They Claimed They Can Lower Your Cost
I can’t tell you how many calls I’ve gotten, and I’m in the industry. I’m told things like “VISA and MasterCard lowered their rates 30%, and you can now get rates as low as 1.29% on all credit card transactions” Some have even called it a “flat rate”.
I must admit, sometimes I tend to have fun with these calls, so my first reaction is “No Way, how?” First thing they usually say is they’re from [insert national bank], and since it’s a bank we all know of, it must be legit right? Of course, knowing the Interchange Reimbursement Fees (industry wholesale cost) as well as I do, my first question is always how do you give me lower rates than the wholesale cost of credit cards? Answer – “Because VISA and MasterCard lowered their rates 30%.”
It Doesn’t Matter Who Makes the Claim
The chances of VISA and MasterCard lowering their rates 30%, or even 5% is as likely as Elon Musk flying to Mars tomorrow. It’s just not even remotely possible. So what does the 1.29% actually cover? About all it’s going to cover are debit cards, and that’s way too high for most debit transactions. When I try to pin them down on how they cover the most popular and lowest credit card, the VISA Retail Credit which is 1.51% on wholesale (Interchange), after a few tries I finally get the answer I knew was there. Although they stated it’s flat rate pricing, I get two types of answers. Some say when the cost is higher than the 1.29% it becomes what’s called non-qual and is 3.28%. Sounds like Tiered pricing, but they never mention all the rates. What happened to “flat rate”? Others have told me they add .50% or more to the Interchange Rate. Remember, the most popular credit card out there is also one of the lowest credit card rates at 1.51%, so with the .50% added it becomes 2.01%, that’s known as ERR pricing. It’s the worse pricing method available to businesses. Amazingly enough, I still see it on Merchants statements. The 1.29% I was promised disappeared.
What They Do, and When They Do it
Here’s how VISA, MasterCard, and Discover actually handle the bank’s cards rates under their brands. In April and October of each year they review their current Interchange Rates on all cards. They decide which ones to raise and lower, and it’s usually very few card rates that get adjusted at all. In the last 6 – 7 years most cards rates have been left as is, although the VISA Retail Credit I mentioned actually dropped .03%. The only ones I’ve seen go up were a few International and B2B cards… again very few of those too. So if you’ve gotten rate increases over the last few years, which most have, it wasn’t an industry increase. It’s just the time of year that gives providers the opportunity to increase your rates to increase their profits.
A Simpler More Affordable Way
With all that said, it’s time you considered a different type pricing! One that doesn’t put a percentage on each transaction, but gives you the cost at wholesale, with a small flat monthly fee for servicing your account? You won’t get the downgraded rates, or surcharges as in the ERR or Tiered pricing mentioned above. You’ll simply get the wholesale cost of the industry, the Interchange Rates the issuing banks charge. Also, when the Card Associations mentioned above do their annual reviews, any cards that do go up, your rates only go up on those cards, not ALL your rates like the pricing types above, or other pricing types in the industry. Even bigger still with wholesale pricing, should any card cost get lowered, you also get the benefits of the lower rates of the cards that were adjusted downward. When’s the last time you saw your cost go down without having to switch providers?