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Interchange Secrets | Merchant Accounts
B2B Vault Episode 65: Interchange Is Going Up? How Will It Effect Your Business?

Written by Allen Kopelman

April 12, 2022

Video Transcription

Hey everybody. It’s Justin with B2B Vault: The Payment Technology Podcast with your host, Allen Kopelman, and we’ll be providing educational information about business payments, FinTech, financial technology, decentralized finance, and the technology businesses need in today’s world. In today’s episode, we’re going to be talking about interchange, and it’s going up, how it will affect your merchant account, and all that other good stuff. So there you go, Allen. Thank you, Justin. So today’s podcast interchange, what’s going on with interchange, and how will this affect your merchant account? A lot of business owners they’re not even aware of interchange. Still, we’re going to say, you know, what is interchange or the fees that Visa, MasterCard, American express discover that they charge everybody. It doesn’t matter if you do a hundred bucks a month where we do a hundred million a month; there’s interchange. Now there are different categories of interchange. It’s very complicated. I’ve told people, I, you want to know what interchanges put it in Google visa interchange.

They call it interchange reimbursement fees. I think it’s funny, and MasterCard and, you know, have pages and pages and pages. Visas are very complicated. MasterCard is not so complicated. American Express is somewhat complicated also because they have different levels. There are all kinds of like different levels. What they consider a big business, what they consider a small business, and then there’s a difference. SIC codes attached, you know, for different businesses, they get special rates and special consideration, which we have like on our website, if you go to MPS bank.com, you look up emerging markets. You’ll see the markets get special consideration from Visa and MasterCard, but there are many different categories and things like that. And we’re going to talk about that. And every year, Visa and MasterCard, every April and October, always make little changes, little tweaks to the interchange. So they reclassify things.

They add things; they put a couple of basis points here and a couple of basis points there. But over the last two years, they didn’t make any adjustments. They said, oh, we’re going to raise interchange, but they didn’t do it during the pandemic. She Was so nice. Yeah. And the other thing that got delayed during the pandemic was the switchover of EMV on gas stations. And now that’s done, that’s the dates already gone past. So now there, you know, gas stations aren’t protected anymore. So there’s a thing called the fallback rule. So the rule is, let’s say you’re a retail store. Okay. And the EMV went in in 2000; in October 2015 was the EMV. So after that, if you swipe the card versus using the chip and somebody’s disputed the charge or that person’s bank disputed a charge, there’s no way to fight it. You just lost the chargeback. Really? Yeah. And there are still merchants out there. The EMV adoption rate is in the 90% range, but many people have an old legacy point of sale systems. They didn’t want to put credit card machines on the side, or maybe they’re in like a doctor’s office, and they go, Ooh, you know, people aren’t going to chargeback the doctor’s office, and they go, well, upgrading my point of sale or my software, my cost me 10 20 grand. And maybe I get one or two chargebacks a year or a month.

Maybe it’s a minor amount of money, and it’s not; they don’t want to switch. So, you know, but now I gas stations, they’re going to get it. So you go to a gas station, and they got a swipe versus an EMV. Now the newer gas stations all started putting in EMV, you know, after 2015. So we built a brand new gas station. I’m not going to put old stuff, but older gas stations now need to get retrofits, either need to buy a whole new system or go to a company. And we have, we have, we have a partnership with somebody that does retrofits, but we didn’t do a, we’re not doing a podcast on that. But you know, the fallback rule will affect gas stations now because if they have swipers on the pumps and somebody does a chargeback says to their bank, I don’t remember going there or whatever. And you know, it’s so easy to do a chargeback now on your credit card; you go to your credit card website, hit dispute, boom, it’s done well. They’re going to close automatically. People are going to get a ton of free gas. Now I don’t see. We don’t have a ton of unbranded gas in Florida because Florida made people dig up the gas tanks and put concrete bunkers in. After all, gas might be leaking into the water table. So years and years ago, so that a lot of, you know, independent gas stations went away in Florida because people couldn’t afford to do that was a huge expense. So people sold their gas stations to the big boys.

