Interchange Explained

Interchange rates. They are inexplicably tied to payment processing and merchant accounts. But why? Read through our concise guide to learn more about this card payment fee.

Interchange Rates Defined

No matter the pricing structure of your merchant account or the size and industry of your business, the heftiest portion a merchant pays to process a customer’s credit or debit card is the interchange fee. The textbook definition refers to the fees charged by the major card brands – Visa, Mastercard, Discover, and American Express – to accept their cards. Consider it the price to pay for the convenience of swiping a card or receiving online electronic payment. Rates are not static and update biannually in April and October.

Interchange and Payment Acceptance

As a merchant, you are probably aware of the seamless dance when processing a card payment. Payment processing must be secure, swift, and convenient. For facilitating this process, the major card brand networks – Visa, Mastercard, Discover, and American Express – charge interchange fees each time a payment is processed. The variable rate makes up the majority of the payment processing fee. These fees are used within payment processing to help the card insurer cover their processing costs, risk mitigation, and fraud protection.

Interchange Fee Calculation

We already discussed interchange rates are the most substantial portion of the cost associated with accepting credit or debit card payments. The card brands determine the fees, and once assessed, paid to the issuing bank or the direct financial institution that offered the payment card to the customer. A credit card payment typically sees an average interchange fee of 1.80%, and PIN debit card payments come in considerably lower at 0.3%.

Determining the exact interchange rate can be quite cumbersome as each card brand carries its distinct interchange fee. In a simple breakdown, rates are mainly determined by three factors:

1. Is the payment card a credit card or a debit card?
2. What type of card is being processed? For example, is it a business card, rewards card, or personal debit card?
3. How is the payment accepted? Is the card present and swiped at a brick-and-mortar store or entered online in a card-not-present transaction?

Expect to pay more on a credit card transaction over a debit card. Business and reward cards are also assessed a higher interchange fee – the points and rewards banks pay consumers are expensive! The higher cost on these cards helps compensate the issuing banks’ expense for the reward programs. For security reasons, a CNP payment – or Card Not Present – will be assessed a higher interchange rate over a traditional swiped transaction.

Interchange and Your Payment Partner

In conclusion, avoiding interchange rates when processing a card payment is not possible. Fortunately, when teaming up with a knowledgeable merchant provider, you can create a secure payment environment to lower the costs. With programs, such as our Fee-Free Payments offering, you can also choose to pass the payment acceptance costs (including interchange rates) to your consumers. If charging a convenience fee isn’t an option, make sure to employ fraud modules such as AVS. Working with a PCI-compliant processor also helps keep extra payment costs low. Interested in a no-strings-attached review of your current payment program? Reach out to our knowledgeable team today to review your payment solution options.