There's a good reason why the interchange rate is one of the least understood aspects of credit card processing-interchange is complicated! When your business processes a debit or credit transaction, you already know that you will be charged a transaction fee for that purchase. However, you might not know exactly how that fee is determined and that it's actually made up of three different fees including your payment processors margin, the card brand fee, and the interchange fee.
Calculating transaction costs in the payments industry can be complex, and even experienced merchants can have lingering questions about the interchange fee. Here are some common questions related to the interchange fee that can help you better understand the payment processing fees your business is paying.
What are Interchange Fees?
The interchange fee is the part of your transaction fee that your business will pay every time a customer completes a purchase with a credit card. It can be challenging to understand your interchange rate because it's not just a single fee that will apply to each transaction, but instead, hundreds of rates that vary depending on a multitude of factors. The type of credit card used, which card brand issued the card, what type of business you're operating, and whether the purchase was completed in-person or online all factor into what interchange rate you will be charged for a given transaction.
The interchange fee essentially covers the costs associated with processing the transaction, and the risk of processing the transaction.
Who Determines the Interchange Fee?
The interchange fees are set by the card brands (Visa, Mastercard, etc.) and each card brand will have different fees for their specific cards and individual industries. At Helcim, we share all the card brand interchange rates on our website for the sake of transparency. You can visit our website if you would like to see the interchange fee for Visa, Mastercard, Discover, or American Express.
Can Interchange Fees be Negotiated?
Interchange fees are determined by the card brand and cannot be negotiated. However, the card brands do periodically adjust the interchange fee and it can be useful to stay on top of any changes to avoid potential confusion on your statements. Visa and Mastercard will post announcements when they change the interchange fees, which usually occurs twice a year, in April and October.
Even if your payment processor is offering flat rate or tiered pricing, interchange fees are the basis of this rate, and your processor is not able to negotiate the interchange portion of your payment processing fee.
Why do Interchange Fees Exist?
Interchange fees exist to let your business accept credit cards and enjoy the benefits associated with being able to process credit and debit transactions safely and securely.
Who am I Paying the Interchange Fee to?
The interchange fee gets paid to the card-issuing bank for facilitating the transaction. Essentially what you are paying for is added security, fraud protection, and the authorization of your business's transactions in real-time.
If the Interchange Fee is Variable for Each Transaction, Why Don't My Rates Change for Each Transaction?
If your payment processor offers flat-rate pricing, then you will pay the same fee for each transaction you process. The benefit of flat-rate pricing is that it is easy to anticipate what each transaction will cost you because the rate always stays the same. Unlike interchange plus pricing, flat rate pricing means that if a customer uses a credit card that costs less to process you won't benefit from the lower interchange rate.
Are Debit and Credit Interchange Fees the Same?
The debit networks will have their own interchange fees for different cards the same way Visa and Mastercard have their own interchange fees. Debit cards often have lower fees compared to credit cards, but you will still pay a network fee to process a transaction. Check out the US PIN Debit Interchange Rates here if you're a US merchant, or the Interac Network Fees here if you're a Canadian merchant.
Ultimately, interchange fees are a part of doing business if you're going to be accepting credit cards, but the cost can be well worth it to get transactions authorized in real-time and increase your business's cash flow. Understanding why they are applied and the services they cover can help you make sense of your monthly statement and better understand the payments industry as a whole.