If your company accepts credit card payments (which it should), chances are, you’re going to be affected by Visa’s interchange rates. Visa is one of the biggest payment networks in the world, with ~4.2B cards currently in use. So it’s virtually impossible for a business to not accept Visa cards.
Visa interchange rates are the fees charged by Visa to process transactions between issuing banks and merchants. These rates are determined by various factors like the type of card used, the industry of the merchant, and how the transaction is processed. Visa sets these rates, and they’re non-negotiable for merchants. They cover the costs of managing the network, ensuring security, and facilitating the transfer of funds between banks.
Visa generally updates interchange rates semiannually, so you need to check in on the rates somewhat frequently.
Overall, understanding interchange rates is crucial for anyone who accepts credit card payments because they form the foundation of the fees you’ll encounter when taking credit cards. It’s wise for merchants to keep an eye on these rates as they can affect their bottom line and profitability. The Visa interchange fee increases occurring in both October 2023 and April 2024 are expected to cost an additional $502M in yearly fees for all relevant merchants.
TL;DR
- Interchange rates are the fees charged by credit card networks.
- Visa had put off interchange rate changes during the pandemic years, so they’ve been introducing changes in two phases, with the second wave of updates coming in April 2024.
- While you can’t avoid the rate hikes, there are strategies and resources available to help merchants mitigate the impact.
What exactly are interchange rates?
Interchange rates are the fees charged by credit card networks (like Visa, Mastercard, American Express, and Discover) to facilitate card transactions between merchants and banks. These rates are set and collected by the network for processing transactions and maintaining the payment infrastructure.
The card issuers periodically update their interchange rates using the following factors. These factors are also used to set the specific interchange fees for each type of transaction, as interchange fees are not set as a flat fee across all industries, transaction types, etc.:
- Card Type: Different card types (debit, credit, rewards cards) and card brands carry different interchange rates. For example, rewards cards often have higher interchange rates due to additional benefits.
- Transaction Details: How the transaction is processed (e.g., in-person, online, keyed in entry) and the associated risks impact the interchange rates.
- Industry: The type of business also affects interchange rates. Retail transactions might have different rates compared to healthcare or travel-related transactions.
- Compliance and Regulation: Changes in regulations or compliance requirements can also influence interchange rates.
Changes in Visa Interchange Rates for 2024
Visa had put off interchange rate changes during the pandemic years, so they’ve been introducing changes in two phases. The first occurred in October 2023. The second occurs in April 2024.
Overview of the new rates
We do not yet know what the rates will look like in April, but a full list of Visa’s current interchange rates for US Merchants (the ones implemented in October 2023) can be found here. It’s organized by merchant category code (MCC). You can also find updated interchange reimbursement fees there.
Simply put, there are dozens of different rates depending on both your industry and the type of payment (i.e. Visa business cards will have different rates than prepaid or debit cards). However, some rates that small business owners are likely to face:
- For eCommerce basic debit card transactions utilizing an exempt Visa check card, the rate is 1.65% + $0.15
- For retail Visa debit card present, an exempt Visa check card will run 0.08% +$0.15
- Switch the above to card-not present and it’s 0.65% +$0.15, with a $2 cap
Comparison with previous years
According to the Wall Street Journal, the fee increases are going to largely target online transactions. As of October, Visa introduced a Digital Commerce Services fee on all card-not-present transactions (so all online transactions). The fee is 0.0075%. However, they did remove the Address Verification Service (AVS) charge of $0.001 per transaction and the Card Verification Value 2 (CVV2) fee of $0.0025 per transaction.
Other noticeable changes include
- Visa is also expanding their small merchant interchange programs and rate range from 0%-2.7%.
- Fees on consumer infinite card products will increase an average of 0.13%.
- Finally, While international merchants will have some of their older fees eliminated, they will see program rates increase by an average of 0.01%.
Factors influencing the changes
The factors influencing Visa interchange rate changes in 2024—or any year—are myriad and include:
- Changes in regulations on credit card networks, payment processing or financial regulations.
- Market dynamics, including changes in consumer spending habits, transaction volumes, or shifts in the payment landscape. This particular factor is one of the main ones pushing the rate changes around card-not-present transactions as consumers shop even more online.
- Risk management is an ongoing concern for networks setting interchange rates. Visa may modify rates to compensate for expected risks associated with different transaction types.
- Visa’s own costs will affect interchange rates, as well. With the ongoing landscape of inflation, their operational costs have likely risen.
Impact on Merchants and Consumers
The biggest impact of interchange rate increases is on merchants. Fees associated with taking credit card payments will go up and cut into your profits. But that’s only the topline impact.
Rate hikes are expected to affect small merchants more, as they have less profit to share. This is such a problem that it has merited a bi-partisan bill introduced in the US Senate, by two senators who are concerned that rate hikes will prevent fair market competition.
