Have you ever seen the 12% or even 24% interest rates that Visa, MasterCard, American Express & Discover charge and think about how rich those companies have to be charging such ridiculously high interest rates? Here is the crazy part – that is another HUGE part of their financial success that you may not know about – it’s called interchange fees.
Here is how interchange fees work:
- Visa, MasterCard, American Express & Discover charge every company in the world that processes through them a percentage of every transaction. These interchange fees range between 1% of a transaction to as high as 3-4% per transaction.
- These fees essentially are fees that any company that accepts credit cards has to pay.
- In effect, these credit card companies are enacting a global tax on almost all electronic transactions ranging from 1.2% to 4% per transaction.
- Companies to combat these fees essentially charge an extra 1% to 4% for everything they sell – and this costs gets passed directly onto the consumer with a higher cost for a service or product.
As a small business, it is important for you to partner with a merchant services partner that can keep your rates as close to true interchange as possible – and therefore lower your payment processing costs.
