What Businesses qualify for special interchange fees? | Small Business | B2B Vault: The Payment Technology Podcast Episode 103

Yo, what's up everybody? It's Justin live from B2B Vault, the payment technology podcast with your host Allen Kopelman, and we'll be providing you educational information about business payments, fintech, decentralized finance, and the technology businesses use in today's world. And in today's podcast, we'll be discussing what businesses qualify for special interchange fees. I know that's a lot to swallow, uh, but you know, there's a lot of different businesses that qualify for these rates that they don't know about, and you could be saving tons of money every month.. And Allen and I thought that it'd be a good idea to try to enlighten you businesses, these business types, on these opportunities that are out there for you.

Yeah, right. Yeah. Visa, MasterCard, like they refer— like they, when they do the interchange table—

well, before you— what is interchange?

So interchange is the cost that the banks that issue the cards collect from The merchant, sorry, merchants, all merchants, dumb it down even further. All merchants pay interchange fees. We make no money from interchange. What?

So interchange fee is when I slide my— I'm the customer, right? I slide my card, the person, they get their money, then the credit card company, right?

There's a merchant, right? Let's say the merchant pays 2%, right? Well, then there's an interchange fee in there.

You're going with— you're ahead of I know the merchant pays 2% of what?

No, that's— they would say their rate is 2%, so they pay what of the sale? So let's say it's a $100 sale. Their overall rate is, let's say, 2% or 2.5%. So they pay $2.50 on the $100 that they collected. They're paying that to, to the credit— the processor, which could be us or any other credit card processor. First Data, Tesis, Global Authorize. No, Authorize is not a process.

Oh, that's right.

Whoever's their processor collects that fee, and then out of that fee comes the interchange. Interchange makes up almost 90% of what you pay for. So you're paying interchange dues, assessments, which go to Visa or MasterCard or American Express Discover, but the interchange goes back to the card issuer. So if it's a Chase card, they're the ones— they're collecting the lion's share of everything.

So you're a business, you set up your merchant account with Chase Bank is what you're saying?

Well, you could set it up, right?

And there's—

and you're saying it, but I'm saying that when someone comes and gives a card to you, whoever's name is on the card, they're the ones collecting the interchange no matter what bank it is. If you come in with a Bank of America client's card. Yeah, the client's card. That bank is collecting the interchange. It's very complicated.

It's— to most, yeah, it took me a long time to understand like all the different interchange blah blah blah.

So the interchange charts are pages and pages, 70, 80 pages long, right? But they single out certain types of business in there like airlines that have a certain, you know, what do you mean by that, single out? They single out certain business types to do what? They give them a special interchange fee that might be lower than the normal, like, retail interchange fee that you had if it's Justin's T-shirt shop or Jay's sandwich shop, right? So they give you a lower— even for restaurants, restaurants have special interchange that's little bit lower.

Why do they do that?

Retail, because they want— because Visa and MasterCard, those were probably— those are industries that they struggled with years ago. So that's how they set up the infrastructure. Personally, I think it's way too complicated, but certain businesses can save a ton of money if they're smart and they go to the— go to somebody like me who understands this system. So I'll give you some examples of businesses where they can save tons of money. Like insurance. Okay.

Insurance companies.

Yes. An actual— not the agent, but the actual insurance company.

Like National General.

Right. An insurance company. Or let's say someone who's a third-party administrator, where a third-party administrator collects payments on behalf of insurance companies. Right. So they— maybe the smaller insurance companies don't have the so much customer service staff to deal with that, so they use a third-party administrator to administrate their policies, right?

That's where I signed up my first card. This sounds like the shady stuff that I was having to deal with.

So like insurance, they get a special interchange rate, it's less than 1%.

Wow.

Their interchange— sometimes, you know, like I've reviewed different insurance companies and then they'll be paying, you know, really high rates and they don't understand that they could be paying a lower interchange rate. But as the underwriters will say, hey, not every insurance company is the same because they don't want to take it. Let's say you have an insurance company, they don't have a good rating. Well, they're not going to get like the best rates from the credit card company.

Got it.

Because insurance companies are all rated, right? But if they have a good rating, then they should be able to get good rates. Another one is fuel dealers, right? So kind of like where this comes into play is, you know, there's different rate if it's a gas station, right, with pay at the pump and pay inside. But there's also other types of fuel dealers, like there's guys that drive around in trucks and they go fill up boats, or they're selling propane. They can also be a few fuel dealer.