So you hardly see just like, you know, the mob, the mom and pop gas station. But in other states, that still exists because you will see a mom-and-pop gas station, especially if you go to a rural area. Right. They need to get retrofits because otherwise, they will have a ton of chargebacks. Right. So, you know, the last two years, all that stuff was put on hold, well, that’s the, Now when you say like retrofits, you mean for the pumps? Like the ones where you just, Yeah. The Tough slide in and out real quick. Yeah. So they have, so now there’s like a company that made us. That’s a pain in the neck. So I’m, I’ll be grateful for when those things no longer exist. I mean the swiper, No, you know, like you got to stick your card in there and pull it out quickly. Yeah. That’s what I’m talking about. That’s a swipe. When you have an EMV, stick it in, leave it there for a minute, and remove it. Yeah. Where you tap on it. So now those gas stations need to get retrofits. So there are a couple of companies offering it. We are working with somebody we’re a consultant for them, and they even offer this one company offers to finance. So you have a gas station. You have to do like ten pumps. You might not have the money. You know, you might look at the bill two ways, right? So two ways you would look at it is how much will it cost me to replace everything? All my pumps and your whole system could be an insurmountable amount of money, but you could get a retrofit put on there for a lot less money for probably like 30%.

So, you know, and the other thing is that some of the rates are going up. Do we expect this to impact businesses? Like on a big, like, you’re going to see your rate, your, your costs go up to double. No, but there will be small increases in certain areas due to reclassification. So a few basis points and you know, businesses every day I get the same question. Is it time for me to consider a surcharge or cash discount? A lot of businesses are switching. Even our existing clients are switching over to the cash discount or the surcharge model or a model where they’re passing, let’s say, 2% to their customers. They’ve got, you know, that the inflation is just outpacing. How much money they can charge for their business. So it just depends on your business, if you can do it. I mean, I see your prices in restaurants going through the roof. We discussed it on a couple of previous podcasts about how prices are going up because inflation is just outpacing what can be done. So I would tell you, like, when we are signing up people for merchants, our services, now I would say you 70 to 80%, so seven or eight out of 10 people going for a cash discount or surcharge, they don’t have to do it. Now. Here’s an unusual story in the news for a couple of weeks. I keep searching every day to see if there’s some clarity about what this is all about.

They say they’re going to lower credit cards when they call swipe or the EMV fees for online. So online means websites and in-store transactions by 10% for small businesses starting in April. Now what they’re saying, it’s for businesses that do 250,000, I’m assuming a year, which would be around 20 to $21,000 a month. However, you know, 10% of interchange, that’s a joke. That’s a couple of basis points. So I don’t think that that’s like a big impact thing. And we’ll get into how we, I think Visa could impact small businesses, but the move, you know, this, you know, this move comes because the pandemic continues to accelerate a shift to digital payments. Another thing we read about, which I didn’t put in the podcast, is that there’s a lot of talk about the central bank, digital currency thing. But I think that anytime you have the government making a product, it will not happen so fast. Right. If they went to Elon Musk and said, make a digital dollar, he would make it in a couple of months. I’m sure the government’s going to take years. So I don’t look for that to be impactful at all. And these, as one of the largest payment companies at MasterCard, you know, they’re benefiting from all this increased shopping, using credit cards. I mean, there’s, you know, I think many businesses have gone back to taking cash during the pandemic. Yeah. A lot of places didn’t take cash at all.

So, but I think, you know, cash is still there. I mean, let me tell you, we have ATM’s we see cash being spent. So cash people are taking cash out of the ATMs, and I don’t think cash is going away. However, the digital payment space is crowded with buy now pay later alternatives. I think we’re going to see banks start offering their buy Now pay later solutions. You know, Visa and MasterCard are starting to endorse it. Still, Visa and MasterCard also decrease because people use things like Venmo, PayPal, CashApp, Zelle, and other wallets.You also hear about apple and Android. I guess I don’t know what Apple and Android are coming out with this touch bang to the phone so you can touch, you know, but it’s only EMV. So it’s only, you know, either wallet so someone can use, cause we’re having a meeting with somebody later this week where you could take like your wallet on your phone and put it up to their phone, or you could take your EMV card and do a tap and pay onto the phone. And I don’t have an Android phone cause it’s coming out first on Android. But this is through an app, Right? So, you know, I’m going to go out and try to look on some website, buy a secondhand Android phone so I can test, oh, we got tested out where the payment technology podcasts, we test it out. It’s going to work. So a lot is going on in the, in the space. Those companies we talked about, that most details and all that, will start sending 1099K.

