Interchange rates pay for the electronic payments system, a powerful, global network, which enables financial institutions to connect merchants and cardholders. For any network model to succeed, participants must be encouraged to maintain usage of the network and invest in network improvements. Some brand networks, such as Visa, charge predetermined and centrally set default interchange fee.
Interchange is recognized globally as an appropriate and essential element in managing the electronic payment network. The rates are publicly posted, and can be difficult to find by a basic search, but is a necessary part to become an educated merchant account owner. A merchant understands and accepts the responsibility for the costs associated with the convenience of accepting electronic payments. These costs can be passed onto the consumer by marking up a product before the sale, or by applying a surcharge fee, which is controversial and illegal in ten states.
As a CPA, I discourage my merchants from charging a surcharge as it is illegal in some states and is an issue when dealing with electronic commerce as the payment can be from a state where the surcharge is illegal. Additionally and more qualitatively, I would discourage any business from charging a surcharge as it appears to mislead the consumer. The price advertised should be the price charged at the checkout or close of the sale. The merchant should consider the interchange rates as a Cost of Sales (Goods or Services) expense which will directly impact the gross profit (Sales Revenue less Cost of Sales). It is critical to identify all costs associated with the sales process to ensure the gross margin (Gross Profit / Sales Revenue) actually received is the gross margin budgeted.
Connected Pay's Operations Consulting division can help you compute a price point which meets your gross margin goals. Additionally, Connected Pay offers processing rates for Merchants that are typically 20 to 50 basis points (.20% to .50%) over the interchange rate. To get more information on setting up a merchant account through Connected Pay, please use our Sign Up Your Business page follow this Merchant Account Link, or for general information inquiries please use our Contact Us page. Feel free to e-mail us with any questions, info@connectedpay.com.
For Visa's view on interchange see Interchange Viewpoint. For Visa's view on Surcharges see Surcharging Viewpoint.
For Mastercard's view on interchange see Understanding Interchange.
