Fighting Interchange

Merchants large and small have fought against the cost of accepting credit cards for decades. There have been numerous legal battles between retailers of every size and the card brands or acquirers, all over merchant fees and interchange. Merchants of all shapes and sizes constantly work to lower their processing costs and return margin back to their businesses. Large retailers like Target, Walmart and Costco have all waged this battle on multiple fronts.

Today were going to talk about the largest expense for accepting credit cards, interchange. Interchange is generally charged and dictated by card brands such as Visa, MasterCard, Discover and American Express with revenues going back to the card holders issuing bank.


Avoiding the Card Brands

Retailers route consumer cards through their preferred(generally least expensive) debit networks. This allows retailers to negotiate with the debit networks directly, prompting  consumers for their PIN number as an alternative to their signature. Ever since the Durbin Amendment, card issuers must support more than one debit network, giving retailers multiple routing options. This transaction path has only been traditionally available for card-present transactions. The rise of “PINless debit” allows for debit cards to be used for online purchases, avoiding core interchange charges for eCommerce transactions.  Acquirers can also participate in the value chain; routing to preferred networks where merchants are often indifferent, unaware or unable, to access routing technology.


Interchange Breaks

Large merchants solicit the card brands directly for pricing breaks. Through lobbying, lawsuits and sometimes boycotts (See the Kroger Boycott) merchants with larger processing volumes are given pricing discounts. Merchants with large volumes, “Threshold Retailers” (See chart below)   generally employ most, if not all, of these strategies to limit their costs.


Interchange Rebates

The largest issuers often give discounts to enterprise merchants to entice them to accept and even promote their cards. Some companies are competing for both the issuing card holders and merchants services like CapitalOne Merchant Services, Wells Fargo Merchant Services and Bank of America Merchant Services. Large RFPs for “Threshold Merchants” can often include issuer rebates. American Express has long supported separate interchange costs for their enterprise customers.

Will it Change?

European merchants enjoy a capped interchange rate .30%, roughly 1/5 of what the average US merchant pays. Even with their lower interchange they are still able to drive and lead merchant innovation for EMV, 3D Secure and Contactless payments. I believe it will only be a matter of time before the US landscape will more closely reflect the European regulatory environment given the size and scope of the pressure exerted by US retailers.

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Visa's Supplier Locator

Developer Center

Visa makes available a number of development tools on their Developer site. The descriptions can be fairly vague but they also list a number of use cases. The APIs can be applicable for:


-Small Business





Visa's Merchant Locator

Visa's Supplier Locator

Level 2 & Level 3 Processing

Business-to-Business Payments Overview

In ~2016 Visa and MasterCard saw an opportunity to move card acceptance forward and take on the check and ACH industry.They created programs for Business-to-Business(B2B) payments, Business-to-Government(B2G) payments and Large Ticket Transactions. These programs were specifically designed to allow businesses servicing other businesses to receive more competitive pricing, different from traditional consumer or retail transactions by providing certain data fields. Read more

Navigating B2B eCommerce

A Growing Market

Forester predicts that by 2020 B2B eCommerce will be twice the size of B2C eCommerce. This segment of the market has drawn significant attention from technology providers, digital marketing agencies and payment providers. Technology platforms like Big Commerce, Shopify and Salesforce Commerce Cloud(formerly Demandware) all have targeted B2B ecommerce campaigns. Payment processors have acquired companies that specifically focus on B2B payments,  Vantiv has purchase Paymetric was a great acquisition that accelerated their foothold in the space.

Working with ERPs

Some ERP’s offer their own eCommerce functionality like Netsuites CloudSuite Commerce and others leverage true eCommerce platforms and shopping carts like Fishbowl who works with Magento, Volusion and Big Commerce. If an ERP is in place, working with a platform and processor that can communicate with that ERP is critical to streamlining workflow and reconciliation.

Unplanned Expenses

Wholesalers, distributors and manufactures all have specific payment needs requiring the appropriate support from the shopping cart, ERP platform and payment processor. Interestingly enough Shopify does not support Level II and Level III transaction processing(according to their support section). If you combine that lack of functionality with the 1% surcharge Shopify charges to enable a third-party processor that does support B2B and B2G transactions, it could cost the merchant an additional 1% per transaction to accept a credit card payment.

Choosing the Right Partners

Big Commerce and Salesforce offer a vast array of integration options including Level II and Level III support, ACH and some ERP plugins. Integrating to provide the proper data fields can save a merchant .50%- .80% per transaction based on Visa and MasterCard Interchange rates. Choosing knowledgeable partners can help navigate the complex course of B2B eCommerce.


Top 5 Reasons Digital Agencies and Marketing companies should have a Payments Partner

Whether you are focused on optimizing SEO, converting web traffic or simply building websites, payments is a part of your clients needs. Some organizations see payments as an ancillary service, distracting them from their core offering. Some companies choose to go as far as owning their own payments company and bring the process in house. Whatever your appetite for involvement, a payment strategy is a critical part of any marketing organization.


1. If you aren’t capturing payment revenue, someone else is.

Most shopping carts and platforms are quickly moving to capture a portion of the eCommerce revenue for sites built on their technology. Shopify mandates that you use their in-house payments called an ISO(Independent Sales Organizations) or they charge 1% to use another provider, excluding the agency and marketing partners from vital revenue. Magento has recently launched Magento Payments which they claim to be neutral but will in inherently compete with their existing reseller relationships.

2. A reputable payments partner creates a better customer experience.

Building a client’s website is a process containing many steps and moving parts. Payment companies can provide competitive pricing while decreasing the number of tasks required by a client to complete the build out. At the end of the day, it is easier to work with an endorsed relationship than for your clients to go out and source their own.

Choosing a payments provider will insure your clients have all of the latest ways to take payments: Google Pay, Apple Pay and Amazon Payments to name a few.

3. Streamline the checkout process and increase traffic conversion.

Many platforms are accessed through plugins and API certifications. Using a trusted, proven, reliable connection will ensure your client’s website maintains maximum uptime and a seamless check out process. Choosing a payments provider will insure your clients have all of the latest ways to take payments: Google Pay, Apple Pay and Amazon Payments to name a few.

4. Reoccurring revenue can increase an agency’s cash flow even if the client leaves.

When agencies work directly with payment providers, they share in a portion of the revenue made from their clients sites and converted traffic. Partnering payment companies are built on relatively thin margins over long periods of time giving them stable cash flow and high valuations. Creating a separate revenue stream from services like payment processing can help create a business models that moves from transactional to reoccurring. This cash flow can add up to a meaningful amount of revenue which increases the value of the business, creating a stable income model. Even if the client leaves the Agency, they will still share in the revenue collected as long as the client processes payments.

5. B2B Payments should not be treated like B2C Payments.

Accepting payments on a consumer facing website has different requirements than accepting payments on a Business to Business(B2B) website. Simply adding or will cost your clients significant revenue. Visa and MasterCard recognize that B2B payments require different data fields and carry unique costs. Your payments partner can guide you through this process and insure your client’s sites are set up correctly.