People who have a merchant account know that you get a 1099K from your credit card processor. Also, the crypto companies have, I think, till 20, 23, or 20, 24 to start issuing 10 99 Ks on business transactions. Some privately might start sooner. So Visa, Yeah. On the fee thing, did you hear about a Coinbase? And there was like a hidden fee that, Yeah. And there’s a big lawsuit. Yeah. There’s a big lawsuit against Coinbase saying that Coinbase is like a 2% fee and transactions from a few years. Also, Coinbase made a move. Where now, let’s say you’re a big trader. You can sign up for something called Coinbase, you pay a monthly fee, and it cuts down on some of the fees you pay for trading. So if you’re a heavy trader, but they’re not, they’re only testing it out. I did get it in my account and some legal; what? That they hit a fee Inside training. What? That the hit a fee. Oh, that dev a one-time monthly fee. Well, it’s like a subscription. You’re going to pay an insider thing. Like, what do you get with That? You get reduced fees by paying the 20 bucks a month to Coinbase. Now I’m a Coinbase. Well, if you’re a big trader, you’re going to save. Cause you’re going to get discounts on your trades. I probably got invited because I was an early adopter of Coinbase. Right. So I got Coinbase like a really long time ago. Been on Coinbase for a while. Now, since it’s been out 5, 6, and 7 years from its inception, I was probably one of the first customers. Because before that, you had to use some funky wallets outside the United States. Oh, for your crypto. Yeah. For your crypto, there wasn’t a United States wallet. And a lot of those wallets went down. You can read stories about how some of those wallets got robbed. Yeah. But let’s not jump too much stuff, but you know, So I just wanted to see if you, have you heard about that? I meant to talk about, Oh yeah. Coinbase was involved in a big lawsuit. I got letters from lawyers and blah, blah, blah.

You got to download documents and send them to the lawyer who knows. But now you see Coinbase come out with that. Their fighting back, you know, so the, you know, these saying, you that the interchange fees, you know, in debit, you know, this they’re going to have this 10% cut to the small merchants. It’s going to be minor, a couple of basis points. Cause 1%, 10% is one basis. The point on 1%. So this is like nothing. Visa said the cut affects 90% of businesses. Now I don’t believe that that’s, you know because when you look at that, and they say it affects 90% of businesses, the problem with that is a lot of the smaller businesses in the US they’re using pay bow, using square, they’re using Stripe. So they’re on a flat fee model. So that creates more profit for those companies, and Visa does have stock and probably a few of those companies. Oh, I’m sure. Yeah. I think Visa definitely as a piece of skin, I know that they own a piece of a square for sure that I do now, but I’m just saying, so that’s not going to help the merchant. The impact on that will be very, very, very minor because even like a small business, your e-commerce is okay. The majority of those small businesses they’re using Shopify. So they’re on a flat fee model. You’re going to see. Do you think we will see Shopify square Stripe and PayPal lower their flat fee? No, we’re not going to see that To go up. PayPal raised their rates, and so did Stripe. I’m a, So I’m Done with PayPal business.

So I just see this as a visa is putting this out there. Right. And it’s in between Reuters and a few other places, you know, in a few things, you know, they’re putting, putting it out there. Right. And it’s like a PR move. We were raised in or changed, but we’re helping small businesses now. So I think it’s more of a PR thing than actual help. So that, as you said, you didn’t even say if it was Yeah, two 50 a month or 250,000 a month as a small business or two of your $50,000 a year as a small guy. So there’s not really. They didn’t say The 50 grand a month doesn’t sound like a small business to me. No, but I’m just saying they didn’t come out and say what the threshold is. How are they going to measure that threshold? Are they going to measure it in any 12 months? Are they going to, you know, the Visa has their way to do things, Right? Yeah. So the interchange increase, you know, many consumer credit card purchases. According to everything that I read online, there’s been a few articles about it. Few releases from Visa said, visa spokesman said, merchants can avoid higher fees, a certain transaction data and use its token service, that mass credit card number. I don’t know. I don’t understand what that’s supposed to be unless they say that there will be new tokenization rules that they’re coming out with and nobody knows about. They’re going to say, and the only thing I can think that applies to is like the EMV, you know, that they’re going to punish merchants with a higher interchange that are not using EMV. So it doesn’t make a lot of sense.

