5 Ways to Reduce Interchange Rates in Payments

5 ways to reduce interchange rates in payments

Interchange rates are fees merchants pay to credit card issuers and payment networks every time a customer uses a credit card to make a purchase. These fees, which are determined by the card networks and can be challenging to negotiate, can have a significant impact on a merchant’s profitability.

There are several strategies that businesses can adopt to reduce their overall interchange costs. This article is about five things you can do as a merchant to reduce your interchange rates.

1. Offer contactless payments

Contactless or tap transactions are a type of payment that falls under interchange programs with the lowest rates. Contactless payments are EMV, which gives them lower rates. With the COVID-19 pandemic, there has been an increase in the limit for contactless payments, making it possible for merchants to accept more contactless transactions.

Taking advantage of the increased contactless limit can help you reduce your interchange fees and boost your profitability. Customers are also more likely to choose contactless payments over cash or traditional card transactions due to their convenience and safety.

To maximize the benefits of accepting contactless payments, ensure that your point-of-sale (POS) systems and payment processors are equipped to handle these transactions. You can also promote contactless payments to your customers through signage, social media, and other marketing channels. By doing so, you can improve the customer experience, reduce costs, and grow your business.

2. Close your batch daily

Closing your batch daily is an essential best practice to ensure that your transactions are classified correctly by Visa and Mastercard. By doing so, you can avoid the incorrect classification of your transactions under interchange programs that typically have higher rates.

Batch closing is the process of submitting all your daily transactions to your payment processor to settle and clear them. This process allows Visa and Mastercard to identify the transaction types correctly, such as whether they are debit or credit transactions, and classify them under the appropriate interchange programs.

By closing your batch daily, you can help prevent errors in the processing of your transactions, reducing your interchange fees and improving your bottom line. Furthermore, daily batch closing helps you keep accurate and up-to-date records, which is crucial for effective financial management.

To ensure that you are closing your batch correctly, make sure to follow the specific guidelines provided by your payment processor. It is also essential to use reliable payment processing technology that makes it easy to close your batch daily and monitor your transactions.

3. Minimize manually keyed-in transactions

Manually keying in transactions, such as mail order/telephone order (MOTO) transactions, can increase your interchange fees and negatively impact your profitability. MOTO transactions are classified as high-risk, which typically results in them being categorized under interchange programs with the highest rates.

To minimize the risk of errors and reduce your interchange fees, it is best to avoid manually keying in transactions whenever possible. Instead, you should consider investing in technology that automates transaction processing, such as point-of-sale (POS) systems or payment gateways that support chip-and-PIN, contactless, or mobile payments.

Automating transaction processing can improve accuracy, reduce processing times, and ensure that your transactions are classified correctly under the appropriate interchange programs. This can help to lower your interchange fees and increase your profitability over time.

If you must process MOTO transactions manually, ensure that you are following best practices for transaction processing and fraud prevention. This includes verifying customer information, using secure payment channels, and keeping accurate records of all transactions. By doing so, you can minimize the risk of errors and fraud while reducing your interchange fees.

4. Use 3-D Secure (3DS) for online payments

If your business processes online transactions, you can benefit from Mastercard’s 3-D Secure interchange program by adding 3DS to your payment processing methods. 3DS is a service offered by Mastercard that helps reduce the risk of fraud by authenticating cardholders before a transaction is processed.

Using 3DS can help you avoid Mastercard’s Digital Commerce interchange program, which has higher rates than the 3-D Secure interchange program. Transactions processed through the Digital Commerce program are classified as higher risk, which results in higher interchange fees.

By implementing 3DS, you can improve the security of your online transactions, reduce the risk of fraud, and lower your interchange fees. Additionally, 3DS is a valuable tool for protecting your customers’ sensitive data and preventing chargebacks, which can be costly and time-consuming to resolve.

To take advantage of Mastercard’s 3-D Secure interchange program, make sure that your payment processing technology supports this service. You can also promote the use of 3DS to your customers to provide them with added peace of mind and improve their overall shopping experience. By doing so, you can boost customer satisfaction, increase sales, and enhance your bottom line.

5. Allow reserving online or phone then pay in-store

To lower your interchange fees, it is essential to understand the different interchange programs available for your business type/MCC, transaction volume, method of acceptance, and card mix. Generally, card present transactions offer lower interchange rates than card not present transactions, so creating more in-person payment opportunities can help you take advantage of these lower rates.

Rather than getting customers to pay online, you can have customers reserve online, then pay when they are physically in the store. Although this might not always be the most convenient process, it will result in lower interchange fees.

While the tips provided above can help you optimize your payment processing and take advantage of the lower interchange rates, it is important to remember that your specific rate changes will depend on a variety of factors. For instance, the type of card used, such as rewards cards or corporate cards, may result in higher interchange fees due to the added benefits and incentives associated with these types of cards.

Other factors such as chargebacks, fraud, and merchant category codes (MCC) can also impact your interchange fees. Therefore, it is essential to have a deep understanding of your payment processing activities and monitor your interchange fees regularly to identify opportunities to optimize your payment processing and minimize your costs.

By leveraging payment processing technology, implementing best practices for transaction processing, and staying up-to-date on industry trends and regulations, you can optimize your payment processing activities and reduce your interchange fees over time.


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