What are Interchange Fees?
As a merchant, seeing the word “Fees” would not be something out of the ordinary. One fee that most merchants would not have heard a lot about is Interchange Fees. It’s important to note that Interchange Fees are also referred to as a “swipe-fee” at times.
In order to fully understand Interchange Fees it’s always helpful to clearly understand the meaning of a Merchant Service Fee (MSF).
As a merchant you’ll notice that you will have been given a MSF from your Bank. The MSF is a % fee which is taken from each of your transactions and is held by your Bank. As most of you will know, the MSF that each merchant receives will be different and is calculated according to a number of different factors such as:
Risk – The risk that is involved with your business.
This does not necessarily focus on the industry that your business operates in. Some of you may deem a high risk merchant as an adult store or a merchant selling pharmaceutics online and that’s correct. However, how about a merchant selling jewelery online? Or a merchant that offers a yearly subscription for its services? These merchants may not necessarily be in a high risk industry but there is a certain element of risk involved in processing their transactions due to the high possibility of chargebacks occurring.
Volume – This is the total revenue that you will be able to generate with your merchant facility.
Transaction Volume – This is the total number of transactions that you will process through your merchant facility.
Card Type – This refers to the different types of credit/debit cards that you will accept with your facility. How many of your transactions will come from Standard/Domestic Credit Cards? How many will come from International or Premium Credit Cards?
There are a lot of other factors that the Bank will take into account when working out a merchant’s MSF, however, let’s pay close attention to the last item on the list above – “Card Type”. So you’re probably wondering why your Bank cares about the different types of credit/debit cards you’ll be accepting? It’s all plastic – so same thing right? That, my friends would be logical. And as we all know when it comes to financial institutions, and the schemes, logic is never an option!
Just as you, the merchant, has to pay fees to your Bank, your Bank too has to pay fees to the Card Schemes (VISA, MasterCard, American Express, JCB, Diners Club). The fees that are associated with each transaction are known as Interchange Fees (or as we mentioned earlier “swipe-fees”). The Interchange fees differ depending on the industry type and card type and are subject to change whenever the Card Schemes deem necessary.
The good news is that the Interchange Fees for VISA and MasterCard are public. Please see below for the links to each of the corresponding Card Scheme Interchange Fees:
Things may make a little more sense now. If you’ve ever wondered why your Bank has a higher rate for international transactions as opposed to domestic transactions, you’ll now realize that it’s due to the Interchange Fees.
Now when someone mentions Interchange or the term “Interchange Fees” you’ll know exactly what they’re talking about. Even better, you’ll now understand the importance of this article: Retailers score in swipe fee fight with credit card giants.
For all merchants – we’ll be keeping our fingers crossed for you!