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What Are Interchange Fees?

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Last editedApr 20223 min read

Whenever a business takes a customer payment by credit or debit card, they have to pay an interchange fee. The amount this fee equates to will depend on a number of factors, making it difficult to ascertain in advance how much the interchange fee will be.

In this article, we’ll answer the question: what are credit card interchange fees? And take you through the current interchange fees so you can be sure you’re not paying more than necessary.

Interchange fees explained

On each occasion that a transaction is carried out via card scheme, like Visa or Mastercard, for example, the acquirer — which is the bank acquiring funds on behalf of the merchant — will pay an interchange fee to the cardholder’s bank. The business then reimburses the acquirer this interchange fee as part of its total card processing fees.

Taking card payments comes with more than just an interchange fee. Card processing actually comes with three associated fees:

  • Acquirer markup - This is charged by the acquirer for the service of acquiring funds from your customer

  • Card scheme fees - This is charged by the card scheme (Visa, Mastercard) for the privilege of using its network

  • Interchange fee - This is charged by the cardholder’s bank to the acquirer, which then charges the business.

Of the three, interchange fees comprise the most considerable sum.

What are the current interchange fees?

Interchange fees vary according to the card scheme and the region of the world you’re in. While in Europe, interchange fees are on average 0.3-0.4% of each transaction made by card, this climbs to around 2% in the United States.

Card schemes decide their interchange fees, and these cannot be negotiated. However, they are regularly updated, with both Visa and Mastercard releasing new rates bi-annually, in both April and October.

The most accurate and up-to-date way to find the current rates is to check the card scheme’s website. You can view the up-to-date interchange rates of both Visa and Mastercard through the links below:

Other popular card schemes, such as American Express and Discover don’t publish their rates online. In the case of American Express, this is because it operates independently from banks and requires each merchant to agree to accept their cards. If you decide to accept Amex cards, you will be told of the interchange rates.

How interchange fees are calculated

There are multiple factors that impact the interchange fee amount. Below are the most significant, along with information about how they affect the charges.

Card scheme

Each card scheme has their own unique interchange rates. This means the charge for a customer paying with Visa will differ to a customer paying with Mastercard.

Card-present vs. card-not-present

Card-present (CP) transactions — sometimes known as face-to-face transactions — have lower interchange fees than card-not-present (CNP) transactions. This is simply because they pose fewer fraud risks as the customer physically makes the payment and their presence serves as personal authentication. Paying by card online, on the other hand, invariably poses greater fraud risks.

Credit vs. debit cards

Both credit and deferred debit cards payments come with higher interchange fees than immediate debit and prepaid cards. Again, this is because they are considered riskier from a fraud perspective.

Merchant category code (MCC)

A merchant category code is a four-digit number used by credit card companies to categorize businesses. In other words, it indicates what kind of business you are, for example retail, supermarket, transport. Whichever MCC you are can affect your interchange fees. In the US, for instance, Visa and Mastercard offer lower rates to businesses like charities and utilities.

Consumer vs. commercial

Commercial cards, i.e., cards belonging to businesses, tend to charge higher interchange fees than consumer, i.e., individual cards.

Transaction location

Transactions which occur in the same country as the card-issuing bank are lower cost than transactions which occur across borders.

Interchange fees are a facet of business

All businesses which take customer payments by credit and debit card are liable to pay interchange fees. While any processing fees are perhaps unwelcome, the gain in exchange for being able accept credit/debit cards far exceeds the additional cost of paying interchange fees.

GoCardless has lower fees than credit cards, leading inevitably to cost savings for merchants. We offer lower cost per transaction, starting at 1% + 0.20p for self-serve domestic transactions, no hidden fees, just simple pricing.

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