credit card processing provider, commonly referred to as third party provider, accepts credit card payments on behalf of your company and transmits them for authorization and then again for payment. As we’ve said, all merchants pay the same interchange fees. But there are several ways for a credit card processor to charge for their services in addition to the interchange fees set by the credit card brands. That’s where the “Plus” comes into play in interchange plus pricing.

The “plus” refers to the provider’s markup added to each credit card transaction and a small assessment fee (usually between $0.10 and $0.15) which is a per transaction charge. The markup is a percentage of each sale based on a basis point system. A basis point is one one-hundredth of a percentage point. So 100 basis point would equal 1%. But what does that really mean to you?

Many factors are considered before a provider finalizes the amount of your basis point markup. For example:

1. What is your average monthly gross sales figure?
2. What type of business do you own/operate?
3. Do you sell more high ticket items but do less transaction per month or do you do more low dollar/high volume business?
4. Is your business classified as high risk?
5. How do you process your transactions? Are the majority of your transactions swiped at a point of sales terminal or are your transactions entered by hand through your on-line site?
6. What is your personal and business credit standing?

The higher your risk indicators, the higher your basis point number. So a low risk, general retailer could expect to be rated at about 25 basis points and add 0.25% and the per transaction assessment fee to the applicable interchange rate for each credit card they process. Whereas a business with higher risk indicators might be rated at 50 basis points and pay 0.5% plus the applicable interchange rate for each transaction.

What Are The Benefits of Interchange Plus Pricing?

Though this credit card pricing structure may seem complicated, it’s really not. Unlike other rate structures that have several different pricing categories, interchange plus has just two costs: the fixed interchange rate charged by the credit card associations and a flat markup and assessment fee for each transaction charged by your provider. So, for example, let’s say that retail business above does $20,000.00 worth of business in one month. Convert the 25 basis points to a percentage of 0.25% then multiple $20,000 by .0025 and you get $50.00. In other words, that retail merchant will pay $50.00 (and the per transaction fee) for the month over and above the total interchange fees for the month. Your monthly costs are boiled down to one simple formula.

Is Interchange Plus The Best Credit Card Processing Pricing Structure For Your Business?

Merchants and providers both agree that interchange plus is the most transparent and most often the least expensive of the credit card processing rates available. But for many businesses today that process different types of credit cards, with a variety of different processing procedures from month to month, interchange plus may not be the least expensive alternative. When searching for a credit card processing provider, look beyond the low rate offers and be sure the rate structure you choose suits your needs now and can grow with your business.

What is a NABU or APF fee?

Every industry has its share of acronyms. But in 2009, the credit card processing industry was hit with two unwelcome additions to their alphabet soup of abbreviations. On April 18, 2009, MasterCard implemented a new fee, the Network Access and Brand Usage fee (NABU). And following right on the heels of the MasterCard announcement, on July 1, 2009 Visa implemented their U.S. Acquirer Processing Fee (APF). In order to understand what is a NABU or APF fee, you should know that these fees have gone through some revisions since they were originally introduced. Let’s take a look at their timelines:

MasterCard’s Network Access and Brand Usage fee (NABU)


  • When this fee was originally implemented, it applied only to credit card transactions using a MasterCard issued from a US-based bank at a US merchant’s place of business (card-present and/or card-not-present transactions) that settled through the MasterCard network. This included refunded credit card transactions and signature debit card transactions. This fee was not charged until the transaction actually settled, which means the fee did not apply to authorization transactions.
  • Cost: $0.0185 per settled transaction


  • When answering what is a NABU or APF fee, you should be aware that on January 8, 2012, MasterCard announced that their NABU fee will apply to all transactions whether or not they have been settled. Now authorization transactions are also subject to this fee.


  • Effective June 30, 2013, the NABU fee was increased to $0.0195.

VISA’s Acquirer Processing Fee (APF)


  • When this fee was originally implemented, it applied to all US based VISA authorizations process in the United States with no restriction on where the issuing bank and/or the cardholder is located. This fee is charged whether or not the transaction actually settles.
  • Cost: $0.0195 per authorization transaction
  • 2012:

    • On July 23, 2012, VISA implemented a separate APF for credit and debit card authorization transactions.
    • Cost for credit card authorization transactions: $0.0195
    • Cost for debit card authorization transactions: $0.0155

    So What Will These New Fees Actually Cost Me?

