What are basis points, interchange and discount rates?
By Tracy Thomas
Rev Marketing 2 U, Inc.
Merchant banking is extremely different from the services we use with personal accounts. Even basic terms are often so foreign to many that they present huge stumbling blocks. Do you feel you are paying to high of fee’s with a service company? Do you know what to look for or are you just blindly following everyone else in your industry? Lets get you educated on a few facts to help you make the right choices.
For instance, new business owners often find themselves at a loss to explain why they intake less than they actually charge with credit transactions. Fortunately, these useful definitions of three common terms you’ll definitely encounter will help you get a handle on your merchant account.
When you’re trying to compare interest rates or credit card fees, you’ll find that they are often very close. In light of the fact that many competing rates vary by less than one percent from one to another, the financial world came up with a more precise standard, called the basis point.
A basis point, is equal to one part per ten-thousand or one one-hundredth of a percent. They are useful for investors tracking changes in financial instruments. They are also critical for the many merchants who encounter card-processing fees given in basis points.
When banks perform card-based transactions, they include fees, with the merchant paying both the issuing bank and the credit card association. The penalties that go to the card company are referred to as interchange fees.
Interchange is typically calculated using basis points, and it varies from country to country. 179, or 1.79 percent of your transaction total, is standard in most of the US.
The sum of the interchange fees and credit card company fees is known as your merchant account discount rate. Different card associations, like Visa and MasterCard, vary the number of basis points they charge in addition to bank interchange. It’s wise to offer your customers as many payment options as possible, including less lucrative ones.
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