X-1PAY Merchant Processing for Credit Cards

X-1PAY Merchant Services works differently than most legacy aviation-based processing options and more like modern processing platforms such as Stripe. The pricing is based off the actual interchange rate on the card processed. Think of this just like we are pricing fuel with interchange being the cost. In this article we will attempt to cover all of the variables and break down how credit cards work and the pricing. This article applies only to "Open-Loop" credit cards which are your Visa, Mastercard, Discover and American Express cards.

X-1FBO Simplified Credit Card Processing Fee Program

Choosing the right credit card processor can be challenging. Apples to apples comparisons can be hard. For example, a fixed fee of X% may not be the best choice even it appears to be low. The following is a brief primer on the organizations which participate in the process and the basic composition of the fees.

The primary participants include issuing banks (the name of the bank on the card), acquiring bank (the FBO’s bank, sometimes called the merchant bank) card networks such as Visa and Mastercard, and processors such as X-1PAY Merchant Services which offers the

X-1FBO Management and Payment Processing System

X-1FBO is an example of a Point-of-Sale system where the card and transactions are entered. Systems like X-1FBO are often referred to as an Independent Software Vendors in the credit card industry. When you run a credit or debit card in X-1, the primary cost components are interchange, inquiry fee (cents), network fee and processor mark-up.

How the System Works

Whenever a credit card or debit card transaction is processed, funds are transferred from the issuing bank to the acquiring bank. Card associations, like Visa and Mastercard, facilitate the process. For the service they provide, associations collect a fee from the acquiring bank – this is what's known as the interchange fee. Typically, the interchange fee is comprised of a percentage of the total transaction plus the inquiry fee (cents), e.g., 2% + $0.15. While the card associations assess and determine these fees, they are paid to the issuing bank.

The card associations collect a separate fee called the network fee. The network fee is usually far smaller, averaging somewhere around 0.05%.

All processors must pay interchange, the inquiry fee and the network fee; so the only variable is their fee. The fee for the processor’s services may be part of the quoted price for credit card processing, or it may be quoted separately.

Why Are There Variations in Fees?

There are many factors which affect credit card processing pricing. Some of the factors include:

As you will see from the long list of credit cards and the associated interchange and inquiry costs below and on the following pages, there is a tremendous variation in the fixed costs associated with credit cards. This makes it almost impossible for a processor to quote a fixed processing cost unless the processor assures itself of remaining solvent by charging a high enough fixed price to cover any conceivable mix of credit cards.

X-1PAY Merchant Services Solution

To cut through the fog, offer the best cost structure to FBOs and have a transparent relationship with its business partner FBOs, X-1 decided to charge the actual interchange, inquiry fee and network fee plus a fully transparent processing fee. For example, if the cards are all swiped and charged in 24 hours, the cost is lower than if not. Given the rather dizzying list of cards, interchange fees and inquiry fees shown below, X-1 decided that having just one fixed fee doesn't allow greater control of processing costs by our customers.

Visa & Mastercard Average Interchange Fees

Visa and Mastercard are the biggest card network companies in the world, so theirs are the interchange fees FBOs will face most often. For both companies, the interchange will depend largely on the type of card used. Debit cards have significantly lower interchange rates than credit card ones. Furthermore, high-end rewards credit cards have higher interchange fees than non-rewards variants. Interchange fees for both Visa and Mastercard will also vary between different types of transactions.

The fees shown below for Visa, Mastercard, Discover and American Express are illustrative and do change over time.

Visa had the highest number of cards in circulation and over 50% market share. Mastercard comes in at number two, with over 30% of the market.

Discover Average Interchange Fees & Rates

Discover interchange fees work similarly to Visa and Mastercard. The major distinction between these cards is that they distinguish between recurring payments and one-off payments. If a business charges a recurring monthly fee to a customer, there will generally be a lower interchange fee than for an equivalent one off.

Discover cards account for approximately 8% of cards in circulation.

American Express Interchange Rates & Discount Rate

American Express doesn’t charge interchange fees, and instead imposes a discount rate. Though different in name, these are the same functionally. The American Express discount rate is composed of a percentage plus some fixed a fixed transaction fee.

The fees charged by American Express are largely dependent on the type of business being serviced. This is unlike Discover, Visa and Mastercard, all of whom have other qualifying factors impacting their interchange fees, such as whether a card is considered premium or not. Please note that in certain instances, like with retail and restaurant transactions, a discount rate will be 0.30 points higher if it is keyed in and not swiped.

Traditionally, American Express has had more premium credit cards in their portfolio leading to higher interchange fees. While the fees themselves are higher, Amex also reportedly has cardmembers who tend to spend more than the average Visa or Mastercard user. While interchange fees have been historically higher with American Express than their competitors, many merchants choose to accept their cards to be able to do business with American Express’s high-spending cardholders.

American Express cards accounts for approximately 7% of all cards in circulation.