After delaying interchange fee increases because of the COVID pandemic, and amidst rising costs, the credit card brands are once again raising fees.
For Fuel Marketers, Visa consumer-qualified credit card interchange rates increased by about 0.10% on average from April 2022. Meanwhile, MasterCard is increasing the interchange rate of its Consumer, Consumer Rewards and Consumer Enhanced Utility programs by $0.10. These rates are the most likely to impact Fuel Marketers the most.
The credit card brands have long held the practice of making rate adjustments twice a year, in April and October. Typically included are changes in fees and business categories as well as rules on transaction timings, refunds, and refinements to existing rules.
Make sure you qualify for the best interchange rate.
Fuel Marketers should make sure that they qualify for the most affordable interchange rate available to them as the card brands introduce their new pricing structure. Unfortunately, this is easier said than done.
For starters, the Merchant Category Codes (MCC) supplied with each transaction to take advantage of the lowest eligible interchange rates for Fuel Marketers are different depending on the card brand being used. MCCs are four-digit numbers assigned to categorize a business type and are included with each transaction processed. For Fuel Marketers, the card brands each classify their market differently. MasterCard and Discover use a utility rate eligible MCC, while Visa’s consumer credit card rates for Fuel Marketers use a different MCC. Making matters more complex is the fact that not all processors support the set-up and processing of different MCC’s depending on the card type used. This leads to homegrown solutions, including the use of multiple gateway accounts to facilitate providing the correct MCC by card brand.
Altogether there are roughly thirty different interchange categories that typically affect Fuel Marketers. For each of these card categories, there are various card acceptance requirements. The combination of MCC, card brand, card type, timing, and the data required in order to qualify for the lowest eligible interchange rate, yield a dizzying 500 potential interchange price outcomes. Yup, pretty crazy.
Getting to the desired Target Interchange rate can be difficult.
Every single transaction a merchant accepts has a particular interchange rate associated with it. Of course, all merchants hope to qualify for the least expensive interchange rate offered by the card brands for each of their transactions.
The least expensive interchange rate is referred to as the Target Interchange. The Target Interchange is the most economical transaction possible based on the factors mentioned previously. But as with much in card acceptance, there is a catch. In fact, there are several.
For a merchant to achieve Target Interchange, the card brands require that everything be in perfect order. This means that your card processing system is configured correctly and has the required capabilities.
It also means following all card brand rules and providing the necessary data required to ensure qualification at the lowest possible processing rate. Data can include a simple Card Verification Number (CVN) or something more complex like a tax rate or an invoice ID. This might seem easy, but with over 500 potential interchange price outcomes possible—all requiring different pieces of data—achieving the Target Interchange Rate can be daunting.
Updated technology is essential to qualify for the Target Interchange.
One thing that can make qualifying for the Target Interchange challenging is the age of a merchant’s card processing technology. Older platforms may be unable to pass on the data necessary to achieve the least expensive interchange rate available.
When a transaction fails to provide all of the data that is required to qualify for a lower interchange rate, it gets downgraded. That means that the transaction actually incurs additional costs.
Downgrades are obviously expensive—and they are getting even more so. For example, in the wake of the new interchange rates being implemented by the card brands, a Fuel Marketer, in some cases, can expect an additional 0.1% in the Interchange expense added to a Visa business card transaction that does not meet the requirements needed to achieve lower rates.
Pre-authorization payments are ripe for card transaction downgrades.
One type of credit card payment that Fuel Marketers need to be concerned with as far as avoiding downgrades is pre-authorization payments. Such payments are quite common in the fuel industry, driven by the need to verify the payment mechanism before delivering fuel.
The problem with this payment type is that while they hold funds for payment at the time of the order, they don’t charge the card until the order is fulfilled. If the so-called “auth and capture” doesn’t occur within a specified period of time (Three days for MasterCard and seven days for Visa), the transaction downgrades. For MasterCard, downgrades can increase interchange rates to 3% versus a flat $0.75 rate. For Visa, a rate increase of 1% is just the starting point. It can be even more.
Unfortunately, rate increases are a regular occurrence when it comes to credit card processing. So too is complexity. This is why it pays to have someone with the expertise to help you navigate the rate changes and system intricacies inherent in credit card processing
About the author:
Penny Townsend serves as Chief Product Officer at Qualpay, a company which she Co-founded in 2014. With over twenty years of executive experience in the payments industry, Penny leads Qualpay’s business, marketing, product and operations strategies. A frequent speaker at industry events, Penny is passionate about empowering women and minorities, particularly in the payments industry and product management roles. Penny holds an MBA in E-Commerce and Telecommunications from the University of San Francisco.