Interchange Optimization
Interchange Management
Approximately 90% of payment acceptance costs go to card issuing banks in the form of interchange fees, yet merchants’ battle with processors for fractions of pennies at the AUTH & Settle per transaction expense. The real savings can be ascertained with interchange optimization which represents approximately 90% of a merchants’ bill.
Interchange expense leakage generally occurs both through inefficient processing and/or operational and technical inefficiencies at the merchant level. SingPayment is an Interchange Management specialty processor creating savings opportunities for merchants by aggressively and proactively managing the interchange tables and pricing tables at our processor level and educating merchants to be operationally and technically efficient.
Downgrades and Interchange Optimization
For merchants to obtain the best interchange rate, the transaction detail (string of data) must conform to certain rules established by the card brands (qualification criteria for the lowest possible rate to avoid downgrades that result in higher transaction fee). The following example listed below depicts two possible Visa interchange rates for a single transaction; one that qualifies at the lowest rate and the other that downgrades:
VISA: CPS/Card-Not-Present | Qualified Rate: 1.80% + $0.10 | |
VISA: EIRF (Electronic Interchange Reimbursement Fee) | Downgrade Rate: 2.30% + $0.10 |
Note: the reimbursement aspect of EIRF refers to the card issuing bank higher fee when the qualification criteria are not met. They, the issuing banks receive a 50-basis point (1/2%) rate increase with the downgrade.
Listed below are the Visa qualification criteria to receive the lowest CPS/Card-Not-Present rate:
- Address Verification System (AVS) check
- Shipping product within 7-days of the authorization
- Original AUTH ID from you authorization included with the settlement transaction provided
- Order number or invoice number in the settlement transaction provided
- Transaction settlement must be no longer than 7-days after the authorization date
- Transaction settlement must be no longer than 3-days after the completion of the sale
When any of the qualification criteria above is not met, the transaction downgrades to the higher EIRF rate. An AVS Check and Order Number or Invoice Number combinations are two common reasons for EIRF downgrades.
A common misconception is that – doing an AVS Match or No Match validation at the transaction level means the qualification criteria was met. An AVS check from a Visa Interchange perspective is unrelated to a match or no match validation. A Visa AVS check implies that the interchange system needs to receive a systemic validation (e.g., from the POS gateway system) that AVS was in fact checked. A Match or No Match is only a fraud or chargeback risk mitigation measure.
A second common misconception is that –the order ID/invoice number must be unique to each transaction. This would imply that the Interchange system has “check and balance” systems in place to validate all invoice numbers; which is not true! All that is required from the gateway transmission is a random digit provided for each transaction.
Most merchant statements we analyze are laced with unnecessary EIRF downgrades attributable to these two types of issues controlled at the gateway level. They are unwarranted and can easily be rectified. Keep in mind; CPS/Card-Not-Present and EIRF only represent two categories making the complexities is enormous. Our mission is assisting our merchants to properly qualify all transactions though simple measures and best business practices that result in bottom-line savings. It is an ongoing arduous process we provide using systems and personnel to achieve our objective!