How interchange optimization can ensure that your international transactions qualify for the lowest rates possible.

In the realm of international payment processing, nothing comes without a cost. After all, it stands to reason that everyone involved — banks, payment processors, card networks, and merchant service providers — are entitled to make a profit just as are you, the seller.

Therefore, as an entrepreneur it is essential that you do everything you can to save money, and that should include optimizing interchange rates whenever possible.

A word about credit card processing fees.

As any retailer knows, you cannot avoid paying processing fees when you take customers’ credit cards.

On average, you can expect to pay anywhere between 1.5-3.5% of each transaction amount to your provider, and this is true even if they are a low-rate payment processor. What you will pay is a combination of several fees consisting of the following.

• Assessment fees paid directly to card networks such as Visa, Mastercard, Discover, etc.
• Interchange fees. Collected by the card networks, these are paid to issuing banks and make up the largest chunk of the fees you pay.
• Processing fees paid to your acquirer or payment processing company.
• Additional charges such as foreign transaction fees.

The amount you will pay for each of these costs depends on the pricing structure you choose. In tier pricing, for instance, you pay at different rates according to the type of transaction. Alternatively, you could choose to pay a single flat rate regardless of the transaction type or might elect to buy into a subscription plan with a fixed monthly rate.

How interchange fees are calculated.

Interchange fees not only make up the largest segment of what you will pay to your processing company but also they are the costs that you have the greatest ability to minimize. For that reason, it makes sense to spend a little time learning how these charges are calculated.

Interchange rates are not fixed. They can vary according to several factors, including the card type used, your merchant category, how the payment is being processed, and the dollar amount involved.

As an example, you will pay more for a card-not-present ecommerce payment than you would for an in-person purchase. This is because you are inherently unable to determine the validity of a customer or their credit card during a remote ecommerce transaction.

Strategies for optimizing your interchange fees.

Even if you do most of your selling internationally, you can still benefit from the same fee optimization strategies that prove beneficial to domestic sellers. Here are just some of the steps you can take to lower your per-transaction costs.

• Sign up for a tiered pricing plan. By doing so, you can make it your business to process each transaction at the lowest possible rate according to its status.
• Require that all of your customers provide you with crucial details such as their billing address and credit card CVV number. This can be done by configuring your shopping cart or gateway software. When you have this information in your possession before completing a purchase, you can often expect to pay lower transaction fees since the risk of fraud is perceived as being lower.
• When applicable, obtain purchase order and tax identification numbers from your customers. This also serves as added reassurance to your processing company that the likelihood of fraud is reduced.
• Settle out payment batches within 24-48 hours.
• If your payment processor offers it, opt for what is known as an “interchange plus guarantee,” in which they promise to give you the most cost-effective processing rate.
• Enlist the services of a third-party company. These businesses will conduct an analysis of your current configurations to determine what you can do to save on interchange fees.

The role that chargebacks play.

The bane of any entrepreneur who takes credit cards, these forced refunds can be even more damaging if you sell internationally. They happen when a customer, for any number of reasons, contacts their credit card company and demands that the purchase price for an item that you sold them be refunded.

This happens without them coming to you first and can result in a hit to your wallet of anywhere between $20 and $100 per dispute. Additionally, you can look forward to a great deal of stress as well as time spent in trying to resolve the issue.

If enough chargebacks are levied against you, your international payment processing account might be suspended or even shut down altogether.

While you will never be able to eliminate chargebacks entirely, there are steps you can take to minimize them. These include the following.

• Follow the protocols of payment processing. Take note of the requirements set forth by each card network, and adhere to them. That may, for instance, mean using CVV and address verification, getting the customer’s IP address, or requiring proof of delivery.
• Conduct business in the native languages your customers speak. This will greatly eliminate later confusion when a bill comes with an unrecognized charge.
• Provide prompt, accessible customer service. Many questions and concerns can be successfully addressed in this way, eliminating the need for the buyer to contact their credit card company at all.
• Be transparent. This is particularly true of subscription services. Changing or canceling recurring bills should be easy. If it is overly complex or hard to understand, an international buyer will simply opt to go to their card company instead.
• Promise only what you can deliver. That goes for everything from product quality and expectations to international delivery times and return policies. Customers who begin to believe that you have fallen short or gone against your word are much more likely to dispute the charges.

Of course, providing your international buyers with fair prices for the merchandise you sell is also a compelling way to attract and keep them as loyal customers. Although what you will pay in interchange fees for each transaction is only a fraction of the entire price, it does represent an expense that you may be tempted to pass along.

Doing everything you can to keep these fees low is one of the most intelligent ways to charge low prices to your buyers.