So like natural gas, right?

So we've signed up companies and they're just paying retail interchange and they're not getting the fuel rate.

Oh really?

Yeah, they're not signed up under the correct—

why would that happen? Would that be like the—

well, they went to their bank and their bank just set them up as retail because they don't know, right? They don't know. The banker doesn't know.

Or could the banker be a little shady because they know they're gonna get—

it doesn't matter to them. They're not gonna if they don't use the correct SIC code, then they're not going to get the correct interchange fee.

That's my point, right?

So, but they're not making any extra money because they're not paying the correct interchange fee back to the, back to the bank. So they're not making— there's no extra profit there. I get it. Or maybe they are making extra profit, but they're not giving the merchant the savings that they should have, you know. So, you know, there's all different types of businesses that we've looked at. One that's— one that I always see never has the right, uh, the right SIC codes are education. So education includes, you know, early child care centers, daycare centers, and all that. And I've seen some of them, I'm like, wow, I don't understand. Like, you know, you're processing your credit cards through some company and you're paying like 2% more than you need to be paying. And they're— they don't understand that there's a special rate just for the education. Because years ago, like, they did that so that colleges and other types of schools, private schools, could take credit card and take more credit card. That's why they call them the emerging market. Because those business— those business— these business types don't take enough credit card. Like insurance, I guarantee most insurance is paid by ACH or paper checks or some kind of bank transfers, not by credit card, right? And, um, you know, because we provide both of them, so we can see the level of payment. Another one that gets special rates, which I see set up wrong, are subscription services. So we were talking about that in other podcasts, a subscription, uh Economy, we talked about. We talked about SaaS companies, and those are companies where people are on a subscription. Well, if you're set up correctly and you're a subscription merchant, there's special interchange just for subscriptions.

Could that be con— like, so like for web agencies, if they're on maintenance plans every month, is that considered a subscription?

Yeah, there's some— sometimes it's more advantageous for them to have more than one merchant account if they're doing a ton. You know, it's got to be worth it. Let's say you're doing $25,000, $50,000 a month. Okay, that's the time where you, you want to split up your merchant business because you're going to save enough money doing that. If you're not doing that much volume, then doesn't really—

for like, for maintenance, for like large age, that makes sense because, you know, typically like you get this large lump sum from a project and then after that—

yeah, let's say you're collecting a few hundred dollars a month, it's worth it to have a separate merchant account If you're doing $20,000, $30,000 a month, $40,000, $50,000 a month, and it's all on subscription, just like, um, a SaaS software, like where they charge people $20 to $100 or $200 a month to do all your social media posting, right? They should be set up under that. Oh, for sure. But most of them, what do they do? They're set up on Stripe paying 3.5%. They could be paying much, much less. If they had a direct merchant account. That's where people miss the boat by going— they go to the services and they're not taking advantage of these lower interchange categories where they can save a ton of money, right?

Like during the pandemic, you know how they, uh, those DJs were doing like the parties on Twitch and stuff like that?

Yeah, it could— they—

I know there's a— through Twitch there's subscription services like through that company.

Yeah, you probably can't integrate to that. No, I don't think so either.

But say, say, uh, you know, a DJ was doing it on his own through his own website, that'd be a great way of doing that.

Yeah, yeah, you'd have to do it. You know, another one is telecommunications because there's tons of companies who resell telecommunications. So they resell VoIP, you know, and they resell internet service, and then they're not set up correctly. They're using PayPal, Stripe, or Square, and they could be paying much less credit card processing fees with the traditional merchant account. Again, like I said, it makes sense if you're doing $25 grand of volume. It makes sense to do that. If you're doing less than $25 grand, it's not worth the— you know, it's probably not worth the hassle.

Yeah, but it's worth the hassle to get off PayPal, Stripe, and Square, right?

But I'm just saying, it's— you got to go through documentation because you got to show you have a business license that shows that you're in these businesses, right? Otherwise you can get billed back, like even grocery store. There's a qualification. Oh, the grocery store has to have 3 checkout lanes. It has to sell fresh food to be considered a grocery store. Yeah, fresh food, frozen food, and produce to be considered a grocery store. So you can't be a grocery store and you're really a convenience store, because what happens is, is the credit— the bank will come in.

So that's crazy. That's the separation. It's got to have 3 lanes to check out, right? So like, you go to New York, you go to the bodega. The reason that it's not a grocery store.

