Understanding Interchange Fees
Understanding Interchange Fees
As a merchant accepting credit or debit card payments, you’re part of a powerful global payments network that enables fast, secure transactions between your business and virtually any consumer. While this system brings tremendous value, it also comes with costs—one of the most significant being the interchange fee.
So, what exactly is interchange, and how does it impact your business? Let’s break it down.
What Is Interchange?
Interchange is a fee that your bank (the Acquiring Bank) pays to the customer’s bank (the Issuing Bank) every time a card transaction is processed. This fee compensates the Issuing Bank for the risk it takes on and the services it provides, such as:
Extending credit or holding funds
Handling fraud protection and security
Managing cardholder accounts
These fees are a key part of the infrastructure that allows payments to happen smoothly and instantly, no matter where in the world the customer or merchant is located.
Who Sets Interchange Fees?
Interchange fees are set by the major card networks—Visa, Mastercard, and others. They are not set by your payment processor or acquiring bank. These networks evaluate a variety of factors to determine the appropriate fee for each type of transaction.
What Affects the Interchange Rate?
Not all transactions are created equal, and neither are the fees. The interchange rate you pay will vary depending on:
Type of Card Used:
Credit, debit, or rewards cards all carry different rates. Rewards cards often have higher interchange fees due to the perks offered to cardholders.
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Type of Transaction:
Transaction Details:
Providing complete, accurate data during a transaction (such as address verification) can help qualify the transaction for lower interchange rates.
What About Assessment Fees?
In addition to interchange, each card brand charges a small assessment fee, which covers the cost of maintaining their network and brand. This fee is separate but usually bundled into your overall processing costs.
Why Interchange Matters to You
Understanding interchange helps you:
See where your processing costs come from
Recognize the importance of card security and data accuracy
Explore ways to reduce fees by optimizing how you accept payments
While you can't control the interchange rates set by the card brands, you can manage how you process transactions to help keep your costs as low as possible.
In Summary
Interchange is a necessary part of the payment system that ensures reliability and security between banks and businesses. By knowing how it works, you’re better equipped to understand your processing fees and make smarter decisions that benefit your bottom line.