MasterCard is also increasing more than a dozen purchase in-store purchase categories. According to the documents that I read, small and mid-sized grocery stores, they refer to supermarkets, will pay higher interchange fees on most rewards cards and probably, you know, there are business cards. You know, this kind of thing is that there will be little tweaks, card programs; Rocky doesn’t like that either. Yeah. I don’t want to see any more retail fees at the grocery store. Well, no, it’s just expensive. Yeah. The grocery store, the prices are going through the roof, and the grocery store. People are spending 20, 30% more. Right. And that they’re going to raise the interchange in the grocery stores. And the grocery store will get hit with another price increase on their thing Because my family affords it cost me about a hundred bucks a day. No, but I’m saying it’s quite crazy what’s going on in the grocery store, but everything affects Date, but I’m saying like, No, no, but everything affects like prices. The interchange fees, gasoline, which I think is the biggest driver of, you know, price increases going on right now. It’s just gas, weight, and wage increases. And just, you know, everything, the cost, the cost of gas goes up. The cost of everything goes up. That’s this basic economic 1 0 1. I’ve talked about it many times. And you know, there’s, is there going to be lower? The interchange?

Is there going to be lower fees for merchants using EMV? We haven’t seen anything like that. Will merchants be getting lower rates using 3d secure on their websites? We haven’t spread anything about that. Although there’s been some weird stuff with the 3d secure, like, oh, this gateway, it doesn’t work on. All the 3d secure companies and the gateways are trying to raise their level of the change, their 3d secure thing around to really? Yeah. It’s somewhat crazy. I don’t understand why you know we have adopted what’s going on in Europe. And I asked somebody from one of the car brands, like, why aren’t we doing what Europe does with not. So within Europe, when you do a non-card-present transaction, and if you’ve bought anything from Shopify, you’ve seen this because Shopify uses it too. So you register, have your email address, and always get your phone number. And when you go to do a transaction on Shopify, it sends you a text message, and then you got to put it into the computer or your phone, like Two-step verification. Right? Do a two-step verification, and I don’t know why the United States hasn’t moved towards that. And the answer I got from the person at the card brand was this is old technology. Okay. It might be old, but it’s better than what we have now because right now, we have nothing. To send an SMS text message to see if you’re making a purchase of $700 on Gucci. Rocky. I know you don’t like that either. Are You serious? Yeah. They said it’s old technology. So what, There’s nothing else in place to stop that. No. Well, then they don’t have anything. That’s the problem. That’s what I said. I wasn’t, and I just laugh when they say stuff like that.

I go, come on like, what are you guys kidding me? Oh, believe me. I would love to get someone from the card brands on the show and ask them about some of this stuff. So, but yeah, the answer was its old technology, but you know, some, you know, safety asked to begin somewhere. You should have said, did you send a text today? We’ll Look at EMV EMV. We got it in 2010. Then, today I know that. But I’m saying EMV payments started in this country in 2015. It was in Europe already for years. Right. So it’s called Euro, Euro, MasterCard Visa. So they already had it there for a long time before we got it. So I’m saying, and now they’ve had the text message thing. I mean, it’s on shopping. They say the internet is a lot cleaner, too, for kids and stuff like that. Like, Oh yeah. Well, they have different controls because there’s, first of all, fewer companies like supplying the internet. There are fewer banks supplying credit cards, just like in Canada. I thought I was telling somebody, and I go, you know, it was like only six or seven banks in Canada that offer credit cards and in the United States, tons of banks. That’s, that’s ridiculous. Well, I’m just saying it’s just two different landscapes, and it’s the same thing in Europe. And you know, and as we get close, you know, we’re going to touch on this interchange thing a lot more and some other podcasts and probably, you know, when we get to April, you know, I’m sure there’ll be an announcement.

