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Interchange Fees

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What Are Interchange Fees?

interchange fees Many business owners have heard this term before. So just what are interchange fees?An Interchange fee is a disclosed, non-negotiable fee charged by the major credit card associations (Visa, MasterCard, Discover and American Express) for businesses to accept credit cards. Interchange fees vary heavily as there are many different types of transactions that occur. For instance, is the transaction taking place at an on-line store or brick and mortar building? From where is the transaction being processed? The type of transaction such as having a debit instead of credit card transaction can cost a difference of 2% in certain situations. This rate may change because of the different types of cards being issued. For example, a business credit card and a loyalty/rewards card feature many different rates.

How Credit Cards Use These Fees

Credit card Interchange fees are used by the associations to pay for a multitude of services to assist their customers. One such example would be the fees they pay out for credit card security. For example, having to pay a company to monitor card transactions and take the appropriate actions if risk is present. To pay for the many services that these card associations provide, they tally the costs and publish rates accordingly for each transaction. Revenue from Interchange helps to cover the Credit Card Association’s costs for providing customer service, system operations, card production and the protection of customer data among other amenities.

How Are These Fees Calculated?

These fees and rates vary based on the following conditions:
• Debit vs. Credit
• Geographic location (North America vs. International)
• Environment which your card is processed (Card present vs. Card not present)
• Type of Card Used (Business Card, Specialty/ Rewards Card, Loyalty Card)
• Cardholder Information Collected by the Merchant (Qualified vs. Non-Qualified)
• Type of Merchant (E-commerce, Retail, Hotel, Restaurant, etc…)

To give you a better idea of how specific these types of transactions are, here are a couple of examples directly from the published interchange fee pages from both Visa and MasterCard Interchange rates.

Visa Interchange fees, E-Commerce With No Card Present:

• Utility Payment – 0.05% + $0.21
• Hotel or Car Rental Payment – 1.75% + $0.20
Mastercard interchange fees, Retail Location with Card Present:

• Supermarket Payment – 1.48% + $0.10
• Lodging and Car Rental – 1.58% + $0.10

Debit Cards and the Durbin Amendment

To better benefit merchants nationwide, the Durbin Amendment was passed in 2011 to impose a cap on the interchange fee credit card associations can charge for debit transactions. What once was an average fee of 44 cents per transaction is now 21 cents plus 0.05% of the original transaction (literally 1/20th of a percent).This measure was instituted to better assist merchants with accepting credit card payments.

As a merchant it’s important to know and understand exactly what you are paying for when accepting card payments. Having knowledge of what each of the interchange fees Credit Card Associations charge is a major step in finding the merchant account service that’s most cost efficient to you. On your Merchant Account statement you should see what you are paying each of the associations in Interchange. Interchange rates vary upon the type of card, the location of the transaction, whether your card is present or not, the type of merchant accepting the payment and other factors. You can find the current Interchange Fee schedule on the website of each of the major credit card associations.