The Credit Card Processing Rate Helps Pay for Interbank Networks
Credit card networks for business processing require constant upkeep and maintenance. Multiple servers run around the clock to keep the system up and running and the network must be constantly protected by IT professionals. The credit card processing rate charged to businesses is, in part, to pay for this required maintenance. If the service maintenance is not performed regularly, the entire system could go down, leaving businesses with no way to process credit card transactions. In the event of a really bad collapse it could even remove consumer’s ability to access ATMs for cash. After all, many of the larger credit card service providers also provide the interbank network that allows non-proprietary ATM withdrawals. This is less likely, since most ATMs are part of at least two interbank networks, in United States that is Cirrus and Star or Plus, but it is a potential risk.
The credit card processing rate is designed to cover the costs associated with an interbank network and still make these companies a profit. The credit card processing rate is ultimately decided on by the end service provider. While interbank networks make credit processing possible, they do not sell the service directly to merchants. Instead, member banks, those involved in the network, are able to sell the service provided they charge the network fees to the merchant. The interbank network declares its base rate, which is made public knowledge. This rate will then determine that minimum that other companies can charge to provide this service. In some ways these transactions fee rate schedules can act like the Federal Reserve Bank in setting the prime rate. This number is basis that all other companies use to set their own rates.
However, even with a single entity dictating the base price that service providers charge, the credit card processing rate can vary dramatically from service provider to service provider. Companies split up charges according to different price models in order to maximize their profits. While merchants will try to find the lowest possible rate, service providers attempt to charge the maximum they can get merchants to accept. In order to further that goal, pricing structures offered as par t of the credit card processing rate have grown increasingly complex. For example, a three tiered pricing example is fairly standard, but understanding all the distinctions between one card and another can be difficult. If your provider charges more for processing rewards cards, it can hit your business hard if most of the transactions you close are on rewards cards. One the one hand, business owners do not mind allowing their customers to receive something back on their purchases, but on the other, the increased processing fee can be an unwelcome surprise.
Merchants must understand the entirety of their service agreement, to get the best deal on service. There are times when a card is not clearly in one category or another, and since the fee can adjust depending on the category, it is important to understand the selection criteria.
