Interchange fees, which account for the majority of the processing costs on a merchant’s monthly statement, can be a mystery. Interchange rates are established by the card brands (Visa, MasterCard and Discover) and reflect the underlying costs of a credit card sale.
Let’s say a customer makes a credit card purchase of $50 at the grocery store. The bank that issued the credit card (issuing bank) then funds the $50 to the grocery store before they can collect the money from the customer. Interchange rates refer to fees paid by the merchant’s bank (acquiring bank) to the issuing bank for this service.
What Affects a Merchant’s Interchange Costs
The interchange rate for a transaction depends on the interchange category for which it qualifies. Interchange rates will always have two components: a percentage fee for the volume of the sale and a per-transaction fee.
A number of factors are used to determine the interchange rate, some of which you have some control over and some, you do not.
Factors merchants can influence include:
- Processing method: In general, card-present interchange categories carry smaller fees than card-not-present categories
- Transaction data: Proper and complete transaction data (i.e. correctly and completely filling out all the data fields) is especially important for merchants who process card-not-present transaction. This also applies to government and corporate cards.
- Merchant Category Code: Specific interchange categories exist for businesses that fall under certain MCC designations.
Factors merchants cannnot control over include:
- Card type: Separate interchange categories exist for credit and debit card transactions
- Card brand: Reward cards typically carry higher interchange fees than non-reward cards because the card-issuing bank has additional costs to recoup, such as rewards, points or airline miles
- Card owner: Cards issued to individuals, businesses, corporations and municipal agencies all qualify for varying interchange rates.
In addition to interchange fees, there are other fees that the card brands assess for the right to use their networks and systems. These card association fees can be difficult to keep track of and are based on many factors.
Does Interchange Change?
While the card brands can update interchange rates and fees at any time throughout the year, they typically do so in April and October. Here is a summary of April’s interchange modifications.
- Effective April 1, 2018, Visa modified their Fixed Acquirer Network Fee (FANF) rates for certain monthly sales volume tiers for Card Not Present Volume, Fast Food Restaurants and Unattended Terminals. Monthly Visa sales volume in excess of $200,000 was affected.
- MasterCard revised the pricing structure for the Acquirer Brand Volume Fee on signature debit transactions, as well as consumer and commercial credit volume less than $1,000.
- Discover introduced new international fee programs for consumer and commercial cards.
- Discover modified Fee Descriptors for certain fee programs.