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Unveiling the Power of Interchange Optimization for ISVs

In the fast-paced landscape of today’s industries, particularly within the technology sector, efficiency and streamlining operations are imperative. Every aspect of operations, including financial transactions, plays a crucial role in the success of anyone in the IT world, from developers to ISVs.

ISVs, in particular, have an opportunity to take advantage of this situation. As ISVs shift to a verticalization strategy – as opposed to being generalists – they are building a loyal client base and need to consider their customers’ payment experience seriously. This shift enables them to provide more tailored services and enhance their capacity to influence the payment process directly, a pivotal area that often goes unexamined in terms of cost efficiency. Despite the critical importance of digital payment processes, credit card processing fees, or interchange fees, are often overlooked and are therefore ripe with potential for savings through “Interchange Optimization,” achieved by combining education and technology.

What are Interchange Fees?

Interchange fees are the backbone of credit and debit card transactions. These are charges levied by credit card associations such as Visa, Mastercard, American Express, and Discover on financial institutions, full members of these associations, for processing payments. These fees are charged, bundled, and ultimately passed through to a merchant. The interchange rate is determined by various factors, including the card type, one’s particular industry, and verifying criteria like the Address Verification Service.

All this data collected at the point of sale may not be collected or even passed on during the payment process, causing challenges for rate qualification. The processor is ultimately responsible for assigning an interchange rate before settling with the card brand. You may need to find out who the processor is behind the scenes. Of course, every business wants the interchange rate set at the target interchange, which is the lowest-priced rate each transaction can qualify for.

Certain businesses may qualify for special interchange rates, offering a pathway to lower credit card processing fees and increased profitability.

What Do ISVs Need to Consider?

Regarding interchange fees, ISVs should ensure they qualify for the most affordable interchange rate available to them and their merchants and stay updated with changes, as the card brands introduce new pricing structures, sometimes twice a year. Unfortunately, this is easier said than done.

The Merchant Category Codes (MCC) supplied with each transaction to take advantage of the lowest eligible interchange rates can differ depending on the card brand used. MCCs are typically four-digit numbers assigned to categorize a business type. For ISVs, the card brands each classify the category codes differently. To make the process more complex, not all payment providers support the set-up and processing of different MCCs depending on the card type used. This leads to businesses creating their own homegrown solutions, including using multiple gateway accounts to facilitate providing the correct MCC by card brand.

The first step to target interchange is to analyze business statements to ensure that ISVs are correctly processing transactions for the lowest-cost fees. An analysis is essential, along with evaluating whether they support the right data fields to achieve the target interchange rate for their merchants. By selecting a payment partner and leveraging their technology, ISVs, and developers can ensure they’re utilizing the correct criteria to achieve the lowest interchange rate. That means properly setting up all the qualifying data necessary to meet the card brands’ rules. It also means passing along the correct industry classifications. Working with a payment partner whose integration not only supports qualifying for the lowest rate but will spend time educating ISVs on how to achieve the lowest rate is critical to catching any missed opportunities – and helping them save.

The Opportunities and the Future of Embedded Payments

Optimizing interchange fees presents a significant opportunity to enhance financial efficiency and bolster the bottom line. By partnering with a technology-minded payment processor, the intricacies of interchange rates and their impact on transactions are seamlessly outlined, unlocking substantial savings. Whether by negotiating preferential rates or leveraging innovative payment solutions, the right partners can provide a customizable embedded payment solution, creating standout ISVs and giving customers the best advantages.

In the ever-evolving landscape of digital commerce, innovation is key. ISVs must embrace cutting-edge technologies and solutions to stay ahead of the curve. This can include exploring new payment platforms and partnering with forward-thinking payment processors that offer integrated solutions, including interchange optimization. Now is the time to take action, embrace innovation, and harness the power of embedded payments to propel the ISV community forward in the digital age. 


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Penny Townsend

Penny Townsend

Co-Founder & CPO


Member since

01 Feb 2022


San Mateo

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This post is from a series of posts in the group:

The Payments Business

Share opinion and experience on how the payments landscape is changing and learn about the challenges and opportunities facing payments stakeholders in the future.

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