What is interchange?

Grant @ myposdepot

Visa, MasterCard, and Discover do not issue any credit cards. Rather, they license their payment brands to Issuers and Acquirers. Issuing banks are the entities that provide the consumer, with the credit cards in their pocket. Acquirers are the entities that process the transactions. We are part of the acquiring side. As a registered Independent Sales Organization (ISO) of Visa and MasterCard, we pay them thousands of dollars a year for the privilege of using those brands.

Transaction Process

As shown in the Transaction Process above, Visa, MasterCard, and Discover do not approve transactions. The bank that issued your credit card approves the transaction. The issuing bank takes on the risk that the consumer will pay them back for the items they purchase. In turn, the issuing bank gets paid Interchange-not Visa and MasterCard

The cost of interchange depends on the card type that is presented. A check card, which is tied to your checking account, is a low risk, low cost interchange. If you don’t have money in your checking account, the transaction is declined.

Corporate, government and foreign credit cards are high risk. They have the highest interchange rates. You may ask why. Simply, if someone from a foreign country buys an item here but refuses to pay for it later, perhaps because of a dispute, it is very difficult, sometimes almost impossible to get that money back. Also, people in corporations and government make purchases that are not authorized by higher management. If they quit or are terminated, these entities will often dispute the charges as unauthorized. This makes these three card types high risk.

Grant Rowlands
National Account Executive
P: (866) 480-2433

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THE TRANSACTION PROCESS

Grant @ myposdepot.com

STEP #1
Payment
A cardholder buys goods and/or services from a merchant and presents a card as a form of payment

STEP #2
Authorization
Merchant swipes card through terminal, enters amount of transaction and sends information to Merchant
Acquirer for approval via the front-end network. The transaction is authorized or declined in seconds. If
the transaction is approved, the terminal responds with an “authorization code”, which is 6 digits, that is
printed on the sales receipt. All transactions and its associated authorization codes are stored in a
“batch”.

STEP #3
Batch out
At the end of the day, the merchant performs a function on their terminal for closing called “batching
out”. The batches are electronically sent to the Merchant Acquirer for settlement through the back-end
network. This can be performed manually or by the terminal being set to “auto batch”. A settlement
report is printed when the terminal “batches out” showing the totals by all card types (Visa, MC, Amex,
Discover, etc.)
STEP #4
Settling funds
The Merchant Acquirer will credit the merchant’s deposit account for the net amount of sales (total sales
minus fees) in 48 to 72 hours. The Merchant Acquirer’s settlement vendor, in our case Global Payments,
sends transaction information to MasterCard and Visa on a daily basis, which will reconcile the
incoming information and route them to the appropriate card issuers (bank) overnight.

STEP #5
Billing cardholder
The card issuer (bank) will post the transaction to the cardholder’s account for payment

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Contact our sales department @ (866) 480-2433