Interchange and Assessments - What are they? / What to look out for?

Shannon Andrade |

May 31, 2012

Have you ever wondered how merchant service providers determine merchant account pricing, or why some credit card transactions cost more than others?

To better understand what you’re paying for, you need to know how merchant account pricing is established.

Simply put, there are two basic fees that collectively, make up the vast majority of the cost of a merchant account. In the credit card processing industry, these costs are referred to as “Interchange and Assessments,” and they are charged by bank card networks like Visa® and MasterCard® every time a merchant accepts one of their cards for purchases.

Essentially, the “Interchange” rate is a percentage that is deducted from each credit card transaction amount, and the “Assessment” fee is a set percentage of processing volume charged by Visa, MasterCard and Discover.

There are many components that influence the cost of processing a credit card, but the Assessment fee charged for a transaction is determined exclusively by the brand of the card accepted and is set by the bank card network that issued the card.

Interchange pricing is bit more complex, because each card and transaction type has a unique cost, creating an assortment of over 150 Interchange rate categories. As a result, the Interchange category any one transaction will fall under depends on various factors, including:

  • A business’ processing environment (retail, phone order, internet, etc.)
  • A business’ card acceptance method (swiped, keyed, online, etc.)
  • The information sent along with transaction (address verification, CVV2, tax amount, etc.)
  • The card brand and type accepted (debit, credit, rewards, corporate, etc.)

 

To lessen any confusion, merchant account providers typically compile all similar Interchange categories and bundle them into a few groupings such as qualified, mid-qualified and non-qualified. However, this is just one way merchant accounts can be priced. Some merchant account providers quote an “Interchange and Assessments, Plus” structure, which combines the actual cost of the transaction based on the Interchange category into which it falls, the applicable Assessment Fee, plus an additional specified value on top of each.

In the end, the bulk of a merchant’s credit card processing expenses and the root of all merchant account pricing structures derive from the combination of the Interchange and Assessment fees, regardless of the pricing structure.