Processing credit cards is not a cheap process. However, it might not be as expensive as most business owners might think. If you are thinking about what to do when the credit card processor might raise your rate, then there are some proven solutions that can help you out. There is no denying the fact that there are several scenarios in which credit card issuers might increase your overall interest rates.
Some of the common reasons for the overall increase in the rate are:
- Changes in the Interest Rate: Standard interest rates -including the prime rates, are mostly utilized by credit card issuers to set the specific card rates. The ultimate decision taken by the Federal Reserve might also influence the overall prime rate. As the interest rate on the credit card depends on the direction of the interest rates generally, the credit card interest rate will also increase as the prime rate increases.
- End of Promotion Rate: As the end of the promotion period approaches, the rate for credit cards will also increase. For instance, in case of a specific promo for a period of 18 months, the interest rate will instantly reset to the standard rate that had been signed originally at the time of the agreement.
- Periodic Review By the Credit Card Issuer: Typically, credit card companies go ahead with reviewing the financial status while eventually making changes to the account as per the requirement. However, it could be subject to the notice period of 45 days. It only tends to affect new purchases and not the overall outstanding balance.
As the credit card issuer will review the credit all over again in the period of six months, there is a possibility that the issuer will reduce the overall rate in case the score will go up.
- Missed Payments for Credit Cards: A penalty gets added in case you are not able to make the most recent credit card payments. A higher rate of interest will be charged by most credit cards if you end up becoming delinquent on the payments after the period of 60 days.
The penalty rate is applied to future purchases and outstanding balances in comparison to the rate increases because of periodic reviews. Additionally, late fees are incurred that will ultimately affect the overall credit.
- Periodic Rise in the Interest Rates: There are some credit card companies that might raise the interest rates for credit cards on a periodic basis without any specific reason. While this is not allowed by law, especially when the card has been acquired for less than one year.
Only the delinquent payments for a period of 60 days will serve to be a cause for the overall rise in prime rate. Also, the issuer is expected to provide the notice within a period of 45 days.
Types of Price Increases
When the processing rates will go up, it could be the due to the reason that MasterCard and Visa might have increased the interchange rates, the processor might have increased the respective rates, or even both.
When Mastercard and Visa will increase the respective interchange rates, there is nothing that can be done towards lowering them again. However, the increases in the processor rates tend to be avoidable.
Determining the Source of Increase
In the event of credit card processing, a fee or rate increase can be the outcome of some specific aspects. Some of these factors might be in the control of the processors. At the same time, some factors might not be under control. You are expected to initially determine whether the increase was made by the processor or by Mastercard or Visa.
Mastercard and Visa might go ahead with increasing assessment fees or interchange rates. In case they increase the fees, there is nothing your processor can do towards lowering the fees. However, the processor can consider adding to the same -making it a significant increase than the requirement.
In case Mastercard and Visa will raise the fees, you are expected to confirm that you are receiving access to increased AT costs -without additional markups. To ensure the same, you should go ahead with comparing the interchange rates from the monthly statement to the published interchange rates of Mastercard and Visa.
Ensure that there is no standardization to the descriptions of the interchange category in processing statements. What Mastercard or Visa will refer to the interchange category might not be how the processor will list the same on the statement.
Even when the Mastercard and Visa might consider increasing interchange rates, processors might also go ahead with pricing much more than Mastercard or Visa. To understand the processing, it is crucial to get an understanding of varying fees and rates that make up the total processing costs.
Parts of the Processing Fees
Here are some standard components of the processing costs thoroughly:
- Assessments: These are fees that extend beyond the domain of card-related brands -including Mastercard, Discover, and Visa
- Markup: These are fees and rates that will go back to the processor in the form of profit from the account
- Interchange: Usually, these are the largest part of the overall processing costs. Interchange fees are known to advance to the banks issuing cards to the customers.
When the processor will charge for processing, it will feature all the basic components in some ways. It might list the components either bundled together or individually. However, these components are always a part of the entire cost.
There are several types of interchange categories. However, the rates are always a type of percentage along with a cents fee. There are several assessments that can apply to a single type of transaction. Assessments include both a cents fee and a percentage.
The processor is not able to control assessments or interchanges. If Visa will decide raising the interchange fees, the processor is not able to do anything about that. The processor will go ahead with passing along with the fee or rate increase. The processor will only be controlling the respective markup. This is in addition to assessments and interchange fees. They are able to charge cents fees, a percentage, or the combination of all. Most processors are able to charge a combination. However, there are some exceptions.
For instance, subscription-type processors are known to charge a zero percent markup. However, they might feature a higher monthly subscription fee and cents fee. Therefore, when your Visa or Mastercard will raise the markup at any given point even when Mastercard or Visa will not raise the respective rates.
How to End Price Increases?
You are not able to totally eliminate the overall rises in the processing costs. When Mastercard and Visa will raise the rates, the costs will eventually go up. However, the fact you can achieve is that you can ensure that all costs will only rise as much as claimed by Mastercard or Visa. In simpler words, you are able to get rid of the unrequired processor markup increases and interchange padding.
You can achieve the same by securing ultimate pass-through pricing along with the lifetime rate locking. There are several credit card memberships offering access to secure pricing. In combination with lifetime rate locking, this helps in offering processor markup locking system for protecting your business from increasing rates, monitoring statements, and making sure that you have to pay a minimum amount for processing.
At the same time, you can also consider negotiating with the respective credit card company. It might appear slightly challenging, but completely worthwhile. Moreover, you can also think of applying for a new credit card in case you have impressive credit score without any ongoing credit card debt. This will help in providing a significantly lower rate in comparison to that on the existing credit cards.
