Understanding Interchange Fees
When you research payment solution providers, you’ll start hearing the term “interchange” used when talking about payments. Interchange is the fee that credit card companies like Visa and Mastercard charge businesses to accept their cards.
The interchange fee depends on a number of factors and isn’t always easy to understand. In this article, we will break down credit card interchange fees so you will know exactly how much you’re spending when running your business.
In this post:
- What are interchange fees?
- How much does interchange cost?
- Visa interchange fees
- Mastercard interchange fees
- Discover interchange fees
- American Express interchange (OptBlue)
- What is the total cost of accepting credit cards?
- Set rate processing
- Subscription rate processing
What Are Interchange Fees?
Interchange is the fee credit card companies charge businesses to accept their cards. You pay the brand for the convenience of accepting this payment method since your customers want to use them.
Interchange fees help cover the risks associated with accepting electronic payments while ensuring that your company has access to guaranteed payment when a customer makes a purchase. Interchange is simply a cost of doing business.
Understanding the concept of interchange fees is crucial for businesses looking to optimize their payment processing costs. These fees are set by the payment networks and are typically expressed as a percentage of the transaction value or as a fixed amount per transaction. The exact fee structure varies depending on factors like card type, transaction type, industry, and location.
It’s important to note that interchange fees are not collected by your payment processor or bank; they go directly to the card-issuing banks. Your payment processor, however, plays a role in facilitating the transaction and deducts its own processing fee from the overall charge.
Debit card transactions generally have lower interchange fees compared to credit card transactions. This is because debit cards are linked directly to the customer’s bank account, and the risk of non-payment or default is lower. By actively encouraging customers to use debit cards, businesses can effectively reduce the interchange fees associated with card payments.
While interchange fees may seem like an added expense, it’s crucial to recognize the value they bring to your business. Accepting credit and debit cards allows you to cater to a wider customer base, improve customer satisfaction, and enhance the overall shopping experience. By offering convenient payment options, you can attract more customers and increase sales.
To ensure that the interchange fees you pay are reasonable and competitive, it’s essential to regularly review and negotiate your fee structure with your payment processor. Stay informed about any updates or changes in interchange fee schedules to ensure you’re paying the most optimal rates for your business.
Additionally, optimizing your payment processing infrastructure and implementing measures to minimize chargebacks can have a significant impact on reducing interchange fees. By investing in secure payment gateways, fraud detection systems, and robust transaction processing protocols, you can lower the risk of chargebacks and avoid unnecessary fees.
Remember, while interchange fees are an inherent part of accepting card payments, implementing smart strategies and staying proactive can help you minimize their impact on your business. By understanding the fee structure, promoting debit card usage, and optimizing your payment processing operations, you can effectively manage and reduce interchange fees, ultimately improving your bottom line.
Interchange fees are an essential consideration for businesses that accept card payments. These fees are a cost that businesses incur to facilitate the convenience and security of card transactions. While it’s true that businesses pay interchange fees, it’s important to understand that they are a necessary part of the payment ecosystem.
Interchange fees enable payment networks and card-issuing banks to cover the costs associated with maintaining the infrastructure, managing fraud risk, and providing the benefits and rewards programs associated with credit and debit cards.
As a business owner, it’s crucial to factor in these interchange fees when evaluating the overall costs of accepting card payments. By understanding the dynamics of interchange fees and implementing strategies to optimize their impact, businesses can effectively manage their expenses and find a balance that allows them to provide convenient payment options to customers while minimizing the amount they pay in interchange fees.
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How Much Does Interchange Cost?
Interchange fees vary widely across card brands, credit card networks, card types, and how you process cards. Credit cards that offer points or rewards cards typically come with higher interchange fees.
Generally, debit card transactions are much cheaper than credit cards for you to process. Card-present transactions also incur lower rates compared to card-not-present transactions. An exemption would be debit cards– issued by a bank with less than $10 billion in assets, often a local bank or credit union. These have some of the highest interchange rates of all.
While you have control over whether a cardholder’s card is swiped or keyed in at the point of sale, you can’t control what kind of card they use. That’s why interchange varies so widely. For a $100 transaction, a swiped Mastercard debit card will cost you 27¢. However, for the same transaction, using a Visa corporate commercial credit card will cost you $2.60. It’s easy to see how over the course of the year, these fees can stack up.
Below, we’ll give a sampling of interchange rates for the most popular card brands.
Visa Interchange Fees
| Interchange Rate (Swiped) | Interchange Rate (Keyed) | |
|---|---|---|
| Visa Retail – Debit | 0.80% + 15¢ | 1.65% + 15¢ |
| Visa Retail – Credit | 1.51% + 10¢ | 2.10% + 10¢ |
| Visa Retail – Credit Rewards Traditional | 1.65% + 10¢ | 1.95% + 10¢ |
| Visa Restaurant CPS – Debit | 1.19% + 10¢ | 1.65% + 15¢ |
| Visa Restaurant CPS – Credit | 1.54% + 10¢ | 1.80% + 10¢ |
| Visa Credit Restaurant Rewards Traditional | 1.95% + 10¢ | |
| Visa Credit Retail Corporate Commercial | 2.50% + 10¢ | 2.70% + 10¢ |
| Visa Business – Debit | 1.70% + 10¢ | 2.45% + 10¢ |
| Visa Business – Credit | 2.150 + 10¢ | 2.650% + 10¢ |
See full Visa interchange rates.