I know it’s April now. Like, but they haven’t made like the official blah, blah, blah. It’s not, and it’s not like out there like that. And what is it damn instead of by April 15th or whatever? Yeah. That’s when it usually comes out, like the middle of April, and they’ll be like, Huh, April 15th Back Again. I don’t know. I have to look. All right, so let’s get into more stuff. Well, real quick little advertising for ourselves shameless self-promo is my brothers would say back home. You can catch us a B2B vault on Spotify, Apple, YouTube, Google, iHeart, Stitcher, Pandora, and Amazon. The list goes on, and on where you listen to or stream music, you could probably listen to the podcast. Okay. Check out B2B vault.info for a check to catch up on past episodes. There are a couple of forms on there where you can contact Allen to book an appointment to speak with him. If you have any suggestions for the show, questions, or would like to learn more about sponsorship opportunities. Check us out on social media, B2B vault @b2bvault Instagram, Facebook, Twitter, and what’s the other one? TikTok. We got to put the TikTok icon on there. So I don’t forget about Alan’s wild and crazy shenanigans on tic-tac with Rocky, the mascot anyway; back to you, Allen. Oh, real quick. We want to thank our sponsors, NPS Bank, NPS Printer, and The payment advisory board. There’s one more. Oh yeah. Nationwide Payment Systems.

How can I forget the bread and butter? All right. So if I want to say this is just from me. Okay. My opinion. Okay. Instead of Visa coming out with this 10% interchange reduction to small businesses, I think Visa should put small ticket interchange right to your Congress. People tell them, say, forget this Durbin amendment from 2010, forget that. Tell them you want Visa and MasterCard to put back small ticket interchange into the mix and get rid of, and forget that and forget this BS what’s going on there. Small ticket interchange going back. This will help tons and tons, many more merchants than what they’re talking about. Okay. So small ticket interchange, merchants whose average sales are under $14, since 2010, those merchants have seen their interchange fees go from like 2.2, five to two from 2.2, five to two and a half percent to seven or 8%. Wow. Yeah, because before that, now they paid 0.05 and 22 cents on these debit cards. And before that, they paid like 1.5 or 1.7 and a nickel. Well, that’s a lot less than this 0.05 and 22 cents. The 22 cents. Is this killer on? Yeah. I mean, 22 cents on it. That’s a Lot. Right? So you have a lot of merchants of these coffee shops and small businesses. And before 2010, there was a big push by Visa to get into all these fast food places. I can tell you that we’ve talked about, you know, fast-casual restaurants, but you know, you still have a lot of merchants where it’s a small convenience store and things like that.

And their average ticket is meager. With the pandemic, they’re pushing more and more payments into using credit cards in those businesses. And the small ticket interchange would help those businesses get lower fees more than this BS 10% thing, right? The small ticket interchange would give businesses and retail businesses big relief. That sounds like a big, big relief. It would be a huge relief. That’s all gone from 22 cents back to it, Nicole at 17 cents right there Per transaction. And that’s percentages because it’s on a small amount of money on a big ticket. It doesn’t matter, big ticket, a hundred dollars doesn’t matter. It’s not a big difference. Right. But when you’re selling something for ten bucks. Not even, I mean, just like you said, a coffee shop, you know, what’s a coffee three. Yeah. Instead of seven or eight cents an interchange, now they’re dealing with 24 to 30 cents of interchange. Yeah. So it’s crazy. It’s four times the amount of money Visa and MasterCard put back small ticket interchange for small businesses. And I have in the past contacted congresspeople to discuss that with them. I got nowhere. I prepared a presentation, sent it to them, and sent it to people at MasterCard. Got nowhere. Now here’s some other stuff that’s been going around. We’re not sure if this is a rumor, but I can say one thing about this: the rule about tipping has been around since I’ve been in this business since 1998 and started Nationwide Payment Systems in 2001. And this tipping room has been around since then. So this is nothing new as far as that goes.

