ETA Expert Insights: Guide to Interchange Optimization 101.1: Refresh on Getting Ahead of the Game
Interchange Optimization Working Group • ETA Payment Sales & Strategy Committee
By Patrick Gallagher, Reliable Payments, Andrew Cohen, CardWorks Acquiring and Maurice Griefer, Maverick Payments
For 2021, the Interchange Optimization Working Group, part of ETA’s Payment Sales & Strategy Committee, has decided to focus on publishing key tips and insider-strategic resources on how salespeople can use interchange optimization (IO) to its full potential to better serve their merchants and partners. The article below is a revamp of the IO article published in November 2020. If you have any questions about IO or would like to see this group address a specific topic, email Sarah Brown-Campello, Manager of Industry Affairs at ETA: [email protected].
INTERCHANGE OPTIMIZATION — A COST-SAVING OPPORTUNITY
Ask any salesperson in the payment processing industry, and they will mostly agree that the main obstacle to maintaining a long and profitable relationship with a client is competitors constantly willing to undercut on price. It is standard practice in this industry to work on saving merchants money on their credit card fees. This normally means continually cutting the margin, and not much else. This leads to a common misconception that the only place you can help is on the discount rate or transaction fee, or any other processor fee.
However, in some verticals, there are opportunities to show merchants savings above and beyond any markups a processor may have added, thanks to a process called interchange optimization. IO is the use of specific processing habits to ensure that every transaction qualifies for the lowest rate possible. This sales tool not only helps you stand out, but also establishes trust with your prospects.
As mentioned above, it is common to see sales professionals emphasize their ability to reduce costs for the prospective merchant. This may work to close some deals, but offering a lower interchange markup might not sway all of your potential merchants. As we all know, it can be a race to the bottom, which is why interchange optimization can be a valuable sales tool. IO allows sales professionals to add another layer to their pitch without sacrificing their own margin. In some cases, you may even be able to save the merchant more money on interchange fees than on the actual standard markups.
BEYOND LEVEL 1 OF INTERCHANGE OPTIMIZATION
Interchange is not necessarily intuitive or a simple concept, so it is important to gain a thorough understanding of how optimization works in order to sell this method effectively. For starters, any entry-level sales rep can explain the first level of “interchange optimization”. Enabling a merchant to allow card-present, swiped transactions as opposed to card-not-present, nonswiped transactions clearly lowers the merchant’s interchange expense. This is the first thing you learn when it comes to interchange. Taking it beyond that is what requires research, experience, and know-how.
Seasoned sales reps know that today’s IO is mainly focused on corporate, business, and government cards which means obtaining the best rate for business-to-business (B2B) and business-to-government (B2G) purchases by giving extra details about each transaction. This is because these businesses usually accept purchasing cards (P-cards), which capture Level II and Level III data when collecting additional data at the point of sale (POS). The average merchant collects Level I data when processing a payment (like a customer’s basic billing information); however, Level II and Level III data give more information about the transaction, like customer codes, PO numbers, and tax IDs. By providing this additional data (Level II and Level III data), the threat of fraud diminishes and helps to optimize a merchant’s interchange rates.
Credit card associations incentivize merchants to provide this extra data with cost savings. In other words, to achieve the lowest interchange rates, merchants should send as much data as possible to the card issuer because more data being submitted with each transaction results in less risk and a better qualifying rate, often upwards of 35% lower, on what frequently are very large transactions. One other area that would fall into this IO category would be on signature preferred card transactions. While these transactions cannot get all the way down to Level III rates, you can improve transactions from the dreaded “Standard” classification to Retail CNP or CP, or even B2B levels, saving the merchant 10-25% on these transactions.
If you have any questions on this article, email Sarah Brown-Campello, Manager of Industry Affairs at ETA: [email protected]. Our next post will be about MCC optimization. Stay tuned!
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Guide to Interchange Optimization 101: Getting Ahead of the Game (November 2020)