Mastercard Interchange Fees
| Interchange Rate (Swiped) | Interchange Rate (Keyed) | |
|---|---|---|
| Mastercard Retail – Debit | 0.05% + 22¢ | 0.05% + 22¢ |
| Mastercard Retail – Credit Core | 1.58% + 10¢ | 1.89% + 10¢ |
| Mastercard Retail – Credit Rewards Enhanced | 1.73% + 10¢ | 2.04% + 10¢ |
| Mastercard Restaurant – Debit | 0.05% + 22¢ | |
| Mastercard Restaurant – Credit | 1.73% + 10¢ | |
| Mastercard Credit Retail World | 1.77% + 10¢ | 2.05% + 10¢ |
| Mastercard Credit Retail World Elite | 2.20% + 10¢ | 2.5% + 10¢ |
See full Mastercard interchange rates.
Discover Interchange Fees
| Interchange Rate (Swiped) | Interchange Rate (Keyed) | |
|---|---|---|
| Discover – Debit | 1.10% + $0.16 | 1.75% + $0.20 |
| Discover – Credit | 1.56% + $0.10 | 1.87% + $0.10 |
| Discover – Rewards Credit | 1.71% + $0.10 | 1.97% + $0.10 |
| Discover – Premium Plus Credit | 2.15% + $0.10 | 2.40% + $0.10 |
| Discover Commercial Credit | 2.30% + $0.10 | 2.30% + $0.10 |
| Discover Recurring – Debit | 1.20% + 5¢ | |
| Discover Recurring – Credit | 1.35% + 5¢ |
* These rates are an estimate based on 3rd party reported numbers. To access full Discover interchange rates, you need to use a verification code provided by your acquirer.
American Express Interchange Fees
American Express works differently from the other brands in that the card type does not impact the processing rate. Instead, your industry or merchant category code (MCC) will play a larger role in deciding how much you pay in credit card processing fees.
For smaller businesses, you’ll probably be accepting American Express through their program called OptBlue. Through OptBlue, your payment technology provider will determine how much you pay for AmEx and bundle it in with the ability to accept more popular card types. This way, you can accept AmEx customers (who historically have higher ticket prices) without breaking the bank.
You can read more about the OptBlue program at Merchant Maverick.
How Do Credit Card Interchange Fees Work?
As you can see, interchange fees vary from one credit card network to the next. These fees are set by Visa, Mastercard, Discover, and American Express every April and October. As for how these fees are split, a percentage of the interchange rates goes to the card issuers aka card-issuing banks—e.g., Capital One, Chase, or Bank of America. The rest of the fees go to the credit card brand. This is important to point out because it shows that interchange fees are not charged by your payment processing company (and thus, they’re non-negotiable).
Payment processors typically charge a markup on top of the interchange, which is essentially how they make money. So while you technically can’t negotiate your way to lower interchange fees, you can still save on overall payment processing costs by working with the right provider.
How Much Do You Pay?
At the end of the day, how much you’re paying for credit card processing relies on your payment solutions provider. Many payment processors like Stripe, Square, PayPal, and bank merchant services offer flat-rate processing. Some others, including Stax, offer subscription-style processing that gives you access to the lowest rates of interchange.
Avoiding Higher Interchange Fees
In the modern digital age, electronic payments have become the norm, with credit and debit cards being widely used for transactions. However, along with the convenience of card payments, businesses face the challenge of interchange fees, which can significantly impact their bottom line.
Choose the Right Payment Processor
The choice of payment processor plays a crucial role in managing interchange fees. Different processors offer various pricing models, so it’s essential to compare options and negotiate competitive rates. Look for processors that provide transparent pricing structures and offer interchange plus pricing, where the interchange fee is passed through directly without any markup. This approach can help you avoid unnecessary additional charges and optimize your fee structure.
Optimize Card Acceptance
Understanding the types of cards you accept and their associated interchange fees is key to minimizing costs. Payment networks classify cards into different categories, and fees vary depending on factors like card type (credit or debit), payment method (chip and PIN, contactless), and industry-specific cards (corporate, rewards). By optimizing your card acceptance policies, you can encourage customers to use lower-cost payment methods and reduce interchange fees.
Encourage Debit Card Usage
Debit cards generally carry lower interchange fees compared to credit cards. Actively promoting debit card usage among your customers can help lower your overall interchange fee expenses. Consider offering incentives, such as discounts or rewards, for customers who choose to pay with their debit cards. This not only benefits your customers but also reduces your payment processing costs.