But now I’m hearing that they might assess some interchange increases on that, which is crazy. Yeah. So if someone, because Visa and MasterCard and American Express, I’ve been pushing, you know, tips at the time of the sale. So that means they want you to bring a device to the table, you know, ring up your food is 50 bucks. Then you put the tip on, and then it’s one transaction, you know, the amount of what you’re charging plus your tip. And then the whole amount is authorized. So let’s just say your food was 50 bucks, and then you put a $10 tip. So now there’s one authorization for 60 bucks. Right? Right. Or let’s say you like the waiter. You want to give them 50 bucks, but now you’re exceeded the 20% tip. And there’s been a lot of talks. Many restaurants are getting people leaving big tips in some of the Facebook groups that I’m in and on some other forums about that. Then they’re getting chargebacks on them. So that’s crazy. I looked everywhere, but who knows how they will reclassify that to a non-qualified transaction? But they’ve been pushing. I tell every bar and restaurant that I work with that if your software is not set up for you to enter the tip, print the slip off of your point of sale, add a tip line on there, give it to the customer, let them write it in, then have them wait or go and ring it up and put the tip in at the time of the sale. To avoid, especially in bars, we’ve been telling bars to do tips at the time of sale for the last ten years.

Okay. Because people typically leave larger tips, and now with the economy messed up, people feel bad for the waiters leaving bigger tips, You know? So that’s something that people need to consider and figure out how to do tips during the sale. I mean, it’s only going to be inevitable that the card brands will punish people who are not doing that. I mean, it makes sense to me, like, I’ve always been worried about when, you know, like say you, you’re not happy, or you forget to put the zero in above the tip, you know, it’s like one of those things that’s like, or they put it in the wrong. Right, Right, Right. But I’m just saying it’s safer for the customer, the car doesn’t leave your site and all that. No, I like the, when it, you know, like when you go to a restaurant, and they’re like making you take your ticket to the counter now, I don’t know if you’ve noticed that A lot of places. Well, that’s because they have fewer waiters. So they have like a cashier and a light. There you go. That makes sense. I didn’t even think of that. But while they’re doing that, when you check out, you just put the 10, 15, 20%, most of the time, depending on their Yeah. Or they’ll ask you, how much tip you want to leave? I know I go into his diner, and they’re like, how much tip do you want? Right. You’ll tell them, and they’ll put it in there. So that’s just the thing. And, you know, with interchange going up, is it time to consider cash discount or surcharging rising prices?

Gas is going up. Inflation is, you know, these programs that businesses should consider, including cash discounting and surcharge. We just did a whole podcast on that. You can go back and listen to it, but these are things. Talk about caste discount real quick, just, Yeah. Well, cash discount. That’s where merchants had a small fee, and the surcharge is the same way merchants had a small fee, just like gas stations have a small fee. And then the business doesn’t pay the fees. Right. And it’s a good way to offset your costs. And I think customers are more open to it now than ever. Right. And not going to punish the business or say, oh, you’re a cheapskate. Right. Right. Right. You know, so now might be the time to do it. Surcharge. The surcharge is similar, but it doesn’t attach a thing to debit cards except where it concerns debit cards. But when you talk about cash discount versus surcharge, the surcharge should be used with more business-to-business businesses. Cash discounts should be used in retail and restaurant because probably 40 to 50% of transactions taking place in retail the restaurant, especially if they’re under a hundred, are being used with debit cards or check cards, which are branded cards but attached to a bank account. Nice.

So just something to consider, you know, and conclusion of this interchange is going up. We can’t stop it today. Does Justin want to tell our listeners about a special offer? Oh yeah. Allen put together an informative ebook to learn how to pay zero and how to pay zero or save more money on your merchant services. You can head over to pay zero.info, download the ebook, and hit the ground running; it’s free. So go get your learn on anyway; that’s it for the show. That’s it. That’s it. Follow us on socials, @b2bvault everywhere, listen to the podcast or watch us on YouTube. We look forward to providing businesses with educational information. If you’re a merchant, share this with your friends. If you’re a merchant, own a business, and want to learn about payment technology, this podcast is for you. B2B Vault Carpe Diem. We’re out.

Merchant Statement Analysis | Merchant Services Statement Analysis


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