What is Interchange & Why Do You Pay For It?
When merchants pay for payment processing, there are several fees that are included within their rate. One of these fees included is called interchange. Interchange is the term used to describe the fees that the issuing bank collects on a transaction. The issuing bank is the bank that issued the card to the customer.
The cost of interchange all varies depending on the following:
- The type of card used
- The method used to accept the card
- Different programs based on the merchant's business
Interchange is a non-negotiable cost to all merchants. Any business that accepts payments must pay this fee. When merchants review their rates from the processor, they should understand that the interchange fee goes straight to the bank. This means that they processor makes no money through this fee.
Why Do Banks Charge Interchange?
#1. Increased Risk - There are increased risks authorizing credit/debit card payments for the bank. The customers available funds and overdrafts are all the banks responsibility when it comes to processing authorizations for merchants.
#2. Enhanced Support - Customer support is required to assist in customer complaints, new card issuing and building customer confidence in purchasing using their credit and debit card.
#3. Transaction Protection - Banks provide protections on transactions including retrievals, chargebacks and fraud protection.
To refresh, interchange is the term used to describe fees that the issuing bank collects on a transaction. The issuing bank is the bank that issued the card to the customer. That would mean that the rate of interchange is determined by the issued card that the customer uses to pay.
You can determine the interchange rate using the following, depending on the type of card the customer has and how you process the payment:
Transparency is Key!
Educating merchants on the payments industry is a top priority at Redde. We want our merchants to understand their fees and what exactly they pay for. Once you understand interchange, you can then identify how much you are actually paying for processing. As mentioned before, the processor doesn't make a dime on interchange, those funds are strictly required for the bank.
If you would like to save money on your processing, please consider switching to us. We save our merchants on average 20-30% on processing compared to our competitors. Interchange might be one area that processors can't change for their merchants but we can reduce the other fees! If you are interested, let's chat!
Related Article: Hidden Fees that Payment Processors Charge Their Merchants