Well, no, some of them qualify as a grocery store because they have all that stuff in there.

But they don't have 3 lanes, right?

But if they have all the items and the other stuff, right? If you have all the items, you could be a grocery store, right? You have to have the fresh—

so there's gray areas. There's some gray area.

No, there's some room to wiggle. Wiggle room. There's wiggle room. There's wiggle room too. But you know, some of them, they're not a real grocery nowhere.

No, for sure, right?

It has to be an actual— like, they have to have—

did you see that video? This side note, did you see the video of the— of the— sorry guys— the asshat that— he was a younger guy, he moved out to New York, he was working for a tech company, and he's starting to make TikToks because he, he moved to— I think he was in Harlem, don't quote me, I'm pretty sure he moved somewhere uptown.

Okay.

And he was making TikToks and he was trying to find a grocery store.

Yeah.

And he kept walking into, uh, bodegas, and he's like, I can't find no— you know, there's no— I want to make a meal, where do I— you know, he was like, the way he was going, it could— it sounded kind of derogatory, you know what I mean?

Like, right?

And, uh, the kid ended up getting fired.

Uh-oh, that's not good.

Hey man, you know, you gotta watch your mouth. New York's a real place. I mean, a bodega is Bodegas have been around since before I was born, right? And they've helped communities survive, right? You know, you aren't going to go in there and find a lobster tail, bro. You're gonna go in there and find a ring bologna, some white bread, and some Kraft cheese. And that's what it is, a pack of ramen noodles. But you know, you can't go in there and expect them to find some duck.

No, but some of them—

come on, man.

But some of them are bigger and they actually have all that stuff. For sure, you know. You go in and they got like a little farmer's market action going on and salads.

Yeah, I was just out in Philly, man. You walked out there, they had a full, uh, butcher area, they had the deli, right? They had the, uh, you know, the little aisle to get your bread, and they had tons of fresh fruit and vegetables, right? My daughter's—

so that's where she shops. So I'm just saying, that makes it a gro—

but you know, definitely a grocery store.

But you know, one thing you're seeing now is like You see, like, now, like, they'll build, like, an apartment building somewhere. Now this is, like, the new thing, and then they're putting the Publix underneath a small Publix.

Yeah, or a small Trader Joe's or a Whole Foods or something.

And I think that's, you know, like, really necessary when they build because it's a great idea. Because, because it's not— they don't, they don't really— I don't think that in the past they, like, thought about that. And I actually see Publix—

no, like, the food desert thing is a real thing.

Right.

But I grew up in the, in the city, right? Like, I was fortunate I had a, you know, a corner, a bodega on my corner, right? Right. You know, but they didn't have like lettuce, tomatoes, and fresh.

No, that's what I'm saying. Like, now when you see, you know, now there's companies are like, oh, we gotta build. Like, I was over in one area, like downtown Coral Springs, which is not far from here. They're building like this whole, all these new apartments and everything, right? They're putting a grocery store down on the bottom.

Yeah.

I mean, it's, that's needed for, it's needed like for that neighborhood too, because there's not— there was a grocery store on the corner and it got wrecked out from Wilma, which was a long time ago already.

Wow.

So that grocery store, this— it was old and the ceiling fell in.

When Dixie?

It was a Publix. Oh. And then the land is vacant, so now they're building on that and across the street. And they were originally going to put offices, but then the pandemic hit. Now there's not a demand for offices. So now they're putting in more apartments, less offices, you know, in a grocery store, and then a grocery store in the bottom. And I see it everywhere, like downtown Fort Lauderdale. Yeah, um, like my daughter, she went to University of Florida. Now after she graduated, we had gone up there to visit, and on the corner right across the street from the university, they put a Publix. Man, let me tell you, that's probably the busiest Publix on the planet. Wow. You have thousands of students living in the apartments, living in the, in the dorms, right? No, but I'm saying within walking distance, there was no grocery store. And, you know, before, like, my daughter wanted to go to the grocery store, she had to either take her car or take a bus or get a ride or do the rideshare shuttle. No, or the rideshare car.

My college had a shuttle bus. They—

right, or they have a shuttle bus or a trolley that takes people to the grocery store. It's a real pain, and the grocery store's several miles from the university.

Now that's not fun, waiting for the shuttle.

And I see even like downtown Fort Lauderdale, they're like, they build all these apartments and then they slap up, yeah, putting a grocery store. This way people can get it, they don't have to drive 10 minutes to the grocery store, get out of their apartment.

