​​What Are Interchange Fees in Payment Processing & How Do They Work?

Interchange fees are the wholesale fee that is possessed by the banks and the credit card issuer on every transaction. This fee is important to pay with each transaction. So, when choosing a credit card provider, it is very important to select a company that offers ‘interchange plus prices.  

This pricing structure adds a small markup on wholesale rates. These rates are fair and transparent as compared to the ones that other credit card processing providers charge from their merchants.

Also, by choosing a trusted interchange plus processor, you will have complete transparency in your rate structure and you will pay a small amount over the wholesale rates. This terminology is termed interchange rates.

Interchange refers to the money that is transferred for a transaction from one bank to another. Interchange fees make up a huge portion of the cost involved in processing credit cards and are trusted by the card brands to provide an open processing system. The fees are collected by different cards and are paid to the bank which issues that card.

How Much Is The Interchange Fees? 

While it is difficult to know the exact interchange amount, there are hundreds of interchange rates, which vary with credit card brands. Also, this fee is regularly adjusted and generally ranges from 1.3% to 3.5%. You can view interchange rates, which are directly linked to credit card brands. Some brands also identify the average interchange fee.

How Does Interchange Fees Calculate?

Interchange fees are determined by various complex variables of money. This fee helps merchants simplify the cost, where credit card companies identify interchange as a flat rate plus the percentage of total sales.

What Are The Common Factors That Determine Interchange Rates?

Some of the common factors that impact the interchange rates and help lower the credit card processing fees are:

Credit Card Network: every card network has different interchange rates like MasterCard, visa, and more. Point-of-sale transactions are less risky than the other card-not-present types as the fraudsters can scan the chip type or the signatures or the pin entered. Here, both the mail-order-telephone-order and the online order are classified as the card, not present transactions, and may charge a high interchange rate.

Card Type: debit cards with pins have generally lower rates than credit cards because of their low risk. This means each credit card company will charge a unique rate. Also, the rewards cards that are paid for the perks are given to the cardholders by charging high interchange rates to the businesses. This will make customers purchase more.

Business Size And Industry: rates may vary by the type of business; for instance, you may have to pay more at the gas stations than at the banks or other businesses.

Card Process Method: cards can be keyed, swiped, tapped, or dipped, which shows how a risky card transaction may occur. For instance, a card that is swiped and shown a signature at the pos is less risky than the one that shows a CNP transaction.

Data: each transaction should contain as much as possible data to make it less risky. This means a low-risky transaction will have a lower interchange rate than the transaction that has minimum data provided by the customer card.

How Do Minimize Transaction Fees?

Most of the time, interchange fees are non-negotiable; but there are a few measures that you can take to minimize the processing fee. Also, it is important to note a few factors that you can change like merchants can adjust the amount of data to be provided after every transaction. 

Additionally, the interchange fees make the biggest cost of the processing fee, by lowering this fee will save a lot of money. Here are a few options to try to reduce the transaction fee:

Interchange Optimization: This includes the process of adjusting transaction conditions based on some of the best practices to help merchants pass the low interchange rate. Some of the best practices to lower the interchange rates are:

• Settling the card transaction

• Putting a limit on manually keyed-in transaction

• Using fraud prevention tools

Interchange Padding: interchange-padding means when a payment processor adds the additional cost in the interchange fee without telling anything to the business. The padding rates are generally listed as the interchange fees, where Payfacs and Payment facilitators pay less as interchange fees.

Verifying Merchant Category Code (MCC): Every merchant is assigned a merchant category code based on the services a business offers and its industry. Certain categories have lower interchange rates than non-profit organizations. So, make sure you check the merchant category code and pay fewer fees.

Keep Your Customer Data Secure And Save Money With Lower Interchange Rates!

Now that you know, lowering interchange rates is possible or you may contact the merchant service provider who offers flat rates for the interchange fee.