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Interchange fees are the costs associated with transferring money across borders. This article will break down interchange rates and explain why they exist in today’s financial system, what those numbers mean for your bank account, and how you can avoid them.
Credit card processing is a necessary component of doing company, but it comes at a price. There are three aspects to credit card processing fees:
- Fees paid to card associations are referred to as assessments (Visa, Mastercard, etc.)
- Fees paid to other parties are referred to as markups (payment processors and merchant accounts, like Square and First Data)
- Fees paid to the card issuer are referred to as interchange (Chase, Bank of America, etc.)
The most expensive of the three is usually the exchange cost. Let’s take a look at what they are, how they’re calculated, and what the current interchange rates are for the main card networks.
What Are Interchange Fees and How Do They Work?
Merchants pay interchange fees, sometimes called “swipe fees,” to financial institutions and credit card companies in order to accept and process credit and debit card payments. The card organizations (Visa, Mastercard, etc.) determine the exchange rates, which are then paid to consumers’ card issuing banks (Chase, Bank of America, etc.) to cover the expenses and risks connected with accepting the card transaction.
The interchange charge is a non-negotiable payment processing cost that accounts for the majority of the overall fees connected with card payment processing.
How Are Interchange Fees Calculated?
The interchange charge is established by the card networks (Visa, Mastercard, American Express, Discover, and so on). They are, however, not easy to understand. There are almost 300 different exchange rates to choose from. The interchange charge you pay is determined by the sort of transaction you’re processing and the card your client uses to pay.
Interchange costs are often included in the rates you pay to your payment processor, so merchants don’t have to worry about them. Interchange fees are sometimes imposed as a flat cost plus a percentage, such as 2.6 percent + 10 cents. Alternatively, the processor may transfer the direct interchange charge together with its markup.
Factors Affecting Interchange Fees
Interchange rates are influenced by a number of variables, the most important of which is how you accept and handle credit card payments.
In most stores, the consumer holds the card in their hands and swipes it through a payment terminal. This is a CP transaction (card present). However, there are situations when the card isn’t physically available—for example, you may have to input the card manually or accept payment over the phone. These are card-not-present (CNP) transactions, as are all online transactions. Because CNP transactions are riskier, they have higher costs.
Rates may also differ based on the amount of data submitted. To decrease your charges, supply as much information as possible, demonstrating that the transaction is legitimate and reducing the danger of fraud. When you settle the transaction, use Address Verification Service (AVS) and provide the authorization ID and order number. It’s also a good idea to close deals within three days after the sale.
Other considerations include:
- Your Merchant Category Code (MCC) is determined by the sort of company you operate. (Interchange charges vary by retail, grocery, gasoline, and transport firms.)
- There are many different sorts of credit cards available. Interchange costs for cards with a lot of rewards and perks are usually higher.
- Cardholder: Interchange fees apply to consumer, corporate, government, and nonprofit credit cards.
- Card organizations determine their own interchange rates, so there is some variation, which we’ll discuss further down.
Level 2 & Level 3 Transactions
When processing business credit cards (one company selling to another), the quantity of data needed to complete the transaction has a big impact on the interchange rate. The more information you offer, the safer the transaction is believed to be, and the lower the rate. Level 2 or Level 3 transactions are what they’re called. It’s vital to note that although a corporate transaction may qualify for a Level 2 or 3 rate if you don’t supply the proper information, you’ll be charged at Level 1 (which is often associated with consumer transactions). More information about B2B payments may be found in our article.
Interchange Fees Are Charged In What Ways?
A merchant gets the money paid for their goods or services every time a credit card transaction is processed—swipe, chip, or keyed-in. They do, however, pay some of that money to other parties (markup, interchange, and assessment fees).
Payment processing systems are often linked to the merchant’s bank account (merchant account), allowing money to be automatically withdrawn. Interchange fees are not charged in the same way that they are on a utility bill or a conventional invoice.
