In all of history, it has never been easier to start a business than today. Anyone with a great product or service can get a website and sell their wares, not only across America but to the entire globe with a few keystrokes and clicks. That’s not to say that entrepreneurship is an easy path to walk!
When it comes to starting and running your business, there are many complicated and challenging components, including raising capital, streamlining processes, leveraging technology, recruiting and managing staff, accounting, customer service, and marketing. None of it amounts to anything if you can’t successfully collect payment from your customers. And in our modern world, the most common means of consumption and payment processing is via credit card.
Most likely, you are so focused on building and running your business that you don’t even think about the processing rate your business pays for every dollar you currently earn. The problem is that so few business owners truly understand how this works. The cornerstone of comprehending this complicated issue is a concept called Interchange. As a 20-year veteran of the merchant services industry and the CEO of Blue Dog Business Services, I am uniquely qualified to help you understand this confusing topic.
What is Interchange?
When you look at your monthly merchant statement, you are looking at the cost of your payment processing, as your hard-earned money is taken out of your business’s profits. Let’s call a spade a spade; Interchange is dizzyingly complex. It would be a mistake to try to comprehend Interchange, and all its Byzantine rates and variations. You don’t have to understand the mechanics of a washing machine to know how to do your laundry. What’s more important is that you have a general understanding of what Interchange is, why it’s there and how it affects your credit card processing expenses, and in a greater sense your business profits.
Interchange is the discount processing rates charged by Visa and MasterCard. Much like death and taxes, it is absolutely guaranteed. There’s no way around it. And worst of all, it goes up every year. A “discount” rate that goes up every year? Usually, when it comes to taking your money, big powerful companies like to use rosy-sounding euphemisms. The Interchange rates apply to every type of card your business will ever accept, and in every conceivable way that they are used, including check, credit, debit, business cards et cetera. There are over 300 different rates applying to all these cards, whether swiped, keyed or entered online through e-commerce.
Why it matters to you?
Many credit card processing companies group the Interchange rates into 3 distinct categories: Qualified, Mid-Qualified and Non-Qualified. They set their rate for processing these categories to ensure that they never lose money on the deal. They must charge Interchange every time you process a sale, and they pass that fee onto your business every time you run a transaction. They set their processing rates at certain levels to ensure that for every transaction they will profit beyond the Interchange rate.
One of the best ways to instantly increase your profits is to keep more of the money you make selling your products or services. By overpaying for your credit card processing you are “leaving money on the table”. The problem is that many merchant services companies overcomplicate their rates, leaving many business owners scratching their head.
Let’s be honest; the merchant services industry is hated for this reason. True pass through wholesale credit card processing companies cut out the middleman and all the extra fees, allowing you to put that money back into your business. They process transactions without grouping anything, using Interchange as a starting point. From there, they work with customers to find the best rate based on monthly processing volume and other business factors. In some cases, in this competitive merchant services market, companies will even reduce rates to zero, meaning they will make little or nothing on processing for many months.
True pass through wholesale credit card processing companies cut out the middleman and all the extra fees, allowing you to put that money back into your business. They process transactions without grouping anything, using Interchange as a starting point. From there, they work with customers to find the best rate based on monthly processing volume and other business factors. In some cases, in this competitive merchant services market, companies will even reduce rates to zero, meaning they will make little or nothing on processing for many months.
Understanding this important concept is critical to your business. While a few percent here and there being taken from your profits doesn’t sound like much, it can add up to huge sums of money. Much like the Grim Reaper’s scythe and Uncle Sam’s rake (Death and Taxes), you cannot avoid Interchange. However, you can avoid merchant services companies taking advantage of your confusion to capture your hard-earned money, a few percentage points at a time, for the life of your business.
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