Well, not only that, just imagine all the poor people who can't even drive, right? Right. Like my grandmother was one of those people.

She—

we had to catch the taxi to, to go grocery shopping. Like forever, like, right?

That's what I mean.

Couldn't drive anymore, we would have— there was no walking.

Even like where my mom lives on Fort— on Hollywood Beach, right? There's condo buildings everywhere. Every time my mom wants to go to the grocery store, just to get in her car, go across over to the other side of the bridge and go to the grocery store. Now they're going to put one on the beach side, on her side. Yeah, that's awesome. Now my mom can, you know, I mean, she's 87, she's not walking to the grocery store, but let's just say you live—

in theory she could, right?

In theory. You know, you could get one of those carts.

Yeah, you know, get her a little scooter, bro, right?

Or no, but I'm just saying, in theory, you could just have a small cart that you take with you, go to the grocery store, get what you need, and now you don't have to do this whole drive over the bridge that could take 30, 40 minutes if there's a ton of traffic.

Yeah, I think, I think, uh, the people around the United States of America, good job for speaking up about you know, the food deserts everywhere, because yeah, that's a real thing, man.

No, it's just making it more convenient, you know, when they're building these— when they're built— when, you know, this— and I think a lot of it comes from the city saying, hey, you— if you're going to build a giant— a bunch, you know, you're going to build that few thousand apartments, you need to put a grocery store on your property, right? You know, and, and it's part— and also it's like, you need to put it— pay for a school too.

You would think that they would start incorporating some sort of school system, like an educational building inside of there. I'm not talking about like a daycare center. There's a lot of those I've been seeing, like even—

no, but I'm saying like when they build all these like huge housing communities, they make— I know, like out where I lived, way out west, right? So when I first moved out west and I started building, they went to the builder like, whoa, whoa, whoa, you're gonna build all this out? You're gonna build like 2,000 houses, guess what? You got to build a middle school and a, a middle school and a, and an elementary school and then add on to the high school. Well, they made them do it. The builder had to find, put, build the school for the, for the county.

What was the reasoning?

Because they're going to put all these houses where, what?

Oh, where are they going to go to school?

Okay, where are they going to go to school? You're already building the houses, just build the school with it.

I mean, it makes a lot of sense.

So that was part of the deal, like you want to build And I think that they have to look at that when you're building communities out, that they need to put the shopping so that people have convenient shopping. You're not living like way, way— like, you know, my daughter lives in Iowa. It's a whole different setup over there. You know, you got to drive far to go to the store, you know, but people are living on bigger pieces of property and stuff like that, right? But, you know, as people start— as they start to do more things in like the down— in downtown areas, build more and more apartments. Like even in downtown Fort Lauderdale, like Las Olas, they built all these high-rises. There's no— there's no Publix. It's ridiculous. They should have built a— they should have put a grocery store there.

Yeah, they should have.

I hope that one day that one of those, you know, some restaurant goes out of business or something and the grocery can go in there and put a grocery. But you got all these huge high-rises. I don't know how many there are, 20, 30 of them, right, in one area. There's no grocery store there. You have to go farther away where they built more high-rises now, and they put a grocery store over there. But I'm just saying, they need to make things more convenient. Yeah, but the emerging markets, like utilities— there's all type of utilities out there that are considered utilities, even dumpsters. Right? We did a dump— we do credit card processing for a dumpster company. Nice. I put the dumpsters behind businesses, they charge them monthly.

Sanitization.

Yes, sanitation. And even other, like, small— there's lots of small utility companies, but they're not getting the correct things. And even government entities have to get set up under the correct SIC codes. Many of these people I talk to, they're like, oh, we're with Stripe. I'm like, why are you paying so much? Paying 3.5% to process a credit card, you could be paying 2.5%, right? If you're doing $100,000 a month, that's $1,000 a month you could be saving for your business. And another big one is nonprofits. Now, a lot of nonprofits, they, they run to the PayPal, Square, Stripe. PayPal does have a program for non-for-profits, but you know, if you—

they still take a piece.

Yeah, they still take a piece.

See, they still take a piece.

