Just about anyone who owns a business has heard of credit card interchange. No matter what type of merchant services account you have, you’re going to pay interchange fees as a result. And like any other fee that shows up on your credit card processing statement, understanding what exactly you’re being charged, and why, is vital.
Here are four facts about credit card interchange to help you understand how this affects both merchants and merchant acquirers:
1. Credit card interchange is a series of fees merchant acquirers pay issuing banks.
For business owners to accept credit and debit cards, they need help from a merchant services provider, or merchant acquirer. Merchant acquirers must pay interchange fees to card issuing banks, such as Bank of America, for example, based on the completed transactions made with the cards issued to consumers. Merchant acquirers, however, often cover these costs by charging their customers interchange fees. This is why business owners see an interchange fee on their credit card processing statement every month.
2. There are several factors that determine the cost of the interchange fees.
The amount of money a merchant acquirer must pay a specific card-issuing bank every month is determined by several key factors. For instance, the type of card used (i.e., debit card, rewards card or corporate card) and transaction size are two major components.
Additionally, the way a card is processed plays a role, as well. This refers to whether or not a card’s magnetic stripe or EMV chip, for example, was used to complete the purchase. This also includes whether it was an online or in-store purchase. Even the industry a transaction is made within affects the interchange.
3. The rates don’t stay the same.
Interchange rates are assessed by card associations Visa and MasterCard in April and October of each year. They therefore change on a semi-annual basis. Sometimes, they are adjusted more frequently, but the standard is every spring and fall. These modifications are based off industry-related changes, such as new regulations and/or products in the market.
4. You’ll often hear these rates being adjusted by “basis points.”
In terms of merchant services, a basis point is a measurement representing a fraction of a percentage. Because many charges to merchants are priced in terms of fractions of percentage points, nearly all credit card processing fees are described in basis points (bps).
For example: Let’s say the interchange rate associated with Discover card retail purchases using a magnetic stripe is 1.28percent. However, after this October, it will increase by 0.30 percent. This will be described as an increase by 30 bps. Furthermore, in April of next year, that rate will increase again by 1.50 percent—an increase of 150 bps.
It can be difficult to understand credit card interchange fees and rates. Consider contacting a reliable credit card processing company to find out more.