It’s not just the merchants who suffer from interchange rate increases, though. As Senators Marshall and Durbin point out in their press release, merchants typically try to pass at least some of their costs onto the consumer by raising prices.
Ultimately, for merchants looking to mitigate the impact of interchange rate hikes, raising prices across the board is one of the easiest methods. However, it can result in customers choosing to go to other businesses, like big box stores who are able to absorb the rate hike without passing it on (at least very obviously) to their customer base.
So a few other strategies you can employ to either avoid raising prices completely or raise them a smaller amount are:
- Train your staff in transaction optimization. Teach them to process credit card transactions the cheapest way as often as possible (i.e., accepting a swipe or contactless tap instead of typing in the card information).
- Encourage your cardholders to use lower cost payment methods. Many businesses, like gas stations, choose to offer a small discount for cash transactions, for example. You could choose to reward cash transactions and lower-cost card transactions.
- Audit your data security measures. Secure payment processing methods can result in reduced fees, as the card networks offer reduced fees on transactions they deem less risky.
- Improve your customer retention strategies. Building a reliable customer base can help offset concerns about your profit margins, since it makes revenue forecasting more reliable.
How to Manage Your Transaction Fees
While you can’t alter your interchange rates from any card network, like Mastercard’s interchange rates, you’re not totally defenseless. There are strategies and resources available to even the smallest merchants to mitigate costs:
Leverage tools and resources to reduce payment processing rates
There are a variety of resources that small businesses will find available, both virtually online and in-person.
- Use rate comparison tools online to help compare interchange rates and fees among different payment processors or networks and can assist in choosing cost-effective options.
- Stay informed through industry publications that discuss changes in interchange rates, regulations, and trends affecting payment processing.
- Consider consulting with financial advisors, payment processing experts, or industry specialists who can offer personalized guidance on optimizing payment strategies.
- Establish relationships with merchant services providers who offer transparent pricing, guidance on rate management, and assistance in navigating payment processing intricacies. A great payment provider can save your business tons of money in processing fees. For example, Stax operates on a flat-rate subscription model that provides you totally transparent access to the exact interchange fees—with no high markups.
Mitigate credit card processing costs
In addition to the above resources, you should also employ some or all of the following strategies to help keep credit card processing fees as low as possible.
- Educate yourself on how interchange rates are calculated. Knowing which factors impact rates can help in optimizing credit card transactions.
- Use technology that supports lower-cost transaction methods (e.g., EMV chip technology) or process transactions in ways that qualify for lower rates (e.g., swiping vs. manual entry).
- Negotiate with processors. While interchange rates are set by card networks, negotiating with payment processors for better rates based on your card transaction volume and business type might be possible. This is particularly true if the credit card processor uses an interchange plus pricing model. In that case the provider will be charging service fees or other surcharges that you may be able to convince them to provide a merchant discount rate on.
Conclusion
Visa is raising the interchange fees – that’s a fact. But there are plenty of options available to merchants to help reduce the impact these new fees will have on their profit margins. Talk to Stax today to find out how much we can help you save on payment processing fees.
Request a QuoteFAQs about visa interchange rates
What is the interchange rate for Visa?
The interchange rate for Visa varies depending on several factors such as the type of card used (e.g., credit, debit, business, rewards), the merchant’s industry, the transaction size, and how the transaction is processed (e.g., in-person, online). These rates are typically a combination of a percentage of the transaction amount and a fixed fee. The specific rates are published by Visa and can be found on their official website or through financial service providers.
Which type of card has the highest interchange fees?
Premium and rewards cards have the highest interchange fees. This is because these cards offer additional benefits to cardholders, such as cashback, points, or travel rewards, which are funded, in part, by higher interchange fees.
What is the level 3 interchange rate for Visa?
Level 3 interchange rates apply to transactions that meet specific detailed reporting requirements, usually for business-to-business (B2B) and government transactions. These rates are often lower than standard rates but require more detailed transaction information. The exact rate depends on the compliance of the transaction with Level 3 data requirements and other variables like the type of card used and transaction size.
Who pays Visa interchange fees?
Interchange fees are paid by the merchant’s bank (acquiring bank) to the cardholder’s bank (issuing bank). The merchant indirectly pays these fees as part of the overall transaction processing fees charged by their bank or payment processor. Ultimately, these fees are factored into the cost of goods and services.
Does Visa make money from interchange?
While Visa sets the interchange rates, the fees themselves are not collected by Visa. Instead, they are transferred between the issuing and acquiring banks. Visa makes money primarily through assessment fees and other charges related to the use of its network, not directly from interchange fees.
How does Visa interchange work?
Visa interchange fees are part of the process of electronic payment transactions. When a customer uses a Visa card to make a purchase, the merchant’s bank (acquirer) submits the transaction to Visa, which routes it to the cardholder’s bank (issuer) for authorization. Once authorized, the transaction is completed, and funds are transferred from the issuer to the acquirer, minus the interchange fee.
