Swipe fees are the charges that merchants incur every time they accept a credit or debit card payment. These fees are set by the credit card brands, such as Visa and Mastercard, and cover the operational expenses associated with transaction processing. (In fact, they’re not just a single fee, but rather a combination of interchange fees, network fees, and processing fees.) Collectively, though, these fees are charged as one flat base charge plus a percent of the total transaction amount; the merchant service provider then distributes a “piece of the pie” to each of the associated institutions after collecting them from the merchant.
Factors that Influence Swipe Fees
Swipe fees are influenced by:
- The type of card the customer uses to make their purchase. Each card brand sets their own rates. Swipe fees are typically higher for credit cards than they are for debit cards (the result of federal legislation capping the amount that can be charged for debit card transactions). Additionally, corporate purchasing cards can have lower fees than standard consumer cards, provided that the merchant passes through all the necessary data for the transaction when they settle.
- The merchant category code. When merchants set up their accounts with their acquirer, they are assigned a four-digit number that indicates the type of goods or services they sell. Certain merchant category codes, such as utilities, government services, education, and non-profit organizations, qualify for lower swipe fees.
- The transaction type. Card-present transactions, where the merchant runs the customer’s card in person, typically have lower swipe fees than card-not-present transactions, where the merchant processes card data online or over the phone.
- The transaction amount. Large transactions (starting at $5,000, $8,000, or $10,000, depending on the card brand) may qualify for large ticket interchange rates that are lower than standard rates for smaller purchases.
Calculating Swipe Fees
Understanding the fees associated with each transaction can be complicated – a strategy that’s often intentional. Processors tend to make it difficult to understand fee statements and pricing models. It’s common to only display one consolidated fee on the merchant statements, instead of individually breaking out the downgrades and other fees that collectively make up the final charge.
Reducing Swipe Fees
While lack of transparency can make it complicated, merchants have several options for reducing their swipe fees.
Optimizing transaction data is one of the easiest – and most impactful – strategies, especially for merchants in the B2B space. Providing complete and accurate data (including data the invoice number, order number, and ship-from/ship-to zip codes, for example) for each credit card transaction helps avoid downgrades and reduces the processing cost.
Reducing the use of fallback keying for card-present transactions (a cashier manually entering a customer’s credit card number when they could otherwise process it as a standard insert or tap transaction) can keep fees down as well. As best practice, merchants should not manually key card data unless there’s no other option. This makes a reliable card-present processing infrastructure incredibly crucial.
Setting up a correct merchant category code (MCC) is also important. While merchants don’t configure this independently, they can work with their acquirer to make sure they are correctly classified for the lowest possible processing fees.
Lastly, finding the most cost-effective processing model is crucial as well. Interchange plus pricing, for instance, is often more advantageous than flat-rate pricing. There’s no single model that’s “best” across the board, however; merchants will need to calculate the potential charges for each model in the context of their specific business.
Let Curbstone Help You Reduce Your Swipe Fees
Keep more of your hard-earned revenue. Curbstone can help you reduce your swipe fees and minimize their impact on your bottom line. To review your most recent statement with one of our experts, contact us today.