Interchange rates varies across the various card organizations (Visa, Mastercard, Discover, and American Express). For different consumer and business credit and debit cards, transaction types (card present, keyed, and online), business types (retail, government, travel, and so on), and business sizes (businesses processing over $750 million can typically qualify for lower rates), there are hundreds of different possible rates within each card association.
What’s the Difference Between a Flat Rate and an Interchange-Plus Rate?
Some payment processors, such as Square, charge a fixed fee. This rate is constant and includes all costs associated with card processing. These are often offered as 2.6 percent Plus 10 cents every transaction, for example. The interchange rates have no effect on it.
Interchange-plus pricing, on the other hand, adds a fee on top of the credit card company’s interchange rate. Some processors add a few pennies (for example, interchange + 5 cents), a percentage (interchange + 0.75 percent), or both (interchange + 0.5 percent + 10 cents). The amount you are charged each transaction using interchange-plus rates is determined by the specific interchange rate for that sale.
On top of transaction fees, payment processors that utilize the interchange-plus system sometimes impose a monthly fee. Even yet, if you have a big number of purchases, interchange-plus payment processing may save you money. Discover the many forms of credit card processing fees.
Current Card Association Interchange Fees & Rates
The rates provided are solely for the United States. Other costs vary by nation, with government-mandated limitations in place in some. The EU, for example, has set interchange costs for credit cards at 0.3 percent and debit cards at 0.2 percent.
A sampling of current Visa interchange fees is shown below. These are just a few examples of typical rates. Fees will be greater for business, reward, and foreign credit cards. High-volume organizations, such as B2B firms or those handling billions of dollars in transactions, may be eligible for alternative processing levels with cheaper fees.
Recently in the news:
In April 2021, Visa modified its interchange rates and structure.
Fees for Visa Interchange in 2021
Credit performance criteria such as transactions, volume, and dispute rates are referred to as thresholds.
Visa Payments for Business-to-Business (B2B)
B2B payments include interchange fees ranging from 0.5 percent + 21 cents to 3.15 percent + 20 cents every transaction.
Interchange rates for Mastercard fluctuate every two years. Mastercard interchange costs, like Visa interchange rates, vary based on the credit card used by the customer, the transaction type, the sort of business you have, and the size of your company. The rates shown below are only a sampling of what you could see.
Interchange Fees for Mastercard in 2021
B2B Interchange Rates for Mastercard
- Credit for small businesses: There are five different rate levels. The lowest charge is a flat $1.50 for utilities, while the maximum rate is 3% Plus 10 cents for Data Rate 1 Level 5.
- Commercial debit/prepaid cards that aren’t regulated and big market credit: Rates range from 0% for rebates to 2.95 percent + 10 cents for regular fees on commercial debit and prepaid cards, as well as Large Market Credit.
- Variable interchange programs and commercial payments accounts: Commercial payment rates are calculated depending on the entire value of the transaction. Expect to pay anything from 0.70 percent for big tickets above $1 million and commercial rates for transactions under $10,000.
From 0.8 percent + 10 cents to 1.45 percent + $35, VIP pricing are available.
Discover, like Visa and Mastercard, offers a variety of prices based on the card type, transaction type, company category, and processing volume of the customer. Discover debit card interchange rates are shown below as an example.
Interchange Fees for Discover Debit Cards in 2021
Rates on Discover Credit Cards
The rates for Discover credit card transactions completed in person vary, largely dependent on the card type. The interchange fees vary from 1.56 percent to 2.3 percent plus 10 cents, with the following breakdown:
- Keyed Credit: 1.87 percent plus ten cents to 2.3 percent plus ten cents
- Recurring credit: 1.35 percent plus 5 cents to 2.3 percent plus 10 cents
- In-person Credit International: 1.65 percent –1.9 percent
- Keyed Credit International: 1.7 percent plus ten cents to 1.9 percent plus ten cents
The rates charged by American Express are determined by the industry and the quantity of the transaction.
Conclusion
Although exchange rates are inconvenient, they are essential. While interchange costs are mostly beyond your control, there are techniques to obtain the most cost-effective total rates and retain more earnings.