Yeah, but it's just they're getting given them the special nonprofit rate from Visa and MasterCard. And the thing is, is that, you know, if you're a small nonprofit, right, every penny counts. You need to make sure that you have a program that works for what you're doing. And there are ways to get free credit card processing where you can pass the fee so that the nonprofit's getting 100% of their money. And we have products like that too. So, you know, just different business types. You need to do your homework and make sure— I was meeting with somebody right before we did this podcast, and the guy was like, hey, we need to get this particular SIC code for our business. I wrote it down to make sure I looked it up, and I said, yeah, we can definitely do that because you're gonna have to give us your business license that proves you're in that category. Because what happens is the credit card company gets audited. So they come and they go, oh, we want to see, uh, you got 20 non-for-profits, where's all their documentation? Then if they don't have it on file, then they got to call the agents and go, hey, we need the certificates on these people. So you want to make sure that if you qualify for one of these special businesses, we'll put the list in the podcast notes, right? You qualify for one of these special businesses that you're asked for the documentation so that you can get the special rates that you, that you get. Get the rates you qualify for. Get the special interchange fee because interchange is the biggest chunk.

Yep.

That you— the biggest chunk that you get charged on your bill. Is coming from interchange. Sometimes, like the, you know, the, like the PayFac style square stripe thing, right? It works for a lot of businesses because if you're small, then you're saving on the monthly fees. But if you're bigger, the monthly fees are not going to really matter to you, right? So you just have to kind of like weigh those things out. Like, oh, I'm a small business, I don't want to have a lot of monthly fees. Maybe the answer is using one of those type of services, which we also have, right? And then when you get big enough, we can get you into a customer. All kinds of businesses have special rates, parking, all types of businesses. There's a whole list in there, and it's just basically making sure that you have the correct, um, category, correct category. The business is placed under the correct category. So the interchange is correct, right? That's the whole important part of the whole thing, is making sure that the interchange is correct and, and that you're doing $25,000 a month in volume. And then this kind of programs are worth it. Insurance companies, I've seen tons of them, they're doing a million dollars a month and they're categorized wrong. But then again, they could be more high risk where they don't have a good rating. So not every insurance company—

so much involved in finding the proper, you know, rate for these businesses, right?

So, you know, we just make sure that we give you the proper rate and the proper program and the proper technology. That's what the most important thing— everything today is driven by technology, and having the right technology so that you can give your customer the best customer experience when they're paying You want to give your customer the best customer experience when they're paying you. So you want to make them feel comfortable, you know, whether you're taking the credit card from them over the phone or you're sending them a link. And we determine that with you, like, hey, this would be the best way to do it, you know, or the most, you know, that way to reduce risk for you and things like that. And for security purposes, you know, using cloud software you know, using invoicing more, payment portals, um, rather than a virtual terminal so that the transactions are customer-initiated, right? So those type of things can help you streamline your business so you can collect payments. And then also, you know, using, um, like recurring payments in your business and making it easier for make it easier for your customers to pay you each month, right? Oh, if you're going to pay for this service, oh, it's $200 a month. Instead of sending out an invoice, you can get set up with recurring payments. So it's important to be able to, you know, identify the places where you can save money and time with technology in your business.

Yeah, I mean, it's time to do like a business audit on yourself, right?

And it's like tech, you got to look— I think you have to look at you know, technology first, you know, and, and pricing second, and making sure your business is set up correctly so that you have the right technology to give your customers a smooth flow through the payment process. It's very important because a lot of businesses don't think about that, and then they find difficulty in trying to collect money. So this way, obviously some businesses are hard to collect from. But you got to make sure that you're, you're doing things the right way and, and you're have— making a smooth transition to the cut from the cust— that you make the sale and then the customer experience is smooth. Yep. You know, so that's today's podcast.

Yo, follow us on B2B Vault Payment Technology Podcast. Follow us on Twitter, Instagram, Facebook, TikTok, LinkedIn, You name it, we're there at B2B Vault. Check out the website b2bvault.info. There's some forms on there if you want to contact us, any questions you want to, you know, concerns, you want to sponsor the podcast, go ahead, fill that out. If you're looking for a merchant account, there's an Apply Now button on the website b2bvault.info. Go there, fill it out, boom, you're running. And if there's anything else you just want to talk You know, we're not your therapist, but we are willing to talk to you. Text the word BOOK to 954-827-9818, and we'll get back to you as soon as possible. Thanks for listening. Anything else?

That's it. Peace out. I know this sounds complicated, but if you're in one of these businesses and you want to get a free consultation, get in touch with us and we'll go over what we can do for your business. Just like a CPA saves you money on taxes, we help you save money on processing fees. Peace out, carpe diem. Peace. This way you have an extra podcast.