    Now here’s where things get interesting. When it comes to what is a NABU or APF fee, on a large purchase, these new fees really amount to a very small percentage of your sale. For example, if you own an electronics store and you process a $100.00 sale with a MasterCard credit card, the NABU fee will be 1.95 cents on that sale. Doesn’t seem like enough money to make a big fuss over, does it? But remember, these fees are charged on a per-transaction basis. Every time a customer pays his bill with a MasterCard or Visa, you pay that same NABU fee for each transaction. So say you own a coffee shop where you do a brisk daily business. Now multiply that per transaction fee by a hundred transactions a day, 700 transactions a week, 2800 transactions a month, 33,600 transactions a year… well you get the picture.

    There was plenty of negative publicity surrounding the NABU and APF fees when they were first implemented, since this money is in addition to the interchange fees you’re are already being assessed by the issuer’s bank and the card brand network for the part they play in processing your credit card transactions. These fees are the same across the board for all merchants, and they will appear on your monthly credit card processing statement, usually as a separate line item. You may see them listed as NABU, APF, Network Access Fee, or VS APF-CR indicating the charge was made with a Visa credit card, or VS APF-DB for a Visa debit card.

    With all the negative publicity of what is a NABU or APF fee, most credit card processors pass this fee along at cost to their merchants. Still it’s money coming off your bottom line, and to protect yourself it’s important to check your credit card processing statement every month to be sure these fees are not being marked up. And it’s just as important to research periodically to learn if there have been any changes in these fees. In the event there has been a decrease in these fees, you want to be sure your processor is passing along the savings. It’s your money… look after it!

How Do I Understand The Interchange Fee Schedule for Visa?

When answering how do I understand the interchange fee schedule for visa, you should know that interchange fees are established by the individual credit card brands. These rates are the same for all merchants. Most providers pass these rates on to the merchant at no additional cost and they are non-negotiable. In other words, Visa has its own interchange fee schedule that applies to all merchants and these fees are detailed on their website.

Now that we’ve answered that question, you might very well be wondering: What exactly is an interchange fee? Good question.

Basically, an interchange fee is the portion of a credit card sale transaction that’s paid by the merchant’s acquiring bank to the card issuer’s bank for their part in a credit card transaction. As the merchant, you do not pay these fees directly; they are included in the fee structure you negotiate with your credit card processing company.

For merchants considering how do I understand the interchange fee schedule for Visa, they should consider the following factors:

  1. The type of card presented for payment.
  2. Where the card is being used (at what type of business or for what service).
  3. The way the card is processed.

Consider The Card Classification, Location, and Processing Methods

Classifications for credit cards include: basic credit and debit cards, rewards cards, corporate or business cards and international cards. Within each category, there’s a breakdown of what the interchange rate will be for each credit card type when presented at different places of business and for different services. Let’s look at some examples.

Example 1: You own and operate a women’s clothing store in a local shopping mall and you are concerned with how do I understand the interchange fee schedule for Visa, consider the following . A customer comes in and chooses three dresses totaling $250.00 and presents a basic Visa credit card as payment. The Visa interchange rate for a basic card type is 1.54% + $0.10 per transaction. To qualify for this rate, there is a specific list of requirements that must be met, as listed on the Visa website:

  • Cardholder and card present, signature obtained, single electronic authorization, merchant name, city, and state included in authorization.
  • Read & transmit complete magnetic stripe, transaction settled within 1 day of authorization, authorization response data included in settled transaction.
  • Clearing amount must equal authorization amount except for the following sic codes: 4121 (Taxicabs & Limosines), 5813 (Bars & Taverns), 7230 (Barber & Beauty Shop), 7298 (Health & Beauty Spas). This is to account for tipping in these business types.

So if your customer presents her basic Visa card for payment, and you swipe the card at your point of purchase terminal, and the information from the magnetic stripe matches the information at the issuing bank, and you get an authorization for the sale, and your customer signs the receipt, and the transaction is settled within the time stipulated for batching out and settling this classification of transaction, then you will pay $3.95 in interchange fees.

Example 2: Now, merchants asking how do I understand the interchange fee schedule for Visa should consider the same scenario with one difference – your customer presents a Visa category 1 rewards card. All the same requirements for a retail purchase must be met, but the interchange fees for this type of rewards card is 1.65% + $0.10 per transaction. So on a $250.00 sale, you will pay $4.22 in interchange fees.

