SYNOPSIS

Understanding Merchant Account Fees is presented in three sections:

Section I, Credit Card and Interchange Principles, acquaints the reader with an overview of the basic types of credit card systems as well as the players in each system. We also introduce the concept of discounts and the three major constituent fees such that they can be mathematically manipulated later in the document. This section also presents the most applicable Card-Not-Present Interchange rates for Visa® and MasterCard® in a simplified, easy to understand fashion. Section I continues on with four special topics including the significance of debit card Interchange and the problems with micropayments.

Section II, Interchange Computation with Examples, introduces the reader to fundamental mathematical relationships that will make it possible to fully understand the impact of Interchange on pricing and other marketing related decisions. In all, the reader is presented with eight examples consisting of over 20 useful computations. A companion spreadsheet, Understanding Interchange.xls, is also provided so that the reader may observe the computations natively in a spreadsheet. In some cases, the spreadsheet is constructed in a manner that allows merchants to substitute their own data and observe results. Formulae in this section are expressed in the Microsoft® Excel® format.

Section III, Interchange Optimization: Operational And Data requirements, presents a summary of the operational “must-haves” to achieve optimal interchange rates based on merchant type. This section also delves into some very basic data conditioning aspects. The reader should find the MasterCard overview particularly interesting given that MasterCard provides merchants with relatively great flexibility in choosing the optimal Interchange category.

Although geared toward Card-Not-Present transactions, Understanding Merchant Accounts develops a construct for understanding all interchange rates. Because the Associations now publish these rates, it's relatively easy to substitute venues and MCC's. While you can't change examples in the document, you can easily substitute the various Interchange rates in the companion spreadsheet.