Streamline Processing and Reduce Chargebacks
Efficient transaction processing and minimizing chargebacks can have a positive impact on interchange fees. Implementing secure payment gateways and fraud detection systems can help reduce the risk of chargebacks, which can result in costly fees. Furthermore, optimizing your payment infrastructure to streamline processing and minimize errors can help prevent unnecessary charges and improve overall cost efficiency.
Regularly Review and Update Your Fee Structure
Interchange fees are subject to change, as payment networks periodically update their fee schedules. It is crucial to stay informed about these changes and periodically review your fee structure to ensure you’re paying the most competitive rates available. This review process may involve renegotiating with your payment processor or exploring alternative options in the market to find the best fit for your business.
Consider Surcharge Programs
Depending on your region and applicable regulations, you may have the option to implement surcharge programs, where you pass on the interchange fees to customers directly. While this strategy requires careful consideration and compliance with legal requirements, it can be an effective way to offset interchange fees and transfer the cost to the end-user.
Interchange fees are charges imposed by payment networks, such as Visa and Mastercard, for processing card transactions. While these fees are unavoidable, there are several smart strategies that businesses can employ to minimize their impact. In this article, we will explore practical tips to help businesses navigate and reduce interchange fees effectively.
Here’s how these different rates work:
Tiered Pricing
A common pricing model in the payment processing realm is called tiered pricing. This method bundles the interchange rate with the processor’s markup and then puts your transactions into three tiers: qualified, mid-qualified, and non-qualified.
Card payments that are in the “qualified” tier incur lower rates while “non-qualified” transactions cost more to process.
Here’s where things get dicey: how transactions are categorized is completely at the discretion of the processor. What some payment processing companies consider as “qualified” may not be the same for others. There’s no transparency with tiered pricing fees, making it difficult to figure out whether or not you’re overpaying.
Set Rate Processing aka Flat Fee Processing
With set rate processing, you have a non-negotiable flat fee per credit card transaction, regardless of card or industry type. For instance, Stripe charges 2.9% + 30¢ per transaction. So whether you’re accepting a debit card with a 0.05% + 22¢ interchange rate or a corporate card with a 2.50% + 10¢ interchange rate, you pay the same rate.
While this may seem simpler at first, the reality is that you could be overpaying for credit card processing with these systems. In the example above, Visa would receive the .05% + 22¢, while Stripe would be making a whopping 2.5% + 8¢ on your transaction. That’s why we introduced simple subscription-based pricing.
Flat Subscription Rate Processing
Subscription-based processors have a similar concept to other subscription services you’re used to, such as warehouse stores like Costco. You pay a low fee to get access to warehouse pricing on goods, where you then can buy as much as you want with no cap on savings. Stax’ subscription pricing starts at just $99 per month. Regardless if your sale is $50 or $5,000, you pay the flat cost of processing without a percent markup.
Every business is different, which is why we don’t believe in one-size-fits-all solutions. Based on the types of cards your customers are using and your average transactions, we’ll be able to show you exactly which type of plan makes sense for your business.
FAQs about Interchange Fees
Q: What are interchange fees?
Interchange fees are charges imposed by payment networks, such as Visa and Mastercard, to businesses for processing credit and debit card transactions. These fees are set by the payment networks and go to the card-issuing banks to cover various costs, including infrastructure maintenance, fraud protection, and rewards programs.
Q: Do I pay interchange fees directly?
No, interchange fees are not paid directly by businesses to the payment networks. Instead, they are deducted by your payment processor or acquiring bank and passed on to the card-issuing banks.
Q: How can I reduce interchange fees?
While interchange fees are unavoidable, there are strategies to help minimize their impact. These include negotiating competitive rates with your payment processor, optimizing card acceptance policies to encourage lower-cost payment methods, promoting debit card usage, streamlining processing to minimize errors, and staying updated on fee structures to ensure you are paying the most competitive rates available.
Q: Are interchange fees the same for all types of cards?
No, interchange fees vary depending on factors such as card type (credit or debit), payment method (chip and PIN, contactless), and industry-specific cards (corporate, rewards). Debit card transactions generally have lower interchange fees compared to credit card transactions.
Q: Can I pass interchange fees on to my customers?
The ability to pass interchange fees on to customers depends on regional regulations and legal requirements. In most states, businesses may have the option to implement surcharge programs where interchange fees are directly passed on to customers. However, it’s important to research and comply with applicable laws before considering this option. CardX by Stax is the leader in automated surcharging compliance and can help your business implement passing on these fees properly.
Q: How often do interchange fees change?
Interchange fees are subject to periodic updates by payment networks. They can change annually or even more frequently. Staying informed about these changes and periodically reviewing your fee structure is essential to ensure you are paying the most competitive rates available.
Q: Is it possible to avoid an interchange fee?
It is not possible to completely avoid interchange fees when accepting card payments. Interchange fees are an inherent part of the payment ecosystem and are charged by the payment networks and card-issuing banks to cover various costs associated with processing transactions, maintaining infrastructure, managing fraud risk, and providing cardholder benefits. Your business cannot avoid paying interchange fees, but you can employ strategies to minimize the impact and optimize your payment processing costs.
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