Understanding Interchange Fees and What They’re For



When you search for e-commerce merchant account service providers, you will often hear the term “interchange” frequently used when speaking about payments. In brief, an interchange fee is a fee that credit card companies like Visa and Mastercard charge cUnderstanding-Interchange-Fees-and-What-They’re-Forompanies to process their cards.

However, all of the ins and outs of interchange fees depend on a number of variables and aren’t always easy to comprehend.

In this article, we’ll break down credit card interchange fees, to help you determine exactly how much you are spending on this process when running your company.

What Are Interchange Fees?

Every time a credit card or debit card transaction is processed, funds are moved from the issuing bank to the acquiring bank, sometimes referred to as the merchant bank. Credit card institutions, like Visa and Mastercard, make this process easier. For the service they provide, institutions also collect a commission from the acquiring bank, something that is called the interchange fee.

An interchange fee is the charge credit card institutions give companies to accept and process their cards.

Interchange fees help cover the risks associated with accepting electronic payments while ensuring that your organization has access to guaranteed payment when a customer makes a purchase. Essentially, the interchange fee is one of the many costs of running a successful business.

Typically, the interchange fee is comprised of a percentage of the complete transaction and some fixed amount. The card institutions assess and determine the fees that are paid to the issuing bank.

The card associations collect another fee known as the network fee, though this isn’t thought of as a portion of the interchange and is generally much smaller.

How Much Does Interchange Fees Cost?

Interchange fees vary widely across credit card companies, card types, and the way the cards are processed. While you have control over whether a customer’s card is swiped or keyed in, you cannot control what sort of card they use — thus, interchange fees vary so widely.

For instance, to complete a $100 purchase, a swiped Mastercard debit card will cost you $27. However, the identical transaction using a Visa corporate business credit card will only cost you $2.60. It’s easy to see how over the course of this year, these fees can pile up.

How Much Do You Pay?

At the end of the day, how much you are paying for credit card processing depends primarily upon your ecommerce merchant services provider. Many merchant account processors provide flat-rate processing, while others offer a subscription-based processing model that gives merchants access to lower interchange rates.

How Major Credit Cards Use Interchange Fees

Here is a brief look at how some of the major credit card companies have set up their interchange fees:

Visa and Mastercard Interchange Fees

Visa and Mastercard are the most significant card network businesses in the world, so their interchange fees for ecommerce merchant accounts are often the most expensive. For both companies, the interchange will depend mostly on the type of card used.

Debit cards, on the other hand, have significantly lower interchange fees than credit card types, while high-end rewards credit cards typically have higher interchange fees than non-rewards variants.

Additionally, interchange fees for both Visa and Mastercard also vary between various transactions.

Discover Interchange Fees

Discover interchange fees operate similarly to Visa and Mastercard. The significant distinction between these cards is that they differentiate between recurring payments and one-time obligations. If your company charges a recurring monthly fee to a client, you will generally pay a lower interchange fee than you would for an equivalent one-off purchase.

American Express Interchange Fees

Unlike the previously mentioned credit card companies, American Express does not charge interchange fees. Instead, the company imposes something that is called a reduction rate. Though different in name, these essentially serve the same purpose.

The American Express reduction rate is made up of a percentage, much like a transaction fee. The type of business that is being serviced will mostly determine the fees that are charged by American Express.

This distinction is unlike Discover, Mastercard, and Visa, all of whom have other qualifying factors that impact their interchange fees, such as if a credit card is considered premium or not.

Additionally, be aware that in some instances, like with restaurants and retail shops, your discount rate will be higher if it is keyed in rather than swiped.

Set Rate Processing

With set rate processing, you have a non-negotiable fee per credit card transaction, irrespective of the card or business type. So, whether you are accepting a debit card with a 0.05% interchange fee or a corporate card with a 2.50% interchange fee, you pay the exact same rate.

While this may seem more straightforward at first, the truth is that you could be overpaying for credit card processing with these systems.

This is the primary reason why some companies have decided to introduce a more straightforward subscription-based processing fee.

Flat Subscription Rate Processing

Subscription-based processors have a similar concept. For instance, you pay a minimal fee to get access to warehouse prices on products, where you can purchase as much of the product as you need without a cap on savings.

This is hugely beneficial to merchant accounts because no matter if your purchase is $50 or $5,000, you pay a flat subscription rate of processing with no markup.

High Risk Pay Can Help Your Business!

Every business is different, which is why we do not believe in one-size-fits-all solutions to merchant account services. If you would like an evaluation of your current ecommerce credit card processor, contact us today.

After assessing the kind of cards your customers are using and your typical transactions, we will have the ability to show you exactly which sort of plan makes the most sense to your company.

At High Risk Pay, we’re a team of talented specialists in the merchant account services industry. Your company is unique, which means your high-risk payment gateway ought to be unique, as well.

Whichever industry your business is in, our team of knowledgeable high-risk merchant account providers can supply your organization with the retail and payment solutions that permit you to serve your clients better and help your company grow.

 To help you find payment options for almost any of your business needs, call High Risk Pay today!

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