Interchange fees are established by card networks to cover the costs and risks of processing payments made using a debit or credit card. The rates for interchange fees vary widely and influenced by several factors. For Merchants, many of these factors cannot be directly controlled or influenced.
Less than a decade ago, Merchants were prohibited by card networks from offering card steering incentives to their customers. These practices would have allowed Merchants to save on costs by encouraging customers to pay with cards that were less expensive to process.
As a Merchant, the interchange fees you pay for accepting debit and credit cards depend upon a number of variables, including the rules of credit card networks, the method of capture for the payment, your Merchant category code, and more. But the most significant variable concerning your interchange fees is the type of payment your customer chooses.
Interchange fees, which are set by card networks like Visa and MasterCard, are the fees paid by Merchants to processors for processing card transactions. Specifically, interchange is provided by acquiring banks to card-issuing banks, but the costs are passed on to the Merchant.
In the consumer finance industry, bills that are paid by consumers through a bank or other financial institution will sometimes lead to exceptions. Bill Payment Exception (BPE) is usually defined as a situation in which a Biller receives funds from a consumer, but is unable to post the credit to the consumer’s account. Although payment exceptions are generally not high in volume, they can still cause problems. Inefficient exception management can result in increased costs for both Billers and financial institutions and can lead to a loss of customer satisfaction due to long processing times.
Consumer financial behavior is changing, and it is trending toward online payments. Not only are consumers rapidly adopting online payments to make their monthly bill payments, they are beginning to use a variety of payment channels in unison. According to a survey by NACHA, the average number of bill payment methods consumers use increased from 2.9 in 2014 to 3.6 in 2015.
Historically, consumers have only been able to make debit card payments on their mortgages as a last resort. In many cases, the option of making debit card payments was simply unavailable, and mortgage payments could only be completed through checks and ACH transfers. Mortgage servicers are usually hesitant to include debit cards as a legitimate payment option because of the processing fees associated with debit card transactions.
Consumer Finance companies that don’t accept debit cards as a form of bill payment have an opportunity to better serve their customers. Debit cards have become a mainstay for American consumers; so much so that many consumers now carry less than $20 in cash on a daily basis. A 2016 Gallup poll indicated that Americans do still use cash for some of their everyday expenses, but only 14% of Americans use cash to make most of their purchases.
Billers who haven’t adopted electronic methods of bill payment have an opportunity to save on costs. Electronic payments offer convenience to both Biller and payer, but they also introduce the ability to schedule recurring bills and receive recurring payments. But Billers who have already implemented a basic system for electronic bill presentment and payments may stand to benefit from an upgrade, especially if their systems don’t currently have the capacity to receive recurring payments. Recurring payments can improve cash flow and enhance customer service.
Here’s Why Billers Should Take Note
As a business entity that invoices your customers, or a Biller, you already know that you enjoy some great rewards through electronic billing, and even more by offering your customers the option of recurring payments. Electronic billing eliminates the hassles of paper, increases payment timeliness, streamlines documentation, and enhances security. Receiving recurring payments reduces Billers’ DSO by removing the risk of late payments.