ETA Expert Insights: Guide to Interchange Optimization 101: Getting Ahead of the Game
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 a standard in this industry to work on saving merchants money on their credit card fees. This normally means continually cutting down 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 mark-ups a processor may have added, thanks to a process called interchange optimization. Interchange optimization is the utilization of specific processing habits to ensure that every transaction qualifies for the lowest rate possible. This means obtaining the best rate for B2B (Business to Business) and B2G (Business to Government) 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.
Interchange optimization proves to be a great advantage to sales professionals. While interchange is not the simplest of concepts, it is important to gain a thorough understanding of how optimization works in order to sell this method effectively. This sales-tool not only helps you stand out, but also establishes trust with your prospects.
In the payments industry, it is common to see sales professionals emphasize their ability to reduce costs for the prospective merchant. Sure, 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 is a race to the bottom, which is why interchange optimization can be a very valuable sales tool. Interchange optimization allows sales professionals to add another layer onto 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 itself.
Most know interchange fees as a fixed cost, but this has proven to be a myth. Over the last few years, the payments industry has seen an influx of new business technologies, such as point-of-sale (POS) systems and payment gateways. These new technologies are designed to make operating a business more efficient and cost-effective. To maintain success as a sales professional in today’s world of payments, it is essential to stay up to date on the latest technologies and relevant software. This knowledge can put you at a great advantage for selling because it allows you to offer a merchant the most relevant and cost-effective products, including the best software for interchange optimization. Understanding the technology and software behind interchange optimization is essential before starting to offer this seemingly untapped tool to prospects. Aside from gaining knowledge on relevant software and technology to implement interchange optimization, you must know who to target, first.
As eager as you might be to start using this new sales tactic and telling the world about your new interchange secret, interchange optimization is only applicable to a certain group of merchants. While you might see some B2C (business-to-consumers) merchants getting more interchange downgrades, the real opportunity and most value can be seen in B2B and B2G merchants accepting Visa and MasterCard cards. Interchange optimization offers the most savings when corporate and purchasing cards are used. Additionally, these B2B and B2G merchants have higher average transaction sizes too making this approach even more valuable.
In addition to knowing the proper software and choosing the correct merchants to target, you must learn the actual data elements involved in interchange optimization. This knowledge will help you sell prospective merchants on this technology, as well as help them qualify for the lower interchange rates.
So now that we have discussed what Interchange Optimization is, and who the target merchants are for this type of processing, it is important to understand why this processing method is different than everything else we have seen in this industry.
Competitors are always willing to undercut you to win the business. The thing is, the sales folks focused solely on price add no value to the merchants whatsoever. That sales process is becoming antiquated and tired. Successful payment processors nowadays are looking for ways to add value beyond just cutting costs. Well, selling Interchange Optimization is the perfect combination of both; selling a value-add service that lowers cost.
Most of the platforms that specialize in Level II and III processing also boast features such as powerful reporting, card storage, account updater, invoicing, hosted payment pages, mobile processing, etc. By adding these features, and offering savings above and beyond just cutting the discount rate, often a rep may find that there is room to increase the margin on an account, and still net the merchant significant savings, all while providing the merchant superior technology. Gone are the days of just installing your run of the mill plug-and-play terminal at a manufacturer or law firm. Now is the time to give these businesses robust, yet simple, technology that saves them time and money.
Because you have added these features coupled with significant savings, the life of that client relationship becomes exponentially longer. This makes it increasingly tough for the standard reps who just focus on cutting rates to actually compete. It removes the commoditization from the deal, and truly sells on value. When selling from a position of expertise and knowledge, while offering superior technology and saving the merchant money while still making great margins, all we can ask is, why wouldn’t you sell this?
With all this being said, hopefully this has piqued enough of your interest to add a new tool to your “sales toolkit”! If so, there are numerous processors and technology options for reps of all shapes and sizes that focus on Level II and III processing, and interchange optimization. We suggest you reach out to colleagues, learn about what there is to offer, educate yourself and your team, and go make a sale!