What Is an Interchange Fee?

Every acquirer dealing with interbank payments has faced interchange fees in one way or another. Any transaction with a debit or credit card is accompanied by an interchange fee to Visa, Mastercard, or other payment systems, but entrepreneurs do not always have a clear understanding of what it is, how it is calculated, and what factors influence it. Let’s deal with this issue once and for all by thoroughly dismantling the definition of interchange fees, methods of their calculation, as well as the details that can affect its amount.

Interchange fees: Definition

So, what is an interchange fee? Basically, it is a small amount that each acquirer pays for any transaction made by a customer using a debit or credit card. Another name for this process is “swipe fee”. Interchange fees are charged by Visa, Mastercard, and other payment systems. In fact, it is a fee for the system’s services, such as accepting, processing, and authorizing the transaction. In addition, interchange fees include handling charges, protection against fraud, and other associated expenses for covering the risks of electronic money institutions.

Average amount of an interchange fee

Interchange fees vary depending on the card scheme, country, and many other factors. A key point to know is that in the U.S. they are usually 2% of the transaction amount. In the EU, interchange fees are much lower and are around 0.3-0.4%. Fees can change and usually do so in the spring and fall of each year.

Interchange fees: Calculation methods

The amount of interchange fees can vary significantly and depends on many factors. On this page, we won’t go through them all but will discuss only the most common ways to calculate the swipe fee.

By card type

Card schemes aka card networks charge different fees. So the interchange fees differ between Visa and Mastercard. Also, credit and debit card interchange fees are different.

By transaction type

Different types of transactions mean different interchange fees. For example, commissions in one country with a bank will be lower than international ones. Moreover, consumer transactions will also be lower than commercial.

By business size

The smaller the business, the smaller its interchange fees will be. At the same time, large merchants can use their influence and reputation as valued customers to bargain for better terms.

Types of payment systems’ interchange fees

Both of the most common card schemes use different methods to calculate interchange fees. Let’s take a closer look at each of them.

Visa debit and credit cards interchange fees

Visa defines an interchange fee as a small percentage of the total transaction amount. This fee is set by Visa and traditionally varies depending on the type of transaction, the product involved, and the country. In Europe, this issue is regulated by the European Interchange Transaction Fee Regulation. In particular, Visa interchange fees are as follows:

Mastercard debit and credit card interchange fees

MasterCard, in turn, also has special rules that vary depending on the type of transactions, cards, and other important factors. To illustrate, let’s take a look at interbank MasterCard fees within EEA regions.

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What is the Interchange Rate Designator?

In addition to the interchange fees, there is another nuance to be considered when working with MasterCard, which is called the Interchange rate designator (IRD). This mechanism is designed to check the transaction data, its characteristics, and allow or reject the payment if the data does not match the specified number. For example, when performing transactions via the MasterCard payment system the bank puts an identifier (IRD) when sending a transaction to the payment system, which determines the amount of commission. If the interchange rates are put incorrectly (the amount of commission is understated), the transaction will be rejected and returned to the acquirer. To maximize profits it is very important to determine the optimal IRD for each transaction. This can be rather difficult to do, but with the help of special technical means, it is possible to solve this issue as well.

How Boxopay can help

Dealing with interbank fees can be difficult, but everything becomes clear and simple when you have a reliable technology partner on your side. Boxopay’s turnkey solutions for acquirers provide them with everything they need to run their businesses comfortably. Even the aforementioned IRD will not be a problem for you. If you are developing your acquiring business together with Boxopay, we will equip you with our state-of-the-art processor which will accurately and automatically calculate all interchange fees and related indicators including total swipe fee costs and IRD. Contact us now and see for yourself that a developing acquirer business can be easy, and it all depends on who you choose to walk this path with you.

FAQ

What are interchange fees in Europe?

Interchange fees vary slightly depending on the region. For example, in the United States, the fee averages approximately 2% of the transaction value. In the EU, interchange fees are capped at 0.3% of the transaction for credit card interchange fees and 0.2% for debit cards. Corporate cards have their own rules, up to no restrictions at all. This difference is due to U.S. and EU interchange fees regulations.

Do interchange rates change often?

Card associations’ interchange programs change quite often, mostly in spring and fall. So the association tries to improve acceptance and increase card issuance.  When they change rates new interchange programs are added.

Do customers pay interchange fees?

No, interchange fees are charged from the merchant’s bank account for every customer transaction. Nevertheless, merchants usually include this amount in the final price of the product, so in the end, customers pay for them anyway.

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