Example 3: As these examples show, you pay a different interchange fee depending on the type of credit card presented and where it is being used. But the interchange rate is also affected by how the card is processed. For example, if your customer uses a basic credit card at your dress shop, but you batch out and settle the transaction 3 or more days after the original authorization you will pay an interchange rate of 2.70% + $0.10 per transaction. Because you did not meet the requirement to settle the transaction within 1 day of authorization, your interchange fee will be considerably higher. You will pay $6.85 in interchange fees.

Visa offers a comprehensive list of interchange fees on their website to help merchants answer the question of how do I understand the interchange fee schedule for Visa. Each type of card, used as each type of business, and processed in all the different ways possible are broken down in detail. As you can see from the examples above, your interchange rates can vary with each credit card transaction you process. So what can you do to keep your interchange costs as low as possible? Following a few basic practices can help.

  1. Swipe credit cards at a point of purchase terminal for the best rates in each category.
  2. If you are processing a card not present transaction, be sure you input all the information Visa requires for that category of card transaction.
  3. Batch out and settle your credit card transactions in a timely manner.

Following these 3 basic rules will help you maintain control over how much you pay out in Visa interchange fees.

What Is An Acquiring Bank?

An acquiring bank, sometimes referred to as the processing bank, is one of the key players among the team that works to get you the funds from a credit card transaction. And what is their role? To understand what an acquiring bank is, you should know that it acts as the middleman between your credit card processor and the card associations (MasterCard, Visa, Discover, American Express, etc.) to process credit card transactions. The credit card associations do not deal directly with merchants, so if you want to accept credit cards at your place of business, you’ll need to have a merchant account at a registered acquiring bank. This account acts as a repository for your money.

Let’s Clear Up A Misconception

Credit card processing companies are third party companies that work with banks to process credit card transactions. Independent, third party processors are sometimes referred to as ISO’s (Independent Sales Organization) or MSP’s (Merchant Service Provider). Although some acquiring banks handle the whole credit card transaction process, most ISO’s and MSP’s are independent third party companies that manage your credit card processing services. These ISO’s and MSP’s are not banks, and must be sponsored by an acquiring bank registered with MasterCard, Visa and/or one of the other credit card brands to handle credit card transactions. The acquiring bank that has a bank card relationship with the credit card associations then partners with your third party processor so you can accept credit card payments.

The Acquiring Bank…A Hardworking Member of the Team

Once your customer swipes his credit card at your point-of-sale terminal, or inputs his credit card information into your on-line shopping cart, the process of authorizing this credit card transaction begins. Knowing what an acquiring bank is relates to the fact that your acquiring bank receives the information from your provider, passes it on to the bank who issued the card, who, hopefully, gets an approval from the credit card brand to process the transaction. An authorization is passed back to the issuing bank, who transmits it to your acquiring bank and on to your processor, and within seconds you see that approval flash on your terminal or screen.

At that point you’re a step closer to getting paid for your product or services. At the end of the day, you batch all your sales together and send this information to your processor who in turn forwards this information to your acquiring bank again. Now it’s the acquiring bank’s job to send these authorized transactions back to the card association, and then they are sent to the issuing banks to be paid. The issuing banks send the money to your acquiring bank, and that money is deposited into your merchant account and the money is now available for your use.

When answering what an acquiring bank is you should be aware that, although your merchant account at the acquiring bank seems to function like a regular checking or savings account, it’s really much more. Once a credit card transaction settles, the money from the transaction is deposited into your merchant account. It would seem like this money is yours, right? You made the sale, your customer has his product or service, and you get your money. Dribble, shoot, and it’s a slam dunk! But that’s not always the case.

What happens if your customer is dissatisfied with his purchase and returns it for a refund? The credit card transaction process starts again, but this time the money flows in the other directions. This time, your acquiring bank takes the money from your merchant account and returns it to the cardholder’s issuing bank. It’s the acquiring bank that acts as the liaison between you and your credit card processing provider and the credit card associations to insure the return is handled efficiently.

For your understanding of what an acquiring bank is, you should know that it collects a small fee for each credit card transaction they handle. But as you can see, your acquiring bank plays an important role in the process of getting you paid for credit card transactions. Go team!!