What is Interchange?

Interchange reimbursement fees are essentially wholesale payment processing rates that businesses pay to the banks that issue credit cards.  It is the term used that gives the details of a schedule of fees for all credit card processing charges.

And while there are many various interchange fee categories, they are the same for all businesses and are decided on a per-transaction basis.

Credit or debit card type, transaction method, (keyed, swiped), card category, such as reward, standard, consumer for example), and more, have an impact as to which interchange category a transaction falls into.

Credit card processing services involve tiered pricing, which is a merchant services account rate structure used to assess charges. Merchant services are also referred to as bundled pricing since it allows processors to group interchange fees into general rate tiers.

Qualified, mid-qualified and non-qualified rate tiers are the most popular tiered pricing methods for credit card processing after which the pricing model is named. The terms can be shortened to “qual,” “mqual” and “nqual.”

Visa and MasterCard offer several hundred different merchant services categories.

For example, Visa uses the reimbursement fees as transfer fees between financial institutions to balance and grow the payment system for its participants.

There are categories for specific business types, such as supermarkets, retail, service stations, travel services and many more.

According to MasterCard, it derives no direct benefit from the fees and there is no incentive for MasterCard.  Both MasterCard and Visa update or change the fee schedule twice a year, in April and in October. The schedule is provided by MasterCard and Visa at each company’s web site.

According to a notable research firm, US card issuers currently make around $30 billion a year from interchange fees.

While banks create credit card processing rewards programs, merchant services do not include any benefits from the programs. Banks, however, may take advantage of services such as new cardholder acquisition or increased credit card use.

Merchant service groups, including the Merchants Payments Coalition and Merchant Bill of Rights, claim the fees are much higher than required as they have more than doubled in the last decade.

What does this mean for you?  Think of Interchange fees like taxes – you have to pay them, so you’re better off selecting a processor that uses an “Interchange Plus” pricing methodology.  That way you can see precisely what you are paying for Interchange fees (non-negotiable) and fees to your processor (negotiable).

Fitness Merchant Services always prices merchants at low “Interchange Plus” rates so they are insured the lowest, most transparent rates available.

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