[IMGCAP(1)]Explaining interchange to a client can seem daunting to a merchant-level sales agent. It becomes more difficult when the agent possesses only a tenuous knowledge of interchange.
Yet agents need a thorough understanding of interchange, along with all of the minutiae, to maintain, if not strengthen, the relationship between agent and merchant. Acquiring banks pay interchange to card issuers and pass the expense on to their retailer customers as part of the discount rate, which covers processing and other services.
"We as industry experts must have an in-depth understanding and working knowledge of interchange in order to show value to our agents and assist them in making the best possible decision regarding pricing, profitability and keeping the merchant as their client for life," says Theodore Svoronos, vice president of Group ISO, an Irvine, Calif.-based independent sales organization.
Industry experts view educating agents on interchange as a continuous process—not the stuff of one-day seminars.
"There is no fast or easy way to learn or teach interchange," says Tyler Hurley, Group ISO senior sales executive. "When we work with our agents, it is not just an introductory, one-time training [course]. It is a consistent learning experience for our agents," he tells ISO&Agent Weekly.
"If someone says they can teach or learn everything about interchange in its entirety within a specified period of time, they are not being completely truthful," Hurley adds.
Payment Alliance International's Donna Embry agrees.
"It is a complicated proposition," says Embry, senior vice president for the Louisville, Ky.-based ISO. "What [agents] need to know is it's not just the interchange categories and qualifiers, which they should always keep up with, but the ability to turn that into the right proposition for their merchants because the merchants get very confused."
Interchange rates vary and are based on myriad factors, such as card brand, card type (debit or credit), card program (corporate, rewards), type of merchant, transaction amount, whether the customer signed a receipt or used a PIN, whether the card was present at the time of purchase, and when the batch of transactions was submitted.
The intricacy of interchange, coupled with the fact that rates have been widely available to merchants in print and online for more than a year in the United States, has made it difficult for the ISO industry to profit on interchange by way of the discount rate.
The discount rate an agent offers a merchant typically is interchange, plus fees the processor and ISOs add to cover expenses such as operating costs, sales support and agent compensation.
"The hard part is, many ISOs are going to 'interchange pass-through,' which is basically passing through interchange as it is calculated [by the card brands]," Embry says.
How ISOs passed interchange costs along to merchants changed as merchants increased their understanding of interchange, Embry says. That lead to some ISOs to adopting a pass-through model. "There is no fee or profit that the ISOs add to the interchange rate. It just simply goes through as is."
Parlez Vous Interchange?
Jim Hilber, western regional manager for Brentwood, Tenn.-based ISO International CyberTrans, disagrees that publishing interchange data has made it more difficult for the industry by creating a savvier merchant looking to negotiate better interchange rates.
"It's not helping merchants at all because they can't read it," Hilber says. "It's like saying, 'I have all the answers, but it's written in French'. They still don't know how to translate that information."
For ISOs that have not moved away from discount pricing in favor of interchange pass-through, industry experts say it is important to understand interchange and not just discount pricing. There are no shortcuts, insists Mike Fox, Group ISO interchange specialist.
"They need to learn interchange to figure out what kind of profit they may be looking at for a specific account and also to be sure they are setting a particular merchant up with the right rate," he says. "By being knowledgeable about interchange. you can be assured as an agent that your profit will never be lost."
When merchant-level sales agents understand the complexities of interchange, they are ready to pass that knowledge on to their clients. However, many merchants do not care to learn about interchange, which is not a bad thing, experts say.
"We're happy to educate them, but, because of time and interest, they don't necessarily want to know," says Hilber.
"Merchants, as a general rule, don't fully understand their processing rates and programs, but they can have trust in them. And, if they are getting what they expect out of it, then it is a good deal," he says.
As salespeople, Hilber says their job is to take interchange and, in a sense, put it into a pretty package that merchants gladly accept. Merchants need to understand the package well enough that they do not have to open the package—in this case their statements—because they already know what is on it, he adds.
"Unfortunately, what we've seen out there is the merchant gets that mystery prize," Hilber says. When merchants open their statements, they get the mystery prize because the service bears no similarity to what the salesperson described in the sales presentation.
The most important aspect of interchange as it relates to merchant-clients, according to Hilber, "is that it can't be sold; it has to be taught."