An interchange rate is the fee charged by a card issuer to a merchant's bank for processing a credit or debit card transaction. The fee is generally expressed as a percentage of the transaction amount.
In the United States, interchange fees are set by the major credit card networks (Visa, Mastercard, Discover, and American Express) and are paid to the card issuer. The card issuer, in turn, generally passes on the fees to the merchant's bank.
In recent years, interchange fees have come under scrutiny by merchants and lawmakers who argue that the fees are too high and unfairly burden businesses that accept credit and debit cards.
What are the average interchange rates?
Interchange rates vary depending on the type of card being used and the type of transaction. For example, interchange rates for business-to-business (B2B) transactions are generally lower than those for business-to-consumer (B2C) transactions.
According to a study by The Nilson Report, the average interchange rate for credit card transactions in the United States was 1.51% in 2015. The average interchange rate for debit card transactions was 0.95%.
What are the highest and lowest interchange rates?
The highest interchange rate is 3.50%, which is charged on American Express cards issued by banks outside of the United States. The lowest interchange rate is 0.20%, which is charged on debit card transactions processed through the Visa Interlink network.
What factors affect interchange rates?
There are several factors that can affect interchange rates, including:
- The type of card being used (e.g., credit vs. debit)
- The type of transaction (e.g., business-to-business vs. business-to-consumer)
- The country in which the card is issued
- The country in which the transaction is processed
- Whether the cardholder is present at the time of the transaction (e.g., online vs. in-person)
What are some ways to reduce interchange fees?
There are a few ways that businesses can reduce the amount of interchange fees they pay, including:
- Offering discounts for cash payments: This can incentivize customers to pay with cash, which has a lower interchange rate than credit or debit cards.
- Offering discounts for using lower-interchange cards: This can incentivize customers to use cards with lower interchange rates, such as debit cards.
- Optimizing billing practices: This can help ensure that transactions are processed in the most efficient way possible and minimize the chance of errors, which can lead to higher interchange fees.
Interchange fees are an important part of the credit and debit card ecosystem. By understanding how they work, businesses can take steps to reduce the amount of interchange fees they pay.
Do you have any questions about interchange rates? Let us know in the comments below.
This article was provided by Chargebee, a subscription management and recurring billing software company. Chargebee helps businesses automate their recurring billing and subscription management processes. For more information, visit www.chargebee.com.