Love It or Hate It: Interchange Fees

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Interchange fees are most simply put as a fee paid between banks for the acceptance of card based transactions, and the fee is typically paid by the merchant-acquiring bank to the cardholder-issuing bank in order to cover the cost to convert the charge on a cardholder’s card to a cash deposit into a merchant’s business banking account.  These fees are set by the credit card networks.  With a complex pricing structure, interchange fees are factored by the card brand, type of credit or debit card, region, the type and size of accepting merchant and the type of transaction.

Interchange is important because it facilitates growth.  Without merchants accepting credit or debit cards, cardholders would not carry cards and without cardholders, merchants would have no incentive to accept credit or debit cards.  With it all coming full circle, the more merchants and cardholders that are part of the processing system, the higher the value that is placed on the overall system. In short, the more places that accept credit or debit cards, the more valuable it becomes to carry cards.

Interchange fees make up the majority of credit card processing expenses.  A familiarity with interchange is vital knowledge for any business owner, and how it can impact the bottom line.  Understanding the categorization of each transaction, also called interchange qualification, happens on a per-transaction basis.  There are a number of factors that determine where a transaction qualifies at interchange (processing method, transaction date, merchant category code, card type, card brand and card owner).  It is important for a merchant to ensure that the majority of transactions qualify at the lowest possible categories as often as possible.

Apex Payment Solutions can help explain the importance of interchange fees and how to optimize each transaction.  It is important for merchants to have a complete understanding of how the credit card processing world works along with a complete understanding of how to adapt a processing behavior to achieve the lowest possible interchange costs.  It is important to talk with your Apex representative to help you with interchange optimization in your business.  The more you know, the more you can save.