What Is Interchange Optimization ?
We are often asked what Interchange Optimization really means and the impact it has on a company’s bottom line. The answer is complex, but at its core, Interchange Optimization is based on industry-specific program requirements that were created by the card brands (Visa, MasterCard, Discover, AMEX). Each card brand sets minimum requirements that are aimed towards specific cardholders. With that in mind, business-to-business merchants can benefit the most from Interchange Optimization – by submitting additional information with each transaction, certain business credit/debit cards can realize .05% to 1.10% savings on each transaction. In recent years, business cards have become more commonplace in general retail establishments, thus making Interchange Optimization even more important for any business accepting credit cards.
Understanding Your Statements
The biggest optimization-related issue for businesses is the difficulty in examining their statements to identify card types that qualify for Interchange Optimization. Pay2Amigos frequently review statements to confirm that the merchant is properly priced at cost. During this process, we often see an opportunity for optimization. Based on merchants’ processing histories, we are then able to provide lower interchange rates directly from Visa and MasterCard.
It is important to note there are platform specific-requirements that dictate if a merchant can benefit from Level III Interchange Optimization: (1) the cards accepted must be business, corporate or purchasing cards, (2) line-item detail must be passed for every transaction and (3) the merchant must process transactions via a third-party gateway that supports Level III Processing. Our entire Pay2Amigos platform, which runs through the Pay2Amigos Gateway, supports this feature – this includes the Pay2Amigos Virtual Terminal, mobile app, P2PE terminal or any integration using our Gateway API.
Pay2Amigos takes things a step further by automatically passing the line-item requirements needed for a merchant to obtain Level III rates. This is a major benefit for merchants, as their only responsibility is to swipe, dip or key-enter the card number, expiration date and transaction amount. More importantly, all data is tokenized and housed in a secure, offsite vault, making it safe to store cardholder information for future use.
Passing Level II/Level III data presents a variety of merchant-specific benefits. Merchants 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 the likes of Square and Stripe. Sure, there are times when a flat rate is useful (it’s extremely easy to understand the processing cost for any transaction), but the only way a business will realize the advantages of Interchange Optimization is if you are given Interchange Plus pricing we’ll discuss common payment processing pricing models in a future post!.