Lets start off with a brief understanding of Interchange and how a typical transaction breaks down. Interchange is a very large document provided by the card associations i.e., Visa / MC. Based almost entirely on actuarial sciences, the associations dictate what and how much each issuing bank receives for the ‘risk’ of issuing the average American a credit—or debit card. Sufficed to say, since debit cards would present the lowest risk, the Interchange pricing is lowest—typically just over 1%. A corporate card however, being the largest risk to the issuing bank due to the simple fact that 70% of new businesses fail every year, would present the largest risk and therefore the largest price tag at just under 3%.
The pie above shows the basic breakdown of where the money would go for a typical transaction; The largest % goes back to the issuing bank (i.e., chase debit / credit card). Second is the processor, whomever facilitates the movement of those monies, (i.e. North American Acquiring) . Last but not least is Visa, who gets the smallest %. (Respective of their work / risk, they really don't do much, they never touch the money nor do they take on any risk outside of advertising.)
The Government Program—
Visa and MasterCard respectively instituted the program to be meant for the benefit of public entities in the United States, which by card association standards, are very low risk. Because government entities rarely see charge backs or fraud, the issuing banks have agreed to accept a smaller %. (see chart below) This pricing is restricted to the following ‘low’ risk entities; utilities, insurance, cable companies, telecommunications, government entities and schools.
The government interchange rates for Visa are 1.43% for credit and 0.80% for debit; while MasterCard’s rates are 1.45% and 0.80% for debit. These rates are good regardless of how the transaction is processed; swiped or keyed card present or not.
Conversely, the standard retail program, which 99% of American merchants currently utilize, including most public entities in the United States offers the following rates; Visa—1.54% for credit swiped and 1.85% keyed; debit is 1.03% swiped and 1.60% keyed. MasterCard—1.58% for credit swiped and 1.89% keyed; debit is 1.05% swiped and 1.64% keyed. See graph below for visualization of Visa rates, government vs. retail.
Note the difference in processor cost between government interchange and standard retail. Even with a higher profit margin, this program still saves public entities a substantial amount of money.
Each card association has their own unique government program and is restricted to specific Special Industry Codes (SIC). In order for a government entity to qualify for these reduced rates, we at North American Acquiring work diligently to submit the appropriate forms to each card association to ensure you get the lowest possible rate for each individual transaction. All qualifying public entity merchants are eligible for these special interchange rates where the cost of accepting hand-keyed recurring credit cards will be as low as if they were card present transactions. By simply implementing the government rate program, public entities can expect to save a minimum of 28%. In addition, we at North American Acquiring also work on half the profit margin that most banks take in; it isn't uncommon after a rate review for us to find that we can save some of your potential clients upwards of 50% off of their total processing bill. Pie chart below illustrates the afore mentioned—
Government Rates compared with Retail Rates-
“By simply implementing the government rate program, public entities can expect to save a minimum of 28%.”
At the present time, the majority of government entities are priced as retail accounts and are experiencing mid or non qualified keyed-in discount rates. Because of the government rate programs that are now available, the average cost incentive for customers that fall into this category is more than 50 basis points below that of keyed-entered retail. The result is a large opportunity for savings for these merchant types. The critical factor for the approved qualification and pricing is that the processor makes certain that the merchant has submitted the proper paperwork and is set up and priced correctly according to the specific Interchange program. When completed properly, the keyed-in qualified sales for the emerging markets categories will receive the qualified rate. This enables all government entities to effectively pay swiped rates all the time and save thousands of dollars per month in unnecessary expense. We know how to implement this program effectively. Large processing entities such as Fifth Third or Chase Manhattan deal with hundreds of thousands of customers from every category. Their merchant processing departments are streamlined to be cost effective for standard retail processing. Occasionally they will adopt a more in depth understanding of some set industry types. But to do the leg work needed for proper government interchange implementation on each occasion never proves cost effective. We do what they can’t because we have taken the time to build a company around the needs of your industry.
In a nutshell—
We could easily save you 50% off of your processing bill without changing your current software package!